Rekor Systems, Inc. — financial distress indicators

Interest coverage (EBIT / interest) is -10.86×.

When EBIT < interest, debt service is funded from cash reserves or new borrowing — the classic precursor to payment default and covenant breach.

At the current free-cash-flow burn, cash covers ~8 months.

Going-concern standard: management must assess ability to continue for 12 months (ASC 205-40). Runway below that horizon forces dilution, asset sales or default.

Merton distance-to-default -0.07 σ → PD 53%.

Structural (Merton/KMV) model: equity is a call option on assets; low distance-to-default means assets are close to the default point.

Net income negative in 3 of 3 fiscal years.

Persistent losses erode equity and the capacity to absorb shocks.

Debt is 37% of assets while EBITDA is not positive.

With no operating earnings, repayment depends entirely on asset sales or fresh capital.

Operating cash flow negative in 3 of the last 3 years.

A business that cannot fund itself from operations depends on external capital to survive.

Price is -90% from its 52-week high.

Equity markets price distress early; collapses of this size usually reflect fear of wipe-out in a restructuring.

O-score 2.90 → model probability 95%.

Ohlson (1980) logit model of 1-year corporate failure; O > 0 (p > 50%) is the original failure cut-off.

Current ratio is 0.87.

Short-term obligations exceed short-term resources — the company relies on rolling over credit.

Last price $0.33.

Below the $1 minimum-bid listing standard (Nasdaq Rule 5550(a)(2) / NYSE 802.01C); sustained breach leads to delisting and loss of capital-market access.

Short-term debt is 2.4× cash on hand.

Maturity wall: debt due within a year must be refinanced, which is the most common proximate cause of filings.

Share count up +31% in a year.

Large issuance usually funds operating losses rather than growth.