☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, ~~2017,~~2023 the registrant had ~~9,646,416~~12,720,608 shares of common stock, $0.005 par value per share, outstanding.

Item 1. Condensed ~~Consolidated~~Consolidated Financial Statements ~~(Unaudited)~~

December 31,

September 30,

2016

2017

(Unaudited)

Assets

Current assets

Cash and cash equivalents

$
3,865

$
19,255

Accounts receivable

2,410

5,987

Prepaid expenses and other current assets

567

859

Restricted cash

30

30

Total current assets

6,872

26,131

Property and equipment, net

8,959

10,640

Intangible assets, net

66

88

Other assets

220

151

Total assets

$
16,117

$
37,010

Liabilities and Stockholders' (Deficit) Equity

Current liabilities

Accounts payable

$
1,336

$
1,765

Deferred revenue, short-term

10,863

15,902

Accrued expenses and other current liabilities

2,359

2,795

Notes payable, net of current maturities

667

—

Total current liabilities

15,225

20,462

Notes payable, net of current maturities and unamortized debt issuance costs

11,012

—

Convertible preferred stock warrant liability

1,875

—

Deferred revenue, long-term

3,112

2,477

Other liabilities

24

85

Total liabilities

31,248

23,024

Commitments and contingencies (Note 13)

Series B-1 convertible preferred stock

22,075

—

Series A-2 convertible preferred stock

20,000

—

Stockholders' (deficit) equity:

Common stock

8

47

Additional paid-in capital

30,403

109,054

Accumulated deficit

(87,615
)

(95,092
)
Accumulated other comprehensive loss

(2
)

(23
)
Total stockholders' (deficit) equity

(57,206
)

13,986

Total liabilities and stockholders' (deficit) equity

$
16,117

$
37,010

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2017

2016

2017

Revenues

$
3,977

$
6,846

$
10,956

$
17,244

Costs

Cost of revenues

2,400

2,791

7,031

8,154

Impairment of property and equipment

—

666

—

666

Total costs

2,400

3,457

7,031

8,820

Gross profit

1,577

3,389

3,925

8,424

Operating expenses

Sales and marketing

1,098

1,792

3,434

4,269

Research and development

1,007

1,063

3,193

3,024

General and administrative

568

1,305

1,674

3,206

Total operating expenses

2,673

4,160

8,301

10,499

Operating loss

(1,096
)

(771
)

(4,376
)

(2,075
)
Other expense, net

Remeasurement of convertible preferred stock warrant
   liability

(98
)

—

(649
)

(3,725
)
Loss on early extinguishment of debt

—

(479
)

—

(479
)
Interest expense, net

(345
)

(358
)

(955
)

(1,167
)
Other expense, net

—

(3
)

(16
)

(31
)
   Total other expense, net

(443
)

(840
)

(1,620
)

(5,402
)
Net loss

$
(1,539
)

$
(1,611
)

$
(5,996
)

$
(7,477
)
Net loss per share, basic and diluted

$
(0.96
)

$
(0.17
)

$
(3.75
)

$
(1.49
)
Weighted average shares used in computing net loss per
   share, basic and diluted

1,602,254

9,619,659

1,598,285

5,016,825

Nine Months Ended

September 30,

2016

2017

Cash flows from operating activities:

Net loss

$
(5,996
)

$
(7,477
)
Adjustments to reconcile net loss to net cash provided by
   operating activities:

Depreciation and amortization

1,876

2,274

Impairment of property and equipment

—

666

Stock-based compensation

57

306

Amortization of debt issuance costs

97

132

Remeasurement of convertible preferred stock warrant liability

649

3,725

Loss on early extinguishment of debt

—

479

Provision for doubtful accounts

—

140

Changes in operating assets and liabilities:

Accounts receivable

(1,016
)

(3,735
)
Prepaid expenses and other assets

(84
)

(263
)
Accounts payable

148

429

Accrued expenses and other current liabilities

860

486

Deferred revenue

5,152

4,398

Net cash provided by operating activities

1,743

1,560

Cash flows from investing activities:

Purchase of property and equipment

(3,112
)

(4,547
)
Investment in intangible and other assets

(43
)

(55
)
Net cash used in investing activities

(3,155
)

(4,602
)
Cash flows from financing activities:

Proceeds from initial public offering, net of commissions and discounts

—

32,426

Proceeds from notes payable

2,000

1,500

Repayment of notes payable

—

(13,500
)
Payment of debt issuance costs

(17
)

(30
)
Payment of debt extinguishment costs

—

(149
)
Payments of offering costs

—

(1,858
)
Proceeds from exercise of stock options

21

41

Net cash provided by financing activities

2,004

18,430

Increase in cash and cash equivalents

592

15,388

Effect of exchange rate on cash and cash equivalents

22

2

Cash and cash equivalents at beginning of year

4,124

3,865

Cash and cash equivalents at end of period

$
4,738

$
19,255

Supplemental cash flow disclosures:

Cash paid for interest

$
853

$
1,235

Supplemental disclosure of non-cash financing activities:

Conversion of convertible preferred stock into common stock

$
—

$
42,075

Reclassification of convertible preferred stock warrant liability into additional
   paid-in capital

$
—

$
5,711

Issuance of warrants in connection with the issuance of notes payable to a
   financial institution

$
—

$
111

Deferred offering costs included in accounts payable and accruals

$
—

$
13

Note 1. Organization and Description of Business

In April 2023, ShotSpotter, Inc. changed its name to SoundThinking, Inc. (the “Company”) ~~provides~~, reflecting its broader impact on public safety through a growing set of industry-leading law enforcement tools and community-focused solutions. As part of the rebrand, the Company introduced its SafetySmart™ Platform that includes four data-driven tools including its flagship product, ShotSpotter® (formerly ShotSpotter Respond), the leading outdoor gunshot detection, ~~solutions that help~~location and alerting system trusted by 164 cities and 18 universities and corporations as of September 30, 2023. CrimeTracer™ (formerly COPLINK X) is a leading law enforcement ~~officials~~search engine that enables investigators to search through more than 1 billion criminal justice records from across jurisdictions to generate tactical leads and ~~security personnel identify, locate~~quickly make intelligent connections to solve crimes. CaseBuilder™ (formerly ShotSpotter Investigate) is a one-stop investigative management system for tracking, reporting, and ~~deter gun violence.~~collaborating on cases. ResourceRouter™ (formerly ShotSpotter Connect) directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety. The Company offers its ~~software~~ solutions on a ~~SaaS-based~~software-as-a-service subscription model to its customers. SoundThinking Labs supports innovative uses of the Company's technology to help protect wildlife and the environment. Additionally, the Company provides maintenance and support services and professional software development services to a single customer, through a sales channel intermediary. In August 2023, the Company acquired SafePointe, LLC ("SafePointe"), adding an AI-based weapons detection product offering to the Company's SafetySmart Platform.

The Company’s principal executive offices are located in ~~Newark,~~Fremont, California. The Company has ~~one subsidiary, ShotSpotter (Pty) Ltd. formed in South Africa.~~

~~Note 2. Initial Public Offering~~

In June 2017, the Company completed its initial public offering (“IPO”) in which the Company sold 3,220,000 shares of its common stock at a price of $11.00 per share. The Company received net proceeds of $32.4 million, excluding underwriting discounts and commissions, which was recorded to additional paid-in capital. The Company’s common stock commenced trading on the NASDAQ Capital Market on June 7, 2017 under the trading symbol “SSTI.”

Immediately prior to the IPO, all outstanding Series B-1 convertible preferred stock warrants were remeasured at fair value using the Black-Scholes model, resulting in a loss of $3.7 million, which was recorded in other expense, net.seven wholly-owned subsidiaries.

Upon the closing of the IPO, the entire balance of $5.7 million in convertible preferred stock warrant liability was reclassified to additional paid-in capital. All preferred stock warrants were converted into common stock warrants. In addition, the Company issued to the lead underwriter in the IPO a warrant to purchase up to 84,000 shares of its common stock. See Note 11, ~~Convertible Preferred Stock Warrants and Common Stock Warrants, for further details regarding the warrants.~~

Upon the closing of the IPO, all shares of the then-outstanding convertible preferred stock were converted into 4,689,753 shares of common stock. This resulted in a reclassification of $42.1 million to additional paid-in capital.

~~Offering costs incurred by the Company were approximately $1.9 million, excluding underwriting commissions and discounts, which was recorded to additional paid-in capital.~~

Note 3.2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying ~~unaudited~~ condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. ~~Therefore, these~~The condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements ~~and notes included in the final prospectus~~ filed with the ~~SEC pursuant to Rule 424(b)(4) under~~Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”) filed with the Securities ~~Act of 1933,~~and Exchange Commission on ~~June 8, 2017 (the “Prospectus”).~~March 14, 2023.

The condensed consolidated balance sheet as of December 31, 2016, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.

In the opinion of management, the accompanying ~~unaudited~~ condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive ~~loss~~income (loss), stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year ~~2017~~2023 or any future period.

~~June 2017 Amended and Restated Certificate~~ The Company has evaluated subsequent events occurring after the date of ~~Incorporation~~

~~Prior to~~ the IPO, the Company’s Board of Directors (the “Board”) and stockholders approved an amendment (the “Charter Amendment”) to the Pre-IPO Certificate (as defined below) and an amended and restated certificate of incorporation (“Post-IPO Certificate”) that became effective on June 12, 2017. The Charter Amendment increased the number of authorized shares of common stock from 8,600,000 to 500,000,000. Under the Post-IPO Certificate, the Company is authorized to issue two classes of stock to be designated Common Stock and Preferred Stock. See Note 9, ~~Capital Stock, for further details regarding these classes of stock.~~

~~March 2017 Amendment and Restatement of Certificate of Incorporation~~

On March 27, 2017, the Company’s Board and stockholders approved an amendment and restatement of the Company’s then-existing certificate of incorporation (as so amended and restated, the “Pre-IPO Certificate”) to provide, among other changes, that each share of Series A-2 convertible preferred stock would automatically convert into 0.715548 shares of common stock upon the consummation of an initial public offering of the Company’s capital stock. All share and per share data related to balance sheet and net loss information in the accompanying condensed consolidated financial statements and their related notes have been retroactively adjusted to give effect to the application of this conversion feature when presenting the Series A-2 convertible preferred stock on an as-converted basis.

~~The Pre-IPO Certificate also provided~~ for ~~(1) an increase~~events requiring recording or disclosure in the total number of authorized shares to 14,550,000 and (2) an increase in the number of authorized shares of common stock to 8,600,000, in each case to accommodate the new conversion feature for the outstanding shares of Series A-2 convertible preferred stock.

~~Reverse Stock Split and Amendment to Certificate of Incorporation~~

In December 2016, the Board and stockholders approved an amendment and restatement of the Company’s then amended and restated certificate of incorporation to effect a one-for-17 reverse stock split of the outstanding shares of the Company’s capital stock, such that each 17 shares of capital stock issued and outstanding, automatically and without any action on the part of the respective holders thereof, combined into one share of the same class and series of capital stock.

~~All share and per share data in the accompanying~~ condensed consolidated financial ~~statements and their related notes for all periods presented have been retroactively adjusted to give effect to the reverse stock split.~~statements.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates, including the valuation of accounts receivable, the lives and realization of tangible and intangible assets, contingent consideration liabilities, stock-based compensation expense, ~~preferred stock warrant liabilities, and~~customer life, accounting for revenue recognition, contingent liabilities related to legal matters, and income ~~taxes.~~taxes including deferred taxes and any related valuation allowance. In particular, the Company's contingent consideration liabilities are subject to significant estimates surrounding forecasts of certain revenues and other factors. Management bases its estimates on historical experience and on various

other market-specific and relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the Company’s financial position and results of operations.

~~Significant Accounting Policies~~

~~Except for~~The Company records net deferred tax assets to the ~~changes described below, there have been no changes~~extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the ~~Company’s significant accounting policies for~~future in excess of their net recorded amount, the ~~three and nine months ended September 30, 2017 as compared~~Company makes an adjustment to the ~~significant accounting policies described~~deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Concentrations of Risk

Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts receivable from trade customers. The Company maintains its deposits of cash and cash equivalents at three domestic and four international financial institutions. The Company is exposed to credit risk in the ~~Prospectus.~~

~~Accounts receivable consist~~event of ~~trade accounts receivables from~~default by a financial institution to the ~~Company’s customers, net~~extent that cash and cash equivalents are in excess of ~~allowance for doubtful accounts if deemed necessary. Accounts receivables are recorded at~~ the ~~invoiced amount.~~amount insured by the Federal Deposit Insurance Corporation ("FDIC") and other local country government agencies. The Company ~~does not require collateral or other security for accounts receivable. The Company periodically evaluates the collectability of~~generally places its ~~accounts receivable~~cash and ~~provides an allowance for potential credit losses based on the historical experience. At~~

~~December 31, 2015 and 2016~~cash equivalents with high-credit quality financial institutions. To date, the Company ~~did~~has not ~~have an allowance for potential credit~~experienced any losses ~~as there were no estimated credit losses.~~on its cash and cash equivalents. As of September 30, ~~2017~~2023, the ~~allowance~~Company had $4.3 million and $0.4 million deposited with two of the Company's three domestic financial institutions, for ~~doubtful accounts was $0.1 million.~~which only $250,000 per bank is insured under FDIC limits.

~~Concentrations of Risk~~

Concentration of Accounts Receivable ~~–At December 31, 2016, three~~ and Contract Assets – At September 30, 2023, two customers accounted for ~~27%, 16%~~13% and ~~11%~~12% of the Company’s ~~accounts receivable. Fluctuations in~~total accounts receivable ~~result from timing~~and contract assets, net. At December 31, 2022, two customers accounted for 23% and 17%, respectively, of the Company’s ~~execution of contracts~~total accounts receivable and ~~collection of related payments. At September 30, 2017, three customers accounted for 24%, 12% and 11% of the Company’s accounts receivable.~~contract assets, net.

Concentration of Revenues ~~–For~~ – For the three months ended September 30, ~~2016,~~ 2023, two customers accounted for ~~13%~~24% and ~~12%~~9% of the Company’s total revenues. For the three months ended September 30, 2022, two customers accounted for 26% and 11% of the Company’s total revenues. For the nine months ended September 30, ~~2016,~~ 2023, two ~~customers each accounted for 12% of the Company’s total revenues. For the three months ended September 30, 2017, two~~ customers accounted for ~~17%~~25% and ~~14%~~9% of the Company’s total revenues. For the nine months ended September 30, ~~2017,~~ 2022, two customers accounted for ~~18%~~32% and ~~10%~~10% of the Company’s total revenues.

Concentration of Suppliers–The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole manufacturer of the Company’s proprietary sensors.

During the three and nine months ended September 30, 2023, there were no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. except as follows:

Recent Accounting Pronouncements ~~Recently~~Not Yet Adopted

In ~~March 2016,~~October 2023, the Financial Accounting Standards Board (“FASB”) issued ~~Accounting Standards Update (“ASU”) 2016-09,~~ ASU 2023-06, Disclosure Improvements ~~to Employee Share-Based Payment Accounting~~, which ~~requires all excess tax benefits~~included a number of amendments to clarify or improve disclosure and tax deficiencies associated with share-based payments to be recognized as income tax expense or income tax benefit, respectively, rather than as additional paid-in capital. The amendments also increase the amount an employer can withholdpresentation requirements of a variety of topics in order to ~~cover income taxes on awards,~~ allow ~~companies~~users to ~~recognize forfeitures of awards as they occur~~more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and ~~require companies to present excess tax benefits from stock-based compensation as an operating activity~~align the requirements in the ~~statement of cash flows rather than as a financing activity. The method of adoption varies~~FASB accounting standard codification with the ~~different aspects of this ASU.~~SEC's regulations. The ~~Company adopted this ASU as of January 1, 2017. The adoption of this ASU did not have any impact~~effective date for each amendment will be the date on ~~the Company’s condensed consolidated financial statements.~~

~~Recent Accounting Pronouncements Not Yet Effective~~

~~In May 2014, the FASB issued Accounting Standards Codification (“ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers~~ ~~(“Topic 606”). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that reflects the consideration to~~ which the entity expects to be entitled in exchange for goods and services. The standard will replace most existing revenue recognition guidance under U.S. GAAP. Topic 606 is effective for the Company as of January 1, 2018, and permits the use of either a retrospective or a modified retrospective method. The company currently anticipates using the modified retrospective method.

Topic 606 requires the Company to assess whether the subscription and setup services included in the contractual arrangements are distinct in the context of the subscription contract or whether they are considered highly interrelated and represent a single combined performance obligation that should be recognized ratably over time. The actual revenue recognition treatment required under the new standard for these arrangements may be dependent on contract-specific terms, which could vary in some instances. While the Company continues to assess all potential impacts of the new standard, the Company believes significant impacts will relate to the capitalization of sales commissions and the recognition of interest expense when there is a significant financing component in a contract. Under the new standard, costs incremental to obtaining a contract with a customer, such as sales commissions, are capitalized as assets and amortized. When there is a significant financing component in a contract, the transaction price to account is adjusted for the time value of money. The objective when adjusting the transaction price for a significant financing component is to recognize revenue at an amount that reflect what the cash selling price of the promised good or service would have been if the customer had paid cash at the same time as controlSEC’s removal of that ~~good~~related disclosure requirement, from Regulation S-X or ~~service transferred to the customer. The Company will continue to assess the impact of Topic 606 on its condensed consolidated financial statements.~~

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~, which provides targeted improvements to the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. Specific accounting areas addressed include equity investments and financial liabilities reported under the fair value option and valuation allowance assessment resulting from unrealized losses on available-for-sale securities. This ASU also changes certain presentation and disclosure requirements for financial instruments. This ASU is to be applied by means of a cumulative effect adjustment to the

~~balance sheet as of the beginning of the fiscal year of adoption. This ASU is~~Regulation S-K becomes effective, ~~for the Company as of January 1, 2018. Early~~with early adoption ~~with certain exceptions, is not permitted. The Company does not expect adoption of this ASU to have any impact on its condensed consolidated financial statements.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, which requires lessees to recognize right-of-use assets and corresponding liabilities for all leases with an initial term in excess of 12 months. This ASU is to be adopted using a modified retrospective approach, including a number of practical expedients, that requires leases to be measured and recognized under the new guidance at the beginning of the earliest period presented. This ASU is effective for the Company as of January 1, 2019. Early adoption is permitted.prohibited. The Company is currently evaluating the ~~effect this ASU will have~~provisions of the amendments and the impact on its future condensed consolidated financial ~~statements~~statements.

Note 3. Revenue Related Disclosures

The changes in deferred revenue were as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Beginning balance	$	38,995		$	35,755		$	43,720		$	26,709
Deferred revenues acquired (Note 4 - Acquisitions)		557			—			557			5,382
New billings		22,351			19,677			59,809			64,381
Revenue recognized during the year from beginning balance		(14,284	)		(12,707	)		(33,357	)		(25,492	)
Revenue recognized during the year from new billings		(9,273	)		(5,753	)		(32,383	)		(34,010	)
Foreign currency impact		—			(3	)		—			(1	)
Ending balance	$	38,346		$	36,969		$	38,346		$	36,969

The following table presents remaining performance obligations for contractually committed revenues as of September 30, 2023 (in thousands):


Remainder of 2023	$	22,506
2024		55,249
2025		26,352
Thereafter		13,576
Total	$	117,683

The timing of certain revenue recognition included in the table above is based on estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of September 30, 2023 and ~~related disclosures.~~amounts under contract that will be invoiced after September 30, 2023.

During the three months ended September 30, 2023, the Company recognized revenues of $23.5 million from customers in the United States, and $0.5 million from customers in the Bahamas and South Africa. During the nine months ended September 30, 2023, the Company recognized revenues of $65.3 million from customers in the United States, and $1.4 million from customers in the Bahamas and South Africa.

During the three months ended September 30, 2022, the Company recognized revenues of $18.6 million from customers in the United States, and $0.2 million from customers in the Bahamas and South Africa. During the nine months ended September 30, 2022, the Company recognized revenues of $59.3 million from customers in the United States, and $0.7 million from customers in the Bahamas and South Africa.

During the three months ended September 30, 2023, the Company recognized revenues of $22.5 million from monthly subscription, maintenance and support services, and $1.5 million from professional software development services. During the nine months ended September 30, 2023, the Company recognized revenues of $63.0 million from monthly subscription, maintenance and support services, and $3.7 million from professional software development services.

During the three months ended September 30, 2022, the Company recognized revenues of $18.2 million from monthly subscription, maintenance and support services, and $0.6 million from professional software development services. During the nine months ended September 30, 2022, the Company recognized revenues of $55.1 million from monthly subscription, maintenance and support services, and $4.9 million from professional software development services.

Note 4. Acquisitions

SafePointe, LLC

During the third quarter of 2023, the Company completed the acquisition of 100% of the membership interests in SafePointe for purchase consideration of $11.4 million in cash, subject to working capital adjustments, of which $1.1

million is indemnification escrow cash, and $11.2 million in the form of 549,579 shares of the Company's common stock based on the closing price on the date of acquisition, of which $1.1 million is indemnification escrow stock. The purchase consideration also included a contingent earnout payable based on SafePointe’s revenues generated during 2023 through 2025. The Company borrowed $7.0 million under the Umpqua Credit Agreement (See Note 13, Financing Arrangements) to partially fund the purchase consideration. The acquisition date fair value of the contingent earnout was $3.0 million, resulting in a total purchase consideration of $25.6 million. Up to $11.5 million in earnout will be payable based on SafePointe’s revenues generated during the remainder of 2023 and during the years ended December 31, 2024 and 2025. The SafePointe acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations. The acquisition allows the Company to enter the AI-based weapons detection market.

The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date (in thousands):


Cash and cash equivalents	$	394
Accounts receivable and contract assets, net		1,412
Property and equipment, net		717
Customer relationships		2,500
Software technology		9,200
Tradename		1,100
Goodwill		10,757
Other assets		101
Accrued expenses and other current liabilities		(52	)
Deferred revenue		(557	)
Total estimated consideration	$	25,572

The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of SafePointe and primarily represents the value of cash flows from future customers and the employee workforce. The Company expects to deduct the ~~asset leased under its headquarters office operating lease~~amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will ~~be capitalized on~~commence upon settlement of contingent consideration liabilities. The Company valued the ~~balance sheet upon adoption~~intangible assets using income-based approaches. Significant assumptions included forecasts of ~~ASU.~~revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at 20.9%, reflecting the risk profile of the assets.

~~In August 2016,~~The Company will amortize the ~~FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~: ~~Classification of Certain Cash Receipts~~acquired customer relationships for 12 years, the acquired software technology for 11 years and ~~Cash Payments, addressing eight specific cash flow issues in an effort to reduce diversity in practice. This ASU is effective~~the acquired tradename for nine years.

Acquisition-related expenses were $0.7 million and $0.2 million for the three and nine months ended September 30, 2023, respectively, and are included in general and administrative expense.

The unaudited pro forma combined revenue and net income presented below have been prepared as if the Company ~~as of~~had acquired SafePointe on January 1, ~~2018. Early adoption~~2022 and is ~~permitted.~~for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2022. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the Company ~~does not expect adoption~~and SafePointe for the below period. The historical financial information has been adjusted in the unaudited combined pro forma information based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a ~~material~~continuing impact on ~~its condensed consolidated statements of cash flows.~~the Company.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~. The guidance requires entities to recognize the income tax impact of an inter-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. This ASU is effectiveunaudited pro forma combined revenue for the three and nine months ended September 30, 2023 would have been $24.3 million and $67.9 million, respectively. The unaudited pro forma combined revenue for the three and nine months ended September 30, 2022 would have been $19.0 million and $60.6 million, respectively. The unaudited pro forma combined net loss for the three and nine months ended September 30, 2023 would have been $2.3 million and $7.8

million, respectively. The unaudited pro forma combined net income for the three and nine months ended September 30, 2022 would have been $3.5 million and $6.0 million, respectively.

Intellectual Property

The Company entered into an agreement to purchase patents, source codes and a customer list for $0.5 million in cash and $0.1 million in the form of 4,638 shares of the Company’s common stock, based on the closing price on the date of acquisition. Acquisition-related expenses of $0.1 million were capitalized in accordance with ASC 805-50, Asset Acquisitions.

Forensic Logic, LLC

During the first quarter of 2022, the Company completed the acquisition of 100% of the membership interests in Forensic Logic, LLC (“Forensic Logic”) for purchase consideration of $4.9 million in cash, subject to working capital adjustments, and $14.3 million in the form of 464,540 shares of the Company's common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent earnout payable based on Forensic Logic’s revenues generated during 2022 and 2023. The acquisition date fair value of the contingent earnout was $12.4 million, resulting in a total purchase consideration of $31.6 million. The Forensic Logic acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations.

The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of ~~January 1, 2018. Early adoption is permitted. The Company does not expect adoption of this ASU to have any impact on its condensed consolidated financial statements.~~

~~In November 2016,~~ the ~~FASB issued ASU 2016-18,~~ ~~Restricted Cash, which requires that a statement~~acquisition date (in thousands):


Cash and cash equivalents	$	303
Accounts receivable and contract assets, net		220
Property and equipment, net		200
Operating lease right-of-use assets		1,893
Software technology		7,140
Tradename		1,000
Customer relationships		8,400
Goodwill		20,155
Other assets		186
Accrued expenses and other current liabilities		(635	)
Operating lease liabilities		(1,893	)
Deferred revenue		(5,382	)
Total estimated consideration	$	31,587

Goodwill primarily represents the value of cash flows ~~explain~~from future customers and the ~~change during~~employee workforce. The Company expects to deduct the ~~period in~~amortization of goodwill and intangible assets for tax purposes. A portion of the ~~total~~amortization deduction will commence upon settlement of contingent consideration liabilities. The Company valued the intangible assets using income-based approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconcilingflows at 24%, reflecting the ~~beginning-of-period and end-of-period total amounts shown on~~risk profile of the ~~statement of cash flows. This ASU is effective~~assets.

Acquisition-related expenses totaled $0.1 million for the ~~Company as of January 1, 2018. Early adoption~~nine months ended September 30, 2022, which is ~~permitted, including adoption~~included in an interim period as of the beginning of an annual reporting period for which interim or annual financial statements have not been issued or made available for issuance. The Company does not expect adoption of this ASU to have any impact on its condensed consolidated financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Scope of Modification Accounting~~, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718, ~~Compensation – Stock Compensation. This ASU is effective for the Company as of January 1, 2018. The~~ ~~Company does not expect adoption of this ASU to have any impact on its condensed consolidated financial statements.~~

~~In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives~~general and ~~Hedging (Topic 815).~~ The amendments in Part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this ASU are effective for the Company as of January 1, 2019. The amendments in Part II of this ASU replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. The amendments in Part II of this ASU do not require any transition guidance. The Company is currently evaluating the effect this ASU will have on its condensed consolidated financial statements.administrative expense.

Note 4.5. Fair Value Measurements

~~Prior to~~In November 2020, the ~~IPO,~~Company estimated the ~~Company’s convertible preferred stock warrant~~fair value of the contingent consideration liability ~~was measured on a recurring basis and~~associated with its acquisition of LEEDS, LLC (“LEEDS”). This fair value measurement was classified ~~within~~as Level III ofwithin the fair value hierarchy ~~because some~~as prescribed by Accounting Standards Codification 820-10-35-37 ("ASC 820, Fair Value Measurement"). In May 2023, the Company renamed LEEDS to Technologic Solutions, LLC (“Technologic”). During the first quarter of 2023, the Company paid the $1.5 million Technologic contingent consideration balance, in full settlement of its obligations under the purchase agreement.

In January 2022, the Company estimated the fair value of the ~~inputs used~~contingent consideration liability associated with its acquisition of Forensic Logic to be $12.4 million as of the acquisition date, using a Monte Carlo simulation approach. This fair value measurement is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement. During the year ended December 31, 2022, and the nine months ended September 30, 2023, the fair value of the contingent consideration was decreased by $9.2 million and $0.9 million, respectively, based upon revised estimated 2022 and 2023 revenue targets due to delays in certain expected contracts by a small number of significant potential customers and smaller renewals.

In August 2023, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of SafePointe to be $3.0 million as of the acquisition date, using a Monte Carlo simulation approach. This fair value measurement ~~were~~is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement.

~~neither directly or indirectly observable.~~ The ~~valuation methodology and underlying assumptions~~changes in the fair value ~~determination~~of contingent consideration liabilities for the nine months ended September 30, 2023 and 2022 are ~~discussed in Note 3,~~ ~~Summary of Significant Accounting Policies, and Note 11,~~ ~~Convertible Preferred Stock Warrants, to the consolidated financial statements included in the Prospectus.~~ as follows (in thousands):


	Nine Months Ended September 30,
	2023			2022
Beginning balance	$	4,746		$	1,500
Payment of contingent consideration liability		(1,500	)		—
Contingent consideration - Forensic Logic (Note 4 - Acquisitions)		—			12,400
Contingent consideration - SafePointe (Note 4 - Acquisitions)		2,994			—
Change in fair value of contingent consideration		(923	)		(8,842	)
Ending balance	$	5,317		$	5,058

Immediately prior to the IPO, the convertible preferred stock warrant liability was remeasured to fair value, resulting in a loss of $3.7 million which was recorded in other expense, net. Upon the closing of the IPO, the entire balance of $5.7 million in convertible preferred stock warrant liability was reclassified to additional paid-in capital.

There were no transfers into or out of Level III during the three and nine months ended September 30, ~~2017. The changes~~2023 and 2022. As of September 30, 2023, the Forensic Logic contingent consideration of $2.3 million is included in accrued expenses and other current liabilities and the SafePointe contingent consideration of $3.0 million is included in other liabilities in the ~~fair value of the convertible preferred stock warrant liability are summarized below~~condensed consolidated balance sheet.

Note 6. Goodwill

The change in goodwill is as follows (in thousands):


	September 30,		December 31,
	2023		2022
Beginning balance	$	22,971	$	2,816
Acquisition of Forensic Logic (Note 4 - Acquisitions)		—		20,155
Acquisition of SafePointe (Note 4 - Acquisitions)		10,757		—
Ending balance	$	33,728	$	22,971

Fair Value
Measurements at
Reporting Date
Using Level III Inputs

Fair value at December 31, 2016

$
1,875

Issuance of convertible preferred stock warrants

111

Change in fair value recorded in other expense, net

3,725

Reclassification of unexercised warrant into
additional paid-in capital upon the IPO

(5,711
)
Fair value at September 30, 2017

$
—

Intangible assets ~~net, consisted~~consist of the following (in thousands):


	September 30, 2023
	Gross		Accumulated Amortization			Net
Customer relationships	$	25,470	$	(4,005	)	$	21,465
Acquired software technology		16,340		(1,771	)		14,569
Patents and intellectual property		1,959		(1,180	)		779
Tradename		2,100		(1,015	)		1,085
Total intangible assets, net	$	45,869	$	(7,971	)	$	37,898

December 31, 2016

Gross

Accumulated
Amortization

Net

Patents

$
873

$
(807
)

$
66


	December 31, 2022
	Gross		Accumulated Amortization			Net
Customer relationships	$	22,970	$	(2,760	)	$	20,210
Acquired software technology		7,140		(1,015	)		6,125
Patents		1,227		(1,133	)		94
Tradename		1,000		(111	)		889
Total intangible assets, net	$	32,337	$	(5,019	)	$	27,318

September 30, 2017

Gross

Accumulated
Amortization

Net

Patents

$
929

$
(841
)

$
88

~~Amortization~~Intangible amortization expense was ~~$10,000~~approximately $0.8 million and ~~$12,000~~$3.0 million for the three ~~months ended September 30, 2016~~ and ~~2017, respectively, and $27,000 and $34,000 for the~~ nine months ended September 30, ~~2016~~2023, respectively. The $1.0 million tradename acquired from Forensic Logic related to COPLINK X was abandoned as a result of the rebranding to CrimeTracer that occurred in April 2023, and ~~2017,~~is fully amortized as of September 30, 2023. Intangible amortization expense was approximately $0.7 million and $2.1 million for the three and nine months ended September 30, 2022, respectively.

The following table presents future intangible asset amortization as of September 30, 2023 (in thousands):


Remainder of 2023	$	963
2024		3,841
2025		3,823
2026		3,783
2027		3,770
Thereafter		21,718
Total	$	37,898

Note 6.8. Details of Certain Condensed Consolidated Balance Sheet Accounts

Accounts receivable and contract asset, net (in thousands):


	September 30,			December 31,
	2023			2022
Accounts receivable	$	20,782		$	28,790
Contract assets		4,233			2,167
Allowance for credit losses		(49	)		—
	$	24,966		$	30,957

Prepaid expenses and other current assets (in thousands):


	September 30,		December 31,
	2023		2022
Deferred commissions	$	1,080	$	1,040
Prepaid software and licenses		712		647
Other prepaid expenses		522		236
Prepaid insurance		912		724
Short-term deposits		202		363
Other		86		215
	$	3,514	$	3,225

Other assets (long-term) (in thousands):


	September 30,		December 31,
	2023		2022
Deferred commissions	$	2,660	$	2,552
Other		125		18
	$	2,785	$	2,570

December 31,

September 30,

2016

2017

Prepaid software and licenses

$
286

$
246

Prepaid insurance

25

333

Other prepaid expenses

171

193

Other

85

87

$
567

$
859

1013

Accrued expenses and other current liabilities (in thousands):


	September 30,		December 31,
	2023		2022
Personnel-related accruals	$	5,393	$	5,971
Contingent consideration liability		2,323		1,500
Operating lease liabilities		946		868
Professional fees		451		441
Sales/use tax payable		143		257
State income tax payable		349		385
Other		877		543
	$	10,482	$	9,965

Other liabilities (long-term) (in thousands):


	September 30,		December 31,
	2023		2022
Operating lease liabilities	$	1,803	$	2,554
Contingent consideration liability		2,994		3,246
	$	4,797	$	5,800

Note 9. Related Party Transactions

December 31,

September 30,

2016

2017

Payroll liabilities

$
1,146

$
1,463

Accrued employee paid time off

372

469

Accrued commissions

51

249

Accrued interest

123

—

Royalties payable

225

101

Other

442

513

$
2,359

$
2,795

~~Note 7. Impairment of Property and Equipment~~

During the three and nine months ended September 30, ~~2017,~~2023, the Company recognized ~~impairment expense~~approximately $45,000 and $85,000, respectively, in revenues from SoundThinking Labs projects with charitable organizations that have received donations from one of ~~$0.7 million for~~ the ~~impairment~~Company’s former directors and from one of ~~property and equipment relating to~~ the remaining book value of deployed equipment in Puerto Rico and the U.S. Virgin Islands. Management concluded that the impairment charges were required because the equipment was presumed destroyed by the hurricanes in September 2017.

Company’s significant stockholders. During the three and nine months ended September 30, ~~2017,~~2022, the Company ~~also~~ recognized ~~$0.9 million~~approximately $13,000 and $72,000, respectively, in revenues ~~relating~~from such SoundThinking Labs projects.

Note 10. Stock Repurchase Program

During the nine months ended September 30, 2023, the Company repurchased 228,782 shares of its common stock at an average price of $24.41 per share for a total of $5.6 million, under its stock repurchase program. During the nine months ended September 30, 2022, the Company repurchased 106,992 shares of its common stock at an average price of $28.81 per share, for a total of $3.1 million, under the stock repurchase program.

Note 11. Net Income (Loss) per Share

The computation of basic net income (loss) per share is based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted net income (loss) per share is based on the weighted-average number of shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, restricted stock units, employee stock purchase plan purchase rights and warrants.

The following table summarizes the ~~remaining deferred set-up fees to be recognized on contracts with customers in Puerto Rico~~computation of basic and ~~the U.S. Virgin Islands. Management concluded that the revenues associated with these contracts was required to be accelerated because the contracts with customers in Puerto Rico~~diluted net income (loss) per share (in thousands, except share and ~~the U.S. Virgin Islands were expired~~per share data):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Numerator:
Net income (loss)	$	(1,874	)	$	4,033	$	(6,361	)	$	7,430
Denominator:
Weighted-average shares outstanding, basic		12,480,830			12,167,632		12,320,119			12,156,980
Weighted-average shares outstanding, diluted		12,480,830			12,357,136		12,320,119			12,306,839
Net income (loss) per share, basic	$	(0.15	)	$	0.33	$	(0.52	)	$	0.61
Net income (loss) per share, diluted	$	(0.15	)	$	0.33	$	(0.52	)	$	0.60

The following potentially dilutive shares outstanding at the ~~time~~end of the ~~hurricanes and all subscription services~~periods presented were ~~fully delivered.~~ excluded in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Options to purchase common stock		1,776,793		986,813		1,776,793		1,097,879

~~Note 8. Financing Arrangements~~

~~2015 Term Note~~

At December 31, 2016, the Company had outstanding borrowings under a term note (the “2015 Term Note”) of $11.7 million, net of unamortized debt issuance costs. There were no outstanding borrowings as of September 30, 2017.

Borrowings under the 2015 Term Note bore interest at the greater of: (i) the average prime rate in effect during each month or (ii) the average three-month LIBOR rate during such month, plus 2.5% per annum, plus 7.5% with a minimum rate of 11%, with interest only payments through October 2017, followed by 36 equal monthly installments of principal and interest through October 2020, the maturity date. The weighted average interest rate during the three and nine months ended September 30, 2016 was 11.00% for both periods. The weighted average interest rate during the three and nine months ended September 30, 2017 was 11.75% and 11.54%, respectively.

For the three and nine months ended September 30, 2016, the Company recognized interest expense of $0.3 million and $0.9 million, respectively, based on the outstanding balance during the respective periods. For the three and nine months ended September 30, 2017, the Company recognized interest expense of $0.4 million and $1.1 million, respectively, based on the outstanding balance during the respective periods.

During the three and nine months ended September 30, 2016, amortization of debt issuance costs was $33,000 and $97,000, respectively. During the three and nine months ended September 30, 2017, amortization of debt issuance costs was $48,000 and $132,000, respectively. Amortization of debt issuance costs is recorded in interest expense in the condensed consolidated statements of operations.

Borrowings under the 2015 Term Note were secured by substantially all of the assets of the Company. Additionally, the terms of the 2015 Term Note included certain financial covenants and various negative covenants.

In March 2017, the Company amended the 2015 Term Note. In connection with the amendment of the 2015 Term Note, the Company issued a warrant to purchase 76,704 shares of Series B-1 preferred stock at an exercise price of $5.8667 per share; however, the terms of the warrant provided that upon the completion of a public offering in which the Company raises at least $25.0 million in net proceeds, the number of shares underlying the warrant would be reduced to

~~61,363 shares. Consistent with these terms, upon the closing of the IPO, the number of shares underlying this warrant was reduced to 61,363 shares, and the warrant became exercisable for common stock.~~

~~For further details regarding the 2015 Term Note, refer to Note 7,~~ ~~Financing Arrangements, to the notes to the consolidated financial statements included in the Prospectus.~~

~~Notes payable consisted of the following (in thousands):~~

December 31,

September 30,

2016

2017

Notes payable

$
12,000

$
—

Unamortized debt issuance costs

(321
)

—

Current maturities of term note

(667
)

—

Total notes payable, net of current maturities

$
11,012

$
—

~~Early Extinguishment of Debt~~

In September 2017, the Company voluntarily repaid all outstanding borrowings under the 2015 Term Note. The Company recorded to other expense, net, a loss of $0.2 million, consisting of prepayment fees and miscellaneous fees, and wrote-off $0.3 million of unamortized debt issuance costs from the early extinguishment of debt.

~~Note 9. Capital Stock~~

~~Convertible Preferred Stock~~

~~Immediately prior to the IPO, the Company had the following outstanding convertible preferred stock:~~

Shares
Authorized

Shares
Issued and
Outstanding

Aggregate
Liquidation
Preference
(in thousands)

Series B-1

4,773,000

3,848,023

$
22,075

Series A-2

1,177,000

1,176,423

20,000

$
42,075

Upon the closing of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into an aggregate of 4,689,753 shares of common stock, resulting in the reclassification of the related redeemable convertible preferred stock into $25,000 of common stock and $42.1 million into additional paid-in capital.

~~As of September 30, 2017, there were no shares of convertible preferred stock outstanding.~~

~~Common Stock~~

The Company is authorized to issue 500,000,000 shares of common stock, with a par value of $0.005 and each outstanding share of common stock is entitled to one vote, as provided in the Post-IPO Certificate.

~~At December 31, 2016, there were 1,616,996 shares of common stock issued and outstanding. At September 30, 2017, there were 9,639,594 shares of common stock issued and outstanding.~~

~~Preferred Stock~~

The Company is authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.005, as provided in the Post-IPO Certificate. As of September 30, 2017, there were no shares of preferred stock issued and outstanding.

~~Note 10. Net Loss per Share~~

~~The following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

2017

Numerator:

Net loss

$
(1,539
)

$
(1,611
)

$
(5,996
)

$
(7,477
)
Denominator:

Weighted-average shares outstanding, basic and
diluted

1,602,254

9,619,659

1,598,285

5,016,825

Net loss per share

$
(0.96
)

$
(0.17
)

$
(3.75
)

$
(1.49
)

~~The following potentially dilutive shares outstanding at the end of the periods presented were excluded in the calculation of diluted net loss per share as the effect would have been anti-dilutive:~~

As of September 30,

2016

2017

Options to purchase common stock

1,128,737

1,287,977

Unvested restricted stock units

—

44,238

Warrants to purchase Series B-1 convertible preferred or common stock

680,027

714,596

Series B-1 convertible preferred stock (as-converted)

3,848,023

—

Series A-2 convertible preferred stock (as-converted)

841,730

—

Total

6,498,517

2,046,811

~~Note 11. Convertible Preferred Stock Warrants and Common Stock Warrants~~

~~Immediately prior to the Company’s IPO, all outstanding Series B-1 convertible preferred stock warrants were remeasured to their fair value, using the Black-Scholes model. Refer to Note 3,~~ ~~Summary of Significant Accounting Policie~~s, to the notes to the consolidated financial statement included in the Prospectus for a description of the valuation method. The final remeasurement of the convertible preferred stock warrant liability resulted in a $3.7 million loss which was recorded to other expense, net.

Upon the closing of the IPO, the entire balance of $5.7 million in convertible preferred stock warrant liability was reclassified to additional paid-in capital. All convertible preferred stock warrants were converted into common stock warrants. In addition, the Company issued to the lead underwriter in the IPO a warrant to purchase up to 84,000 shares of its common stock.

~~In June 2017, the June 2012 warrant and a portion of the August 2012 warrant were converted into 15,136 shares and 39,771 shares of common stock, respectively, in a cashless exercise.~~

~~At September 30, 2017, the Company had the following common stock warrants issued and outstanding (in thousands, except share and per share data):~~

Warrant Class

Shares

Issuance
Date

Price
per Share

Expiration
Date
Common stock warrant

167,428

July 2012

$
5.8667

July 2019
Common stock warrant

60,575

August 2012

$
5.8667

August 2019
Common stock warrant

10,517

November 2012

$
5.8667

November 2022
Common stock warrant

156,851

February 2014

$
0.1700

February 2021
Common stock warrant

173,862

September 2015

$
5.8667

September 2025
Common stock warrant (1)

61,363

March 2017

$
5.8667

March 2027
Common stock warrant (2)

84,000

June 2017

$
13.2000

June 2020

714,596

~~(1)~~

This warrant was issued in connection with the amended 2015 Term Note. The number of shares underlying the warrant issued in March 2017 was originally 76,704 and, pursuant to its terms, was reduced to 61,363 shares upon the closing of the Company’s IPO. See Note 8, ~~Financing Arrangements, for further details regarding this warrant.~~

~~(2)~~

~~This warrant was issued to the Company’s lead underwriter in connection with the IPO.~~

Note 12. Equity Incentive Plans

~~2017 Equity Incentive~~Stock options:

A summary of option activities under the 2005 Stock Plan,

~~In May 2017, the Board~~ as amended in January 2010 and ~~the Company’s stockholders approved the~~November 2012 (the "2005 Plan") and 2017 Equity Incentive Plan (the “2017 ~~Plan”~~Plan")~~, which became effective~~ during the nine months ended September 30, 2023 is as follows:


	Number of Options Outstanding			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value per Option		Aggregate Intrinsic Value Exercised (in thousands)
Outstanding at December 31, 2022		1,256,056		$	28.20
Granted		654,714		$	25.73	$	15.57
Exercised		(17,214	)	$	8.61			$	380
Canceled		(116,763	)	$	32.04
Outstanding at September 30, 2023		1,776,793		$	27.21

During the three and nine months ended September 30, 2023, the Company modified options to accelerate vesting for two individuals in ~~connection with~~respect of an aggregate of 6,734 options. The Company accounted for these as modifications of those awards and recognized net incremental compensation expense of approximately $52,000 during the ~~IPO.~~ three and nine months ended September 30, 2023.

The ~~2017 Plan provides for~~incremental compensation cost is measured as the ~~issuance of stock options, restricted stock units and other awards to employees, directors and consultants~~excess of the ~~Company. A total of 2,413,659 shares~~fair value of the ~~Company’s common stock~~modified award over the fair value of the original award immediately before its terms were ~~initially reserved~~modified and recognized as compensation expense on the date of modification for ~~issuance under~~vested awards.

Under an “evergreen” provision, the 2017 Plan, which is the sum of (1) 900,000 shares, (2) the number of shares reserved for issuance under the 2005 Plan at the time the 2017 Plan became effective and (3) shares subject to stock options or other stock awards under the 2005 Plan that would have otherwise been returned to the 2005 Plan (up to a maximum of 1,314,752 shares). The number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on January 1 of each year, beginning on January 1, 2018 and ending on and including January 1, 2027, by ~~the lesser of (1) 5%~~5% of the total number of shares of the ~~Company’s capital~~Company's common stock outstanding on December 31^st of the preceding calendar year or ~~(2) such~~a lesser number of shares as determined by the Board. ~~As a result of the adoption of the 2017 Plan, no further grants may be made under the 2005 Plan.~~

~~2005 Stock Plan~~

In February 2005, the Company adopted the 2005 Stock Plan, as amended in January 2010 and November 2012 (the “2005 Plan”). Under the 2005 Plan provisions, the Company was authorized to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, and shares of restricted stock. For further details regarding the 2005 Plan, refer to Note 12, ~~Equity Incentive Plan, to the notes to the consolidated financial statements included in the Prospectus.~~

~~Following the effectiveness of the 2017 Plan in connection~~accordance with the ~~IPO, no further grants will be made under~~evergreen provision, the ~~2005 Plan.~~

~~A summary of option activities under the 2005 Plan and 2017 Plan during the nine months ended September 30, 2017 is as follows:~~

Number
of Options
Outstanding

Weighted
Average
Exercise
Price

Outstanding at December 31, 2016

1,130,141

$
0.86

Granted

236,788

$
4.30

Exercised

(57,938
)

$
0.72

Canceled

(21,014
)

$
1.43

Outstanding at September 30, 2017

1,287,977

$
1.49

During the nine months period ended September 30, 2017, the company granted non-employee directors restricted stock unit (“RSU”) awards totaling 44,238 shares of common stock, with a vesting term of approximately ten months. The fair value of $11.50 per unit was calculated using the closing stock price on the date of grants.

~~In the second quarter of 2017, our board of directors authorized for issuance 900,000 new shares under our 2017 Plan.~~

~~Our equity- based incentive plans include stock options, restricted stock units and other stock awards. The~~ number of ~~shares available for grant under these plans was 1,030,152 as of September 30, 2017.~~

~~2017 Employee Stock Purchase Plan~~

In May 2017, the Board and the Company’s stockholders adopted the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which became effective in connection with the Company’s IPO. The 2017 ESPP allows eligible employees to purchase shares of the Company’s common stock in an offering at a discount of the then-current trading price, up to the lesser of (1) 85% of the fair market value of the common stock on the first day of the IPO or (2) 85% of the fair market value of the common stock on the purchase date. The 2017 ESPP permits the maximum discounted purchase price permitted under U.S. tax rules, including a “lookback.”

The 2017 ESPP initial offering period runs for approximately 24 months in length, and contains four 6-month purchase periods. An employee’s purchase rights terminate immediately upon termination of employment or other withdrawal from the 2017 ESPP. No participant will have the right to purchase shares of common stock in an amount that has a fair market value of more than $25,000 determined as of the first day of the applicable purchase period, for each calendar year.

~~There are 200,000~~ shares of common stock reserved for issuance under the 2017 ~~ESPP. In addition,~~Plan was increased on January 1, 2023 by 612,196 shares, which was equal to 5% of the total number of shares of common stock outstanding on December 31, 2022.

Restricted stock units:

A summary of restricted stock unit ("RSU") activities under the 2017 Plan during the nine months ended September 30, 2023 is as follows:


	Number of RSUs			Weighted Average Grant Date Fair Value per RSU		Aggregate Fair Value of RSUs Vested (in thousands)
Unvested RSUs at December 31, 2022		223,821		$	29.21
Granted		256,446		$	27.81
Vested		(108,837	)	$	29.49	$	3,226
Forfeited		(40,229	)	$	31.08
Unvested RSUs at September 30, 2023		331,201		$	27.81

During the three and nine months ended September 30, 2023, the Company modified RSUs to accelerate vesting for one individual in respect of 2,256 shares of common stock. The Company accounted for this as a modification of this award and recognized net incremental compensation expense of approximately $28,000 during the three and nine months ended September 30, 2023.

The incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified and recognized as compensation expense on the date of modification for vested awards.

Performance-based restricted stock units:

During the three and nine months ended September 30, 2023, the Company granted certain executive management RSU awards, subject to certain performance-based vesting conditions, totaling 31,012 RSUs at a grant date fair value of $20.12 per share, the closing stock price on the grant date. These performance-based awards vest on February 15, 2025 based on the Company's and officer's performance as determined by the Compensation Committee of the Board of Directors of the Company. Compensation expense related to the RSUs is estimated each period based on the fair value of the target stock unit at the grant date and the most probable level of achievement of the performance conditions. Compensation expense related to these awards was approximately $21,000 for the three and nine months ended September 30, 2023.

2017 Employee Stock Purchase Plan

There were 25,193 shares of common stock issued under the 2017 Employee Stock Purchase Plan ("2017 ESPP") during the nine months ended September 30, 2023. The 2017 ESPP contains aan “evergreen” provision ~~which~~that provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (1) 2%2% of the total number of shares of common stock outstanding on December 31^st31st of the preceding calendar year, (2) 150,000 shares or (3) such number of shares as determined by the Board.

~~The Company accounts for employee stock purchases made under its 2017 ESPP using the estimate grant date fair value of accounting in~~ In accordance with ~~ASC 718,~~ ~~Stock Compensation. The Company values ESPP~~the evergreen provision, the number of shares ~~using the Black-Scholes model.~~

~~There were no shares issued~~of common stock reserved for issuance under the 2017 ESPP ~~during~~was increased on January 1, 2023 by 150,000 shares. The number of shares available for grant under the ~~three and nine months ended~~2017 ESPP was 640,974 as of September 30, ~~2017.~~2023.

152017 Employee Stock Purchase Plan

Total stock-based compensation expense associated with the 2005 Plan, 2017 Plan and 2017 ESPP is recorded in the condensed consolidated statements of operations and was allocated as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenues	$	452	$	499	$	1,409	$	1,482
Sales and marketing		485		427		1,413		1,336
Research and development		359		305		999		823
General and administrative		1,277		926		3,449		2,504
Total	$	2,573	$	2,157	$	7,272	$	6,145

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

2017

Costs

$
3

$
33

$
9

$
43

Sales and marketing

2

54

5

74

Research and development

5

26

14

42

General and administrative

13

118

29

147

Total

$
23

$
231

$
57

$
306

~~The~~On September 27, 2018, the Company ~~leases its principal executive offices in Newark, California,~~entered into a Credit Agreement with Umpqua Bank (the “Umpqua Credit Agreement”), which allowed the Company to borrow up to $10.0 million under a ~~non-cancelable operating lease~~revolving loan facility (the “Revolving Facility”). On November 23, 2022, the Company entered into a Fifth Amendment to the Umpqua Credit Agreement (the “Amendment”), which ~~expires in 2021. The Company recognizes rent expense on~~amended the terms of the Umpqua Credit Agreement to, among other things, (1) extend the maturity date from November 27, 2022 to October 15, 2024, (2) increase the revolving credit commitment from $20.0 million to $25.0 million, (3) increase the letter of credit sub-facility from $6.0 million to $7.5 million, (4) remove the minimum profitability covenants and (5) replace the LIBOR index rate with a ~~straight-line basis over~~Term Secured Overnight Financing Rate index rate.

Any amounts outstanding under the ~~expected lease term. The difference between cash payments required and rent expense is recorded as deferred rent. Rent expense~~letter of credit sub-facility reduce the amount available for the ~~Company’s facilities~~Company to borrow under the Revolving Facility. The available loan facility as of September 30, 2023 and December 31, 2022 was ~~$0.1~~approximately $18.0 million and ~~$0.2~~$20.0 million, respectively. As of September 30, 2023, there was $7.0 million outstanding on the Company's line of credit, which the Company borrowed in August 2023 to partially fund the acquisition

of SafePointe. There were no amounts outstanding on December 31, 2022. The interest expense recorded for the three months and nine months ended September 30, ~~2016, respectively. Rent expense for the Company’s facilities~~2023 was ~~$0.1~~$0.1 million, ~~and $0.3 million for the three and nine months ended September 30, 2017, respectively.~~

~~The following is a schedule of future minimum lease payments under the non-cancelable operating lease at September 30, 2017 (in thousands):~~

On November 6, 2017, three individuals, Ken Fisher, Kevin Baxter and Fred Holmes (the “Contractors”), filed a complaint with the Superior Court of California, County of Alameda, alleging breach of contract, a breach of the implied covenant of good faith and fair dealing and violation of Section 17200 et seq. of the California Business and Professions Code, purportedly predicated on an alleged breach of Section 10b-5 of the Securities Exchange Act of 1934, based on the Contractors’ claim that they were entitled to be granted options to purchase 350,000 shares of our common stock on the basis of a term sheet between us and the Contractors signed in July 2007. The Contractors claim that our subsequent one-for-five and one-for-17 reverse stock splits should not apply to their option awards. On the basis of their allegations, the Defendants have petitioned for approximately $6.5 million in damages and other costs and expenses, including attorneys’ fees. The Company intends to dispute these claims vigorously.

The Company may become subject to legal proceedings, as well as demands and claims, that arise in the normal course of our business. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

An unfavorable outcome on any such matters could require us to pay substantial damages, or, in connection with any intellectual property infringement claims, could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operating results, financial condition and cash flows.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes and other financial information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the final prospectus filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on June 8, 2017 (the “Prospectus”). This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

We are the leader in gunshot detection solutions that help law enforcement officials and security personnel deter and prevent gun violence. We offer our software solutions on a SaaS-based subscription model to customers around the world with current customers located in the United States and South Africa. Our public safety solution, ShotSpotter Flex, is deployed in urban, high-crime areas to help deter gun violence by accurately detecting and locating gunshots and sending near real-time alerts to law enforcement. Our security solutions, SST SecureCampus and ShotSpotter SiteSecure, are designed to help law enforcement and security personnel serving universities, corporate campuses and key infrastructure or transportation centers mitigate risk and enhance security by notifying authorities and first responders of an active-shooter event almost immediately.

Our solutions consist of our highly-specialized, cloud-based software integrated with proprietary, internet-enabled sensors and communication networks. The speed and accuracy of our solutions enable rapid response by law enforcement and security personnel, increase the chances of apprehending the shooter, aid in evidentiary collection and can serve as an overall deterrent. When a potential gunfire incident is detected by our sensors, our software precisely locates where the incident occurred. An alert containing critical information about the incident is transmitted directly to law enforcement or security personnel through any computer and to iPhone® or Android mobile devices.

We generate annual subscription revenues from the deployment of our public safety solution on a per-square-mile basis. As of September 30, 2017, we had 74 public safety customers with coverage areas of approximately 490 square miles in 85 cities and municipalities across the United States and South Africa, including four of the ten largest cities in the United States. As of September 30, 2017, we had six security customers covering seven higher-education campuses, of which five customers had their solutions fully deployed on six campuses.

We enter into subscription agreements on a term basis that typically range from one to five years in duration, with the majority having a contract term of one year. Substantially all of our sales are to governmental agencies and universities which often undertake a prolonged contract evaluation process that affects the size or the timing of our sales contracts and may likewise increase our customer acquisition costs. For a discussion of the risks associated with our sales cycle, see risks entitled “Our sales cycle can be unpredictable, time-consuming and costly, and our inability to successfully complete sales could harm our business” and “Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our operating results until future periods” in Item 1A, ~~Risk Factors, included in this Quarterly Report on Form 10-Q.~~

We rely on a limited number of suppliers and contract manufacturers to produce components of our solutions. We have no long-term contracts with these manufacturers and purchase from them on a purchase-order basis. Our outsourced manufacturers generally procure the components directly from third-party suppliers. Although we use a limited number of suppliers and contract manufacturers, we believe that we could find alternate suppliers or manufacturers if circumstances required us to do so, in part because a significant portion of the components required by our solutions is available off the shelf. For a discussion of the risks associated with our limited number of suppliers, see risk entitled “We rely on a limited number of suppliers and contract manufacturers, and our proprietary ShotSpotter sensors are manufactured by a single contract manufacturer” in Item 1A, ~~Risk Factors, included in this Quarterly Report on Form 10-Q.~~

We generated revenues of $4.0 million and $6.8 million for the three months ended September 30, 2016 and 2017, respectively, a year-over-year increase of 72%. Revenues from our ShotSpotter Flex public safety solution during the three months ended September 30, 2016 and 2017 represented approximately 99% of total revenues for both periods. Two of our customers, City of New York and Puerto Rico Housing Administration, accounted for 12% and 13%, respectively, of our total revenues for the three months ended September 30, 2016, and 17% and 14%, respectively, of our total revenues for the three months ended September 30, 2017. A substantial majority of our revenues for the three months ended September 30, 2016 and 2017 was derived from customers within the United States (including Puerto Rico and the U.S. Virgin Islands), and a small portion was derived from our customer in South Africa.

We generated revenues of $11.0 million and $17.2 million for the nine months ended September 30, 2016 and 2017, respectively, a year-over-year increase of 57%. Revenues from our ShotSpotter Flex public safety solution during the nine months ended September 30, 2016 and 2017 represented approximately 97% of total revenues for both periods. Our two largest customers, the City of New York and the Puerto Rico Housing Administration, each accounted for approximately 12% of our total revenues for the nine months ended September 30, 2016, and approximately 18% and 10% of our total revenues for the nine months ended September 30, 2017. A substantial majority of our revenues for the nine months ended September 30, 2016 and 2017 was derived from customers within the United States (including Puerto Rico and the U.S. Virgin Islands), and a small portion was derived from our customer in South Africa.

While we intend to continue to devote resources to increase sales of our SST SecureCampus and ShotSpotter SiteSecure Solutions, we expect that revenues from our ShotSpotter Flex solution will continue to comprise a substantial majority of our revenues going forward.

We have not yet achieved profitability and had net losses of $1.6 million and $7.5 million for the three and nine months ended September 30, 2017, respectively. Our accumulated deficit was $87.6 million and $95.1 million as of December 31, 2016 and September 30, 2017, respectively.

In September 2017, we used $13.7 million from the net proceeds of our initial public offering to voluntarily repay our outstanding indebtedness of $13.5 million and $0.2 million in prepayment fees under a promissory note (the “2015 Term Note”). In connection with this early extinguishment of debt, we wrote off $0.3 million of unamortized debt issuance costs.

During the years ended December 31, 2015 and 2016 and the nine months ended September 30, 2017, we went “live” on 50, 70 and 91 net new square miles of coverage, respectively. In each case, the increase in coverage was achieved through a combination of new customers and expansion with existing customers and, in the case of nine months ended September 30, 2017, the 91 net new square miles reflects the impact of a 33 coverage mile reduction as a result of our discontinuation in service of Puerto Rico and the U.S Virgin Islands due to the devastation caused by the recent hurricanes.

In connection with the cessation of our service with Puerto Rico and the U.S. Virgin Islands, we classified the contracts as expired, and stopped recognizing revenue and accelerated the deferred revenues related to setup fees under these contracts.

We have focused on rapidly growing our business and believe that its future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, increase sales of our security solutions, and expand our international presence. Our future growth will primarily depend on the market acceptance for gunshot detection solutions. Challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive, time-consuming and the fact that our typical sales cycle is often very long and can be costly. To combat these challenges, we intend to continue to maintain our position as a market leader, invest in research and development, increase awareness of our solutions, and hire additional sales representatives to drive sales. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion, particularly for our ShotSpotter Flex solution.

We will also focus on expanding our business by increasing sales of our security solutions. By developing additional solutions through SST SecureCampus and ShotSpotter SiteSecure, we believe that our potential for growth has increased and that we are still in the early stages of penetrating the market for our security solutions. Our ability to penetrate these new markets will depend on the quality of our solutions and their perceived value as a risk management tool, as well as our ability to design our solutions to meet the demands of these customers. If these security solution markets do not develop as we expect, our revenues may not grow at the rate we expect.

With respect to international sales, we believe that we have the potential to expand our coverage within South Africa and to pursue opportunities in Europe, South America and other regions of the world. By adding additional sales resources in strategic locations, we believe we will be better positioned to reach these markets. However, we recognize that we have limited international operational experience and currently operate only in one region outside of the continental United States, South Africa. Operating successfully in international markets will require significant resources and management attention and will subject us to additional regulatory, economic and political risks. Moreover, we anticipate that different political and regulatory considerations that vary across different jurisdictions could extend what is already a lengthy sales cycle.

Given the importance of these strategies and challenges we face, we expect to continue to incur losses in the near term and, if we are unable to achieve our growth objectives, we may not be able to achieve profitability.

We focus on net new “go live” miles” as a key quarterly business metric to measure our operational performance and inform strategic decisions. Net new “go-live” square miles represent the square miles covered by deployments that were approved by customers during the quarter, both from initial and expanded customer deployments, net of square miles that ceased to be “live” during the quarter. New square miles include deployed square miles that may have been sold, or booked, in prior quarters.

This metric, presented below for the three and nine months ended September 30, 2016 and 2017, is calculated on a quarterly basis using internal data and may be calculated in a manner different than similar metrics used by other companies.

Our condensed consolidated financial statements include the accounts of our wholly-owned South African subsidiary, ShotSpotter (Pty) Ltd. All intercompany balances and transactions have been eliminated in consolidation.

We derive substantially all of our revenues from subscription services. We recognize subscription fees ratably, on a straight-line basis, over the term of the subscription, which for new customers is typically initially one to five years in length. Customer contracts include one-time set-up fees for the set-up of our sensors in the customer’s coverage areas, training and third-party integration licenses. These set-up fees are recognized ratably, on a straight-line basis, over the estimated customer life of five years.

We generally invoice customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. All fees billed in advance of services being delivered are recorded as deferred revenue. For our public safety solution, our pricing model is based on a per-square-mile basis. For our security solutions, our pricing model is on a customized-site basis. As a result of our process for invoicing contracts and renewals upon execution, our cash flow from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment.

We generally invoice subscription service renewals for 100% of the total contract value when the renewal contract is executed. Renewal fees are recognized ratably over the term of the renewal, which is typically one year. While most of our customers elect to renew their agreements, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, we stop recognizing subscription revenues at the end of the current contract term, even though we may continue to provide services for a period of time until the renewal process is completed. Once the renewal is complete, we then recognize subscription revenues for the period between the expiration of the term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription prior to the end of five years, then the remaining setup fees are immediately recognized.

Costs include the cost of revenues and charges for impairment of property and equipment. Cost of revenues primarily includes depreciation expense associated with capitalized customer acoustic sensor networks, communication expenses, costs related to hosting our service application, costs related to operating our Incident Review Center (the “IRC”), providing remote and on-site customer support and maintenance and forensic services, certain personnel and related costs of operations, stock-based compensation and allocated overhead, which includes IT, facility and equipment depreciation costs.

Impairment of property and expense is attributable to our write off of the remaining book value for deployed equipment in Puerto Rico and the U.S. Virgin Islands that was presumed destroyed by the hurricanes in September 2017.

In the near term, we expect our cost of revenues to increase in absolute dollars to the extent our installed base increases, but decrease as a percentage of revenues because certain of our costs of revenues are fixed and do not need to increase commensurate with increases in revenues. In addition, depreciation expense associated with deployed equipment is recognized only over the first five years of a customer contract.

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Salaries, bonuses, stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense incurred in connection with the grant of stock options and restricted stock units to the applicable operating expense category based on the equity award recipient’s functional area.

We are focused on executing on our growth strategy. As a result, in the near term we expect our total operating expenses to increase in absolute dollars as we incur additional expenses due to growth and as a result of operating as a public company. Although our operating expenses will fluctuate, we expect that over time, they will generally decrease as a percentage of revenues.

Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions earned by our sales personnel, marketing expenses for trade shows, conferences and conventions, consulting fees, travel and facility-related costs and allocated overhead.

In the near term, we expect our sales and marketing expenses to increase in absolute dollars primarily due to planned growth in our sales and marketing organization. This growth will include adding sales and marketing personnel and expanding our marketing activities to continue to generate additional leads. Sales and marketing expense may fluctuate from quarter to quarter based on the timing of commission expense, marketing campaigns and tradeshows.

Research and development expenses primarily consist of personnel-related costs attributable to our research and development personnel, consulting fees and allocated overhead. We have devoted our product development efforts primarily to develop new lower-cost sensor hardware, develop new features including a mobile application, improve functionality of our solutions and adapt to new technologies or changes to existing technologies.

In the near term, we expect our research and development expenses to increase in absolute dollars as we increase our research and development headcount to further strengthen our software and invest in the development of our service.

General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, and administrative personnel, legal, accounting and other professional services fees, other corporate expenses and allocated overhead. We have recently incurred additional expenses in expanding our operations and for our initial public offering of common stock (the “IPO”), and will continue to incur additional expenses as a public company, including increased personnel, legal, insurance and accounting expenses, and the additional costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act and other regulations.

In the near term, we expect our general and administrative expenses to increase significantly in absolute dollars as we grow our business, support our operations as a public company and increase our headcount.

~~Other expense, net, consists primarily of~~weighted-average interest expense on our outstanding debt, and losses from the remeasurement of our convertible preferred stock warrant liability and losses from early extinguishment of debt. The convertible preferred stock warrant liability was reclassified into additional paid-in capital upon our IPO and will no longer be remeasured at each balance sheet date.

~~The following table sets forth our selected condensed consolidated statements of operations data for the three months ended September 30, 2016 and 2017 (in thousands):~~

Three Months Ended September 30,

As a % of

As a % of

Change

2016

Revenues

2017

Revenues

$

%

Revenues

$
3,977

100
%

$
6,846

100
%

$
2,869

72
%
Costs

Cost of revenues

2,400

60
%

2,791

40
%

391

16
%
Impairment of property and equipment

—

—

666

10
%

666

100
%
Total costs

2,400

60
%

3,457

50
%

1,057

44
%
Gross profit

1,577

40
%

3,389

50
%

1,812

115
%
Operating expenses:

Sales and marketing

1,098

28
%

1,792

26
%

694

63
%
Research and development

1,007

25
%

1,063

16
%

56

6
%
General and administrative

568

14
%

1,305

19
%

737

130
%
Total operating expenses

2,673

67
%

4,160

61
%

1,487

56
%
Loss from operations

(1,096
)

(28
%)

(771
)

(11
%)

325

(30
%)
Other expense, net

(443
)

(11
%)

(840
)

(12
%)

(397
)

90
%
Net loss

$
(1,539
)

(39
%)

$
(1,611
)

(24
%)

$
(72
)

5
%

The increase of $2.9 million was attributable to $2.0 million from new customers and expansions of existing customer coverage areas, and $0.9 million in accelerated revenue recognition of deferred setup fees relating to square miles that ceased to be “live” in Puerto Rico and the U.S. Virgin Islands during the three months ended September 30, 2017.

The increase of $1.1 million was due primarily to a $0.3 million increase in depreciation and telecommunications expenses associated with expansions in existing customer coverage areas, and a $0.7 million impairment charge to expense the remaining net book value of acoustic sensor networks in Puerto Rico and the U.S. Virgin Islands that were presumed destroyed by the hurricanes in September 2017.

Gross margin increased by 10 percentage points because certain costs of revenues are fixed and did not increase commensurate with the increase in subscription revenues, offset in part by the effect of the impairment charge described above.

The increase of $0.7 million was primarily due a $0.4 million increase in salaries, commissions and stock-based compensation expense associated with expansion of our sales, marketing and customer success organization, a $0.1 million increase in travel expense associated with the increase in personnel, and $0.1 million in bad debt expense during the three months ended September 30, 2017.

The increase of $0.1 million was due primarily to an increase in personnel and recruiting expenses during to the hiring of new personnel during the three months ended September 30, 2017, offset in part by decreased consulting expenses related to the development of new variants of our sensors that were incurred in the prior year period.

The increase of $0.7 million was due to a $0.2 million increase in salaries, benefits and bonuses resulting from an increase in headcount, including the addition of our chief financial officer, a $0.1 million increase in cash and stock-based compensation for directors, a $0.2 million increase in legal and accounting fees, and a $0.1 million increase in director and officer insurance premiums.

The increase of $0.4 million was due to $0.2 million in prepayment fees in connection with the early extinguishment of debt and the write-off of $0.3 million of unamortized debt issuance costs. This increase was offset by a $0.1 million increase in interest income due to higher cash balances during the three months ended September 30, 2017.

~~The following table sets forth our condensed consolidated statements of operations data for the nine months ended September 30, 2016 and 2017 (in thousands):~~

Nine Months Ended September 30,

As a % of

As a % of

Change

2016

Revenues

2017

Revenues

$

%

Revenues

$
10,956

100
%

$
17,244

100
%

$
6,288

57
%
Costs

Cost of revenues

7,031

64
%

8,154

47
%

$
1,123

16
%
Impairment of property and equipment

—

—

666

4
%

$
666

100
%
Total costs

7,031

64
%

8,820

51
%

1,789

25
%
Gross profit

3,925

36
%

8,424

49
%

4,499

115
%
Operating expenses:

Sales and marketing

3,434

31
%

4,269

25
%

835

24
%
Research and development

3,193

29
%

3,024

18
%

(169
)

(5
%)
General and administrative

1,674

15
%

3,206

19
%

1,532

92
%
Total operating expenses

8,301

76
%

10,499

61
%

2,198

26
%
Loss from operations

(4,376
)

(40
%)

(2,075
)

(12
%)

2,301

(53
%)
Other expense, net

(1,620
)

(15
%)

(5,402
)

(31
%)

(3,782
)

233
%
Net loss

$
(5,996
)

(55
%)

$
(7,477
)

(43
%)

$
(1,481
)

25
%

The increase of $6.3 million in revenues was attributable to $3.4 million from new customers and expansions of existing customer coverage areas, $2.6 million in from a full nine months of revenues from new customers and expansions that went live during 2016, $0.9 million in accelerated revenue recognition of deferred setup fees relating to square miles that ceased to be “live” in Puerto Rico and the U.S. Virgin Islands during the three months ended September 30, 2017, and $0.3 million in non-recurring engineering revenues associated with the development of a custom product for one customer.

The increase of $1.8 million in cost of revenues was due primarily to a $0.7 million impairment charge to expense the remaining net book value of acoustic sensor networks in Puerto Rico and the U.S. Virgin Islands that were presumed destroyed by hurricanes in September 2017, a $0.5 million increase in in personnel-related expenses primarily from higher bonus accruals and an increase in our operations headcount and a $0.4 million increase in depreciation expense for property and equipment related to customer installations, and a $0.1 million increase in operating costs, which includes costs incurred in providing remote and on-site customer support and maintenance services, and telecommunications expenses.

Gross margin increased by 13 percentage points because certain costs of revenues are fixed and did not increase commensurate with the increase in subscription revenues, offset in part by the effect of the impairment charge described above.

The increase of $0.8 million was attributable to a $0.7 million increase in salaries, commissions and stock-based compensation expense resulting expansion of our sales, marketing and customer success organization, a $0.2 million increase in travel expense associated with the increase in personnel, and $0.1 million in bad debt expense, offset in part by a $0.4 million decrease in third party commission paid during the nine months ended September 30, 2016.

The decrease of $0.2 million in research and development expense was due to a $0.5 million decrease in expenses for the development of new variants of our sensors that were incurred in the prior year period, offset by a $0.3 million increase in personnel and recruiting expenses during to the hiring of new personnel during the nine months ended September 30, 2017.

The increase of $1.5 million was due primarily to a $0.4 million increase in personnel-related expenses due to an increase in headcount, including the addition of our chief financial officer, $0.3 million in higher bonus accruals, $0.4 million in higher professional fees, primarily in legal and audit fees, a $0.1 million increase in cash and stock-based compensation for directors, a $0.1 million increase in travel expenses, and a $0.1 million increase in director and officer insurance premiums.

The increase of $3.8 million in other expense, net, was due to a $3.1 million increase in expense related to the remeasurement of the preferred stock warrant liability due to a final remeasurement upon our IPO, $0.2 million in prepayment fees in connection with this early extinguishment of debt and the write-off of $0.3 million of unamortized debt issuance costs, and $0.3 million in increased interest expense due to additional $2.0 million in outstanding borrowings during 2017 and prior to the repayment of debt. This increase was offset by a $0.1 million increase in interest income due to higher cash balances during the nine months ended September 30, 2017. See Note 3, ~~Summary of Significant Accounting Policies, and Note 11,~~ ~~Convertible Preferred Stock Warrants and Common Stock Warrants, included in this Quarterly Report on Form 10-Q for details regarding the final remeasurement of the preferred stock warrant liability.~~

Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal source of liquidity is cash and cash equivalents totaling $19.3 million as of September 30, 2017.

~~In June 2017, we received net proceeds of $32.4 million after deducting underwriting warrant, discounts and commissions, from our IPO.~~

We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional capital or debt financing. Raising additional capital would7.32%.

result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

In September 2017, we voluntarily repaid our outstanding borrowing of $13.5 million under the 2015 Term Note. This resulted in a loss on early extinguishment of debt of $0.2 million for prepayment fees and other miscellaneous fees, and $0.3 million for the write-off of a portion of our unamortized debt issuance costs.

Prior to the repayment of all our outstanding indebtedness under the 2015 Term Note in September 2017, we were a party to a Loan and Security Agreement with Orix Growth Capital, LLC, which allowed us to borrow up to $15.0 million. In September 2017, our credit facility with Orix Growth Capital, LLC was terminated in connection with such repayment.

~~The following table presents a summary of our cash flows for the nine months ended September 30, 2016 and 2017:~~

Nine Months Ended

September 30,

2016

2017

(in thousands)

Net cash provided by (used in):

Operating activities

$
1,743

$
1,560

Investing activities

(3,155
)

(4,602
)
Financing activities

2,004

18,430

Net change in cash and cash equivalents

$
592

$
15,388

For standard customer deployments, we typically achieve cash-flow breakeven, on a direct variable cost-basis, in less than a year from the date of execution of the contract. Our net loss and cash flows provided by operating activities are significantly influenced by our increase in headcount to support our growth, sales and marketing expenses, and our ability to bill and collect in a timely manner.

Operating activities provided $1.7 million in the nine months ended September 30, 2016, primarily from net cash inflow from changes in operating assets and liabilities aggregating $5.1 million and non-cash items aggregating $2.7 million, partially offset by our net loss of $6.0 million. The change in operating assets and liabilities reflected an increase of $5.2 million in deferred revenue as a result of new customer contracts and contract renewals, $0.9 million increase in accrued expenses and other liabilities due primarily to an increase in bonus and commission accruals and $0.1 million increase in accounts payable due to timing of payments to our vendors, partially offset by an increase of $1.0 million in accounts receivable due to increase in billings from customers renewing their contracts during the period. Non-cash items reflected $1.9 million for depreciation and amortization of tangible and intangible assets, and $0.6 million from the remeasurement of the convertible preferred stock warrant liability.

Operating activities provided $1.6 million in the nine months ended September 30, 2017, primarily from non-cash items aggregating $7.7 million and net cash inflow from changes in operating assets and liabilities aggregating $1.3 million, partially offset by our net loss of $7.5 million. Non-cash items reflected $3.7 million from the remeasurement of the convertible preferred stock warrant liability and $2.3 million for depreciation and amortization of tangible and intangible assets. The change in operating assets and liabilities reflected an increase of $4.4 million in deferred revenue as a result of new customer contracts and renewals, an increase of $0.4 million in accounts payable due to timing of payments to our vendors, and an increase of $0.5 million in accrued expenses and other liabilities mainly due to increase in payroll liabilities, which was offset by an increase of $3.7 million in accounts receivable due to an increase in billings from customers during the period, and a decrease of $0.3 million in prepaid expenses and other assets, primarily amortization prepaid insurance and software licenses.

~~Our investing activities consist primarily of capital expenditures to install our solutions in customer coverage areas, purchases of property and equipment, and investment in intangible assets.~~

Investing activities used $3.2 million and $4.6 million in the nine months ended September 30, 2016 and 2017, respectively, primarily for property and equipment expenditures to install our solutions in customer coverage areas.

Cash generated by financing activities includes net proceeds from our IPO, payments of initial public offering costs, borrowings under our term loan, and proceeds from the exercise of stock options, offset by payment of indebtedness, debt issuance and financing costs.

Financing activities provided $18.4 million in the nine months ended September 30, 2017, primarily from $32.4 million in net proceeds from our IPO and $1.5 million in borrowing under our 2015 Term Note (see Note 8, ~~Financing Arrangements, for details regarding the 2015 Term Note), offset in part by $13.5 million in repayment of our 2015 Term Note and $1.9 million in payments for initial public offering costs.~~

There were no material changes during the nine months ended September 30, 2017 to the contractual obligations and commitments disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Prospectus. See Note 13, ~~Commitments and Contingencies, to the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding commitments.~~

At September 30, 2017, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of revenue, assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

There have been no significant or material changes in our critical accounting policies during the three and nine months ended September 30, 2017, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates” in the Prospectus.

~~See Note 3,~~ ~~Summary of Significant Accounting Policies, to the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a summary of recently adopted accounting pronouncements.~~

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates as well as, to a lesser extent, inflation.

There were no material changes in our market risk during the nine months ended September 30, 2017, compared to the market risk disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Qualitative and Quantitative Disclosures about Market Risk, of the Prospectus.

On August 28, 2018, Silvon S. Simmons (the “Plaintiff”) amended a complaint against the City of Rochester, New York and ~~Procedures~~

~~Evaluation~~various city employees, filed in the United States District Court, Western District of ~~Disclosure Controls~~New York, to add the Company and ~~Procedures~~

~~Our management has evaluated, under~~employees as a defendant. The amended complaint alleges conspiracy to violate the ~~supervision~~Plaintiff’s civil rights, denial of the right to a fair trial, and malicious prosecution. The Plaintiff claims that the Company colluded with the ~~participation~~City of Rochester to fabricate and create gunshot alert evidence to secure Plaintiff’s conviction. On the basis of the allegations, the Plaintiff has petitioned for compensatory and punitive damages and other costs and expenses, including attorney’s fees. The Company believes that the Plaintiff’s claims are without merit and is disputing them vigorously.

The Company may become subject to legal proceedings, as well as demands and claims that arise in the normal course of business. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

An unfavorable outcome on any litigation matters could require payment of substantial damages, or, in connection with any intellectual property infringement claims, could require the Company to pay ongoing royalty payments or could prevent the Company from selling certain of its products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on the Company’s business, operating results, financial condition and cash flows.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our ~~Chief Executive Officer~~financial condition and ~~Chief~~results of operations together with our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes and other financial information in the Management’s Discussion and Analysis of Financial ~~Officer,~~Condition and Results of Operations included in the ~~effectiveness~~Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2023. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of ~~our disclosure controls~~Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and ~~procedures (as defined in Rules 13-a-15(e) and 15d-15(e) under~~Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the ~~Exchange Act) as~~negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the ~~end~~timing of certain events to differ materially from future results expressed or implied by the ~~period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded~~forward-looking statements. Factors that ~~as of September 30, 2017, our disclosure controls and procedures were effective~~could cause or contribute to ~~provide reasonable assurance that the information we~~such differences include, but are ~~required~~not limited to, ~~file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified~~those identified herein, those discussed in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

~~Changes~~section titled “Risk Factors” set forth in ~~Internal Control over Financial Reporting~~

~~There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period covered by~~Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement and civic leadership. In April 2023, we changed the company name, ShotSpotter, Inc., to SoundThinking, Inc., reflecting our broader impact on public safety through a growing set of industry-leading law enforcement tools and community-focused solutions. As part of the rebranding, we introduced our SafetySmartTM platform that includes four data-driven tools including our flagship product, ShotSpotter® (formerly ShotSpotter Respond), our leading outdoor gunshot detection, location and alerting system trusted by 164cities and over 18 universities and corporations as of September 30, 2023. CrimeTracer™ (formerly COPLINK X) is a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases. CaseBuilder™ (formerly ShotSpotter Investigate) is a one-stop investigative management system for tracking, reporting, and collaborating on cases.And ResourceRouter™ (formerly ShotSpotter Connect), which directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety. In August 2023, we acquired SafePointe, LLC ("SafePointe") and added their AI-based weapons detection system to our Safety Smart platform. Weoffer our solutions on a software-as-a-service subscription model to our customers. SoundThinking Labs supports innovative uses of the Company's technology to help protect wildlife and the environment.

Our gunshot detection solution consists of highly specialized, cloud-based software integrated with proprietary, internet-enabled sensors designed to detect outdoor gunfire. The speed and accuracy of our gunfire alerts enable law enforcement and security personnel to consistently and quickly respond to shooting events including those unreported through 911, which can increase the chances of apprehending the shooter, providing timely aid to victims, and identifying witnesses before they scatter, as well as aid in evidence collection and serve as an overall deterrent. When a potential gunfire incident is detected by our sensors, our system precisely locates where the incident occurred and applies machine classification combined with human review to analyze and validate the incident. An alert containing a location on a map and critical information about the incident is sent directly to subscribing law enforcement or security personnel through any internet-connected computer and to iPhone or Android mobile devices.

Our software sends gunfire data along with the audio of the triggering sound to our Incident Review Center (“IRC”), where our trained incident review specialists are on duty 24 hours a day, seven days a week, 365 days a year to screen and confirm actual gunfire incidents. Our trained incident review specialists can supplement alerts with additional tactical information, such as the potential presence of multiple shooters or the use of high-capacity weapons. Gunshot incidents reviewed by our IRC result in alerts typically sent within approximately 45 seconds of the receipt of the gunfire incident.

We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate, and CaseBuilder are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter solution is also sold on a subscription basis. As of September 30, 2023, we had ShotSpotter coverage areas under contract for approximately 1,140 square miles, of which 1,105 square miles had gone live. Coverage areas under contract included 164 cities and 18 universities and corporations across the United States, South Africa and the Bahamas, including some of the largest cities in the United States. Most of our revenue is attributable to customers based in the United States. We expect to go live with over 140 total miles in 2023.

Our Tier 4 and 5 pricing programs for smaller law enforcement agencies (those with fewer than 100 sworn officers) allow them to contract for ShotSpotter to cover a footprint of less than three square miles, using standardized coverage parameters, at a discounted annual subscription rate. We have found that Tier 4 and 5 customer sales cycles are shorter than traditional sales cycles and open up a new and sizeable portion of the market for the company. In addition, some gunshot detection-based revenue comes from SoundThinking Labs projects. These are generally conducted in coordination with a sponsoring charitable organization and may or may not be revenue-producing. When they are revenue-producing, they will generally be sold on a cost-plus basis. As such, SoundThinking Labs projects will normally produce gross margins significantly lower than most of our other solutions. Additionally, while we intend to continue to devote resources to increase sales of our non-gunshot detection solutions, we expect that revenues from ShotSpotter-basedproducts will continue to comprise a majority of our revenues for the foreseeable future.

We acquired LEEDS, LLC ("LEEDS") in November 2020 to expand our suite of solutions and from which we generate revenues through the sale of (i) maintenance and support services and (ii) professional software development services to a single customer, through a sales channel intermediary. Using its technology, we introduced ShotSpotter Investigate, now CaseBuilder, in the second quarter of 2021. CaseBuilder is our case management solution that helps automate investigative work and improve case clearance rates – addressing an inefficiency problem for many agencies that have ~~materially affected,~~had to rely on multiple disparate systems to work cases. Using the software, investigators benefit from a single digital case folder that includes all elements related to a case. Analytical and collaboration tools help investigators connect the dots and share information faster while reporting helps package cases for command staff and prosecutors. With CaseBuilder, we offer a more complete platform to enable intelligence-driven prevention, response to, and investigation of crime for local, state and federal agencies. In May 2023, we renamed LEEDS to Technologic Solutions, LLC (“Technologic”).

In January 2022, we acquired Forensic Logic, LLC ("Forensic Logic"), a leading provider of cloud-based data services to U.S. law enforcement and public safety agencies to enable powering the industry's most advanced search and analysis technology. We believe combining lead generation from Forensic Logic's CrimeTracer solution (formerly COPLINK X) with our CaseBuilder case management solution can accelerate crime solving solutions and improve clearance rates.

In August 2023, we acquired SafePointe, a provider of an AI-driven next-generation concealed weapons detection solution, and added this technology to our SafetySmart platform.

Since our founding over 26 years ago, we have been a purpose-led company. We are a mission-driven organization that focuses on improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing solutions to help them better engage and strengthen the police-community relationships in fulfilling their sworn obligation to equally serve and protect all. Our inspiration comes from our principal founder, Dr. Bob Showen, who believes that the highest and best use of technology is to promote social good. We are committed to developing comprehensive, respectful, and engaged partnerships with law enforcement agencies, elected officials and communities focused on making a positive difference in the world.

We enter into subscription agreements that typically range from one to three years in duration. Substantially all of our ShotSpotter sales are to governmental agencies and universities, which often undertake a prolonged contract evaluation process that affects the size or the timing of our sales contracts and may likewise increase our customer acquisition costs. For a discussion of the risks associated with our sales cycle, see risks entitled “Our sales cycle can be lengthy, time-consuming and costly, and our inability to successfully complete sales could harm our business” and “Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our operating results until future periods” in Part II, Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q.

We rely on a limited number of suppliers and contract manufacturers to produce components of our solutions. We have no long-term contracts with these manufacturers and purchase from them on a purchase-order basis. Although we use a limited number of suppliers and contract manufacturers, we believe that we could find alternate suppliers or manufacturers if circumstances required us to do so, in part because a portion of the components required by our solutions are ~~reasonably likely~~available off the shelf. For a discussion of the risks associated with our limited number of suppliers, see risks entitled “We rely on a limited number of suppliers and contract manufacturers, and our proprietary ShotSpotter sensors are manufactured by a single contract manufacturer” in Part II, Item 1A, Risk Factors included in this Quarterly Report on Form 10-Q.

We generated revenues of $24.0 million and $18.8 million for the three months ended September 30, 2023 and 2022, respectively. Revenues from sales of ShotSpotter during the three months ended September 30, 2023 and 2022 represented approximately 69% and 74% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, accounted for 24% and 9% of our total revenues for the three months ended September 30, 2023, respectively, and 26% and 11% of our total revenues for the three months ended September 30, 2022, respectively.

We generated revenues of $66.7 million and $60.0 million for the nine months ended September 30, 2023 and 2022, respectively. Revenues from sales of ShotSpotter during the nine months ended September 30, 2023 and 2022 represented approximately 71% and 68% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, accounted for 25% and 9% of our total revenues for the nine months ended September 30, 2023, respectively, and 32% and 10% of our total revenues for the nine months ended September 30, 2022, respectively.

For the three months ended September 30, 2023 and 2022, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $23.5 million and $18.6 million, respectively, or 98% and 99% of total revenues, respectively. For the nine months ended September 30, 2023 and 2022, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $65.3 million and $59.3 million, respectively, or 98% and 99% of total revenues, respectively.

We may not be able to ~~materially affect,~~renew or extend our ~~internal~~contract with the City of Chicago when it expires in February 2024 and we are experiencing a delay in our ShotSpotter renewal with Puerto Rico. For a discussion of the risks associated with our contract renewals see the risk entitled “Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, ~~over financial reporting.~~including the availability of funding to our customers” in Part II, Item 1A, Risk Factors included in this Quarterly Report on Form 10-Q.

~~Inherent Limitations~~We had net income (loss) of $(1.9) million and $4.0 million for the three months ended September 30, 2023 and 2022, respectively, and net income (loss) of $(6.4) million and $7.4 million for the nine months ended September 30, 2023 and 2022, respectively. Our accumulated deficit was $98.8 million and $92.4 million at September 30, 2023 and December 31, 2022, respectively.

~~Our management,~~rapidly growing our business and believe that our future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, expand our international presence and increase sales of our security solutions. Our future growth will primarily depend on the market acceptance for outdoor gunshot detection solutions. Other challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive, and time-consuming, the fact that our typical sales cycle is often very long and difficult to estimate accurately, especially due to the changes in business cycles, funding and customer budget setting processes that have occurred through the pandemic that are continuing and periods of social unrest, and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we invest in research and development, increase awareness of our solutions, invest in new sales and marketing campaigns, often in different languages for international sales, and hire additional sales representatives to drive sales to continue to maintain our position as a market leader. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion.

We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and as a result of our acquisition of SafePointe, an AI-driven weapon detection system, the acquisition of intellectual property assets and by gaining new customers for SoundThinking Labs. We believe that developing and acquiring products for law enforcement in adjacent categories is a path for additional growth given our large and growing installed base of police departments who trust our products, support and way of doing business. The ability to cross-sell new products provides an opportunity to grow revenues per customer and lifetime value. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent. Consistent with this strategy, we expanded our suite of solutions with the acquisitions of Technologic, Forensic Logic and SafePointe.

With respect to international sales, we believe that we have the potential to expand our coverage within existing areas, and to pursue opportunities in Latin America and other regions of the world. By adding additional sales resources in strategic locations, we believe we will be better positioned to reach these markets. However, we recognize that we have limited international operational experience and currently operate in a limited number of regions outside of the United States. Operating successfully in international markets will require significant resources and management attention and will subject us to additional regulatory, economic and political risks. We may face additional challenges that may delay contract execution related to negotiating with governments in transition and the use of third-party integrations and consultants. Moreover, we anticipate that different political and regulatory considerations that vary across different jurisdictions could extend or make more difficult to predict the length of what is already a lengthy sales cycle.

Net new “go-live” cities and universities represent the number of cities and universities covered by deployments of our gunshot detection ShotSpotter solution that were formally approved by customers during the period, both from initial and expanded customer deployments, net of cities and universities that ceased to be “live” during the period due to customer cancellations. New cities and universities include deployed coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities and universities as a key business metric to measure our operational performance and market penetration. Our net new “go-live” cities and universities in the three and nine month periods ended September 30, 2023 and 2022 were as follows:

Our condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

We derive the majority of our revenues from subscription services. We recognize subscription fees ratably, on a straight-line basis, over the term of the subscription, which for new customers is typically one to three years in length. Customer contracts include one-time set-up fees for the set-up of our sensors in the customer’s coverage areas, training and third-party integration licenses. If the set-up fees are deemed to be a material right, they are recognized ratably over the contract term. Training and third-party integration license fees are recognized upon delivery.

For ShotSpotter sales to cities, we generally invoice customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. For CrimeTracer, we generally invoice customers 100% of the total contract value when the subscription service is operational, which is often soon after contract execution. For SafePointe, we generally invoice the first year's subscription price when the contract is fully executed. All fees billed in advance of services being delivered are recorded as deferred revenue. The timing of when new miles go live can be uncertain and, as a result, can have a significant impact on the levels of revenues and deferred revenue from quarter to quarter. For ShotSpotter, our pricing model is based on a per-square-mile basis. For

ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate, contracts are priced on a customized-site basis. For ResourceRouter and CrimeTracer, pricing is generally tied to the number of sworn police officers in a particular agency. We may also offer discounts or other incentives in conjunction with all sales in an effort to introduce the product, accelerate sales or extend renewals for a longer contract term. As a result of our process for invoicing contracts and renewals upon execution, our cash flow from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment.

We generally invoice subscription service renewals for 100% of the total contract value when the renewal contract is executed. Renewal fees are recognized ratably over the term of the renewal, which is typically one year. While most of our customers elect to renew their agreements, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, we stop recognizing subscription revenues at the end of the current contract term, even though we may continue to provide services for a period of time until the renewal process is completed. Once the renewal is complete, we recognize the ratable subscription revenues for the period between the expiration of the original term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription prior to the end of the contract term, remaining setup fees, if any, are immediately recognized.

Through Technologic, we generate revenues through the sale of (i) maintenance and support services and (ii) professional software development services to a single customer, through a sales channel intermediary. The sales channel intermediary contract includes a renewable subscription for software and related maintenance and support services. The contract also provides for the procurement of professional services, such as for software development and testing for product feature enhancements, by executing supplementary work orders. Using Technologic's technology, CaseBuilder is our case management solution that helps automate investigative work and improve case clearance rates for which pricing is generally based on the number of sworn police officers in a particular agency and revenue is recognized similar to our ShotSpotter products.

Through Forensic Logic, we generate revenues from subscriptions of CrimeTracer, cloud-based data services for advanced search and analysis tools. We also provide access to this technology platform to an intermediary to either be resold or combined with their own materials, software and/or services, to create an integrated solution that is provided to their end-user customers. We recognize this revenue net of margins paid to the intermediary.

We also generate revenues from CaseBuilder Crime Gun (formerly ShotSpotter GCM™), a first-of-its-kind digital case management solution that automates the process by which key information is input, captured and used to identify associated gun crime cases leading to the identification of persons of interest. Subscriptions for CaseBuilder Crime Gun recognize revenue similar to our ShotSpotter and CrimeTracer products.

With the acquisition of SafePointe, we generate revenues from subscriptions of our AI-based weapons detection system based on the number of entryways, or lanes, being covered.

It is likely that international deployments may have different payment and billing terms due to their local laws, restrictions or other customary terms and conditions.

SoundThinking Labs projects may or may not be revenue-producing. When they are revenue-producing, they are generally sold on a cost-plus basis.

We anticipate that, due to rising costs of inflation, our customers may experience increased expenditures resulting in budget shortfalls and changes in their business cycle, which may cause delays in their ability to approve proposals for contracts.

Costs include the cost of revenues and impairment of property and equipment. For ShotSpotter solutions, cost of revenues primarily includes depreciation expense associated with capitalized customer acoustic sensor networks, communication expenses, costs related to hosting our service applications, costs related to operating our IRC, providing remote and on-site customer support and maintenance and forensic services, providing customer training and onboarding services, certain personnel and related costs of operations, stock-based compensation and allocated overheads that include information technology, facility and equipment depreciation costs. Cost of revenues for our SafePointe solution will be

similar except that depreciation of the capitalized customer equipment will be smaller as the SafePointe customer equipment costs less.

Impairment of property and equipment is primarily attributable to our write-off of the remaining book value of sensor networks related to lost customers.

In the near term, we expect our cost of revenues to increase in absolute dollars as our installed base increases, although certain of our costs of revenues are fixed and do not need to increase commensurate with increases in revenues. We also expect cost of revenues to increase in absolute dollars as we continue to invest in our customer success capabilities to drive growth and value for our customers.

For revenues generated through the sale of proprietary software licenses and related maintenance and support services and professional software development services, cost of revenues generally includes employee compensation costs that are relatively fixed, third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging.

The cost of revenues for CrimeTracer is generally related to employee compensation costs and data center hosting services, both of which are relatively fixed.

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Consultants, salaries, bonuses, stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense incurred in connection with the grant of stock options and restricted stock units to the applicable operating expense category based on the equity award recipient’s functional area.

We are focused on executing on our growth strategy. As a result, in the near term we expect our total operating expenses to increase in absolute dollars as we incur additional expenses due to growth. Although our operating expenses will fluctuate, we expect that over time, they will generally decrease as a percentage of revenues.

Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions, marketing expenses for trade shows and lead generation programs, consulting fees, travel and facility-related costs and allocated overhead.

We expect sales and marketing expenses will increase in the near-term in absolute dollars as we continue to grow our organization and may fluctuate from quarter to quarter based on the timing of commission expense, marketing campaigns and tradeshows.

Research and development expenses primarily consist of personnel-related costs attributable to our research and development personnel, consulting fees and allocated overhead. We have devoted our product development efforts primarily to develop new lower-cost sensor hardware, develop new features, improve functionality of our solutions and adapt to new technologies or changes to existing technologies.

We are investing in engineering resources to support further development of ResourceRouter, CaseBuilder, CrimeTracer and SafePointe. The focus of this effort will be in the areas of data science modeling, user experience, core application functionality and backend infrastructure improvements, including integration of ShotSpotter gunshot data to enhance forecasting of gun violence.

We are also investing in research and development resources in conjunction with our SoundThinking Labs projects and initiatives. The initial focus of these efforts is to develop innovative sensor applications as well as to test and expand the functionality of our outdoor sensors in challenging environmental conditions.

We will continue to invest in research and development to leverage our large and growing database of acoustic events, which includes those from both gunfire and non-gunfire. We also intend to leverage third-party artificial intelligence and our own evolving cognitive and analytical applications to improve the efficiency of our solutions. Certain of these applications and outputs may expand the platform of services that we will be able to offer our customers.

General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, and administrative personnel, legal, litigation, strategic communications, accounting and other professional services fees, and other corporate expenses and allocated overhead.

In the near term, we expect our general and administrative expenses to decrease in both absolute dollars and as a percentage of revenues related to certain expense savings initiatives that we have taken.

Other income (expense), net, consists primarily of interest income, interest expense and local and franchise tax expenses.

Our income taxes are based on the amount of our income before tax and enacted federal, state and foreign tax rates, adjusted for allowable credits and deductions, as applicable.

We continually monitor all positive and negative evidence regarding the realization of our deferred tax assets and may record assets when it becomes more likely than not that they will be realized, which may impact the expense or benefit from income taxes.

In assessing the realizabilityof deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We regularly assess the likelihood that the deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies, then record a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon our assessment of all available evidence, including the previous three years of income before tax after permanent items, estimates of future profitability, and our overall prospects of future business, we have determined that it is more likely than not that we will not be able to realize a portion of the deferred tax assets in the future. We will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If our actual results and updated projections vary significantly from the projections used as a basis for this determination, we mayneed to changethevaluationallowance against the grossdeferred tax assets.

The following table sets forth our selected condensed consolidated statements of operations data for the three months ended September 30, 2023 and 2022 (in thousands):

The increase in revenues of $5.2 million was primarily attributable to a $4.2 million increase in revenues from new customers, expansion of existing customer coverage areas, contributions from the SafePointe acquisition and an increase of $1.0 million in professional services revenue. We went live in seven new ShotSpotter cities and expanded in two current cities and one current university during the three months ended September 30, 2023.

The increase in cost of revenues of $1.8 million was due primarily to an increase in product costs due to the increase in our customer base and an increase in personnel costs.

Sales and marketing expense increased by $0.9 million, primarily due to salaries, commissions and other personnel costs as a result of increased headcount and increased revenue.

Research and development expense increased by $0.8 million, primarily due to increased headcount and outside consulting services expense.

General and administrative expense increased by $1.8 million and was due primarily to a $0.7 million increase in acquisition expenses related to our acquisition of SafePointe, a $0.5 million increase in legal costs and an increase of $0.6 million in personnel-related costs, consulting expense, travel costs, insurance and other costs.

We had a $0.1 million increase in the fair value of the Forensic Logic contingent consideration liability during the three months ended September 30, 2023 compared to a $5.5 million decrease in the fair value of the contingent

consideration liability during the three months ended September 30, 2022 related to revised 2022 and 2023 revenue forecasts due to delays in expected contracts by a small number of significant potential customers.

The increase in other expense, net was due to interest expense in 2023 related to the line of credit balance of $7.0 million.

Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, adjusted for allowable credits, deductions and the valuations allowance against deferred tax assets, as applicable. A $0.3 million provision for income taxes was recorded in the three months ended September 30, 2023. There was no provision for income taxes in the three months ended September 30, 2022.

The following table sets forth our selected condensed consolidated statements of operations data for the nine months ended September 30, 2023 and 2022 (in thousands):

The increase in revenues of $6.7 million was primarily attributable to a $8.9 million increase in revenues from new customers and expansion of existing customer coverage areas. This was offset by a decrease of $2.2 million from monthly support contracts due to a delayed amendment of a contract from late 2021 into January 2022, which supplemented monthly support contract revenues for the nine months ended September 30, 2022. We went live in 20 new ShotSpotter cities and one new university and expanded in 14 current customer sites and two current universities during the nine months ended September 30, 2023.

The increase in cost of revenues of $3.8 million was due primarily to an increase in product costs due to the increase in our customer base and an increase in personnel costs.

Sales and marketing expense increased by $2.9 million, primarily due to a $1.0 million increase in salaries, commissions and other personnel costs, $0.8 million of additional amortization of the COPLINK X tradename,

approximately $0.5 million related to a company-wide all-hands meeting associated with our rebranding launch, $0.4 million in increased marketing expenses and a $0.2 million write-off of unpaid invoices for Puerto Rico.

Research and development expense increased by $1.3 million, primarily due to increased headcount and outside consulting services.

General and administrative expense increased by $4.1 million and was due primarily to an increase in personnel-related costs, as well as increased outside consulting expense, legal expense and insurance costs.

The fair value of the Forensic Logic contingent consideration liability decreased by $8.8 million during the nine months ended September 30, 2022 based upon revised 2022 and 2023 revenue forecasts due to contract delays by a small number of significant potential customers which resulted in the decrease in contingent consideration expense. The decrease in the nine months ended September 30, 2023 was $0.9 million.

The decrease in other expense, net was due primarily to decreased local and franchise taxes and increased interest income due to rising interest rates offset by interest expense on our line of credit.

Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, adjusted for allowable credits, deductions and the valuations allowance against deferred tax assets, as applicable. A $0.6 million provision for income taxes was recorded in the nine months ended September 30, 2023. No provision for income taxes was recorded in the nine months ended September 30, 2022.

Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal ~~executive officer~~source of liquidity is cash and ~~principal financial officer,~~cash equivalents totaling $5.8 million and accounts receivable of $20.7 million as of September 30, 2023. On September 30, 2023, our available credit facility was approximately $18.0 million and we had $7.0 million outstanding on our line of credit, which was primarily used to fund our acquisition of SafePointe.

We believe our existing cash and cash equivalents, our available credit facility and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. We believe that despite our negative working capital, the costs to perform the short-term deferred revenue is relatively low compared to the balance of $37.2 million. However, should additional working capital be needed, we can utilize our unused credit facility. We believe that we will meet longer term expected future working capital and capital expenditure requirements through a combination of cash flows from operating activities, available cash balances and our available credit facility. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. We may also seek additional capital to fund our operations, including through the sale of equity or debt financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Additionally, there is no guarantee debt or equity financing will be available to us on terms that are favorable to us, or at all.

Our historical uses of cash have primarily consisted of cash used for operating activities, such as expansion of our sales and marketing operations, research and development activities and other working capital needs, and cash used in investing activities, such as property and equipment expenditures to install infrastructure in customer cities in order to deliver our solutions and acquisitions. Our expected material cash requirements are similar to our historical uses of cash as well as in connection with contingent earnouts, our stock repurchase program and repayment of any outstanding debt obligations under our credit facility, each as described below.

In August 2023, we acquired SafePointe for a purchase consideration of $25.6 million, consisting of $11.4 million in cash, subject to working capital adjustments, and the issuance of 549,579 shares of our common stock that was valued at $11.2 million at the time of acquisition. The purchase consideration also included contingent consideration valued at $3.0 million at the time of acquisition, which is related to a contingent earnout payable of up to $11.5 million based on SafePointe's revenues generated during the remainder of 2023 through 2025. Any earned amounts will be payable within approximately 120 days after the end of the target year.

In August 2023, we entered into an agreement to purchase patents, source codes and a customer list for $0.5 million in cash and $0.1 million in the form of 4,638 shares of our common stock, based on the closing price on the date of acquisition.

In January 2022, we acquired Forensic Logic for purchase consideration of $31.6 million, consisting of $4.9 million in cash, subject to working capital adjustments, and the issuance of 464,540 shares of our common stock that was valued at $14.3 million at the time of acquisition. The purchase consideration also included a contingent earnout payable up to $20.0 million based on Forensic Logic's revenues generated during the years ended December 31, 2022 and 2023. The earnout for 2022 was not earned, therefore no amounts will be paid in respect of this earnout in 2023. Up to $10.5 million in earnout will be payable based on Forensic Logic’s revenues generated during 2023. Any earned amounts will be payable within approximately 120 days after the end of 2023.

On November 24, 2020, we completed the acquisition of Technologic for a purchase consideration of $21.6 million in cash, subject to working capital adjustments, and the issuance of 63,901 shares of our common stock that were valued at $2.0 million at the time of acquisition. The purchase consideration also included a contingent earnout payable based on revenues generated during the years ended December 31, 2021 and 2022. The $1.5 million contingent earnout for 2022 was earned and paid in March 2023.

In November 2022, we announced that our board of directors had approved a stock repurchase program (the "2022 Repurchase Program") for up to $25.0 million of our common stock. The shares could be repurchased from time to time in open market transactions, in privately negotiated transactions or by other methods in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements. The stock repurchase program does not ~~expect that~~obligate us to purchase any particular amount of common stock and may be suspended or discontinued at any time.

During the nine months ended September 30, 2023, we repurchased 228,782 shares of our ~~disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors~~common stock at an average price of $24.41 per share for approximately $5.6 million, under the 2022 Repurchase Program. The repurchases were made in open market transactions using cash on hand, and all ~~fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives~~ of the ~~control system~~shares repurchased were retired. As of September 30, 2023, $19.4 million remains available under the 2022 Repurchase Program.

In September 2018, we entered into our Umpqua Credit Agreement, initially providing for borrowing capacity of $10.0 million. The agreement was amended in November 2022 to increase the size of our available credit facility to $25.0 million with an expiration date of October 15, 2024. The revolving loan facility is for general working capital purposes. Our available credit facility as of September 30, 2023 was $18.0 million. On September 30, 2023, there was $7.0 million outstanding on our line of credit. There were no borrowings outstanding as of December 31, 2022. The Umpqua Credit Agreement subjects us to certain restrictive and financial covenants, see the risk entitled “The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions” in Part II, Item 1A, Risk

Factors, included in this Quarterly Report on Form 10-Q. We are ~~met. Because~~in compliance with all the covenants under the Umpqua Credit Agreement as of September 30, 2023.

The following table presents a summary of our cash flows for the ~~inherent limitations~~nine months ended September 30, 2023 and 2022 (in thousands):

Our net income (loss) and cash flows provided by operating activities are significantly influenced by our increase in ~~all control systems, no evaluation~~headcount to support our growth, increase in legal expenses, outside services fees, and sales and marketing expenses, and our ability to bill and collect in a timely manner.

Net cash provided by operating activities during the nine months ended September 30, 2023 was $10.6 million compared to $10.1 million of ~~controls can provide absolute assurance~~cash provided by operating activities during the same period of 2022, an increase of $0.5 million. This was primarily due to increased accounts receivable collections and increased accounts payable and accrued expenses due to timing of invoices received and payments made, offset by an increase in prepaids and deferred product costs.

Our investing activities consist of business acquisition expenditures, capital expenditures to install our solutions in customer coverage areas and purchases of property and equipment.

Investing activities used $15.8 million in the nine months ended September 30, 2023. This was primarily driven by the acquisition of SafePointe for $11.0 million, $4.4 million used for investments in property and equipment installed for our solutions in customer coverage areas and $0.4 million used for investments in intangibles and other assets, including intellectual property assets. Investing activities used $13.7 million in the nine months ended September 30, 2022, primarily from the acquisition of Forensic Logic for $4.6 million and investments in property and equipment installed for our solutions in customer coverage areas.

Cash generated by financing activities includes net proceeds from the exercise of stock options, proceeds from the employee stock purchase plan purchases and proceeds from our line of credit, offset by payments for repurchases of our common stock and contingent earnout liabilities.

Financing activities generated $0.5 million in the nine months ended September 30, 2023. This was driven by $7.0 million in proceeds from our line of credit, $0.5 million in proceeds from our employee stock plan purchase and $0.1 million in proceeds from the exercise of stock options, offset by $5.6 million in payments for repurchases of our common stock and the payout of $1.5 million for the Technologic contingent consideration. Financing activities used $2.3 million during the nine months ended September 30, 2022, which was driven by $3.1 million in payments for repurchases of our common stock, offset by $0.5 million in proceeds from our employee stock purchase plan purchases and $0.3 million in proceeds from the exercise of stock options.

Our condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that ~~all control issues~~affect the reported amounts of revenues, assets, liabilities, costs and ~~instances~~expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances and evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

Our critical accounting estimates are described under the heading “Management’s Discussion and Analysis of ~~fraud, if any, within~~Financial Condition and Results of Operations—Critical Accounting Estimates” in our 2022 Annual Report on Form 10-K and the ~~Company~~notes to the audited consolidated financial statements appearing in our 2022 Annual Report on Form 10-K, filed with the SEC on March 14, 2023. As of September 30, 2023, there have been ~~detected. The design~~no material changes to our critical accounting policies and estimates from those disclosed in our 2022 Annual Report on Form 10-K.

See Note 2, Summary of ~~any system~~Significant Accounting Policies, in the notes to our condensed, consolidated financial statements included in this Quarterly Report on Form 10-Q.

Market risk represents the risk of ~~controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance~~loss that ~~any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls~~ may ~~become inadequate because of~~impact our financial position due to adverse changes in ~~conditions, or~~financial market prices and rates. Our market risk exposure is primarily the ~~degree~~result of ~~compliance with~~fluctuations in interest rates and foreign exchange rates and inflation.

There were no material changes in our market risk during the ~~policies or procedures may deteriorate. Because~~nine months ended September 30, 2023, compared to the market risk disclosed in the Qualitative and Quantitative Disclosures About Market Risk section of ~~the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.~~our 2022 Annual Report on Form 10-K.

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13-a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In August 2023, we completed the acquisition of SafePointe. We continue to integrate internal controls at SafePointe into our control structure. With the exception of these changes, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The information contained under the heading “Commitments and Contingencies” in Note 14 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item.

On November 6, 2017, three individuals, Ken Fisher, Kevin Baxter and Fred Holmes (the “Contractors”), filed a complaint with the Superior Court of California, County of Alameda, alleging breach of contract, a breach of the implied covenant of good faith and fair dealing and violation of Section 17200 et seq. of the California Business and Professions Code, purportedly predicated on an alleged breach of Section 10b-5 of the Securities Exchange Act of 1934, based on the Contractors’ claim that they were entitled to be granted options to purchase 350,000 shares of our common stock on the basis of a term sheet between us and the Contractors signed in July 2007. The Contractors claim that our subsequent one-for-five and one-for-17 reverse stock splits should not apply to their option awards. On the basis of their allegations, the Defendants have petitioned for approximately $6.5 million in damages and other costs and expenses, including attorneys’ fees. We believe that the Contractors’ claims are without merit and intend to dispute them vigorously.

From time to time, we may become in involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment, and other matters. While certain matters to which we are a party may specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.

An unfavorable outcome on any litigation matters could require us to pay substantial damages, or, in connection with any intellectual property infringement claims, could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operating results, financial condition and cash flows.

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this report, including our ~~condensed~~ consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described in our previous Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. If any of the following risks is realized, our business, operating results, financial condition and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. Moreover, the risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition. You should carefully consider these risk factors, together with all of the other information included in this ~~report~~Quarterly Report on Form 10-Q as well as our other publicly available filings with the SEC.

~~Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, including the availability of funding to our customers.~~

To date, substantially all of our revenues have been derived from contracts with local governments and their agencies, in particular the police departments of major cities in the United States. To a lesser extent, we also generate revenues from federal agencies, foreign governments and higher education institutions. We believe that the success and growth of our business will continue to depend on our ability to add new police departments and other government agencies as customers of our public safety solution and new universities, corporate campuses and key infrastructure and transportation centers as customers of our security solutions. Many of our target customers have restricted budgets, such that we are forced to compete with programs or solutions that offer an alternative use of the same funds. A number of factors could cause potential customers to delay or refrain from purchasing our solutions or prevent expansion of their use of our solutions, including:

The occurrence of any of the foregoing would impede our ability to maintain or increase the amount of revenues derived from these customers, which could have a material adverse effect on our business, operating results and financial condition.

~~Contracting with government entities can be complex, expensive and time-consuming.~~

The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties, disruptions or limitationsInvesting in our ~~ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.~~

~~Changes~~common stock involves risks, including those discussed in the underlying regulatory conditions, political landscape or required procurement procedures that affect these types of customers could be introduced prior to the completion of our sales cycle, making it more difficult or costly to finalize a contract with a new customer or expand or renew an existing customer relationship. For example, customers may require a competitive bidding process with extended response deadlines, review or appeal periods, or customer attention may be diverted to other government matters, postponing the consideration of the purchase of our products. Such delays could harm our ability to provide our solutions efficiently and to grow or maintain our customer base.

~~If we are unable to maintain and expand coverage of our existing public safety customer accounts and further penetrate the public safety market, our revenues may not grow.~~

Our ability to increase revenues will depend in large part on our existing public safety solution customers renewing their annual subscriptions and expanding their mileage coverage. Most of our ShotSpotter Flex customers begin using our solution in a limited coverage area. Our experience has been, and we expect will continue to be, that after the initial implementation of our solutions, our new customers typically renew their annual subscriptions, and many also choose to expand their coverage area. If our existing customers do not renew their subscriptions, our revenues may decrease. However, some customers may choose to not renew or reduce their coverage. For example, as a result of widespread destruction caused by recent hurricanes in Puerto Rico and the U.S. Virgin Islands, we discontinued our service to our customers in coverage areas in those locations and we classified the contracts as expired because the customers were no longer live. The Housing Authority of Puerto Rico was historically one of our largest customers, and represented approximately 12% and 10% of our revenues for the year ended December 31, 2016 and the nine months ended September 30, 2017. We cannot be certain when or if our customers in Puerto Rico and the U.S. Virgin Islands will recover their infrastructure and become live customers again. If other existing customers do not choose to renew or expand their coverage areas, our revenues will not grow as we anticipate.

~~Our ability to further penetrate the market for our public safety solution depends on several factors, including: maintaining a high level of customer satisfaction and a strong reputation~~this section. These risks include, among law enforcement; increasing the awareness of our ShotSpotter Flex solution and its benefits; the effectiveness of our marketing programs; the availability of funding to our customers; and the costs of our ShotSpotter solution. Some potential public safety customers may be reluctant or unwilling to use our solution for a number of reasons, including concerns about additional costs, unwillingness to expose or lack of concern regarding the extent of gun violence in their community, uncertainty regarding the reliability and security of cloud-based offerings or lack of awareness of the benefits of our public safety solution. If we are unsuccessful in expanding the coverage of ShotSpotter Flex by existing customers or adding new ShotSpotter Flex customers, our revenues and growth prospects would suffer.others:

~~If we are unable to sell our solutions into new markets, our revenues may not grow.~~

Part of our growth strategy depends on our ability to increase sales of our security solutions and add new customers for our public safety solution in markets outside of the United States. Any new market into which we attempt to sell our solutions may not be receptive. Our ability to penetrate new markets depends on the quality of our solutions, the continued acceptance of our public safety solution by law enforcement, the perceived value of our security solutions as a risk management tool and our ability to design our solutions to meet the demands of our customers and users. If the markets for our solutions do not develop as we expect, our revenues may not grow.

Our ability to successfully face these challenges depends on several factors, including increasing the awareness of our solutions and their benefits; the effectiveness of our marketing programs; the costs of our solutions; our ability to attract, retain and effectively train sales and marketing personnel; and our ability to develop relationships with communication carriers and other partners. If we are unsuccessful in developing and marketing our solutions into new markets, new markets for our solutions might not develop or might develop more slowly than we expect, either of which would harm our revenues and growth prospects.

~~Our sales cycle can be lengthy, time-consuming and costly, and our inability to successfully complete sales could harm our business.~~

Our sales process involves educating prospective customers and existing customers about the use, technical capabilities and benefits of our solutions. Prospective customers, especially government agencies, often undertake a prolonged evaluation process that may last up to nine months or more and that typically involves comparing the benefits of our solutions to alternative uses of funds. We may spend substantial time, effort and money on our sales and marketing efforts without any assurance that our efforts will produce any sales.

~~Changes in the availability of federal funding to support local law enforcement efforts could impact our business.~~

Many of our customers rely to some extent on funds from the U.S. federal government in order to purchase and pay for our solutions. Any reduction in federal funding for local law enforcement efforts could result in our customers having less access to funds required to continue, renew, expand or pay for our solutions. For example, changes in policies with respect to “sanctuary cities” may result in a reduction in federal funds available to our current or potential customers. If federal funding is reduced or eliminated and our customers cannot find alternative sources of funding to purchase our solutions, our business will be harmed.

If our business does not grow as we expect, or if we fail to manage our growth effectively, our operating results and business prospects would suffer.

Our ability to successfully grow our business depends on a number of factors including our ability to:

As usage of our solutions grows, we will need to continue to make investments to develop and implement new or updated solutions, technologies, security features and cloud-based infrastructure operations. In addition, we will need to appropriately scale our internal business systems and our services organization, including the suppliers of our detection equipment and customer support services, to serve our growing customer base. Any failure of, or delay in, these efforts could impair the performance of our solutions and reduce customer satisfaction.

Further, our growth could increase quickly and place a strain on our managerial, operational, financial and other resources, and our future operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth. To manage our growth successfully, we will need to continue to invest in sales and marketing, research and development, and general and administrative functions and other areas. We are likely to recognize the costs associated with these investments earlier than receiving some of the anticipated benefits, and the return on these

investments may be lower, or may develop more slowly, than we expect, which could adversely affect our operating results.

If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new solutions or upgrades to our existing solutions, satisfy customer requirements, maintain the quality and security of our solutions or execute on our business plan, any of which could have a material adverse effect on our business, operating results and financial condition.

Our ~~business is dependent upon our ability~~quarterly results of operations may fluctuate significantly due to ~~deploy and deliver our solutions, and the failure to meet our customers~~’ ~~expectations could harm our reputation, which may have a material adverse effect on our business, operating results and financial condition.~~

Promoting and demonstrating the utility of our solutions as useful, reliable and important tools for law enforcement and security personnel is critical to the success of our business. Our ability to secure customer renewals and enter into new customer contracts is dependent on our reputation and our ability to deliver our solutions effectively. We believe that our reputation among police departments using ShotSpotter Flex is particularly important to our success. Our ability to meet customer expectations will depend on a wide range of factors, which makes our future results difficult to predict.

Our revenues and results of operations could vary significantly from quarter to quarter as a result of various factors, many of which are outside of our control, including:

For example, with regard to the concentration of our revenue, for the nine months ended September 30, 2023, the City of New ~~Year’s Day,~~York and the ~~Fourth~~City of ~~July~~Chicago, our two largest customers accounted for 25% and ~~Cinco de Mayo;~~9% of the Company’s total revenues, respectively. We may not be able to renew or extend our contract with the City of Chicago when it expires in February 2024 and we are experiencing a delay in our ShotSpotter renewal with Puerto Rico, see the risk entitled “Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, including the availability of funding to our customers”. Any delays in renewal of our contracts or any of the other factors above or other factors discussed elsewhere in this report may result in fluctuations in our revenues and operating results, meaning that quarter-to-quarter comparisons of our revenues, results of operations and cash flows may not necessarily be indicative of our future performance.

Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our solutions, our employees, our partners or others associated with any of these parties, may tarnish our reputation. Damage to our reputation may reduce demand for our solutions and would likely have a material adverse effect on our business, operating results and financial condition. Moreover, any attempts to rebuild our reputation may be costly and time-consuming, and such efforts may not ultimately be successful.

We may be unable to continue delivery of our solutions due to natural disasters, power outages or other events impacting us or our customers, which could harm our operating results and financial condition.*

We recognize revenue on a subscription basis as our solutions are provided to our customers over time. If our services are disrupted due to natural disasters, power outages or other events that we cannot control, as recently happened when hurricanes hit Puerto Rico and the U.S. Virgin Islands, we may not be able to ~~continue providing~~accurately predict our ~~solutions as expected.~~

~~When we stop providing coverage, we also stop recognizing~~future revenues as a result of the affected subscription agreement. If we are forced to discontinue our services due to natural disasters, power outages and other events outside of our control, our revenues may decline, which would negatively impact ouror results of ~~operations and financial condition.~~

Any of our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, tornadoes, hurricanes, wildfires, floods, nuclear disasters, acts of terrorism or other criminal activities, infectious disease outbreaks, and power outages, which may render it difficult or impossible for us to operate our business for some period of time. For example, our IRC and a data center that hosts some of our customer services are located in the San Francisco Bay Area, a region known for seismic activity. Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. Any disruptions in our operations could negatively impact our business and operating results, and harm our reputation.operations. In addition, we base our current and future expense levels on our operating plans and sales forecasts, and our operating expenses are expected to increase in the short term. Accordingly, we may not ~~carry business insurance or may not carry sufficient business insurance~~be able to reduce our costs sufficiently to compensate for ~~losses that may occur. Any such losses or damages~~an unexpected shortfall in revenues, and even a small shortfall in revenues could have a material adverse effect on our business, operating results and financial condition. In addition, the facilities of significant vendors, including the manufacturer of our proprietary acoustic sensor, may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or material adverse effects on our business.

Real or perceived false positive gunshot alerts or failure or perceived failure to generate alerts for actual gunfire could adversely affect our customers and their operations, damage our brand and reputationdisproportionately and adversely affect our ~~growth prospects~~financial results for that quarter. The variability and ~~results~~unpredictability of ~~operations.~~

~~A false positive alert, in which a non-gunfire incident is reported as gunfire,~~these and other factors could result in ~~an unnecessary rapid deployment~~our failing to meet or exceed financial expectations for a given period.

Because we generally recognize our subscription revenues ratably over the term of ~~police officers and first responders, which may raise unnecessary fear among~~our contract with a customer, fluctuations in sales will not be fully reflected in our operating results until future periods.

Our revenues are primarily generated from subscriptions to our solutions. With the ~~occupants~~exception of a ~~community~~small number of legacy customers, our customers do not have the right to take possession of our equipment or ~~facility,~~software platform. Revenues from subscriptions to our software platform are recognized ratably over the subscription period beginning on the date that the subscription is made available to the customer, which we refer to as the “go-live” date. Our agreements with our customers typically range from one to three years. As a result, much of the revenues that we report in each quarter are attributable to agreements entered into during previous quarters. Consequently, a decline in sales, customer renewals or market acceptance of our solutions in any one quarter would not necessarily be fully reflected in the revenues in that quarter and ~~may be deemed a waste of police~~would negatively affect our revenues and ~~first responder resources. A failure~~profitability in future quarters. This ratable revenue recognition also makes it difficult for us to ~~alert law enforcement or security personnel of actual gunfire could result~~rapidly increase our revenues through additional sales in ~~a less rapid response by police officers and first responders, increasing~~any period, as revenues from new customers generally are recognized over the ~~probability of injury or loss of life. Both false positive alerts and the failure to generate alerts of actual gunfire~~applicable agreement term. Our subscription-based approach may result in uneven recognition of revenues.

We recognize subscription revenues over the term of a subscription agreement. Once we enter into a ShotSpotter contract with a customer, ~~dissatisfaction, potential loss~~there is a delay until we begin recognizing revenues while we survey the coverage areas, obtain any required consents for installation, and install our sensors, which together can take up to several months or more. We begin recognizing revenues from a ShotSpotter sale only when all of ~~confidence~~these steps are complete and the solution is live.

The variation in the timeline for deploying our solutions and ~~potential liabilities to customers or other third parties, any of~~completing renewals may result in fluctuations in our revenues, which ~~could harm our reputation and adversely impact our business and operating results. Additionally, the perception of a false positive alert or of a failure to generate an alert, even where~~

our customers understand that our solutions were utilized correctly, could lead to negative publicity or harm the public perception of our solutions, which could harm our reputation and adversely impact our business and operating results.

Economic uncertainties or downturns, or political changes, could limit the availability of funds available to our customers and potential customers, which could materially adversely affect our business.

Current or future economic uncertainties or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political deadlock, natural catastrophes, such as the devastation caused by the hurricanes in Puerto Rico, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in funds available to our customers and potential customers and negatively affect the rate of growth of our business.

~~These economic conditions may make it extremely difficult for our customers and us to forecast and plan future budgetary decisions or business activities accurately, and they~~ could cause our ~~customers~~results to ~~reevaluate their decisions to purchase~~differ from projections. Additionally, while we generally invoice for 50% of the contract cost upon a customer’s go-live date, our solutions, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times or as a result of political changes, our customers may tighten their budgets and face constraints in gaining timely access to sufficient funding or other credit, which could result in an impairment of their ability to make timely payments to us. In turn, wecash flows may be ~~required to increase~~volatile and will not match our ~~allowance for doubtful accounts, which would adversely affect our financial results.~~revenues recognition.

We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry, or the impact of political changes. If the economic conditions of the general economy or industries in which we operate worsen from present levels, or if recent political changes result in less funding being available to purchase our solutions, our business, operating results, financial condition and cash flows could be adversely affected.

We have not been profitable ~~historically~~in the past and may not achieve or maintain profitability in the future.

We ~~have posted~~had a net loss ~~in each year since inception, including net losses~~ of ~~$1.5~~$6.4 million ~~and $1.6 million during the three months ended September 30, 2016 and 2017, respectively, and $6.0 million and $7.5 million during~~for the nine months ended September 30, ~~2016~~2023 and ~~2017, respectively. As~~as of September 30, ~~2017,~~2023, we had an accumulated deficit of ~~$95.1~~$98.8 million. Although we posted net income in 2019, 2020 and 2022, we had a net loss in 2021 and we had net losses prior to 2019. We are not certain whether ~~or when~~ we will ~~obtain a high~~be able to maintain enough ~~volume of~~revenues from sales of our solutions to sustain or increase our growth ~~or achieve~~ or maintain profitability in the future. We also expect our costs to increase in future periods, which could negatively affect our future operating results if our revenues do not increase. In particular, we expect to continue to expend substantial financial and other resources on:

These investments may not result in increased revenues or growth in our business. If we are unable to increase our revenues at a rate sufficient to offset the expected increase in our costs, our business, operating results and financial position may be harmed, and we may not be able to ~~achieve or~~ maintain profitability over the long term. Rising inflation rates has

resulted in decreased demand for our products and services and has increased our operating costs. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not ~~achieve or~~ maintain profitability in the future.

We may require additional capital to fund our business and support our growth, and our inability to generate and obtain such capital on acceptable terms, or at all, could harm our business, operating results, financial condition and prospects.

We intend to continue to make substantial investments to fund our business and support our growth. In addition, we may require additional funds to respond to business challenges, including the need to develop new features or enhance our solutions, improve our operating infrastructure or acquire or develop complementary businesses and technologies. As a result, in addition to the revenues we generate from our business and ~~the proceeds from~~ our ~~IPO,~~existing cash balances, we may need to engage in additional equity or debt financings to provide the funds required for these and other business endeavors. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain such additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected. In addition, our inability to generate or obtain the financial resources needed may require us to delay, scale back, or eliminate some or all of our operations, which may have a material adverse effect on our business, operating results, financial condition and prospects.

Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, including the availability of funding to our customers.

To date, substantially all of our revenues have been derived from contracts with local governments and their agencies, in particular the police departments of major cities in the United States. To a lesser extent, we also generate revenues from federal agencies, foreign governments and higher education institutions. We believe that the success and growth of our business will continue to depend on our ability to add new police departments and other government agencies, domestically and internationally, as customers of our public safety solution and new universities, corporate campuses and key infrastructure and transportation centers as customers of our security solutions. Many of our target customers have restricted budgets, such that we are forced to compete with programs or solutions that offer an alternative use of the same funds. A number of factors could cause current and/or potential customers to delay or refrain from purchasing our solutions, prevent expansion of, or reduce coverage areas and/or terminate use of our solutions, including:

For example, in April 2023, Brandon Johnson, who has publicly indicated his desire to end the City of Chicago’s contract with us, became Chicago’s Mayor. Our existing contract with the City of Chicago will remain in effect until

February 2024 and we may not be able to renew or extend our contract on reasonable terms, if at all. The City of Chicago is one of our largest customers and represented 9% of our total revenues for the nine months ended September 30, 2023 and 10% of our total revenues for the year ended December 31, 2022. Additionally, while we signed an interim contract with Puerto Rico through December 31, 2023, we are working on the delayed renewal with Puerto Rico, which represented 1.1% and 2.7% of our total revenues for the nine months ended September 30, 2023 and 2022, respectively, and 2.6% of our total revenues for the year ended December 31, 2022. If we are unable to renew our contract with the City of Chicago or Puerto Rico, this could have a material adverse effect on our operating results.

The recent and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and Israel and Hamas, and other macroeconomic pressures in the United States and the global economy such as rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, could also cause or exacerbate any of the foregoing. The occurrence of any of the foregoing would impede or delay our ability to maintain or increase the amount of revenues derived from these customers, which could have a material adverse effect on our business, operating results and financial condition.

Contracting with government entities can be complex, expensive, and time-consuming.

The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties, disruptions or limitations in our ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.

Government entities often require highly specialized contract terms that may differ from our standard arrangements. For example, if the federal government provides grants to certain state and local governments for our solutions, and such governments do not continue to receive these grants, then these customers have the ability to terminate their contracts with us without penalty. Government entities often impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. Compliance with these special standards or satisfaction of such requirements could complicate our efforts to obtain business or increase the cost of doing so. Even if we do meet these special standards or requirements, the increased costs associated with providing our solutions to government customers could harm our margins. Additionally, even once we have secured a government contract, the renewal process can be lengthy and as time-consuming as the initial sale, and we may be providing our service for months past the contract expiration date without certainty if the renewal agreement will be signed or not. During periods of economic uncertainty resulting from the recent and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and Israel and Hamas, and other macroeconomic pressures in the United States and the global economy such as rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, these risks are more pronounced than usual, as government entities struggle with reduced levels of resources related to implications of such global events.

Changes in the underlying regulatory conditions, political landscape or required procurement procedures that affect these types of customers could be introduced prior to the completion of our sales cycle, making it more difficult or costly to finalize a contract with a new customer or expand or renew an existing customer relationship. For example, customers may require a competitive bidding process with extended response deadlines, review or appeal periods, or customer attention may be diverted to other government matters, postponing the consideration of the purchase of our products. Such delays could harm our ability to provide our solutions efficiently and to grow or maintain our customer base.

If we are unable to further penetrate the public safety market, our revenues may not grow.

Our ability to increase revenues will depend in large part on our ability to sell our current and future public safety solutions. For example, our ability to have our ShotSpotter customers renew their annual subscriptions and expand their mileage coverage or purchase and implement our other products, such as CaseBuilder (formerly ShotSpotter Investigate) and ResourceRouter (formerly ShotSpotter Connect), drives our ability to increase our revenues. Most of our ShotSpotter customers begin using our solution in a limited coverage area. Our experience has been, and we expect will continue to

be, that after the initial implementation of our solutions, our new customers typically renew their annual subscriptions, and many also choose to expand their coverage area. However, some customers may choose to not renew or reduce their coverage. If existing customers do not choose to renew or expand their coverage areas, or choose to reduce their coverage, our revenues will not grow as we anticipate, or may even decline. During periods of economic uncertainty resulting from recent and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and Israel and Hamas, and other macroeconomic pressures in the United States and the global economy, such as rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, this risk is more pronounced than usual, as our customers’ priorities may change or they may have greater uncertainty regarding the availability of funding for our solutions as a result.

~~If cities~~solutions depends on several factors, including: maintaining a high level of customer satisfaction and a strong reputation among law enforcement; increasing the awareness of our SoundThinking solutions and their benefits; the effectiveness of our marketing programs; the availability of funding to our customers; geopolitical developments and other ~~government entities increase their efforts~~macroeconomic pressures as described above; our ability to ~~reduce~~expand our solutions; and the costs of our solutions. Some potential public safety customers may be reluctant or unwilling to use our solution for a number of reasons, including concerns about additional costs, unwillingness to expose or lack of concern regarding the extent of gun violence in their community, uncertainty regarding the reliability and security of cloud-based offerings or ~~our solutions gain visibility in~~lack of awareness of the market, companies could decide to enter into the public safety solution market and thereby increase the competition we face. In addition to other gunshot detection products, we also compete with other technologies and solutions targetingbenefits of our public safety ~~customers’ resources for law enforcement and crime prevention. Because there are several possible uses for these limited budgetary resources, if~~solutions. If we are ~~not able to compete successfully for these limited resources, our business may not grow as we expect, which could adversely impact~~unsuccessful in expanding the coverage of SoundThinking solutions by existing public safety customers or adding new customers, our revenues and ~~operating results.~~growth prospects would suffer.

~~The competitive landscape for~~Our sales cycle can be lengthy, time-consuming and costly, and our ~~security solutions is evolving.~~inability to successfully complete sales could harm our business.

~~The market for security solutions for university campuses, corporate campuses~~Our sales process involves educating prospective customers and ~~transportation~~existing customers about the use, technical capabilities and ~~key infrastructure centers includes~~benefits of our solutions. Prospective customers, especially government agencies, often undertake a ~~number of available options, such as video surveillance~~prolonged evaluation process that may last up to nine months or more and increased human security presence, in addition to indoor gunshot detection companies with which we compete. Because there are several possible uses of funds for campus security needs, we may face increased challenges in demonstrating or distinguishingthat typically involves comparing the benefits of ~~SST SecureCampus~~our solutions to alternative uses of funds. We may spend substantial time, effort and ~~ShotSpotter SiteSecure,~~money on our sales and marketing efforts without any assurance that our efforts will produce any sales.

In addition, in 2011 the Federal Bureau of Investigation’s (the “FBI”) Criminal Justice Information Services Division (the “CJIS”) issued the CJIS Security Policy, a set of standards for organizations that access criminal justice information (“CJI”). CJIS developed this policy to better protect the data it delivers to federal, state and local law enforcement agencies, from services like the National Crime Information Center, the Integrated Automated Fingerprint Identification System and the National Incident Based Reporting System. The policy is also designed to protect CJI that comes from sources other than the FBI. As part of the process of implementing CaseBuilder for a customer, we will have to complete a rigorous application process to become an approved CJIS compliant vendor. While this CJIS compliant vendor approval process is based upon the FBI’s CJIS Security Policy, a separate process will have to be completed in each state where CaseBuilder will be implemented.

We are continually improving our security, ~~solutions.~~compliance, and processes. Our general processes are based on the NIST-800-53 standard with some aspects also being controlled by CJIS. In the fourth quarter of 2022, an audit of our processes under a SOC2 Type 2 audit was completed. These initiatives require fiscal and time investments. Failure to obtain a SOC2 Type 2 audit report or to be compliant with the CJIS standard could adversely affect our reputation and sales, as well as the availability of our solutions in certain markets.

Additionally, events affecting our customers’ budgets or missions may occur during the sales cycle that could negatively impact the size or timing of a purchase after we have invested substantial time, effort and resources into a potential sale, contributing to more unpredictability in the growth of our business. If we are unable to ~~demonstrate~~succeed in closing sales with new and existing customers, our business, operating results and financial condition will be harmed. During periods of economic uncertainty resulting from the ~~benefits~~recent and potential future disruptions in access to bank capital and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and Israel and Hamas, and other macroeconomic pressures in the United States and the global economy, such as rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, this risk is more pronounced than usual, as our customers’ priorities may change or they may have greater uncertainty regarding the availability of funding for our solutions as a result.

Changes in the availability of federal funding to support local law enforcement efforts could impact our business.

Many of our ~~security~~customers rely to some extent on funds from the U.S. federal government in order to purchase and pay for our solutions. Any reduction in federal funding for local law enforcement efforts could result in our customers having less access to funds required to continue, renew, expand or pay for our solutions. Social unrest, protests against racial inequality, protests against police brutality and movements such as “Defund the Police” have increased in recent years. These events may directly or indirectly affect municipal and police agency budgets, including federal funding available to current and potential customers. If federal funding is reduced or eliminated and our customers cannot find alternative sources of funding to purchase our solutions, our business will be harmed.

Federal stimulus funding or earnings as a result of the COVID-19 pandemic had been provided; however, we do not know whether additional stimulus funding will be made available to our existing or potential customers, and many state and local governments anticipate budget shortfalls without additional funding. Further, the allocation of and prioritization of stimulus funds or earnings is uncertain and may ~~not grow as we expect.~~

~~Failure~~change. There is no guarantee that additional funding will be made available to ~~effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of~~fund our solutions.

~~To increase total~~Real or perceived false positive gunshot alerts or false positive security threat detection, or failure or perceived failure to generate alerts for actual gunfire could adversely affect our customers and ~~customer coverage areas~~their operations, damage our brand and ~~to achieve broader market acceptance~~reputation and adversely affect our growth prospects and results of ~~our solutions, we will need to expand our sales and marketing organization and increase our business development resources, including the vertical and geographic distribution~~operations.

A false positive alert, in which a non-gunfire incident is reported as gunfire or detection of ~~our sales force and our teams~~items that do not actually represent security threats, could result in an unnecessary rapid deployment of ~~account executives focused on new accounts and responsible for renewal and growth of existing accounts.~~

Our business requires that our sales personnel have particular expertise and experience in working with law enforcement agencies, other government organizations and higher education institutions. We may not achieve revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel with appropriate experience, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.

~~Our solutions, including ShotSpotter Flex, SST SecureCampus and ShotSpotter SiteSecure, are designed to communicate real-time alerts of gunfire incidents to~~ police officers and first ~~responders. Due to~~responders, which may raise unnecessary fear among the ~~nature~~occupants of ~~such applications, we are potentially exposed to greater risks of liability for employee acts~~a community or ~~omissions or system failures than~~facility, and may be ~~inherent~~deemed a waste of police and first responder resources. A failure to alert law enforcement or security personnel of actual gunfire or security threats (false negative) could result in a less rapid or no response by police officers and first responders, increasing the probability of injury or loss of life. Both false positive alerts and the failure to generate alerts of actual gunfire or security threats (false negative) may result in customer dissatisfaction, potential loss of confidence in our solutions, and potential liabilities to customers or other ~~businesses. Although substantially all~~third parties, any of which could harm our reputation and adversely impact our business and operating results. Additionally, third parties may misunderstand or misrepresent what constitutes a false positive or false negative and generate negative publicity regarding our solutions. For example, a May 2021 report by the MacArthur Center for Justice appears to argue that any incident that does not result in a police report is a false positive. The perception of a false positive alert or of a failure to generate an alert, even where our customers understand that our solutions were utilized correctly, could lead to negative publicity or harm the public perception of our ~~customer agreements contain provisions~~solutions, which could harm our reputation and adversely impact our business and operating results.

limiting our liability to our customers, we cannot be certain that these limitations will be enforced or that the costs of any litigation related to actual or alleged omissions or failures would not have a material adverse effect on us even if we prevail. Further, certain of our insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence, and we cannot assure you that we are adequately insured against the risks that we face.

The nature of our business may result in undesirable press coverage or other negative ~~publicity.~~publicity, which could adversely affect our growth prospects and results of operations.

Our solutions are used to assist law enforcement and first responders in the event that gunfire is detected. Even when our solutions work as intended, the incidents detected by our solutions could lead to injury, loss of life and other negative outcomes, and such events are likely to receive negative publicity. If we fail to detect an incident, or if we detect an incident, such as a terrorist attack or active-shooter event, but the response time of law enforcement or first responders is not sufficiently quick to prevent injury, loss of life, property damage or other adverse outcomes, we may receive negative media attention.

~~In addition,~~ At times, our ~~solutions require that~~data or information concerning our ~~customers monitor alerts~~techniques and ~~respond timely~~processes may become a matter of public record due to ~~notifications~~legal or other obligations (for example, as a result of ~~gunshots. If our customers do not fully utilize our systems,~~public-records requests or subpoenas to provide information or to testify in court), and we may receive negative media attention as a result.

Our reputation and our business may be ~~subject to criticism and unflattering media coverage regarding the effectiveness of our solutions and the cost of our solutions to our customers. Such negative publicity~~harmed by inaccurate reporting, which could have an adverse impact on new sales or renewals or expansions of coverage areas by existing customers, which would adversely impact our financial results and future prospects. For example, in July 2021, VICE Media, LLC (“VICE”) falsely accused us of illegal behavior, which has had a material adverse effect on our business. We initiated a defamation lawsuit against VICE that has since been dismissed.

The role of our solutions and our personnel in criminal prosecutions or other court proceedings may result in unfavorable judicial rulings that generate negative publicity or otherwise adversely impact new sales or renewals or expansions of coverage areas by existing customers, which would adversely impact our financial results and future prospects. For instance, a court ruling limiting or excluding evidence related to information gathered through our systems or to the operation of our systems in a judicial proceeding could harm public perceptions of our business and solutions.

Economic uncertainties or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in the United States and abroad, including recent and potential future disruptions in access to bank deposits and lending commitments due to bank failures, conditions resulting from changes in gross domestic product growth, labor market shortages, inflation, interest rates, financial and credit market fluctuations, political deadlock, natural catastrophes, warfare, geopolitical tensions, such as the ongoing military conflicts between Russia and Ukraine and Israel and Hamas, terrorist attacks, climate change and global pandemics, could cause a decrease in funds available to our customers and potential customers and negatively affect the rate of growth of our business.

These economic conditions may make it extremely difficult for our customers and us to forecast and plan future budgetary decisions or business activities accurately, and they could cause our customers to reevaluate their decisions to purchase our solutions, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times or as a result of political changes, our customers may tighten their budgets and face constraints in gaining timely access to sufficient funding or other credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.

If cities and other government entities increase their efforts to reduce gun violence or our solutions gain visibility in the market, companies could decide to enter into the public safety solution market and thereby increase the competition we face. In addition to other gunshot detection products, we also compete with other technologies and solutions targeting our public safety customers’ resources for law enforcement and crime prevention. Our competitors could benefit from the disclosure of our data or information concerning our techniques and processes due to legal or other obligations (for example, as a result of public-records requests or subpoenas to provide information or to testify in court). Because there are several possible uses for these limited budgetary resources, if we are not able to compete successfully for these limited resources, our business may not grow as we expect, which could adversely impact our revenues and operating results.

Concerns regarding privacy and government-sponsored surveillance may deter customers from purchasing our solutions.

Governmental agencies and private citizens have become increasingly sensitive to real or perceived government or third-party surveillance and may wrongly believe that our outdoor sensors allow customers to listen to private conversations and monitor private citizen activity. Our sensors are not designed for “live listening” and are triggered only by loud impulsive sounds that may likely be gunfire. However, perceived privacy concerns may result in negative media coverage and efforts by private citizens to persuade municipalities, educational institutions or other potential customers not to purchase our precision policing solutions for their communities, campuses or facilities. In addition, laws may exist or be enacted to address such concerns that could impact our ability to deploy our solutions. For example, the City of Toronto, Canada decided against using SoundThinking solutions because the Ministry of the Attorney General of Ontario indicated that it may compromise Section 8 of Canada’s Charter of Rights and Freedoms, which relates to unreasonable search and seizure. If customers choose not to purchase our solutions due to privacy or surveillance concerns, then the market for our solutions may develop more slowly than we expect, or it may not achieve the growth potential we expect, any of which would adversely affect our business and financial results.

Ongoing social unrest may result in a material adverse effect on our business, the future magnitude or duration of which we cannot predict with accuracy.

We may be adversely affected by ongoing social unrest, protests against racial inequality, protests against police brutality and movements such as “Defund the Police” or increases in such unrest that may occur in the future, and such unrest may be exacerbated by inaccurate information or negative publicity regarding our solutions. These events may directly or indirectly affect police agency budgets and funding available to current and potential customers. Participants

in these events may also attempt to create the perception that our solutions are contributing to the “problem” which may adversely affect us, our business and results of operations, including our revenues, earnings and cash flows from operations.

If we are unable to sell our solutions into new markets, our revenues may not grow.

Part of our growth strategy depends on our ability to increase sales of our security and public safety solutions in markets outside of the United States. We are focused on expanding the sales of these solutions into new markets, but customers in these new markets may not be receptive or sales may be delayed beyond our expectations, causing our revenue growth and growth prospects to suffer. During periods of economic uncertainty resulting from the recent and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and Israel and Hamas, and other macroeconomic pressures in the United States and the global economy such as rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, this risk is more pronounced than usual.

The failure of our solutions to meet our customers’ expectations or of our solutions generally could, in some cases, result in injury or loss of life, and could harm our reputation, which may have a material adverse effect on our business, operating results and financial condition.

Promoting and demonstrating the utility of our solutions as useful, reliable and important tools for law enforcement and security personnel is critical to the success of our business. Our ability to secure customer renewals, expand existing customer coverage areas, and enter into new customer contracts is dependent on our reputation and our ability to deliver our solutions effectively. We believe that our reputation among police departments using SoundThinking solutions is particularly important to our success. Our ability to meet customer expectations will depend on a wide range of factors, including:

In some cases, if our solutions fail to detect threats such as a firearm or other potential weapon or explosive device, or if our products contain undetected errors or defects, these failures or errors could result in injury or loss of life, which could harm our brand and reputation, subject us to litigation and potential claims against us, and have an adverse effect on our business, operating results and financial condition. There is no guarantee that our solutions will detect and prevent

all attacks, especially in light of the rapidly changing security landscape to which it must respond, as well as unique factors that may be present in our customers’ operating environments. If our products fail to detect security threats for any reason, including failures due to customer personnel or security processes, it may also result in significant costs, the attention of our key personnel could be diverted, our customers may delay or withhold payment to us or elect not to renew or cause other significant customer relations problems to arise.

Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and results of operations.

We have in the past experienced, and may in the future experience, performance issues due to a variety of factors, including infrastructure changes, human or software errors, intentional or accidental damage to our technology (including sensors), website or third-party hosting disruptions or capacity constraints due to a number of potential causes including technical failures, natural disasters or security attacks. If our security is compromised, our platform is unavailable or our users are unable to receive our alerts or otherwise communicate with our IRC reviewers, within a reasonable amount of time or at all, our business could be negatively affected. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

~~Our~~In addition, our IRC ~~is located in a single facility. Although the functions~~department personnel operate either remotely or out of our ~~IRC can be performed remotely, any~~offices. Any interruption or delay in service from our IRC, such as from a communications or power outage, could limit our ability to deliver our solutions. In addition, it may become increasingly difficult to maintain and improve the performance of our solutions, especially during peak usage times as the capacity of our IRC operations reaches its limits. If there is an interruption or delay in service from our IRC operations and a gunshot is detected but not reviewed in the allotted time, our software will ~~send an alert directly~~flag the incident for off-line review. This may result in delayed notifications to our ~~customers. These automatic notifications, without the benefit of review by our IRC, may be more likely to result in~~ customers ~~receiving a false positive alert, which could cause our customers to divert resources unnecessarily. As~~and as a result, we could experience a decline in customer satisfaction with our solutions and our reputation and growth prospects could be harmed.

We expect to continue to make significant investments to maintain and improve the performance of our solutions. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business, operating results and financial condition may be adversely affected.

We rely on wireless carriers to provide access to wireless networks through which our acoustic sensors communicate with our cloud-based backend and with which we provide our notification services to customers, and any interruption of such access would impair our business.

We rely on wireless carriers, mainly AT&T and Verizon, to provide access to wireless networks for machine-to-machine data transmissions, which are an integral part of our services. Our wireless carriers may suspend wireless service to expand, maintain or improve their networks. These wireless carriers perform routine maintenance and periodic software and firmware updates that may damage our sensors or make them inoperable. Any suspension or other interruption of services would adversely affect our ability to provide our services to our customers and may adversely affect our reputation. In addition, the terms of our agreements with these wireless carriers provide that either party can cancel or terminate the agreement for convenience. If one of our wireless carriers were to terminate its agreement with us, we would need to source a different wireless carrier and/or modify our equipment during the notice period in order to minimize disruption in the performance of our solutions. Price increases or termination by our wireless carriers or changes to existing contract terms could have a material adverse effect on our business, operating results and financial condition.

Furthermore, our reliance on wireless carriers may require updates to our technology and making such updates could also result in interruptions in our service or increase our costs of operations. We may not be able to successfully implement new technologies or adapt existing technologies to changing market demands. If we are unable to adapt timely to changing technologies, market conditions or customer preferences, our business, operating results and financial condition could be materially and adversely affected.

Natural disasters, infectious disease outbreaks, power outages or other events impacting us or our customers could harm our operating results and financial condition.

We recognize revenue on a subscription basis as our solutions are provided to our customers over time. If our services are disrupted due to natural disasters, infectious disease outbreaks, power outages or other events that we cannot control, we may not be able to continue providing our solutions as expected.

When we stop providing coverage, we also stop recognizing revenues as a result of the affected subscription agreement. If we are forced to discontinue our services due to natural disasters, power outages and other events outside of our control, our revenues may decline, which would negatively impact our results of operations and financial condition. In addition, we may face liability for damages caused by our sensors in the event of heavy weather, hurricanes or other natural disasters. We may also incur additional costs to repair or replace installed sensor networks damaged by heavy weather, hurricanes or other natural disasters.

Any of our facilities or operations may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, tornadoes, hurricanes, wildfires, floods, nuclear disasters, acts of terrorism or other criminal activities, global pandemics, and power outages, which may render it difficult or impossible for us to operate our business for some period of time or decrease productivity. For example, our primary IRC and a data center that hosts some of our customer services are located in the San Francisco Bay Area, a region known for seismic activity. Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. In addition, like many companies, at the beginning of the COVID-19 pandemic, we implemented a work from home policy. We expect to work in a hybrid work model for the foreseeable future. This policy may negatively impact productivity of our employees.

Any disruptions in our operations could negatively impact our business and operating results and harm our reputation. In addition, we may not carry business insurance or may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, operating results and financial condition. In addition, the facilities of significant vendors, including the manufacturer of our proprietary acoustic sensor, may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or material adverse effects on our business.

The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions.

On September 27, 2018, we entered into a senior secured revolving credit facility with Umpqua Bank (the “Umpqua Credit Agreement”) and in November 2022, we amended the Umpqua Credit Agreement to, among other things, extend the maturity date from November 27, 2022 to October 15, 2024, increase the revolving credit commitment from $20.0 million to $25.0 million and increase the letter of credit sub-facility from $6.0 million to $7.5 million. As of September 30, 2023, there was $7.0 million outstanding on our line of credit. We had no amounts outstanding as of December 31, 2022.

Under the Umpqua Credit Agreement, we are subject to various negative covenants that limit, subject to certain exclusions, our ability to incur indebtedness, make loans, invest in or secure the obligations of other parties, pay or declare dividends, make distributions with respect to our securities, redeem outstanding shares of our stock, create subsidiaries, materially change the nature of our business, enter into related party transactions, engage in mergers and business combinations, the acquisition or transfer of our assets outside of the ordinary course of business, grant liens or enter into collateral relationships involving company assets or reincorporate, reorganize or dissolve the company. These covenants could adversely affect our financial health and business and future operations by, among other things:

We are also required to maintain certain financial covenants tied to our leverage, interest charges and profitability. Our ability to meet such covenants (those negative covenants discussed in the preceding paragraph) or other restrictions can be affected by events beyond our control, and our failure to comply with the financial and other covenants would be an event of default under the Umpqua Credit Agreement. If an event of default under the Umpqua Credit Agreement, has occurred and is continuing, the outstanding borrowings thereunder could become immediately due and payable, and we would then be required to cash collateralize any letters of credit then outstanding, and the lender could refuse to permit

additional borrowings under the facility. We cannot assure you that we would have sufficient assets to repay those borrowings and, if we are unable to repay those amounts, the lender could proceed against the collateral granted to them to secure such indebtedness. We have pledged substantially all of our assets as collateral, and an event of default would likely have a material adverse effect on our business.

The market for security solutions for university campuses, corporate campuses and transportation and key infrastructure centers includes a number of available options, such as video surveillance and increased human security presence. Because there are several possible uses of funds for security needs, we may face increased challenges in demonstrating or distinguishing the benefits of ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate. In particular, while we have seen growing interest in our security solutions, interest in the indoor gunshot detection offering was limited, and as a result, in June 2018, we made the strategic decision to cease indoor coverage as part of our service offering.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our solutions.

To increase total customers and customer coverage areas and to achieve broader market acceptance of our solutions, we will need to expand our sales and marketing organization and increase our business development resources, including the vertical and geographic distribution of our sales force and our teams of account executives focused on new accounts and responsible for renewal and growth of existing accounts.

During the COVID-19 pandemic, this risk was more pronounced than usual, as our sales and marketing organization were unable to travel and meetings with our current and potential customers were more difficult to conduct.

Our strategy includes pursuing acquisitions, and our inability to successfully integrate newly acquired technologies, assets or businesses, or our becoming subject to certain liabilities assumed or incurred with our acquisitions, may harm our financial results. Future acquisitions of technologies, assets or businesses, which are paid for partially or entirely through the issuance of stock or stock rights, could dilute the ownership of our existing stockholders.

We acquired Technologic in November 2020, Forensic Logic in January 2022 and SafePointe and intellectual property assets in August 2023 in order to enhance our SafetySmart platform. We will continue to evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our platform and applications, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.

We believe that part of our continued growth will be driven by acquisitions of other companies or their technologies, assets, businesses and teams. Acquisitions in the future that we complete will give rise to risks, including:

Fully integrating an acquired technology, asset or business into our operations may take a significant amount of time. We may not be successful in overcoming these risks or any other problems encountered with the acquisition of and integration of Technologic, Forensic Logic and SafePointe, intellectual property assets acquired or any future acquisitions. To the extent that we do not successfully avoid or overcome the risks or problems related to any such acquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financial position and capital requirements or could cause fluctuations in our quarterly and annual results of operations. Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings. We may incur significant costs in our efforts to engage in strategic transactions and these expenditures may not result in successful acquisitions.

Additionally, there may be liabilities that we fail to discover while conducting due diligence for acquisitions, that we inadequately assess or that are not properly disclosed to us. In particular, to the extent that any acquired company failed to comply with or otherwise violated applicable laws or regulations, failed to fulfill contractual obligations to counterparties or incurred material liabilities or obligations to other parties that are not identified during the diligence process, we, as the successor owner, may be financially responsible for these violations, failures and liabilities and may suffer financial or reputational harm or otherwise be adversely affected. We also may be subject to litigation or other claims in connection with an acquired company. Any material liabilities we incur that are associated with our acquisitions could harm our business, operating results and financial condition.

We expect that the consideration we might pay for any future acquisitions of technologies, assets, businesses or teams could include stock, rights to purchase stock, cash or some combination of the foregoing. If we issue stock or rights to purchase stock in connection with future acquisitions, net income per share and then-existing holders of our common stock may experience dilution.

Our gunshot detection solutions are designed to communicate real-time alerts of gunfire incidents to police officers and first responders. Similarly, our weapons detection solution obtained from our SafePointe acquisition is designed to identify potential threats and alert security personnel. Due to the nature of such applications, we are potentially exposed to greater risks of liability for employee acts or omissions or system failures than may be inherent in other businesses. Although substantially all of our customer agreements contain provisions limiting our liability to our customers, we cannot be certain that these limitations will be enforced or that the costs of any litigation related to actual or alleged omissions or failures would not have a material adverse effect on us even if we prevail. Further, certain of our insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence, or other issues, such as damages caused due to installation of our sensors on buildings owned by third parties, and we cannot assure you that we are adequately insured against the risks that we face.

Real or perceived errors, failures or bugs in our software could adversely affect our operating results and growth prospects.

Because our software is complex, undetected errors, failures or bugs may occur. Our software is often installed and used with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which it is deployed. In addition, deployment of our software into computing environments may expose undetected errors, compatibility issues,

failures or bugs in our software. Despite our testing, errors, failures or bugs may not be found in our software until it is released to our customers. Moreover, our customers could incorrectly implement or inadvertently misuse our software, which could result in customer dissatisfaction and adversely impact the perceived utility of our products as well as our brand. Any of these real or perceived errors, compatibility issues, failures or bugs in our software could result in negative publicity, reputational harm, loss of or delay in market acceptance of our software, loss of

competitive position or claims by customers for losses sustained by them. In any such event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to correct the problem. Alleviating any of these problems could require significant expenditures of our capital and other resources and could cause interruptions or delays in the use of our solutions, which could cause us to lose existing or potential customers and could adversely affect our operating results and growth prospects.

Interruptions or delays in service from our third-party providers could impair our ability to make our solutions available to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenues.

We currently use third-party data center hosting facilities to host certain components of our solutions. Our operations depend, in part, on our third-party providers’ abilities to protect these facilities against damage or interruption from natural disasters, power or communications failures, cyber incidents, criminal acts and similar events. In the event that any of our third-party facility arrangements is terminated, or if there is a lapse of service or damage to a facility, we could experience service interruptions in our solutions as well as delays and additional expenses in arranging new facilities and services. People continuing to work remotely mayincrease the likelihood of service interruptions or cyber incidents at these data center hosting facilities. Any changes in third-party service levels at our data centers or any errors, defects, disruptions, cyber incidents or other performance problems with our solutions could harm our reputation.

Any damage to, or failure of, the systems of the communications providers with whom our ~~third-party providers~~data center provider contracts could result in interruptions to our solutions. ~~Despite precautions taken at our data centers, the~~The occurrence of spikes in usage volume, natural disasters, cyber incidents, acts of terrorism, vandalism or sabotage, closure of a facility without adequate notice or other unanticipated problems could result in lengthy interruptions in the availability of our services. Problems faced by ~~our third-party data center locations, with the~~these network providers, ~~with whom they contract,~~ or with the systems by which ~~our communications providers~~they allocate capacity among their customers, including us, could adversely affect the experience of our customers. People continuing to work remotely may increase the likelihood of these problems with such network providers and their capacity allocation systems. Interruptions in our services might cause us to issue refunds to customers and subject us to potential liability.

Further, our insurance policies may not adequately compensate us for any losses that we may incur in the event of damage or interruption, and therefore the occurrence of any of the foregoing could subject us to liability, cause us to issue credits to customers or cause customers not to renew their subscriptions for our applications, any of which could materially adversely affect our business.

If our ~~security measures~~information technology systems or data, or those of ~~our customers~~third parties upon which we rely, are or ~~third-party providers are~~were compromised, ~~or if unauthorized access to the data of our customers is otherwise obtained,~~ our solutions may be perceived as not being secure, our customers may be harmed and ~~may curtail~~we could experience adverse consequences, including but not limited to regulatory investigations or ~~cease their use~~actions; litigation or mass arbitration demands; fines and penalties; disruptions of our ~~solutions, our~~business operations; reputation ~~may be damaged~~harm; loss of revenue or profits; loss of customers or sales; and ~~we may incur significant liabilities.~~other adverse consequences.

Our operations involve the collection, receipt, storage, storage processing, generation, use, transfer, disclosure, protection, disposal of, transmission, and ~~transmission~~sharing (collectively, “processing”) of proprietary, confidential, and sensitive data, including personal data, intellectual property, trade secrets and other sensitive information such as gunfire incident data, including date, time, address and GPS coordinates, occurring in our customer’s coverage ~~area. Security incidents, whether as a result of third-party action, employee or customer error, technology impairment or failure, malfeasance or~~area (collectively, “sensitive information”). Additionally, our systems read, write, store and transfer information from third parties including criminal ~~activity, could result in unauthorized access~~justice information. Access to ~~or loss or unauthorized disclosure~~some of this ~~gunfire incident~~ data is contingent on complying with federal and applicable state security policies, which ~~could result in litigation, indemnity obligations~~requires background checks, the use of encryption and compliance with other information security policies.

Cyber-attacks, malicious internet-based activity, online and offline fraud, and other ~~possible liabilities, as well as negative publicity,~~similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which ~~could damage our reputation, impair our sales~~we rely. Such threats are prevalent and ~~harm our customers and our business. Cyber incidents and malicious internet-based activity~~ continue to increase generally, and ~~providers~~are increasingly difficult to detect, and come from a variety of ~~cloud-based~~sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks,

including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we, the third parties upon which we rely, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake, phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, credential stuffing, credential harvesting, personnel misconduct or error, and supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, attacks enhanced or facilitated by artificial intelligence (“AI”), telecommunications failures, earthquakes, fires, floods, and other similar threats. For example, in November 2023, we discovered that a recently terminated employee logged on to an employee resource, obtained our confidential information, and posted some of the information publicly on social media. We took steps to remove the information and prevent the former employee from posting the information again, but we are uncertain whether this will occur and to what extent the postings will affect our business or operations. In particular, ransomware attacks are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, ability to provide our products or services, ~~have been targeted.~~ loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.

If third parties with whom we work, such as vendors or developers, violate applicable laws or our security policies, such violations may also put our ~~gunfire incident~~systems and data at risk and could in turn have an adverse effect on our business. In addition, such a violation could expose ~~the locations~~sensitive data including; criminal justice information, and other data we are contractually obliged to keep confidential. Remote work has become more common and has increased risks to our information technology systems and data, as more of our ~~sensors,~~employees utilize network connections, computers and devices outside our premises or network, including ~~those sensors for which we obtained third-party consents that include confidentiality obligations.~~working at home, while in transit and in public locations. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because such techniques change frequently and often are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to customer data or other sensitive information. Further, because of the nature of the services that we provide to our customers, we may be a unique target for attacks. Future or past business transactions (such as acquisitions or integrations) expose us to additional cybersecurity risks and vulnerabilities, as we and our systems are negatively affected by vulnerabilities and weaker security controls present in acquired or integrated entities’ systems, products, processes and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies and their products into our information technology environment and security program.

We rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions. We also rely on third-party service providers to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.

Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our solutions.

We may expend significant resources or modify our business activities to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures or

industry-standard or reasonable security measures to protect our information technology systems and sensitive information.

While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident has occurred. Unremediated critical and high risk vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. For example, many governments have enacted laws requiring companies to notify individuals of data security incidents or unauthorized transfers involving certain types of personal information. In addition, some of our customers contractually require notification of any data security incident.

If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may cause customers to stop using our solutions, deter new customers from using our solutions, and negatively impact our ability to grow and operate our business. Furthermore, security incidents experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity and significant costs. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results. Further, the costs of compliance with notification laws and contractual obligations may be significant and any requirement that we provide such notifications as a result of an actual or alleged compromise could have a material and adverse effect on our business. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security incidents.

While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot assure you that such coverage would be adequate or would otherwise protect us from liabilities or damages with respect to claims alleging compromise or loss of data, or that such coverage will continue to be available on acceptable terms or at ~~all.~~all, or that such coverage will pay future claims.

37In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position. Additionally, sensitive information of the Company or our customers could be leaked, disclosed, or revealed as a result of or in connection with our employee's, personnel's, or vendor's use of generative artificial intelligence technologies.

We rely on the cooperation of customers and third parties to permit us to install our ShotSpotter sensors on their facilities, and failure to obtain these rights could increase our costs or limit the effectiveness of our ShotSpotter ~~Flex~~ solution.

Our ShotSpotter ~~Flex~~ solution requires us to deploy ShotSpotter sensors in our customer coverage areas, which typically entails the installation of approximately 15 to 2025 sensors per square mile. The ShotSpotter sensors are mounted on city facilities and third-party buildings, and occasionally on city or utility-owned light poles, and installing the sensors requires the consent of the property owners, which can be time-consuming to obtain and can delay deployment. Generally, we do not pay a site license fee in order to install our sensors, and our contractual agreements with these facility owners provide them the right to revoke permission to use their facility with notice of generally 60 days.

To the extent that required consents delay our ability to deploy our solutions or facility owners do not grant permission to use their facilities, revoke previously granted permissions, or require us to pay a site license fee in order to

install our sensors, our business may be harmed. If we were required to pay a site license fee in order to install sensors, our deployment expenses would increase, which would impact our gross margins. If we cannot obtain a sufficient number of sensor mounting locations that are appropriately dispersed in a coverage area, the effectiveness of our ShotSpotter ~~Flex~~ solution would be limited, and we may need to reduce the coverage area of the ~~solution,~~solution. During the COVID-19 pandemic, our installation team had been unable to travel at times.

If we lose our ability to share a significant agency’s dataset in our CrimeTracer platform, our ability to sell that product may be adversely affected.

Agencies typically share their private CJIS data sets with us through subscription agreements. If we lose access to their data sets because of a technical problem, such as a ransomware attack, or weother issues that arise through no fault of our own that makes that data set inaccessible, this may ~~not be able to meet our service level requirements, any of which could~~ result in the loss of a customer ~~dissatisfaction or have~~to a ~~material adverse impact on our reputation, our business~~competitor, subscriptions not being renewed and ~~our financial results.~~may make it more difficult to sell CrimeTracer in that geographic region and to the federal market.

If we fail to offer high-quality customer support, our business and reputation may suffer.

We offer customer support 24 hours a day, seven days a week, as well as training on best practices, forensic expertise and expert witness services. Providing these services requires that our personnel have specific experience, knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of high-quality customer support will increase as we expand our business and pursue new customers. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services or scale our services if our business grows. Increased customer demand for these services, without corresponding revenues, could increase our costs and harm our operating results. If we do not help our customers use applications within our solutions and provide effective ongoing support, our ability to sell additional applications to, or to retain, existing customers may suffer and our reputation with existing or potential customers may be harmed.

We rely on wireless carriers to provide access to wireless networks through which our acoustic sensors communicate with our cloud network and with which we provide our notification services to customers, and any interruption of such access would impair our business.

We rely on wireless carriers, mainly AT&T and Verizon, to provide access to wireless networks for machine-to-machine data transmissions, which are an integral part of our services. Our wireless carriers may suspend wireless service to expand, maintain or improve their networks. Any suspension or other interruption of services would adversely affect our ability to provide our services to our customers and may adversely affect our reputation. In addition, the terms of our agreements with these wireless carriers provide that either party can cancel or terminate the agreement for convenience with 90 days’ notice. If one of our wireless carriers were to terminate its agreement with us, we would need to source a different wireless carrier and/or modify our equipment during the notice period in order to minimize disruption in the performance of our solutions. Price increases or termination by our wireless carriers or changes to existing contract terms could have a material adverse effect on our business, operating results and financial condition.

~~Our reliance on wireless carriers will require updates to our technology, and making such updates could result in disruptions in our service or increase our costs of operations.~~

The majority of our installed ShotSpotter sensors use third-generation, or 3G, cellular communications and we will continue to deploy 3G enabled sensors in 2017. Certain wireless carriers have advised us that they will discontinue their 3G services in the future and our ShotSpotter sensors will not be able to transmit on these networks. We will have to upgrade the sensors that use 3G cellular communications at no additional cost to our customers prior to the discontinuation of 3G services, the timing of which is uncertain. These sensor replacements will require significant capital expenditures and may also divert management’s attention and other important resources away from our customer service and sales efforts for new customers. We are currently developing a ShotSpotter sensor that will use fourth-generation (4G) Long-Term Evolution (LTE) wireless technology. In the future, we may not be able to successfully

implement new technologies or adapt existing technologies to changing market demands. If we are unable to adapt timely to changing technologies, market conditions or customer preferences, our business, operating results and financial condition could be materially and adversely affected.

We rely on a limited number of suppliers and contract manufacturers, and our proprietary ShotSpotter sensors are manufactured by a single contract manufacturer.

We rely on a limited number of suppliers and contract manufacturers. In particular, we use a single manufacturer, with which we have no long-term contract and from which we purchase on a purchase-order basis, to produce our proprietary ShotSpotter sensors. Our reliance on a sole contract manufacturer increases our risks since we do not currently have any alternative or replacement manufacturers, and we do not maintain a high volume of inventory. In the event of an interruption in our supply from aour sole contract manufacturer, we may not be able to develop alternate or secondary sources without incurring material additional costs and substantial delays. Furthermore, these risks could materially and adversely affect our business if one of our contract ~~manufacturer~~manufacturers is impacted by a natural disaster or other interruption at a particular location because each of our contract manufacturers produces our products from a single location. Although each of our contract ~~manufacturer~~manufacturers has alternative manufacturing locations, transferring manufacturing to another location may result in significant delays in the availability of our sensors. Also, many standardized components used broadly in our sensors are manufactured in significant quantities in concentrated geographic regions, particularly in Greater China. As a result, protracted regional crises, or issues with manufacturing facilities could lead to eventual shortages of necessary components. It could be difficult, costly and time consuming to obtain alternative sources for these components, or to change product designs to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.

Many of the key components used to manufacture our proprietary ShotSpotter sensors also come from limited or sole sources of supply. Our contract manufacturer generally purchases these components on our behalf, and we do not have any long-term arrangements with our suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly, and we or our suppliers may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner.

If we experience significantly increased demand, or if we need to replace an existing supplier or contract manufacturer, we may be unable to supplement or replace such supply or contract manufacturing on terms that are acceptable to us, which may undermine our ability to deliver our products to customers in a timely manner. For example, for our ShotSpotter sensors, it may take a significant amount of time to identify a contract manufacturer that has the capability and resources to build the sensors to our specifications. Identifying suitable suppliers and contract manufacturers is an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, the loss of any key supplier or contract manufacturer could adversely impact our business, operating results and financial condition.

Our solutions use third-party software and services that may be difficult to replace or cause errors or failures of our solutions that could lead to a loss of customers or harm to our reputation and our operating results.

We license third-party software and depend on services from various third parties for use in our solutions. In the future, such software or services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of the software or services could result in decreased functionality of our solutions until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in or failures of the third-party software or services could result in errors or defects in our solutions or cause our solutions to fail, which could harm our business and be costly to correct. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.

We will need to maintain our relationships with third-party software and service providers, and obtain from such providers software and services that do not contain any errors or defects. Any failure to do so could adversely impact our ability to deliver effective products to our customers and could harm our operating results.

39We use artificial intelligence in our products and services which may result in operational challenges, legal liability, reputational concerns and competitive risks.

We currently use and intend to leverage generative artificial intelligence (“AI”) processes and algorithms and our own evolving cognitive and analytical applications into our daily operations, including by deploying generative AI into our products and services, which may result in adverse effects to our financial condition, results or reputation. Generative AI products and services leverage existing and widely available technologies, such as Chat GPT-3 and its successors, or alternative large language models or other processes. The use of generative AI processes at scale is relatively new, and may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time.

Use of generative AI in our products and services may be difficult to deploy successfully due to operational issues inherent to the nature of such technologies, and our customers may not adopt or integrate our new services as intended. For example, AI algorithms use machine learning and predictive analytics which may lead to flawed, biased, and inaccurate results, which could lead to customer rejection or skepticism of such products. Emerging ethical issues surround the use of AI, and if our deployment or use of AI becomes controversial, we may be subject to reputational risk. Further, unauthorized use or misuse of AI by our employees or others may result in disclosure of confidential company and customer data, reputational harm, privacy law violations and legal liability. Our use of AI may also lead to novel and urgent cybersecurity risks, including the misuse of personal data, which may adversely affect our operations and reputation.

As a result, we may not be able to successfully integrate AI into our products, services and operations despite expending significant time and monetary resources to attempt to do so. Our investments in deploying such technologies may be substantial and may be more expensive than anticipated. If we fail to deploy AI as intended, our competitors may incorporate AI technology into their products or services more successfully than we do, which may impair our ability to effectively compete in the market.

Uncertainty in the legal regulatory regime relating to AI may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S. laws, the nature of which cannot be determined at this time. Several jurisdictions around the globe, including Europe and certain U.S. states, have already proposed or enacted laws governing AI. For example, European regulators have proposed a stringent AI regulation, and we expect other jurisdictions will adopt similar laws. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.

If we do not or cannot maintain the compatibility of our platform with applications that our customers use, our business could suffer.

Some of our customers choose to integrate our solutions with certain other systems used by our customers, such as real-time ~~crime center~~Technologic, Forensic Logic or SafePointe platforms or computer-aided dispatch systems. The functionality and popularity of our solutions depend, in part, on our ability to integrate our solutions into these systems. Providers of these systems may change the features of their technologies, restrict our access to their applications or alter the terms governing

use of their applications in an adverse manner. Such changes could functionally limit or terminate our ability to use these technologies in conjunction with our solutions, which could negatively impact our customer service and harm our business. If we fail to integrate our solutions with applications that our customers use, we may not be able to offer the functionality that our customers need, and our customers may not renew their agreements, which would negatively impact our ability to generate revenues and adversely impact our business.

~~Concerns regarding privacy and government-sponsored surveillance may deter customers from purchasing our solutions.~~

Private citizens have become increasingly sensitive to real or perceived government or third-party surveillance and may wrongly believe that our outdoor sensors, as acoustic devices installed in urban areas or public facilities, such as universities, allow customers to listen to private conversations and monitor private citizen activity. Our sensors are not designed for “live listening” and are triggered only on loud impulsive sounds that may likely be gunfire. However, perceived privacy concerns may result in negative media coverage and efforts by private citizens to persuade municipalities, educational institutions or other potential customers not to purchase our solutions for their communities, campuses or facilities. If customers choose not to purchase our solutions due to privacy concerns, then the market for our solutions may develop more slowly than we expect, or it may not achieve the growth potential we expect, any of which would adversely affect our business and financial results.

~~Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.~~

~~Our revenues and results of operations could vary significantly from quarter to quarter as a result of various factors, many of which are outside of our control, including:~~

Any one of these or other factors discussed elsewhere in this report may result in fluctuations in our revenues and operating results, meaning that quarter-to-quarter comparisons of our revenues, results of operations and cash flows may not necessarily be indicative of our future performance.

Because of the fluctuations described above, our ability to forecast revenues is limited and we may not be able to accurately predict our future revenues or results of operations. In addition, we base our current and future expense levels on our operating plans and sales forecasts, and our operating expenses are expected to be relatively fixed in the short term. Accordingly, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in

revenues, and even a small shortfall in revenues could disproportionately and adversely affect our financial results for that quarter. The variability and unpredictability of these and other factors could result in our failing to meet or exceed financial expectations for a given period.

Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our operating results until future periods.

Our revenues are primarily generated from subscriptions to our solutions. With the exception of a small number of legacy customers, our customers do not have the right to take possession of our equipment or software platform. Revenues from subscriptions to our software platform is recognized ratably over the subscription period beginning on the date that the subscription is made available to the customer, which we refer to as the “go-live” date. Revenues from additional fees such as set-up and training is recognized ratably over the estimated customer life beginning on the go-live date. Our agreements with our customers typically range from one to five years. As a result, much of the revenues that we report in each quarter are attributable to agreements entered into during previous quarters. Consequently, a decline in sales, customer renewals or market acceptance of our solutions in any one quarter would not necessarily be fully reflected in the revenues in that quarter, and would negatively affect our revenues and profitability in future quarters. This ratable revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers generally are recognized over the applicable agreement term. Our subscription-based approach may result in uneven recognition of revenues.

We recognize revenues over the term of a subscription agreement. Once we enter into a contract with a customer, there is a delay until we begin recognizing revenues while we survey the coverage areas, obtain any required consents for installation, and install and calibrate our sensors, which together can take up to several months or more. We begin recognizing revenues from a sale only when all of these steps are complete and the solution is live.

While most of our customers elect to renew their subscription agreements following the expiration of a term, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to such expiration. For these customers, we stop recognizing subscription revenues at the end of the current term, even though we may continue to provide services for a period of time while the renewal process is completed. Once the renewal is complete, we then recognize subscription revenues for the period between the expiration of the term of the agreement and the completion of the renewal process. As a result of the widespread destruction caused by recent hurricanes in Puerto Rico and the U.S. Virgin Islands, we discontinued our service to our customers in those service areas and classified the contracts as expired and stopped recognizing revenues. We cannot be certain when or if the affected customers will resume operations and renew their contracts.

The variation in the timeline for deploying our solutions and completing renewals may result in fluctuations in our revenues, which could cause our results to differ from projections. Additionally, while we generally invoice for 50% of the contract cost upon a customer’s go-live date, our cash flows may be volatile and will not match our revenue recognition.

We are in the process of expanding our international operations, which exposes us to significant risks.

We currently operate in ~~a single location~~limited number of locations outside the United States. ~~We are in the process of expanding~~A key component to our business strategy is to expand our international operations to increase our revenues from customers outside of the United States as part of our growth strategy. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks in addition to those we already face in the United States. In addition, we will need to invest time and resources in understanding the regulatory framework and political environments of our potential customers overseas in order to focus our sales efforts. Because such regulatory and political considerations are likely to vary across jurisdictions, this effort will require additional time and attention from our sales team and could lead to a sales cycle that is longer than our typical process for sales in the United States. We also may need to hire additional employees and otherwise invest in our international operations in order to reach new customers. Because of our limited experience with international operations as well as developing and managing sales in international markets, our international expansion efforts may be delayed or may not be successful.

In addition, we face and will continue to face risks in doing business internationally that could adversely affect our business, including:

Also, we expect that due to costs related to our international expansion efforts and the increased cost of doing business internationally, we will incur higher costs to secure sales to international customers than the comparable costs for domestic customers. As a result, our financial results may fluctuate as we expand our operations and customer base worldwide.

Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, operating results and financial condition.

We are dependent on the continued services and performance of our senior management and other key personnel, the loss of any of whom could adversely affect our business.

Our future success depends in large part on the continued contributions of our senior management and other key personnel. In particular, the leadership of key management personnel is critical to the successful management of our company, the development of our products, and our strategic direction. We also depend on the contributions of key technical ~~personnel, some of whom are nearing retirement age and in the process of transferring relevant knowledge and expertise to other employees.~~personnel.

We do not maintain “key person” insurance for any member of our senior management team or any of our other key employees. Our senior management and key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. The loss of any of our key management personnel could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business.

If we are unable to attract, integrate and retain additional qualified personnel, including top technical talent, our business could be adversely affected.

Our future success depends in part on our ability to identify, attract, integrate and retain highly skilled technical, managerial, sales and other personnel. We face intense competition for qualified individuals from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do. Some of these characteristics may be more appealing to high-quality candidates than those we have to offer. In addition, new hires often require significant training and, in many cases, take significant time before they achieve full productivity. We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to our competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees, especially those who work from home, may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. If we are unable to attract, integrate and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, on a timely basis or at all, our business will be adversely affected.

Volatility or lack of positive performance in our stock price may also affect our ability to attract and retain our key employees. Many of our senior management personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the market price of our common stock. If we are unable to appropriately incentivize and retain our employees through equity compensation, or if we need to increase our compensation expenses in order to appropriately incentivize and retain our employees, our business, operating results and financial condition would be adversely affected.

We and our use of outdoor acoustic sensors, are subject to stringent and evolving laws, governmental regulation contractual obligations, policies and other legal obligations, particularly related to privacy, data protection and information security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputation harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences. Compliance with such laws could impair our efforts to maintain and expand our customer base, and thereby decrease our revenues.

Our outdoor sensors are acoustic devices that are designed to recognize impulsive sounds that are likely to be gunfire. ShotSpotter sensors do not use high gain, directional or other specialized microphones, or have the ability to live stream audio. Typically, sounds, noises or voices captured on the secure sensors are cached temporarily but are written

over and permanently deleted within 30 hours. When a sensor is triggered by a loud impulsive sound, it creates what we refer to as a potential gunshot “incident” that contains a recording, which includes no more than one second before the incident and one second after the incident. This incident audio snippet is preserved indefinitely for potential evidentiary use. We also use information collected to support, expand and improve our software algorithms as well as our gunfire detection and notification methods.

Our sensors are not designed or tuned to capture human voices, but are often installed in densely populated urban areas and it is possible they could pick up a human voice that is audible at the same time as the loud impulsive sound. Human voices are not impulsive and do not typically trigger the sensors, and unless accompanied by an impulsive sound no audio snippet would be transmitted out of the sensor and preserved as an incident audio snippet. Any human voice not associated with a loud impulsive sound would be temporarily cached on the sensor for 30 hours and would then be written over and permanently deleted. Information derived from loud impulsive sounds (“incidents”) and the associated audio snippet of the loud impulsive sounds are provided to our customers. Audio shared with our customers is limited, by both our technology and our privacy policies, to the audio snippet containing the incident.

In the ordinary course of business, we process sensitive information, including data collected by our sensors as described above, as well as other sensitive information including personal data, proprietary and confidential business data, trade secrets, and intellectual property. Accordingly, our data processing activities are subject to a variety of data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security and restrictions on audio monitoring and the collection, use, storage and disclosure of personal information. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws).

Various states have adopted and others are considering proposals for comprehensive privacy laws and regulations. While these laws vary, they generally require companies to implement privacy policies and security measures, permit users to access, correct and delete personal information, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes.

For example, California enacted the California Consumer Privacy Act of 2018 (“CCPA”), that applies to personal information of consumers, business representatives, and employees, and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights, such as those noted below. The CCPA provides for administrative fines of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. In addition, the California Privacy Rights Act of 2020 (“CPRA”) expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and creating a new regulatory agency to implement and enforce the law. Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels. These state laws and the CCPA provide individuals with certain rights concerning their personal information, including the right to access, correct, or delete certain personal information, and opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these rights may impact our business and ability to provide our products and services. These developments further complicate compliance efforts, and increase legal risk and compliance costs for us, and the third parties upon whom we rely.

Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security. For example, the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”), (collectively, the “GDPR”) and Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or “LGPD”) (Law No. 13,709/2018) impose strict requirements for processing personal data. Many countries are also beginning to impose or increase restrictions on the transfer of personal information to other countries. Data protection restrictions in these countries may limit the services we can offer in them, which in turn may limit demand for our services in such countries. Additionally, we may be required, under various privacy laws and other obligations, to obtain certain consents to process personal data. Our inability or failure to do so could result in adverse consequences.

Our employees and personnel use generative artificial intelligence (“AI”) technologies to perform their work, and the disclosure and use of personal information in generative AI technologies is subject to various data privacy and security

laws and other obligations. Governments have passed and are likely to pass additional laws regulating generative AI. Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and consumer lawsuits. If we are unable to use generative AI, it could make our business less efficient and result in competitive disadvantages. We use AI/ML to assist us in making certain decisions, which is regulated by certain data privacy and security laws. Due to inaccuracies or flaws in the inputs, outputs, or logic of the AI/ML, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits.

Some proposed laws or regulations concerning privacy, data protection and information security are in their early stages, and we cannot yet determine how these laws and regulations may be interpreted nor can we determine the impact these proposed laws and regulations, may have on our business. Such proposed laws and regulations may require companies to implement privacy and security policies, permit users to access, correct and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes. For example, some of our data processing practices may be challenged under wiretapping laws. These practices may be subject to increased challenges by class action plaintiffs. Our inability or failure to obtain consent for these practices could result in adverse consequences, including class action litigation and mass arbitration demands. In addition, a foreign government could require that any personal information collected in a country not be disseminated outside of that country, and we may not be currently equipped to comply with such a requirement. Our failure to comply with federal, state and foreign data privacy laws and regulators could harm our ability to successfully operate our business and pursue our business goals.

We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers. We publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.

Obligations related to data privacy and security (and consumers' data privacy and security expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model. We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations.

If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims and mass arbitration demands); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. In particular, plaintiffs have become increasingly more active in bringing data privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.

We may be subject to additional obligations to collect and remit certain taxes, and we may be subject to tax liability for past activities, which could harm our business.

State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time, particularly with respect to software-as-a-service products like our solutions. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. If one or more jurisdictions were to assert that we have failed to collect taxes for sales of our solutions, we could face the possibility of tax assessments and audits. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales or otherwise harm our business and operating results.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of ~~December 31, 2016,~~September 30, 2023, we had federal ~~and state~~ net operating loss carryforwards or(“NOLs”) of approximately $66.9 million, of which $62.0 million will begin to expire in 2028, if not utilized. The remaining net operating losses of $4.9 million can be carried forward indefinitely under the Tax Cuts and Jobs Act. As of September 30, 2023, we also had state NOLs of ~~$75.7~~approximately $48.3 million, which began expiring in 2023.These federal and ~~$54.5 million, respectively, due~~state NOLs may be available to ~~prior period losses, which expire in various years beginning in 2017 if not utilized.~~reduce future income subject to income taxes. In general, under Section 382 of the Internal Revenue Code of 1986, as amended or (“the ~~Code,~~Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. ~~Future~~Past or future changes in our stock ownership, some of which are outside of our control, may have resulted or could result in an ownership change. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Additionally, stateState NOLs generated in one state cannot be used to offset income generated in another state. ~~For these reasons, we~~In addition, at the state level, there may ~~not~~ be ~~able to realize a tax benefit from~~periods during which the use of ~~our~~ NOLs ~~whether~~is suspended or ~~not we attain profitability.~~otherwise limited, such as the 2020 temporary suspension of the ability to use California NOLs and limitation on the use of certain tax credits to offset California income and tax liabilities, which could accelerate or permanently increase state taxes owed.

We may be subject to litigation for a variety of claims or to other legal requests, which could adversely affect our results of operations, harm our reputation or otherwise negatively impact our business.

We may be subject to litigation for a variety of claims arising from our normal business activities. These may include claims, suits, and proceedings involving labor and employment, wage and hour, commercial and other matters. The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention

and resources, and lead to attempts on the part of other parties to pursue similar claims. Any adverse determination related to litigation could adversely affect our results of operations, harm our reputation or otherwise negatively impact our business. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could materially affect our future operating results, our cash flows or both.

We are currently facing a lawsuit from three former contractors who allege a breach of contract, claim that they are entitled to receive options to purchase shares of 350,000 shares of our common stock and petition for approximately $6.5 million in damages and other costs and expenses. Addressing this claim will require management attention and resources. While we intend to dispute these claims vigorously, we cannot provide assurance as to the outcome of this matter.

We, or our customers, may be subject to requests for our data or information concerning our techniques and processes, pursuant to state or federal law (for example, public-records requests or subpoenas to provide information or to testify in court). This data and information, some of which we may deem to be confidential or trade secrets, could therefore become a matter of public record and also become accessible by competitors, which could negatively impact our business.

Changes in financial accounting standards may cause adverse and unexpected revenue fluctuations and impact our reported results of operations.

~~A change~~The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, the Securities and Exchange Commission and various bodies formed to promulgate and interpret appropriate accounting principles. In addition, many companies’ accounting disclosures are being subjected to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could impact our financial statements.

Changes to accounting ~~standards~~principles or ~~practices~~our accounting policies on our financial statements going forward are difficult to predict, could ~~harm~~have a significant effect on our ~~operating~~reported financial results, and ~~may even~~could affect ~~our~~the reporting of transactions completed before the announcement of the change. In addition, were we to change ~~is effective. New~~our critical accounting ~~pronouncements~~estimates, including the timing of recognition of subscription and ~~varying interpretations~~professional services revenues and other revenues sources, our results of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may harm our operating results or the way we conduct our business.operations could be significantly impacted.

~~Proposed legislation that would ease restrictions on the purchase of suppressors could impact our business.~~

~~Legislation known as the Hearing Protection Act, or the HPA, was introduced in the U.S. Congress in 2017 and later incorporated into the Sportsmen’s Heritage and Recreational Enhancement Act, or the SHARE Act~~. If adopted, such legislation would ease restrictions on the sale of suppressors designed to reduce the noise related to gunshots, and ultimately could lead to increased use of gun suppressors in urban gun crime. While our technology has captured gunshots fired with a suppressor in some cases, we currently do not warrant to our customers and have not yet formally tested our system to measure our detection rate of suppressed gunfire. We intend to do some targeted testing in the near future. However, if an increase in the use of suppressors in urban gun crime were to impact the effectiveness of our solutions to the point that customers began to require us to warrant as to the detection of suppressed gunfire, we may be required to deploy our sensors at a greater density per square mile (and thereby increase operating costs) or make potentially costly modifications to our technology, either of which could harm our business. Even with these modifications, there is no guarantee that performance standards on suppressed gunfire will meet our current performance levels or be sufficient to prevent customer losses and associated financial results.

Failure to protect our intellectual property rights could adversely affect our business.

Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or license under patent and other intellectual property laws of the United States, as well as our brands, so that we can prevent others profiting from ~~using~~them. We rely on a combination of contractual and intellectual property rights, including non-disclosure agreements, patents, trade secrets, copyrights and trademarks, to establish and protect our ~~inventions~~intellectual property rights in our names, services, innovations, methodologies and ~~proprietary information.~~related technologies. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business might be adversely affected. However, defending our intellectual property rights might entail significant expenses. Any of our patent rights, copyrights, trademarks or other intellectual property rights may be challenged by others, weakened or invalidated through administrative process or litigation.

As of September 30, ~~2017,~~2023, we had ~~30 U.S.~~34 issued patents directed to our technologies, ~~as well as~~27 in the United States, two in Brazil, one ~~granted~~each in Israel, Mexico, the United Kingdom, France and Germany. The issued patents expire on various dates from 2023 to 2034. We also license one patent from a third party, which expires in ~~Israel.~~November 2023. We have patent applications pending for examination in the United States, Europe, Mexico and Brazil, but we cannot guarantee that these patent applications will be granted. We also license ~~three~~one other U.S. ~~patents~~patent from one ~~or more~~ third ~~parties.~~party. The patents that we own or those that we license from others (including those that may be issued in the future) may not provide us with any competitive advantages or may be challenged by third parties.

~~Additionally, the~~The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain.

Any patents that are issued may subsequently be invalidated or otherwise limited, allowing other companies to develop offerings that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. In addition, issuance of a patent does not guarantee that we have a right to practice the patented invention. Patent applications in the United States are typically not published until 18 months after their earliest priority date or, in some cases, not at all, and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be certain that third parties do not have blocking patents that could be used to prevent us from marketing or practicing our software or technology.

Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our software is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection for software), and mechanisms for enforcement of intellectual property rights may be inadequate. Additional uncertainty may result from changes to intellectual property legislation enacted in the United States, including the recent America Invents Act, or to the laws of other countries and from interpretations of the intellectual property laws of the United States and other countries by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we endeavor to enter into non-disclosure agreements with our employees, licensees and others who may have access to this information, we cannot assure you that these agreements or other steps we have taken will prevent unauthorized use, disclosure or reverse engineering of our technology. Moreover, third parties may independently develop technologies or products that compete with ours, and we may be unable to prevent this competition. Third parties also may seek access to our trade secrets, proprietary know-how and other confidential information through legal measures (for example, public-records requests or subpoenas to provide information or to testify in court) and it could be expensive to defend against those requests. Disclosure of our trade secrets, proprietary know-how and other confidential information could negatively impact our business.

We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. We may also engage in litigation in response to public-records requests or subpoenas that seek our intellectual property. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert counterclaims against us. We may not prevail in any lawsuits that we initiate or other legal proceedings in which we participate, and the damages or other remedies awarded, if any, may not be commercially viable. Any litigation, whether or not resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may adversely affect our business, operating results, financial condition and cash flows.

We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies.

Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenues and against which our patents may therefore provide little or no deterrence. We may have previously received, and may in the future receive, notices that claim we have misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement claims.

There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of our technologies or business methods. Any intellectual property claims, with or without merit, could be very time-consuming, could be expensive to settle or litigate and could divert our management’s attention and other resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could also result in our having to stop using technology found to be in violation of a third party’s rights. We might be required to seek a license for the intellectual property, which may not be available on a timely basis, on reasonable terms or at all. We also may be required to modify our products, services, internal systems or technologies. Even if a license were available, we could be

required to pay significant royalties, which would increase our operating expenses. As a result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software and may be unable to compete effectively. Any of these results would adversely affect our business, operating results, financial condition and cash flows.

IfOur use of generative artificial intelligence tools may pose particular risks to our proprietary software and systems and subject us to legal liability.

We use generative AI tools in our business, including to generate code and other materials incorporated with our proprietary software and systems, and expect to use generative AI tools in the future. Generative AI tools producing content which can be indistinguishable from that generated by humans is a relatively novel development, with benefits, risks, and liabilities still unknown. Recent decisions of the U.S. Copyright Office suggest that we ~~are unable~~would not be able to ~~protect our intellectual property,~~claim copyright ownership in any source code, text, images, or other materials, which we develop through use of generative AI tools, and the availability of such protections in other countries is unclear. As a result, we could have no remedy if third parties reused those same materials, or similar materials also generated by AI tools.

We also face risks to any confidential or proprietary information of the Company which we ~~infringe on~~may include in any prompts or inputs into any generative AI tools, as the providers of the generative AI tools may use these inputs or prompts to further train the tools. Not all providers offer an option to opt-out of such usage, and, even where we do opt-out, we cannot guarantee that the opt-out will be fully effective. In addition, we have little or no insight into the third-party content and materials used to train these generative AI tools, or the extent of the original works which remain in the outputs. As a result, we may face claims from third parties claiming infringement of their intellectual property rights, or mandatory compliance with open source software or other license terms, with respect to software, or other materials or content we believed to be available for use, and not subject to license terms or other third-party proprietary rights. We could also be subject to claims from the providers of ~~others, our business may be harmed.~~

~~Our success depends in part on intellectual property rights to~~ the ~~services that~~generative AI tools, if we develop. We rely on a combination of contractual and intellectual property rights, including non-disclosure agreements, patents, trade secrets, copyrights and trademarks, to establish and protect our intellectual property rights in our names, services, innovations, methodologies and related technologies. If we lose intellectual property protection or the ability to secure intellectual property protection onuse any of ~~our names, confidential information~~the generated materials in a manner inconsistent with their terms of use. Any of these claims could result in legal proceedings and could require us to purchase

a costly license, comply with the requirement of open source software license terms, or ~~technology, this could harm our business. Our intellectual property rights may not prevent competitors from independently developing services~~limit or cease using the implicated software, or other materials or content unless and ~~methodologies similar~~until we can re-engineer such software, materials, or content to ~~ours, and the steps we take might be inadequate to deter~~avoid infringement or ~~misappropriation~~change the use of, or remove, the implicated third-party materials, which could reduce or eliminate the value of our ~~intellectual property by competitors, former employees~~technologies and services. Our use of generative AI tools may also present additional security risks because the generated source code may have been modelled from publicly available code, or otherwise not subject to all of our standard internal controls, which may make it easier for hackers and other third parties ~~any~~to determine how to breach our website and systems that rely on the code. Any of ~~which~~these risks could ~~harm our business. We~~be difficult to eliminate or manage, and, if not addressed, could have registered patents and pending patent applications directed to our technology. We have registered trademarks in the United States that have various expiration dates unless renewed through customary processes. Our registered patents and/or trademark registrations may be unenforceable or ineffective in protecting our intellectual property. Most of our patents and pending patent applications have been filed only in the United States and are therefore not enforceable in countries outside of the United States. Our trademarks may be unenforceable in countries outside of the United States, which may adversely affect our ability to build our brand outside of the United States.

~~Although we are not presently aware that our conduct of~~a material adverse effect on our business, ~~infringes on the intellectual property rights~~results of others, third parties may nevertheless assert infringement claims against us in the future. We may be required to modify our products, services, internal systems or technologies, or obtain a license to permit our continued use of those rights. We may be unable to do so in a timely manner, or upon reasonable termsoperations, financial condition, and ~~conditions, which could harm our business. In addition,~~ future litigation over these matters could result in substantial costs and resource diversion. Adverse determinations in any litigation or proceedings of this type could subject us to significant liabilities to third parties and could prevent us from using some of our services, internal systems or technologies.prospects.

A portion of our technologies incorporates open source software, and we expect to continue to incorporate open source software into our platform in the future. Few of the licenses applicable to open source software have been interpreted by courts, and their application to the open source software integrated into our proprietary technology platform may be uncertain. If we fail to comply with these licenses, then pursuant to the terms of these licenses, we may be subject to certain requirements, including requirements that we make available the source code for our software that incorporates the open source software. We cannot assure you that we have not incorporated open source software in our software in a manner that is inconsistent with the terms of the applicable licenses or our current policies and procedures. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could incur significant legal expenses defending against such allegations. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our technology platform.

Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.

The market price of our common stock ~~may be highly volatile~~has fluctuated and may fluctuate substantially as a result of a variety of factors, some of which are related in complex ways. Since shares of our common stock were sold in our initial public offering, or IPO, in June 2017 at a price of $11 per share, our stock price has ranged from an intraday low of $9.33continue to ~~an intraday high of $19.60 through November 6, 2017.~~

~~The market price of our common stock may~~ fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many software companies. Stock prices of many software companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of our common stock. In the past, stockholders have instituted securities action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, operating results, financial condition and cash flows.

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

~~Sales of a substantial number of~~Non-affiliates have the ability to sell shares of our common stock in the ~~public~~open market or ~~the perception that these sales might occur, could depress the market price of our common stock and could impair our ability~~through block trades without being subject to ~~raise capital through the sale of additional equity securities.~~ ~~Approximately 6.3 million shares of our approximately 9.6 million shares outstanding as of September 30, 2017 are restricted as a result of securities laws, lock-up agreements or other contractual~~volume restrictions ~~that restrict transfers for 180 days after the date of our IPO. These restrictions will expire on December 4, 2017.~~

~~Additionally, approximately 5.0 million shares of our common stock as of September 30, 2017 will, after the expiration~~under Rule 144 of the lock-up period specified above, have the right, subject to various conditions and limitations, to include their shares of our common stock in registration statements relating to our securities. If the offer and sale of these shares are registered, they will be freely tradable without restriction under the Securities Act. Shares of common stock sold under such registration statements can be freely sold in the public market. In the event such registration rights are exercised and a large number of shares of common stock are sold in the public market, such sales could reduce the trading price of our common stock.

~~We filed a registration statement on Form S-8 under the Securities Act to register the total number of shares of our common stock that may be issued under our equity incentive plans.~~ In addition, in the future we may issue common stock or other securities if we need to raise additional capital. The number of new shares of our common stock issued in connection with raising additional capital could constitute a material portion of the then outstanding shares of our common stock. In the event a large number of shares of common stock are sold in the public market, such share sales could reduce the trading price of our common stock.

Stock repurchases could increase the volatility of the trading price of our common stock and diminish our cash reserves, and we cannot guarantee that our stock repurchase program will enhance long-term stockholder value.

In November 2022, our board of directors approved a new stock repurchase program for up to $25.0 million of our common stock, of which $5.6 million was utilized as of September 30, 2023. Although our board of directors has authorized the stock repurchase program, it does not obligate us to repurchase any specific dollar amount or number of shares, there is no expiration date for the stock repurchase program, and the stock repurchase program may be modified, suspended or terminated at any time and for any reason. The timing and actual number of shares repurchased under the stock repurchase program will depend on a variety of factors, including the acquisition price of the shares, our liquidity position, general market and economic conditions, legal and regulatory requirements and other considerations. Our ability to repurchase shares may also be limited by restrictive covenants in our existing credit agreement or in future borrowing arrangements we may enter into from time to time.

Repurchases of our shares could increase the volatility of the trading price of our stock, which could have a negative impact on the trading price of our stock. Similarly, the future announcement of the termination or suspension of the stock repurchase program, or our decision not to utilize the full authorized repurchase amount under the stock repurchase program, could result in a decrease in the trading price of our stock. In addition, the stock repurchase program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. There can be no assurance that any share repurchases we do elect to make will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased our shares. Although our stock repurchase program is intended to enhance long-term stockholder value, we cannot guarantee that it will do so and short-term stock price fluctuations could reduce the effectiveness of the stock repurchase program.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares of common stock or change their opinion of our shares of common stock, our share price would likely decline. If one or more of these analysts cease coverage of our company

or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

~~We may invest or spend the proceeds of our IPO offering in ways with which you may not agree or in ways that may not yield a return.~~

We used $13.7 million of the net proceeds from our IPO during the quarter ending September 30, 2017 for the repayment of all of our outstanding indebtedness, including early termination fees. We currently intend to use the remaining net proceeds for working capital and general corporate purposes, including sales and marketing activities, general and administrative matters and capital expenditures. In addition, we may use a portion of the net proceeds from our IPO for the acquisition of, or strategic investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any such acquisition or investment. Our management will have considerable discretion in the application of these remaining net proceeds, and you will not have the opportunity, to assess whether the proceeds are being used appropriately. Such proceeds may be used for purposes that do not increase the value of our business, which could cause the price of our common stock to decline.

~~We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.~~

We are an “emerging growth company,” as defined in the JOBS Act, and we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company” upon the earliest of (i) the last day of fiscal year 2022, (ii) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, or the Exchange Act. We cannot predict if investors will find our common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

As a public company, we are incurring significant levels of legal, accounting, insurance and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources as compared to when we operated as a private company. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal

control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional corporate employees to comply with these requirements, we may need to hire more corporate employees in the future or engage outside consultants, which would increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results and financial condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, including by competitors and other third parties. If any such claims are successful, our business, operating results and financial condition could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, operating results and financial condition.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

~~Our executive officers, directors and principal stockholders own a significant percentage of our stock and may be able to exert significant control over matters subject to stockholder approval.~~

Our directors, executive officers and holders of more than 5% of our common stock, certain of which are represented on our board of directors, together with their affiliates, beneficially own a significant portion of the voting power of our outstanding capital stock. As a result, these stockholders may be able to determine the outcome of matters submitted to our stockholders for approval. This ownership could affect the value of your shares of common stock by, for example, these stockholders electing to delay, defer or prevent a change in corporate control, merger, consolidation, takeover or other business combination. This concentration of ownership may also adversely affect the market price of our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits stockholders owning 15% or more of our outstanding voting stock from merging or otherwise combining with us for a period of three years following the date on which the stockholder became a 15% stockholder without the consent of our board of directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management, and otherwise discourage management takeover attempts.

Our certificate of incorporation ~~designates the Court of Chancery of the State of Delaware as the~~contains exclusive forum ~~for certain litigation~~provisions that ~~may be initiated by our stockholders, which~~ could limit our ~~stockholders~~’stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (4) any action asserting a claim governed by the internal affairs doctrine. Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision.

Our certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision. TheThese forum selection ~~clause~~clauses in our certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. While the Delaware courts have determined that such choice of forum provisions are facially valid and several state trial courts have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial condition, results of operations, and prospects.

~~(b)~~Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

On ~~June 12, 2017,~~August 15, 2023, we ~~closed~~issued 4,638 shares of our ~~initial public offering~~common stock to PredPol Inc. as partial consideration for the acquisition of ~~3,220,000~~intellectual property assets.

On August 18, 2023, we issued 549,579 shares of our common stock to members of SafePointe, as partial consideration in connection with the acquisition of 100% of the membership interests in SafePointe.

The offer and issuance of these shares of common stock at an offering price of $11.00 per share, which includes 420,000 shares of common stock sold upon full exercise of the underwriters’ over-allotment option. The Company received net proceeds of $32.4 million, after deducting underwriting discounts and commissions. All of the shares issued and sold in our initial public offering were ~~registered~~deemed to be exempt from registration under the Securities Act ~~pursuant to~~in reliance on Section 4(a)(2) of the Securities Act promulgated thereunder as a ~~registration statement on Form S-1 (File No. 333-217603), which was declared effective~~transaction by an issuer not involving a public offering.

The following table sets forth for the ~~SEC on June 6, 2017. Roth Capital Partners acted as sole book-running manager~~indicated period, share repurchases of our ~~initial public offering, Imperial Capital and Northland Capital Markets acted as co-manager and as co-lead manager, respectively.~~ common stock:

No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates. There has been no material change in the planned use of proceeds from our initial public offering from those disclosed in the final prospectus for our initial public offering dated as of on June 8, 2017 and filed with the SEC pursuant to Rule 424(b)(4).

We used $13.7 million of the net proceeds from our initial public offering to repay our outstanding indebtedness of $13.5 million, including early termination fees of $0.2 million, during the quarter ending September 30, 2017. The timing of this repayment in the third quarter of 2017 rather than immediately upon the completion of our IPO was intended to reduce prepayment penalties that would have otherwise been payable by us.

On June 9, 2017, the Compensation Committee of our Board of Directors approved the payment of a discretionary bonus of $50,000 to Alan Stewart, our Chief Financial Officer, in connection with his efforts toward the successful completion of our IPO.

(1)

All repurchases were made as part of our publicly announced stock repurchase program. In November 2022, we announced that our board of directors approved a stock repurchase program, under which we were authorized to repurchase up to $25 million of our common stock. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time. For further information regarding our stock repurchase program, see Note 10, Stock Repurchase Program, of the accompanying notes to the condensed consolidated financial statements.

* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware	47-0949915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
~~7979 Gateway Blvd.~~39300 Civic Center Dr., Suite ~~210~~300 ~~Newark,~~ Fremont, California	~~94560~~94538
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common stock, par value $0.005 per share	SSTI	The Nasdaq Capital Market


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
~~Non-accelerated filer~~	☒ ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting company~~	☐

Emerging growth company	☒☐


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements ~~(Unaudited)~~	2
	Condensed Consolidated Balance Sheets ~~as of December 31, 2016 and September 30, 2017~~	2
	Condensed Consolidated Statements of Operations ~~for the three and nine months ended September 30, 2016 and 2017~~	3
	Condensed Consolidated Statements of Comprehensive ~~Loss for the three and nine months ended September 30, 2016 and 2017~~Income (Loss)	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows ~~for the nine months ended September 30, 2016 and 2017~~	56
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	2831
Item 4.	Controls and Procedures	2831
PART II.	OTHER INFORMATION
Item 1.1	Legal Proceedings	2932
Item 1A.	Risk Factors	2932
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5162
Item 5.6.	~~Other Information~~Exhibits	51
~~Item 6.~~	~~Exhibits~~	5162
Exhibit Index		5263
Signatures		5365


	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net income (loss)	$	(6,361	)	$	7,430
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment		5,101			4,743
Amortization of intangible assets		2,953			2,081
Impairment of property and equipment		72			—
Stock-based compensation		7,272			6,145
Change in fair value of contingent consideration		(923	)		(8,842	)
Deferred taxes		252
Allowance for credit losses		276			(74	)
Changes in operating assets and liabilities:
Accounts receivable and contract assets, net		7,122			(3,771	)
Prepaid expenses and other assets		(407	)		(1,823	)
Accounts payable		1,689			(705	)
Accrued expenses and other liabilities		(479	)		6
Deferred revenue		(5,932	)		4,879
Net cash provided by operating activities		10,635			10,069
Cash flows from investing activities:
Purchase of property and equipment		(4,350	)		(9,026	)
Investment in intangible and other assets		(440	)		(24	)
Business acquisition, net of cash acquired		(10,995	)		(4,618	)
Net cash used in investing activities		(15,785	)		(13,668	)
Cash flows from financing activities:
Payment of contingent consideration liability		(1,500	)		—
Proceeds from exercise of stock options		147			264
Repurchases of common stock		(5,595	)		(3,084	)
Proceeds from line of credit		7,000			—
Proceeds from employee stock purchase plan		483			489
Net cash provided by (used) in financing activities		535			(2,331	)
Change in cash, cash equivalents and restricted cash		(4,615	)		(5,930	)
Effect of exchange rate on cash and cash equivalents		(64	)		(102	)
Cash, cash equivalents and restricted cash at beginning of year		10,479			15,636
Cash, cash equivalents and restricted cash at end of period	$	5,800		$	9,604

Supplemental disclosure of non-cash financing activities:
Property and equipment purchases included in accounts payable	$	224		$	200
Fair value of contingent consideration for acquisitions	$	2,994		$	12,400
Fair value of common stock issued as consideration for acquisitions	$	11,291		$	14,266

	December 31,			September 30,
	2016			2017
				(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	3,865		$	19,255
Accounts receivable		2,410			5,987
Prepaid expenses and other current assets		567			859
Restricted cash		30			30
Total current assets		6,872			26,131
Property and equipment, net		8,959			10,640
Intangible assets, net		66			88
Other assets		220			151
Total assets	$	16,117		$	37,010
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable	$	1,336		$	1,765
Deferred revenue, short-term		10,863			15,902
Accrued expenses and other current liabilities		2,359			2,795
Notes payable, net of current maturities		667			—
Total current liabilities		15,225			20,462
Notes payable, net of current maturities and unamortized debt issuance costs		11,012			—
Convertible preferred stock warrant liability		1,875			—
Deferred revenue, long-term		3,112			2,477
Other liabilities		24			85
Total liabilities		31,248			23,024
Commitments and contingencies (Note 13)
Series B-1 convertible preferred stock		22,075			—
Series A-2 convertible preferred stock		20,000			—
Stockholders' (deficit) equity:
Common stock		8			47
Additional paid-in capital		30,403			109,054
Accumulated deficit		(87,615	)		(95,092	)
Accumulated other comprehensive loss		(2	)		(23	)
Total stockholders' (deficit) equity		(57,206	)		13,986
Total liabilities and stockholders' (deficit) equity	$	16,117		$	37,010

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2017			2016			2017
Revenues	$	3,977		$	6,846		$	10,956		$	17,244
Costs
Cost of revenues		2,400			2,791			7,031			8,154
Impairment of property and equipment		—			666			—			666
Total costs		2,400			3,457			7,031			8,820
Gross profit		1,577			3,389			3,925			8,424

Operating expenses
Sales and marketing		1,098			1,792			3,434			4,269
Research and development		1,007			1,063			3,193			3,024
General and administrative		568			1,305			1,674			3,206
Total operating expenses		2,673			4,160			8,301			10,499
Operating loss		(1,096	)		(771	)		(4,376	)		(2,075	)
Other expense, net
Remeasurement of convertible preferred stock warrant liability		(98	)		—			(649	)		(3,725	)
Loss on early extinguishment of debt		—			(479	)		—			(479	)
Interest expense, net		(345	)		(358	)		(955	)		(1,167	)
Other expense, net		—			(3	)		(16	)		(31	)
Total other expense, net		(443	)		(840	)		(1,620	)		(5,402	)
Net loss	$	(1,539	)	$	(1,611	)	$	(5,996	)	$	(7,477	)
Net loss per share, basic and diluted	$	(0.96	)	$	(0.17	)	$	(3.75	)	$	(1.49	)
Weighted average shares used in computing net loss per share, basic and diluted		1,602,254			9,619,659			1,598,285			5,016,825


	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Par Value		Capital			Deficit			Income (Loss)			Equity
Balance at January 1, 2023		12,243,929		$	62	$	153,573		$	(92,400	)	$	(290	)	$	60,945
Exercise of stock options		10,063			—		127			—			—			127
Repurchase of common stock		(35,369	)		—		(1,256	)		—			—			(1,256	)
Issuance of common stock from RSUs vested		25,157			—		—			—			—			—
Stock-based compensation		—			—		2,220			—			—			2,220
Foreign currency translation loss		—			—		—			—			(17	)		(17	)
Net loss		—			—		—			(1,790	)		—			(1,790	)
Balance at March 31, 2023		12,243,780			62		154,664			(94,190	)		(307	)		60,229
Exercise of stock options		4,097			—		17			—			—			17
Repurchase of common stock		(100,401	)		—		(2,392	)		—			—			(2,392	)
Issuance of common stock from ESPP purchases		25,193			—		483			—			—			483
Issuance of common stock from RSUs vested		56,666			—		—			—			—			—
Stock-based compensation		—			—		2,479			—			—			2,479
Foreign currency translation loss		—			—		—			—			(56	)		(56	)
Net loss		—			—		—			(2,697	)		—			(2,697	)
Balance at June 30, 2023		12,229,335			62		155,251			(96,887	)		(363	)		58,063
Exercise of stock options		3,054			—		3			—			—			3
Repurchase of common stock		(93,012	)		—		(1,947	)		—			—			(1,947	)
Issuance of common stock from RSUs vested		27,014			—		—			—			—			—
Issuance of common stock from acquisitions		554,217			2		11,289									11,291
Stock-based compensation		—			—		2,573			—			—			2,573
Foreign currency translation gain		—			—		—			—			1			1
Net loss		—			—		—			(1,874	)		—			(1,874	)
Balance at September 30, 2023		12,720,608		$	64	$	167,169		$	(98,761	)	$	(362	)	$	68,110

	Fair Value Measurements at Reporting Date Using Level III Inputs
Fair value at December 31, 2016	$	1,875
Issuance of convertible preferred stock warrants		111
Change in fair value recorded in other expense, net		3,725
Reclassification of unexercised warrant into additional paid-in capital upon the IPO		(5,711	)
Fair value at September 30, 2017	$	—

	Shares Authorized		Shares Issued and Outstanding		Aggregate Liquidation Preference (in thousands)
Series B-1		4,773,000		3,848,023	$	22,075
Series A-2		1,177,000		1,176,423		20,000
					$	42,075

	As of September 30,
	2016		2017
Options to purchase common stock		1,128,737		1,287,977
Unvested restricted stock units		—		44,238
Warrants to purchase Series B-1 convertible preferred or common stock		680,027		714,596
Series B-1 convertible preferred stock (as-converted)		3,848,023		—
Series A-2 convertible preferred stock (as-converted)		841,730		—
Total		6,498,517		2,046,811

Warrant Class	Shares		Issuance Date	Price per Share		Expiration Date
Common stock warrant		167,428	July 2012	$	5.8667	July 2019
Common stock warrant		60,575	August 2012	$	5.8667	August 2019
Common stock warrant		10,517	November 2012	$	5.8667	November 2022
Common stock warrant		156,851	February 2014	$	0.1700	February 2021
Common stock warrant		173,862	September 2015	$	5.8667	September 2025
Common stock warrant (1)		61,363	March 2017	$	5.8667	March 2027
Common stock warrant (2)		84,000	June 2017	$	13.2000	June 2020
		714,596

	Number of Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2016		1,130,141		$	0.86
Granted		236,788		$	4.30
Exercised		(57,938	)	$	0.72
Canceled		(21,014	)	$	1.43
Outstanding at September 30, 2017		1,287,977		$	1.49

2017 (remainder of year)	$	77
2018		336
2019		346
2020		357
2021		305
Total	$	1,421

	Three Months Ended September 30,
				As a % of						As a % of			Change
	2016			Revenues			2017			Revenues			$			%
Revenues	$	3,977			100	%	$	6,846			100	%	$	2,869			72	%
Costs
Cost of revenues		2,400			60	%		2,791			40	%		391			16	%
Impairment of property and equipment		—			—			666			10	%		666			100	%
Total costs		2,400			60	%		3,457			50	%		1,057			44	%
Gross profit		1,577			40	%		3,389			50	%		1,812			115	%
Operating expenses:
Sales and marketing		1,098			28	%		1,792			26	%		694			63	%
Research and development		1,007			25	%		1,063			16	%		56			6	%
General and administrative		568			14	%		1,305			19	%		737			130	%
Total operating expenses		2,673			67	%		4,160			61	%		1,487			56	%
Loss from operations		(1,096	)		(28	%)		(771	)		(11	%)		325			(30	%)
Other expense, net		(443	)		(11	%)		(840	)		(12	%)		(397	)		90	%
Net loss	$	(1,539	)		(39	%)	$	(1,611	)		(24	%)	$	(72	)		5	%


	Total Number of Shares Purchased(1)		Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Program		Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands)
July 1, 2023 - July 31, 2023		—		—		—	$	21,358
August 1, 2023 - August 31, 2023		44,980	$	20.60		44,980		20,431
September 1, 2023 - September 30, 2023		48,032		21.15		48,032	$	19,416
Total		93,012	$	20.88		93,012


	~~SHOTSPOTTER,~~SOUNDTHINKING, INC.

Date: November 14, ~~2017~~2023	By:	/s/ Ralph A. Clark
		Ralph A. Clark
		President and Chief Executive Officer

Date: November 14, ~~2017~~2023	By:	/s/ Alan R. Stewart
		Alan R. Stewart
		Chief Financial Officer