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REKR Rekor Systems

Filed: 15 Nov 21, 4:07pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

OR

 

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

 

For the transition period from _________ to _________

 

Commission File Number: 001-38338

 

Rekor Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

81-5266334

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

6721 Columbia Gateway Drive, Suite 400

Columbia, MD

(Address principal executive offices)

 

21046

(Zip Code)

 

(410) 762-0800

(Registrant’s telephone number, including area code)

 

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 every Interactive Data File required to be submitted 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, a 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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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 ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

REKR

The Nasdaq Stock Market

 

As of November 15, 2021, the Registrant had 43,977,218 shares of common stock, $0.0001 par value per share outstanding.

 

 

  

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties, including particularly statements regarding our future results of operations and financial position, business strategy, prospective products and services, timing and likelihood of success, plans and objectives of management for future operations and future results of current and anticipated products and services. These statements involve uncertainties, such as known and unknown risks, and are dependent on other important factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance or achievements we express or imply. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described under the sections in our Annual Report on Form 10-K for the year ended December 31, 2020 entitled “Risk Factors” and elsewhere in this Quarterly Report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestiture, merger, acquisition, or other business combination that had not been completed as of the date of this filing. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. We undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise.

 

2

 

Table of Content

 

REKOR SYSTEMS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

PART I - FINANCIAL INFORMATION

 

4

 

ITEM 1.

FINANCIAL STATEMENTS

 

4

 

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

4

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

5

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

 

6

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

7

 

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

8

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

31

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

45

 

ITEM 4.

CONTROLS AND PROCEDURES

 

45

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

46

 

ITEM 1.

LEGAL PROCEEDINGS

 

46

 

ITEM 1A.

RISK FACTORS

 

47

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

48

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

49

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

49

 

ITEM 5.

OTHER INFORMATION

 

49

 

ITEM 6.

EXHIBITS

 

50

 

 

 

 

 

 

SIGNATURES

 

51

 

 

 
3

Table of Contents

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$35,102

 

 

$20,595

 

Restricted cash and cash equivalents

 

 

1,063

 

 

 

412

 

Accounts receivable, net

 

 

2,434

 

 

 

1,038

 

Inventory

 

 

1,822

 

 

 

1,264

 

Note receivable, current portion

 

 

340

 

 

 

340

 

Other current assets, net

 

 

2,156

 

 

 

469

 

Current assets of discontinued operations

 

 

1

 

 

 

2

 

Total current assets

 

 

42,918

 

 

 

24,120

 

Long-term assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

8,614

 

 

 

1,047

 

Right-of-use lease assets, net

 

 

6,256

 

 

 

426

 

Goodwill

 

 

49,860

 

 

 

6,336

 

Intangible assets, net

 

 

22,768

 

 

 

7,038

 

Investments in unconsolidated companies

 

 

0

 

 

 

75

 

Note receivable, long-term

 

 

1,105

 

 

 

1,360

 

SAFE investment

 

 

1,000

 

 

 

0

 

Other long-term assets

 

 

127

 

 

 

0

 

Total long-term assets

 

 

89,730

 

 

 

16,282

 

Total assets

 

$132,648

 

 

$40,402

 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$6,492

 

 

$1,772

 

Notes payable, current portion

 

 

994

 

 

 

0

 

Loan payable, current portion

 

 

911

 

 

 

517

 

Lease liability, short-term

 

 

101

 

 

 

253

 

Contract liabilities

 

 

2,738

 

 

 

1,126

 

Other current liabilities

 

 

3,478

 

 

 

2,126

 

Current liabilities of discontinued operations

 

 

129

 

 

 

124

 

Total current liabilities

 

 

14,843

 

 

 

5,918

 

Long-term Liabilities

 

 

 

 

 

 

 

 

Notes payable, long-term

 

 

0

 

 

 

980

 

Loan payable, long-term

 

 

46

 

 

 

469

 

Lease liability, long-term

 

 

9,994

 

 

 

188

 

Contract liabilities, long-term

 

 

978

 

 

 

958

 

Deferred tax liability, long-term

 

 

34

 

 

 

24

 

Long-term liabilities of discontinued operations

 

 

0

 

 

 

5

 

Total long-term liabilities

 

 

11,052

 

 

 

2,624

 

Total liabilities

 

 

25,895

 

 

 

8,542

 

Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value; authorized: 505,000 shares authorized at September 30, 2021 and December 31, 2020; issued and outstanding; 0 and 502,327 shares issued and outstanding at September 30, 2021 and December 31, 2020

 

 

-

 

 

 

6,669

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; authorized; 100,000,000 shares; issued: 43,948,281, shares at September 30, 2021 and 33,013,271 at December 31, 2020; outstanding: 43,967,642 shares at September 30, 2021 and 33,013,271 at December 31, 2020

 

 

4

 

 

 

3

 

Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of September 30, 2021 and December 31, 2020, respectively

 

 

0

 

 

 

0

 

Series B Cumulative Convertible Preferred stock, 0.0001 par value; authorized: 240,861 shares authorized at September 30, 2021 and December 31, 2020; issued and outstanding; 0 and 240,861 shares issued and outstanding at September 30, 2021 and December 31, 2020

 

 

0

 

 

 

0

 

Treasury stock, 19,361 and 0 shares as of September 30, 2021 and December 31, 2020, respectively

 

 

(319)

 

 

0

 

Additional paid-in capital

 

 

169,944

 

 

 

68,238

 

Accumulated other comprehensive income

 

 

6

 

 

 

0

 

Accumulated deficit

 

 

(62,882)

 

 

(43,050)

Total stockholders equity

 

 

106,753

 

 

 

25,191

 

Total liabilities and stockholders equity

 

$132,648

 

 

$40,402

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$2,615

 

 

$2,126

 

 

$11,105

 

 

$6,399

 

Cost of revenue, excluding depreciation and amortization

 

 

1,402

 

 

 

979

 

 

 

4,705

 

 

 

2,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

6,813

 

 

 

2,676

 

 

 

16,094

 

 

 

7,518

 

Selling and marketing expenses

 

 

1,125

 

 

 

560

 

 

 

3,044

 

 

 

1,356

 

Research and development expenses

 

 

2,000

 

 

 

781

 

 

 

4,741

 

 

 

2,143

 

Depreciation and amortization

 

 

930

 

 

 

497

 

 

 

2,169

 

 

 

1,386

 

Operating expenses

 

 

10,868

 

 

 

4,514

 

 

 

26,048

 

 

 

12,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(9,655)

 

 

(3,367)

 

 

(19,648)

 

 

(8,749)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

0

 

 

 

(3,081)

 

 

0

 

 

 

(3,281)

Interest expense

 

 

(21)

 

 

(218)

 

 

(72)

 

 

(2,468)

Gain on the sale of business

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,631

 

Other income

 

 

66

 

 

 

6

 

 

 

103

 

 

 

27

 

Total other income (expense)

 

 

45

 

 

 

(3,293)

 

 

31

 

 

 

(2,091)

Loss before income taxes

 

 

(9,610)

 

 

(6,660)

 

 

(19,617)

 

 

(10,840)

Income tax provision

 

 

(3)

 

 

(7)

 

 

(10)

 

 

(20)

Equity in loss of investee

 

 

0

 

 

 

0

 

 

 

(150)

 

 

0

 

Net loss from continuing operations

 

 

(9,613)

 

 

(6,667)

 

 

(19,777)

 

 

(10,860)

Net loss from discontinued operations

 

 

0

 

 

 

(2)

 

 

(4)

 

 

(215)
Net loss

 

 

(9,613)

 

 

(6,669)

 

 

(19,781)

 

 

(11,075)
Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(9,613)

 

 

(6,667)

 

 

(19,777)

 

 

(10,860)

Change in unrealized gain on short-term investments

 

 

3

 

 

 

0

 

 

 

6

 

 

 

0

 

Total comprehensive loss from continuing operations

 

 

(9,610)

 

 

(6,667)

 

 

(19,771)

 

 

(10,860)
Total comprehensive loss

 

$(9,610)

 

$(6,669)

 

$(19,775)

 

$(11,075)

Loss per common share from continuing operations - basic and diluted

 

 

(0.23)

 

 

(0.26)

 

 

(0.52)

 

 

(0.52)

Loss per common share discontinued operations - basic and diluted

 

 

0.00

 

 

 

(0.00)

 

 

(0.00)

 

 

(0.01)

Loss per common share - basic and diluted

 

$(0.23)

 

$(0.26)

 

$(0.52)

 

$(0.53)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

41,938,863

 

 

 

26,907,069

 

 

 

38,357,167

 

 

 

22,781,807

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

  

REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

Shares of Common Stock

 

 

Common Stock

 

 

Shares of Treasury Stock

 

 

Treasury Stock at Cost

 

 

Shares of Series B Preferred Stock

 

 

Series B Preferred Stock

 

 

Additional Paid-In Capital

 

 

Accumulated
Other
Comprehensive
Income

 

 

Accumulated Deficit

 

 

Total Stockholders Equity (Deficit)

 

Balance as of June 30, 2021

 

 

41,012,766

 

 

$4

 

 

 

(19,361)

 

$(319)

 

 

-

 

 

$0

 

 

$148,754

 

 

$3

 

 

$(53,269)

 

$95,173

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

694

 

 

 

0

 

 

 

0

 

 

 

694

 

Exercise of warrants related to series A preferred stock

 

 

1,213

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

1

 

Shares issued as part of the Waycare Acquisition

 

 

2,784,474

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

20,287

 

 

 

0

 

 

 

0

 

 

 

20,287

 

Issuance upon exercise of stock options

 

 

130,380

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

208

 

 

 

0

 

 

 

0

 

 

 

208

 

Issuance upon vesting of restricted stock units

 

 

19,448

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Change in unrealized gain on short-term investments

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

3

 

 

 

0

 

 

 

3

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(9,613)

 

 

(9,613)

Balance as of September 30, 2021

 

 

43,948,281

 

 

$4

 

 

 

(19,361)

 

$(319)

 

 

-

 

 

$0

 

 

$169,944

 

 

$6

 

 

$(62,882)

 

$106,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

 

22,942,546

 

 

$2

 

 

 

-

 

 

$0

 

 

 

240,861

 

 

$0

 

 

$22,180

 

 

$0

 

 

$(33,044)

 

$(10,862)

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

202

 

 

 

0

 

 

 

0

 

 

 

202

 

Issuance of common stock pursuant to Exchange Agreement

 

 

4,349,497

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

17,325

 

 

 

0

 

 

 

0

 

 

 

17,325

 

Exercise of cashless warrants in exchange for common stock

 

 

171,522

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Exercise of warrants in exchange for common stock

 

 

625,000

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

463

 

 

 

0

 

 

 

0

 

 

 

463

 

Issuance of common stock pursuant to at the market offering, net

 

 

4,677,595

 

 

 

1

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

27,752

 

 

 

0

 

 

 

0

 

 

 

27,753

 

Exercise of warrants related to series A preferred stock

 

 

16,214

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

17

 

 

 

0

 

 

 

0

 

 

 

17

 

Issuance upon exercise of stock options

 

 

129,480

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

398

 

 

 

0

 

 

 

0

 

 

 

398

 

Preferred stock dividends

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(115)

 

 

(115)

Accretion of Series A preferred stock

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(220)

 

 

0

 

 

 

0

 

 

 

(220)

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(6,669)

 

 

(6,669)

Balance as of September 30, 2020

 

 

32,911,854

 

 

$3

 

 

 

-

 

 

$0

 

 

 

240,861

 

 

$0

 

 

$68,117

 

 

$0

 

 

$(39,828)

 

$28,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

33,013,271

 

 

$3

 

 

 

-

 

 

$0

 

 

 

240,861

 

 

$0

 

 

$68,238

 

 

$0

 

 

$(43,050)

 

$25,191

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

2,600

 

 

 

0

 

 

 

0

 

 

 

2,600

 

Exercise of cashless warrants in exchange for common stock

 

 

62,921

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Exercise of warrants in exchange for common stock

 

 

54,235

 

 

 

0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0

 

 

 

307

 

 

 

0

 

 

 

0

 

 

 

307

 

Exercise of warrants related to series A preferred stock

 

 

97,805

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

101

 

 

 

0

 

 

 

0

 

 

 

101

 

Public underwriting

 

 

6,126,939

 

 

 

1

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

70,124

 

 

 

0

 

 

 

0

 

 

 

70,125

 

Shares issued as part of the Waycare Acquisition

 

 

2,784,474

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

20,287

 

 

 

0

 

 

 

0

 

 

 

20,287

 

Conversion of series A preferred stock

 

 

899,174

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

7,775

 

 

 

0

 

 

 

0

 

 

 

7,775

 

Conversion of series B preferred stock

 

 

517,611

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(240,861)

 

 

0

 

 

 

179

 

 

 

0

 

 

 

0

 

 

 

179

 

Issuance upon exercise of stock options

 

 

195,782

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

434

 

 

 

0

 

 

 

0

 

 

 

434

 

Issuance upon vesting of restricted stock units

 

 

196,069

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Shares withheld upon vesting of restricted stock units

 

 

-

 

 

 

0

 

 

 

(19,361)

 

 

(319)

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(319)

Preferred stock dividends

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(51)

 

 

(51)

Accretion of Series A preferred stock

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(101)

 

 

0

 

 

 

0

 

 

 

(101)

Change in unrealized gain on short-term investments

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

6

 

 

 

0

 

 

 

6

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(19,781)

 

 

(19,781)

Balance as of September 30, 2021

 

 

43,948,281

 

 

$4

 

 

 

(19,361)

 

$(319)

 

 

-

 

 

$0

 

 

$169,944

 

 

$6

 

 

$(62,882)

 

$106,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

21,595,653

 

 

$2

 

 

 

-

 

 

$0

 

 

 

240,861

 

 

$0

 

 

$19,371

 

 

$0

 

 

$(28,408)

 

$(9,035)

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

539

 

 

 

0

 

 

 

0

 

 

 

539

 

Issuance of common stock pursuant to Exchange Agreement

 

 

4,349,497

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

17,325

 

 

 

0

 

 

 

0

 

 

 

17,325

 

Exercise of cashless warrants in exchange for common stock

 

 

214,740

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Exercise of warrants in exchange for common stock

 

 

1,180,000

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

874

 

 

 

0

 

 

 

0

 

 

 

874

 

Issuance of common stock pursuant to at the market offering, net

 

 

5,216,562

 

 

 

1

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

29,929

 

 

 

0

 

 

 

0

 

 

 

29,930

 

Exercise of warrants related to series A preferred stock

 

 

74,177

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

77

 

 

 

0

 

 

 

0

 

 

 

77

 

Issuance upon exercise of stock options

 

 

281,225

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

640

 

 

 

0

 

 

 

0

 

 

 

640

 

Preferred stock dividends

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(345)

 

 

(345)

Accretion of Series A preferred stock

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(638)

 

 

0

 

 

 

0

 

 

 

(638)

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(11,075)

 

 

(11,075)

Balance as of September 30, 2020

 

 

32,911,854

 

 

$3

 

 

 

-

 

 

$0

 

 

 

240,861

 

 

$0

 

 

$68,117

 

 

$0

 

 

$(39,828)

 

$28,292

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   

 
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REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss from continuing operations

 

$(19,777)

 

$(10,860)

Net loss from discontinued operations

 

 

(4)

 

 

(215)

Net loss

 

 

(19,781)

 

 

(11,075)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

24

 

 

 

36

 

Depreciation

 

 

431

 

 

 

270

 

Amortization of right-of-use lease asset

 

 

209

 

 

 

139

 

Provision for deferred taxes

 

 

10

 

 

 

0

 

Share-based compensation

 

 

2,600

 

 

 

539

 

Amortization of financing costs

 

 

14

 

 

 

653

 

Amortization of intangible assets

 

 

1,529

 

 

 

977

 

Loss due to change in value of equity investments

 

 

150

 

 

 

0

 

Unrealized gain on short-term investments

 

 

(6)

 

 

0

 

Loss on extinguishment of debt

 

 

0

 

 

 

3,281

 

Gain on sale of AOC Key Solutions

 

 

0

 

 

 

(2,619)

Gain on sale of TeamGlobal

 

 

0

 

 

 

(1,012)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(936)

 

 

(226)

Inventory

 

 

(558)

 

 

(289)

Other current assets

 

 

(1,537)

 

 

(186)

Other long-term assets

 

 

(127)

 

 

0

 

Accounts payable and accrued expenses and other current liabilities

 

 

4,275

 

 

 

940

 

Contract liabilities

 

 

1,596

 

 

 

646

 

Lease liability

 

 

(218)

 

 

(149)

Net cash used in operating activities - continuing operations

 

 

(12,321)

 

 

(7,860)

Net cash used in by operating activities - discontinued operations

 

 

(4)

 

 

(3,884)

Net cash used in operating activities

 

 

(12,325)

 

 

(11,744)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Cash paid for Waycare acquisition, net

 

 

(40,699)

 

 

0

 

SAFE Investment

 

 

(1,000)

 

 

0

 

Capital expenditures

 

 

(1,618)

 

 

(544)

Proceeds from sale of AOC Key Solutions

 

 

0

 

 

 

3,400

 

Proceeds from sale of TeamGlobal

 

 

0

 

 

 

2,300

 

Investment in unconsolidated company

 

 

(75)

 

 

(75)

Net cash (used in) provided by investing activities - continuing operations

 

 

(43,392)

 

 

5,081

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from public offering

 

 

70,125

 

 

 

0

 

Proceeds from PPP loans

 

 

0

 

 

 

874

 

Payment of notes payable

 

 

(29)

 

 

0

 

Proceeds from notes receivable

 

 

255

 

 

 

600

 

Payment of stock issuance costs associated with the Note Exchange transaction

 

 

0

 

 

 

(73)

Repayments of notes payable

 

 

0

 

 

 

(7,266)

Net proceeds from exercise of options

 

 

434

 

 

 

640

 

Net proceeds from exercise of warrants

 

 

307

 

 

 

874

 

Net proceeds from exercise of warrants associated with the Series A Preferred Stock

 

 

101

 

 

 

77

 

Net proceeds from at-the-market agreement

 

 

0

 

 

 

29,930

 

Repurchases of common stock

 

 

(319)

 

 

0

 

Payment of debt modification costs

 

 

0

 

 

 

(300)

Net cash provided by financing activities - continuing operations

 

 

70,874

 

 

 

25,356

 

Net provided by financing activities - discontinued operations

 

 

0

 

 

 

4,171

 

Net cash provided by financing activities

 

 

70,874

 

 

 

29,527

 

Net increase in cash, cash equivalents and restricted cash and cash equivalents - continuing operations

 

 

15,161

 

 

 

22,577

 

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents - discontinued operations

 

 

(4)

 

 

287

 

Net increase in cash, cash equivalents and restricted cash and cash equivalents

 

 

15,157

 

 

 

22,864

 

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

 

 

21,009

 

 

 

1,866

 

Cash, cash equivalents and restricted cash and cash equivalents at end of period

 

$36,166

 

 

$24,730

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period - continuing operations

 

$35,102

 

 

$24,154

 

Restricted cash and cash equivalents at end of period - continuing operations

 

 

1,063

 

 

 

573

 

Cash and cash equivalents at end of period - discontinued operations

 

 

1

 

 

 

3

 

Cash, cash equivalents and restricted cash and cash equivalents at end of period

 

$36,166

 

 

$24,730

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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REKOR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These unaudited condensed consolidated interim financial statements of Rekor Systems, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 2021, the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’ equity (deficit) and unaudited condensed consolidated statements of cash flows for the three and nine month periods ended September 30, 2021 and 2020.

 

On August 18, 2021, the Company completed its acquisition of Waycare Technologies Ltd. (“Waycare”) by acquiring 100% of the issued and outstanding capital stock of Waycare, which is now a wholly owned subsidiary of the Company. Since the acquisition of Waycare occurred on August 18, 2021, the results of operations for Waycare from the date of acquisition have been included in the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2021.

 

The financial data and other information disclosed in these notes are unaudited. The results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

 

Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation. Beginning in the third quarter of 2021, depreciation and amortization is presented separately from cost of revenue, general and administrative expenses, selling and marketing expenses and research and development expenses on the unaudited condensed consolidated statements of operations, whereas in prior periods these amounts were included together with the aforementioned financial statement captions. Additionally, as of September 30, 2021, the Company began to present other current liabilities separately from accounts payable and accrued expenses. Other current liabilities primarily consist of payroll and payroll related accounts. Amounts for the three and nine month period ending September 30, 2020 and the period ended December 31, 2020, have been reclassified to conform to the current year’s presentation.

 

Dollar amounts, except per share data, in the notes to these unaudited condensed consolidated financial statements are rounded to the closest $1,000.

 

Rekor is a provider of roadway intelligence through intelligent infrastructure. The Company delivers integrated solutions, actionable insights, and predictions that increase roadway safety with its disruptive technology. With a global footprint across 65 countries, the Company provides actionable and real-time insights to commercial clients, as well as government entities. Rekor’s capabilities appeal to businesses and governmental entities in solving a wide variety of real-world mobility and infrastructure-related operational challenges. Currently, customers use the Company’s solutions for a multitude of applications, including roadway safety and incident management, traffic and infrastructure analytics, sustainability and green initiatives, public safety and contactless compliance.

 

 
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Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the extensive use of management’s estimates. Management uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Actual amounts may differ from these estimates. On an on-going basis, the Company evaluates its estimates, including those related to the collectability of accounts receivable, the fair value of intangible assets, the fair value of debt and equity instruments, income taxes and determination of standalone selling prices in contracts with customers that contain multiple performance obligations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.

 

Reclassifications

 

Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation. Beginning in the third quarter of 2021, depreciation and amortization is presented separately from cost of revenue, general and administrative expenses, selling and marketing expenses and research and development expenses on the unaudited condensed consolidated statements of operations, whereas in prior periods these amounts were included together with the aforementioned financial statement captions. Additionally, as of September 30, 2021, the Company began to present other current liabilities separately from accounts payable and accrued expenses. Other current liabilities primarily consist of payroll and payroll related accounts. Amounts for the three and nine month period ending September 30, 2020 and the period ended December 31, 2020, have been reclassified to conform to the current year’s presentation.

 

Liquidity

 

For all annual and interim periods, management will assess going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections and estimates and will make certain key assumptions. These assumptions include, among other factors, its ability to raise additional capital, if necessary, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period.

 

The Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit, the sale of a note, proceeds from the sale of common stock, proceeds from the private sale of the Company’s non-core subsidiaries, proceeds from note receivables, debt financings and a public offering of its common stock to support cashflow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the nine months ended September 30, 2021, the Company had working capital of $28,203,000 and a comprehensive loss from continuing operations of $19,771,000.

 

The Company’s cash increased by $15,157,000 for the nine months ended September 30, 2021 primarily due to the net proceeds of $70,125,000 from the completion of the Public Offering (see NOTE 10 - STOCKHOLDERS’ EQUITY for details on the Public Offering). This amount was offset by the net cash outlay of $40,699,000 in connection with the acquisition of Waycare (see NOTE 2 – ACQUISITIONS for details on the Waycare acquisition).

 

 
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Management believes that based on relevant conditions and events that are known and reasonably knowable, its current forecasts and projections for one year from the date of the filing of the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, indicate the Company’s ability to continue operations as a going concern for at least that one-year period. The Company is actively monitoring its operations, the cash on hand and working capital. Should access to funds be unavailable, the Company will need to seek out additional sources of funding. Furthermore, the Company has contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period or additional financing, if needed, is not available.

 

Goodwill

 

The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill. The Company will assess goodwill for impairment annually, or more often if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. As if September 30, 2021 the Company has not completed its annual impairment assessment. During the nine months ended September 30, 2021 and 2020, we have not recognized any impairment to goodwill from continuing operations.

 

Equity Method Investments

 

Investments in the common stock of entities other than the Company’s consolidated subsidiaries are accounted for under the equity method in accordance with the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 323, Investments – Equity Method and Joint Ventures. Under the equity method, the initial investment is recorded at cost and the investment is subsequently adjusted for its proportionate share of earnings or losses, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets. The difference between the carrying amount of the investment and the underlying equity in net assets is primarily attributable to goodwill and other intangible assets. When the fair value or income information is not readily determinable, the Company has elected to apply the measurement alternative, and report the investment at cost, less impairment.

 

Treasury Stock

 

Treasury stock is recorded at acquisition cost. Upon disposition of treasury shares gains and losses are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fair value as of September 30, 2021 and December 31, 2020, because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt and long-term receivables approximates fair value as of September 30, 2021 and December 31, 2020, given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.

 

The determination of fair value is based upon the fair value framework established by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 
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Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

 

The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 3 inputs.

 

The Company considers its note receivable and Simple Agreement for Future Equity (“SAFE”) investment to be Level 3 investments and that the fair value approximates the carrying value.

 

There were no changes in levels during the nine months ended September 30, 2021.

 

Note Receivables

 

In connection with the sale of TeamGlobal in June 2020, the Company received a $1,700,000, five and a half year promissory note due December 2025, that carries an interest rate of 4.0% and is secured by a first priority security interest in the shares of TeamGlobal. Monthly principal payments on the promissory note began in January 2021. Based on general market conditions, the security interest held by the Company and the credit quality of the buyer at the time of the sale, the Company determined that the fixed interest rate approximates current market rates.

 

Interest income recognized for the three and nine months ended September 30, 2021 was $15,000 and $48,000, respectively, and is included as part of other income on the unaudited condensed consolidated statements of operations. Interest income recognized for the three and nine months ended September 30, 2020 was $19,000 and $31,000, respectively.

 

Revenue Recognition

 

The Company derives its revenues primarily from Software as a Service (“SaaS”), subscriptions, customer support services, contactless compliance solutions, implementation services, perpetual license sales and the sale of hardware in connection with its software solutions. Revenue is recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.

 

The Company determines the amount of revenue to be recognized through application of the following steps:

 

 

Identification of the contract, or contracts, with a customer

 

 

Identification of the performance obligations in the contract

 

 

Determination of the transaction price

 

 

Allocation of the transaction price to the performance obligations in the contract

 

 

Recognition of revenue when, or as, performance obligations are satisfied

 

The following table presents a summary of revenue (dollars in thousands):

 

 
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Table of Contents

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Recurring revenue

 

$1,233

 

 

$964

 

 

$3,142

 

 

$2,876

 

Product and service revenue

 

 

1,382

 

 

 

1,162

 

 

 

7,963

 

 

 

3,523

 

Total revenue

 

$2,615

 

 

$2,126

 

 

$11,105

 

 

$6,399

 

 

Revenues

 

Recurring revenue

 

Recurring revenue is defined as the Company’s SaaS revenue, licensing and subscription revenue, eCommerce revenue, and customer support revenue. The Company generates recurring revenue from contracts with customers that include fixed recurring revenue or contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is driven by the Company’s go-to-market model, which includes a combination of direct sales, partner-assisted sales, and eCommerce sales.

 

SaaS revenue represents software products and solutions that provide customers with the right to access the Company’s solutions for a fee. These services are made available to the customer continuously throughout the contractual period. However, the extent to which the customer uses the services may vary at the customer’s discretion. The Company's contracts with customers are generally for a term of one to five years. The payment for SaaS solutions may be received either at the inception of the arrangement or over the term of the arrangement. These SaaS solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such we recognize revenue for these solutions ratably over the term of the contractual agreement.

 

Subscription revenue includes providing, through a web server, access to the Company’s proprietary vehicle recognition software, a self-managed database, and a powerful cross-platform application programming interface. The subscription arrangements with customers typically do not provide the customer with the right to take possession of the Company’s software at any time. Instead, customers are granted continuous access to the Company’s software or services over the contractual period. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Accordingly, the fixed consideration related to recurring revenue is generally recognized on a straight-line basis over the contract term beginning on the date access to the Company’s software is provided.

 

eCommerce revenue is defined by the Company as revenue obtained through direct sales on the Company’s eCommerce platform. The Company’s eCommerce revenue generally includes subscriptions to the Company’s vehicle recognition software which can be purchased online. The Company's contracts with customers are generally for a term of one month with an automatic renewal each month. The Company invoices and receives fees from its customers monthly.

 

Customer support revenue is associated with perpetual and subscription arrangements. As customer support is not critical to the customers' ability to derive benefit from their right to use the Company’s software, customer support is considered a distinct performance obligation when sold together with software. Customer support consists primarily of technical support. Customer support for perpetual and term licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for subscription licenses is renewable concurrently with such licenses for the same duration of time. The Company’s customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how the Company believes services are provided.

 

Product and service revenue

 

Product and service revenue is defined as the Company’s contactless compliance revenue, implementation revenue, perpetual license sales and hardware sales.

 

 
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Contactless compliance solutions revenues reflect arrangements to provide traffic safety systems to several municipalities in North America. These systems include hardware that identifies red light and school safety zone traffic violations and software that captures and records forensic images and analyzes the images to provide data and supports citation management services. In the first quarter of 2021, the Company launched a new service offering for the State of Oklahoma to support its Uninsured Vehicle Enforcement Diversion (“UVED”) Program. Rekor provides hardware, software and services to identify uninsured motor vehicles, notify owners of non-compliance and assist them in obtaining the required insurance as an alternative to traditional enforcement methods. Revenue is recognized monthly based on the number of citations collected by the relevant municipality.

 

Implementation revenue is incurred when the Company provides pilot programs to customers. Pilot programs may involve a one-time fee for a defined period in which the customer can use the Company’s software in connection with a previously installed camera network or connected vehicle data. At the end of the pilot program, the customer can convert from a pilot program to a subscription model which has a typical term between one and five years. The Company’s pilot program revenue is recognized at various stages of completion.

 

In addition to the recurring software sales, the Company will recognize revenue related to the sale of perpetual software licenses. The Company sells perpetual licenses which provide customers the right to use software for an indefinite period in exchange for a one-time license fee, which is generally paid at contract inception. The Company’s perpetual licenses provide a right to use intellectual property (“IP”) that is functional in nature and have significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when the customer has access to the software, which normally occurs once software activation keys have been made available to the customer.

 

The Company generates revenue through the sale of hardware through its partner program distribution channels. The Company satisfies its performance obligation upon the transfer of control of hardware to its customers. The Company invoices end-user customers upon transfer of control of the hardware to its customers. The Company offers hardware installment to customers which ranges from one to six months. The revenue related to the installation component is recognized at various stages of completion.

 

Revenue by Customer Type

 

The following table presents a summary of revenue by customer type (dollars in thousands):

 

 

 

Three Months ended June 30,

 

 

Six Months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Government customers

 

$1,548

 

 

$1,254

 

 

$4,186

 

 

$4,047

 

Commercial customers

 

 

1,067

 

 

 

872

 

 

 

6,919

 

 

 

2,352

 

Total revenue

 

$2,615

 

 

$2,126

 

 

$11,105

 

 

$6,399

 

 

Performance obligations

 

The Company contracts with customers in a variety of ways, including contracts that obligate the Company to provide services over time. Some contracts include performance obligations for several distinct services. For those contracts that have multiple distinct performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors. This may result in a deferral or acceleration of revenue recognized relative to cash received for each distinct performance obligation. When the Company recognizes revenue due to the sale of hardware or perpetual software licenses, the impact on the overall unsatisfied performance obligations is relatively small as the Company satisfies most of its performance obligations at the point in time that the control of the hardware or software has transferred to the customer.

 

Where performance obligations for a contract with a customer are not yet satisfied or have only been partially satisfied as of a particular date, the unsatisfied portion is to be recognized as revenue in the future. As of September 30, 2021, the Company had approximately $23,845,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 36.0% of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

 

 
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Unbilled accounts receivable

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the unaudited condensed consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the unaudited condensed consolidated balance sheets. When billing occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days, but typically no longer than over the next twelve months. Unbilled accounts receivables of $425,000 and $600,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.

 

Contract liabilities

 

When the Company advance bills clients prior to providing services, generally such amounts will be earned and recognized in revenue within the next nine months to five years, depending on the subscription or licensing period. These assets and liabilities are reported on the unaudited condensed consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the nine months ended September 30, 2021 were not materially impacted by any other factors. Contract liabilities as of September 30, 2021 and December 31, 2020 were $3,716,000 and $2,084,000, respectively. During the nine months ended September 30, 2021, $920,000 of the contract liabilities balance as of December 31, 2020 was recognized as revenue.

 

The services due for contract liabilities described above are shown below as of September 30, 2021 (dollars in thousands):

 

2021

 

$1,068

 

2022

 

 

1,839

 

2023

 

 

474

 

2024

 

 

234

 

2025

 

 

82

 

Thereafter

 

 

19

 

Total

 

$3,716

 

 

Costs to Obtain and Fulfill a Contract

 

Practical Expedients ElectionCosts to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. The Company elected to use the practical expedient election to expense costs to obtain a contract as incurred when the amortization period would have been one year or less.

 

In connection with the Company’s services for Oklahoma’s UVED program, the Company installs hardware and software at no additional charge to the end customer. The costs associated with the hardware and software installations are expected to be recouped by the Company over the course of the estimated contract period and thus are capitalized as a cost to fulfill a customer contract and amortized over the estimated contract period. As of September 30, 2021 the Company has capitalized $218,000 of such fulfillment costs, of which $196,000 are presented as part of property and equipment, net in the unaudited condensed consolidated balance sheets. As of December 31, 2020 costs incurred to fulfill contracts in excess of one year had been immaterial.

 

Cash and Cash Equivalents, and Restricted Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments, including U.S. Treasury Bills purchased with a maturity of three months or less, to be cash equivalents.

 

Cash subject to contractual restrictions and not readily available for use is classified as restricted cash and cash equivalents. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash and cash equivalents for these client jurisdictions as of September 30, 2021 and December 31, 2020 were $1,063,000 and $412,000, respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

  

 
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Concentrations of Credit Risk

 

The Company deposits its temporary cash investments with highly rated quality financial institutions that are located in the United States and Israel. The United States deposits are federally insured up to $250,000 per account. As of September 30, 2021 the Company had deposits from continuing operations totaling $36,165,000 in three U.S. institutions and one Israeli financial institution. As of December 31, 2020 the Company had deposits from continuing operations totaling $21,007,000 in one U.S. financial institution.

 

The Company has a market concentration of revenue and accounts receivable from continuing operations related to its customer base.

 

Customer A accounted for less than 10.0% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively. Customer A accounted for 19.0% and less than 10.0% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

 

Customer B accounted for less than 10.0% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively. Customer B accounted for 13.0% and less than 10.0% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

 

Customer C accounted for less than 10.0% and 17.0% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively. Customer C accounted for less than 10.0% and 20.0% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

 

Customer E accounted for 13.0% and less than 10.0% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively. Customer E accounted for less than 10.0% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

 

As of September 30, 2021, accounts receivable from Company A and Company D totaled 18.0% and 14.0% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2020, Company A and Company B accounted for 43.0% and 20.0%, respectively, of the unaudited condensed consolidated accounts receivable balance.

 

No other single customer accounted for more than 10.0% of the Company’s unaudited condensed consolidated revenues for the three and nine months ended September 30, 2021 and 2020 or the unaudited condensed consolidated accounts receivable balance as of September 30, 2021 and December 31, 2020.

 

Significant Accounting Policies

 

Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

New Accounting Pronouncements Effective in the Nine months ended September 30, 2021

 

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted this guidance in the first quarter of 2021. The adoption of ASU 2020-01 did not have a material impact on the Company’s unaudited condensed consolidated financial statements or notes.

 

 
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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminated previously allowed exceptions and clarified existing guidance in the accounting for income taxes, including in the areas of franchise taxes, the tax basis of goodwill and interim period effects of changes in tax laws. The Company adopted this guidance in the first quarter of 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s unaudited condensed consolidated financial statements or notes.

 

New Accounting Pronouncements Effective in Future Periods

 

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2022. Upon adoption of the new standard, the Company will begin recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to the Company’s financial assets. Due to the nature and extent of the Company’s financial instruments (primarily accounts receivable and a note receivable) currently within the scope of ASU 2016-13 and based on the Company’s analysis of ASU 2016-13 and the historical, current and expected credit quality of the Company’s customers, the Company does not expect ASU 2016-13 to have a material impact on its unaudited condensed consolidated statements of operations and balance sheets.

 

The Company does not believe that any recently issued, but not yet effective, accounting standards, other than the standards discussed above, could have a material effect on the accompanying unaudited condensed consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

 

NOTE 2 – ACQUISITIONS

 

On August 18, 2021, the Company completed its acquisition of Waycare by acquiring 100.0% of the issued and outstanding capital stock of Waycare. The aggregate purchase price for the shares of Waycare was $61,100,000, less the amount of Waycare’s debt and certain transaction expenses and subject to a customary working capital adjustment. The purchase price was comprised of $40,813,000 of cash and 2,784,474 shares of the Company’s common stock, valued at $20,287,000. As a result of the transaction, Waycare has become a wholly-owned subsidiary of the Company.

 

The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the acquisition of Waycare occurred on August 18, 2021, the results of operations for Waycare from the date of acquisition have been included in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2021. The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):

 

 
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Cash paid

 

$40,813

 

Common stock issued

 

 

20,287

 

Total consideration

 

$61,100

 

Assets

 

 

 

 

Cash and cash equivalents

 

$25

 

Restricted cash and cash equivalents

 

 

89

 

Accounts receivable

 

 

472

 

Other current assets

 

 

150

 

Property and equipment

 

 

72

 

Acquired technology

 

 

17,255

 

Total assets acquired

 

 

18,063

 

Liabilities

 

 

 

 

Accounts payable and accrued expenses

 

 

451

 

Contract liabilities

 

 

36

 

Total liabilities assumed

 

 

487

 

Fair value of identifiable net assets acquired

 

 

17,576

 

Goodwill

 

$43,524

 

 

The technology acquired by the Company as part of the acquisition has an estimated useful life of seven years and presented as part of intangible assets, net on the unaudited condensed consolidated balance sheets.

 

During the three and nine months ended September 30, 2021, $260,000 of revenue was attributed to Waycare, which was reported in the consolidated income statement.

 

Operations of Combined Entities

 

The following unaudited pro forma combined financial information gives effect to the acquisition of Waycare as if it was consummated as of January 1, 2020. This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands except for per share data)

 

 

(Dollars in thousands except for per share data)

 

Total revenue from continuing operations

 

$2,834

 

 

$2,499

 

 

$13,050

 

 

$7,491

 

Net loss from continuing operations

 

 

(10,186)

 

 

(4,347)

 

 

(21,629)

 

 

(11,840)

Basic and diluted loss per share continuing operations

 

$(0.23)

 

$(0.27)

 

$(0.54)

 

$(0.59)

Basic and diluted number of shares

 

 

44,723,337

 

 

 

29,691,543

 

 

 

41,141,641

 

 

 

25,566,281

 

 

NOTE 3 – INVESTMENTS

 

Investments in Unconsolidated Companies

 

In February 2017, the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business to Global Public Safety (the “GPS Closing”). After the GPS Closing, the Company continues to own 19.9% of the units of Global Public Safety. This equity investment does not have a readily determinable fair value and the Company reports this investment at cost, less impairment. As of September 30, 2021 and December 31, 2020 the investment in Global Public Safety had a value of $0.

 

 
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In June 2020, the Company announced a joint venture in which the Company would have a 50 percent equity interest in Roker Inc. (“Roker”). In the third quarter of 2020 and the first quarter of 2021, the Company contributed $75,000 for its 50 percent equity interest for a total investment of $150,000. This investment is accounted for under the equity method. During the three and nine months ended September 30, 2021, the Company recognized a loss in its unconsolidated investments of $0 and $150,000, respectively.

 

The carrying amount of the Company’s investments are included as part of investments in unconsolidated companies in the unaudited condensed consolidated balance sheets. There were no distributions or earnings received from either investment in the three or nine months ended September 30, 2021 and 2020.

 

Roker SAFE

 

In April 2021, in exchange for $1,000,000 the Company entered into a SAFE with Roker (the “Roker SAFE”). The Roker SAFE allows the Company to participate in future equity financings of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”). Alternatively, upon the occurrence of a change of control or an initial public offering (other than a qualified financing), the Company has the option to receive either (i) cash payment equal to the invested amount under the SAFE, or (ii) a number of shares of common stock equal to the invested amount divided by the liquidity price set forth in the Roker SAFE. The Company’s investment in the Roker SAFE is recorded on the cost method of accounting and included under SAFE investment on the unaudited condensed consolidated balance sheets and is shown as long-term, as it is not readily convertible into cash. If the Company identifies factors that may be indicative of impairment the Company will review the investment for impairment.

 

NOTE 4 – DISCONTINUED OPERATIONS

 

During the first quarter of 2020, in connection with the Company’s plan to concentrate on its Technology segment, the Company determined that all of the historical Professional Services segment should be classified as discontinued operations. As part of this plan TeamGlobal, AOC Key Solutions and Firestorm were classified as discontinued operations and presented as part of discontinued operations.

 

AOC Key Solutions Sale

 

On April 2, 2020, the Company entered into a Stock Purchase Agreement (the “AOC Key Solutions Purchase Agreement”) by and among the Company, AOC Key Solutions, and PurpleReign, LLC, a Virginia limited liability company owned by the members of AOC Key Solutions management (the “AOC Key Solutions Buyer”), by which the Company agreed to sell AOC Key Solutions, to the AOC Key Solutions Buyer.

 

The AOC Key Solutions Buyer agreed to purchase all of the outstanding equity interests of AOC Key Solutions for a purchase price of $4,000,000, comprising (i) $3,400,000 in cash, and (ii) a subordinated promissory note (the “Subordinated Note”) in the initial principal amount of $600,000.

 

As of December 31, 2020, the AOC Key Solutions Subordinated Note had been paid in full by the AOC Key Solutions Buyer.

 

TeamGlobal Sale

 

On June 29, 2020, the Company entered into a Stock Purchase Agreement (the “TeamGlobal Purchase Agreement”) by and among the Company, TeamGlobal, and Talent Teams LLC, a Texas limited liability company owned by the members of TeamGlobal’s management (the “TeamGlobal Buyer”), pursuant to which the Company agreed to sell TeamGlobal to the TeamGlobal Buyer.

 

Subject to the terms and conditions of the TeamGlobal Purchase Agreement, the TeamGlobal Buyer agreed to purchase all of the outstanding equity interests of TeamGlobal for a purchase price of $4,000,000, comprising (i) an aggregate of $2,300,000 in cash, and (ii) a secured promissory note (the “Secured Note”) in the initial principal amount of $1,700,000, with such Secured Note secured by a Pledge and Security Agreement with respect to all the outstanding shares of TeamGlobal being acquired by the TeamGlobal Buyer.

 

 
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The dispositions of AOC Key Solutions and TeamGlobal are the result of the Company’s strategic decision to concentrate resources on the development of its Technology Segment and will result in material changes in the Company’s operations and financial results. As a consequence, the Company is reporting the operating results and cash flows of TeamGlobal, AOC Key Solutions and Firestorm as discontinued operations, including for all prior periods reflected in the unaudited condensed consolidated financial statements and these notes.

 

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations from TeamGlobal, AOC Key Solutions and Firestorm for the three and nine months ended September 30, 2021 and 2020 have been classified as discontinued operations and presented as part of loss from discontinued operations in the accompanying unaudited condensed consolidated statements of operations presented herein. The assets and liabilities also have been classified as discontinued operations under the line captions of current and long term assets discontinued operations and current and long term liabilities discontinued operations in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020.

 

The assets and liabilities classified as discontinued operations in the Company’s unaudited condensed consolidated financial statements as of September 30, 2021 and December 31, 2020 are shown below (dollars in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$1

 

 

$2

 

Current assets of discontinued operations

 

 

1

 

 

 

2

 

Total assets of discontinued operations

 

$1

 

 

$2

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$30

 

 

$31

 

Lease liability, short term

 

 

99

 

 

 

93

 

Current liabilities of discontinued operations

 

 

129

 

 

 

124

 

Lease liability, long term

 

 

0

 

 

 

5

 

Long-term liabilities of discontinued operations

 

 

0

 

 

 

5

 

Total liabilities of discontinued operations

 

$129

 

 

$129

 

 

The major components of the discontinued operations, net of tax, are presented in the unaudited condensed consolidated statements of operations below (dollars in thousands):

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

Firestorm

 

 

Firestorm

 

 

Firestorm

 

 

Global

 

 

AOC Key Solutions

 

 

Firestorm

 

 

Total

 

Revenue

 

$0

 

 

$-

 

 

$0

 

 

$10,510

 

 

$3,392

 

 

$5

 

 

$13,907

 

Cost of revenue

 

 

0

 

 

 

0

 

 

 

0

 

 

 

9,190

 

 

 

1,866

 

 

 

-

 

 

 

11,056

 

Gross profit

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,320

 

 

 

1,526

 

 

 

5

 

 

 

2,851

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

0

 

 

 

2

 

 

 

-

 

 

 

1,341

 

 

 

1,284

 

 

 

(2)

 

 

2,623

 

Selling and marketing expenses

 

 

0

 

 

 

0

 

 

 

4

 

 

 

79

 

 

 

131

 

 

 

0

 

 

 

210

 

Operating expenses

 

 

0

 

 

 

2

 

 

 

4

 

 

 

1,420

 

 

 

1,415

 

 

 

(2)

 

 

2,833

 

Income loss income from operations

 

 

0

 

 

 

(2)

 

 

(4)

 

 

(100)

 

 

111

 

 

 

7

 

 

 

18

 

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(166)

 

 

(74)

 

 

0

 

 

 

(240)

Other expense (income)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

5

 

 

 

2

 

 

 

0

 

 

 

7

 

Total other (income) expense

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(161)

 

 

(72)

 

 

0

 

 

 

(233)

Net income (loss) from discontinued operations

 

$0

 

 

$(2)

 

$(4)

 

$(261)

 

$39

 

 

$7

 

 

$(215)

     

 
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NOTE 5 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

Supplemental disclosures of cash flow information for the nine months ended September 30, 2021 and 2020 were as follows (dollars in thousands):

   

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

Cash paid for interest - continuing operations

 

$0

 

 

$1,211

 

Note received as part of TeamGlobal Sale

 

 

0

 

 

 

1,700

 

Paid-in-kind interest transferred from accrued interest to the principal balance of the 2019 Promissory Notes

 

 

0

 

 

 

1,283

 

Increase in accounts payable and accrued expenses related to purchases of property and equipment

 

 

2,479

 

 

 

0

 

Fair market value of shares issued in connection with the acquisition of Waycare

 

 

20,287

 

 

 

0

 

Non-cash Note Exchange transaction

 

 

 

 

 

 

 

 

Exchange of accrued interest and stock issuance costs

 

 

0

 

 

 

(226)

Debt extinguishment costs

 

 

0

 

 

 

(2,484)

Exchange of the net principal balance of the 2019 Promissory Notes

 

 

0

 

 

 

(14,688)

Issuance of common stock

 

 

0

 

 

 

17,325

 

Cash impact of Note Exchange transaction

 

 

0

 

 

 

(73)
Financing activities:

 

 

 

 

 

 

 

 

Series A Cumulative Convertible Redeemable Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock

 

 

(1,005)

 

 

0

 

Series A Cumulative Convertible Redeemable Preferred stock included in temporary equity, settled in common stock

 

 

(6,770)

 

 

0

 

Series B Cumulative Convertible Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock

 

 

(179)

 

 

0

 

New Leases under ASC-842

 

 

 

 

 

 

 

 

Right-of-use lease asset

 

 

6,039

 

 

 

132

 

Lease incentive recognized in property and equipment, net

 

 

3,833

 

 

 

0

 

Lease liability

 

$(9,872)

 

$(132)

 

NOTE 6 – OPERATING LEASES

 

We have operating leases for office facilities in various locations throughout the United States and Israel. The Company’s leases have remaining terms of one to four years. Certain of the Company’s leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining total future lease payments.

 

Operating lease expense from continuing operations for the three months ended September 30, 2021 and 2020 was $105,000 and $72,000, and for the nine months ended September 30, 2021 and 2020 was $278,000 and $175,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $245,000 and $168,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

In the third quarter of 2021, the Company entered into a lease agreement for its new headquarters. As part of the lease agreement there were $3,833,000 in lease incentives provided to the Company which were used to update and the structure of the leased space and furnish the leased space.

 

Supplemental balance sheet information related to leases as of September 30, 2021 was as follows (dollars in thousands):

 

 
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Operating lease right-of-use lease assets from continuing operations

 

$6,256

 

 

 

 

 

 

Current portion of lease liability

 

$101

 

Long-term portion of lease liability

 

 

9,994

 

Total lease liability from continuing operations

 

$10,095

 

 

 

 

 

 

Weighted average remaining lease term - operating leases from continuing operations

 

 

9.80

 

 

 

 

 

 

Weighted average discount rate - operating leases

 

 

9.0%

 

 

 

 

 

2021

 

$33

 

2022

 

 

525

 

2023

 

 

1,618

 

2024

 

 

1,579

 

2025

 

 

1,596

 

Thereafter

 

 

11,443

 

Total lease payments

 

$

16,794

 

Less imputed interest

 

 

6,699

 

Maturities of lease liabilities

 

$10,095

 

 

NOTE 7 – INTANGIBLE ASSETS

 

Intangible Assets Subject to Amortization

 

The following summarizes the change in intangible assets from December 31, 2020 to September 30, 2021 (dollars in thousands):

 

 

 

December 31, 2020

 

 

Additions

 

 

Amortization

 

 

September 30, 2021

 

Intangible assets subject to amortization from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$362

 

 

$0

 

 

$(25)

 

$337

 

Marketing related

 

 

159

 

 

 

0

 

 

 

(51)

 

 

108

 

Technology based

 

 

5,361

 

 

 

17,255

 

 

 

(1,089)

 

 

21,527

 

Internally capitalized software

 

 

1,156

 

 

 

4

 

 

 

(364)

 

 

796

 

Intangible assets subject to amortization from continuing operations

 

$7,038

 

 

$17,259

 

 

$(1,529)

 

$22,768

 

 

The following provides a breakdown of identifiable intangible assets as of September 30, 2021 (dollars in thousands):

 

 

 

Customer Relationships

 

 

Marketing Related

 

 

Technology Based

 

 

Internally Capitalized Software

 

 

Total

 

Identifiable intangible assets

 

$461

 

 

$327

 

 

$24,465

 

 

$1,452

 

 

$26,705

 

Accumulated amortization

 

 

(124)

 

 

(219)

 

 

(2,938)

 

 

(656)

 

 

(3,937)

Identifiable intangible assets from continuing operations, net

 

$337

 

 

$108

 

 

$21,527

 

 

$796

 

 

$22,768

 

 

These intangible assets are being amortized on a straight-line basis over their estimated useful life. Amortization expense attributable to continuing operations for the three months ended September 30, 2021 and 2020 was $713,000 and $343,000, respectively, and for the nine months ended September 30, 2021 and 2020 was $1,529,000 and $977,000, respectively and is presented as part of depreciation and amortization in the accompanying unaudited condensed consolidated statements of operations.

 

 
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As of September 30, 2021, the estimated impact on continuing operations from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

 

2021

 

$1,017

 

2022

 

 

4,008

 

2023

 

 

3,828

 

2024

 

 

3,525

 

2025

 

 

3,516

 

Thereafter

 

 

6,874

 

Total

 

$22,768

 

 

NOTE 8 – DEBT

 

Firestorm Notes

 

On January 25, 2017, pursuant to the terms of the Company’s acquisition of Firestorm, the Company issued $1,000,000 in the aggregate form of four unsecured, subordinated promissory notes with interest payable over five years. The principal amount of one of the notes payable is $500,000 payable at an interest rate of 2.0% and the remaining three notes are evenly divided over the remaining $500,000 and payable at an interest rate of 7.0%. The notes mature on January 25, 2022. The aggregate balance of these notes payable was $994,000 and $980,000, net of unamortized interest, as of September 30, 2021 and December 31, 2020, respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $6,000 and $20,000, respectively. The Company is not paying current interest on these notes and does not expect to pay principal due in January 2022 as the Company has requested rescission in connection with the Firestorm acquisition and is currently in litigation with the sellers (see NOTE 10- COMMITMENTS AND CONTINGENCIES)

 

Paycheck Protection Program Loan

 

On May 26, 2020, the Company entered into a loan agreement with Newtek Small Business Finance, LLC, which provides for a loan in the principal amount of $221,000 (the “Rekor PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The Rekor PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for nine months after the date of disbursement.

 

On June 3, 2020, the Company’s wholly owned subsidiary, Rekor Recognition Systems, Inc., entered into a loan agreement with Newtek Small Business Finance, LLC, which provides for a loan in the principal amount of $653,000 (the “Rekor Recognition PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The Rekor Recognition PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for nine months after the date of disbursement.

 

The Rekor PPP Loan and the Rekor Recognition PPP Loan (collectively the “Loans”) may be prepaid at any time prior to maturity with no prepayment penalties. The Loans contain events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the Loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the entire Loans amount for qualifying expenses and has to applied for forgiveness of the Loans in accordance with the terms of the CARES Act. The Loans are presented in loan payable, current portion on the accompanying unaudited consolidated balance sheets.

 

In October 2021, the Company was informed the Loans forgiveness was processed by the Small Business Administration (“SBA”) and the Company’s Loans have been fully forgiven. The Loans are now considered paid in full by SBA.

 

 
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2019 Promissory Notes

 

On March 12, 2019, the Company entered into a note purchase agreement pursuant to which investors, including OpenALPR Technology, Inc. (the “2019 Lenders”) loaned $20,000,000 to the Company (the “2019 Promissory Notes”) and the Company issued to the 2019 Lenders warrants to purchase 2,500,000 shares of Rekor common stock (the “March 2019 Warrants”). The loan bore interest at 16% per annum, of which at least 10.0% per annum was required to be paid in cash. Any remaining interest accrued to be paid at maturity or earlier upon redemption. The notes also required a $1,000,000 exit fee due at maturity, or a premium if paid before the maturity date, and compliance with affirmative, negative and financial covenants, including a fixed charge coverage ratio and minimum liquidity and maximum capital expenditures covenants. Transaction costs included $403,000 for a work fee payable over 10 months, $290,000 in legal fees and a $200,000 closing fee. As of December 31, 2020, the Company had settled the full amount of the 2019 Promissory Notes. The loan was secured by a security interest in substantially all of the assets of Rekor. The March 2019 Warrants are exercisable over a period of five years, at an exercise price of $0.74 per share, and were valued at $706,000, at the time of issuance. The warrants became exercisable commencing March 12, 2019 and expire on March 12, 2024. The 2019 Promissory Notes had an effective interest rate of 24.87%.

 

As of the first anniversary date of the commencement of the 2019 Promissory Notes $1,283,000 of the paid-in kind interest had not been paid in cash by the Company and per the purchase agreement was added to the principal balance of the 2019 Promissory Notes in March 2020.

 

2019 Promissory Note Retirement

 

On June 30, 2020, the Company entered into Exchange Agreements with certain 2019 Lenders of the Company’s 2019 Promissory Notes. Subject to the terms and conditions set forth in the Exchange Agreements, approximately $17,398,000 was redeemed in exchange for 4,349,497 shares of the Company’s common stock, at a rate of $4 per share, which was the closing price of the common stock on the date of the Exchange Agreements. On July 15, 2020, the Company completed the Note Exchange. At the time of the Exchange Agreement the net amount of long-term debt redeemed for common stock was $14,688,000. This included the existing principal balance subject to conversion, the portion of the exit fee associated with the which notes subject to conversion, offset by the portion of unamortized issuance costs associated with the notes subject to conversion. There was also $226,000 related to the paid-in-kind (“PIK”) interest associated with the notes subject to conversion that was exchanged as part of the Exchange Agreements. The difference between the market value of the shares issued and the net carrying amount of the obligations above of $2,484,000 was recorded as part of debt extinguishments costs in the accompanying consolidated statements of operations. Following the Note Exchange, approximately $4,398,000 aggregate principal amount of the 2019 Promissory Notes remained outstanding, plus an additional $216,000 related to the exit fee.

 

The Company incurred stock issuance costs of approximately $73,000 related to legal, accounting, and other fees in connection with the Exchange Agreements. These costs are presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

 

On September 16, 2020, the Company issued a cash payment of $5,284,000 to complete the retirement of the remaining aggregate principal balance of the 2019 Promissory Notes. As a result of this optional prepayment, the 2019 Promissory Notes have been fully redeemed pursuant to their terms, and as a result the Company has no further obligations under the Note Purchase Agreement, as amended. The warrants previously issued pursuant to the Note Purchase Agreement remain outstanding pursuant to their terms.

 

Interest Expense

 

The following table presents the interest expense related to the contractual interest and the amortization of debt issuance costs for the Company’s debt arrangements (dollars in thousands):

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Contractual interest

 

$17

 

 

$176

 

 

$58

 

 

$1,815

 

Amortization of debt issuance costs

 

 

4

 

 

 

42

 

 

 

14

 

 

 

653

 

Total interest expense

 

$21

 

 

$218

 

 

$72

 

 

$2,468

 

 

 
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Schedule of Principal Amounts Due of Debt

 

The principal amounts due for long-term notes payable are shown below as of September 30, 2021 (dollars in thousands):

 

2021

 

$489

 

2022

 

 

1,432

 

2023

 

 

36

 

Total

 

 

 1,957

 

 

 

 

 

 

Less unamortized interest

 

 

(6)

Total notes payable

 

$1,951

 

 

 

 

 

 

Loan payable, current portion

 

$911

 

Loan payable, long-term

 

 

46

 

Notes payable, current portion

 

 

994

 

Total notes payable

 

$1,951

 

 

NOTE 9 – INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company reviewed both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections, and the overall prospects of the Company’s business.

 

The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance, outside of the deferred tax liability related to the indefinite lived intangible, through the three months ended September 30, 2021.

 

The Company files income tax returns in the United States and in various states. No U.S. Federal, state or foreign income tax audits were in process as of September 30, 2021.

 

The Company evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, the Company fully reserved for its net deferred tax assets, outside of the deferred tax liability related to the indefinite lived intangible, because the Company believes that it is not more likely than not that their benefits will be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly.

 

For the nine months ended September 30, 2021 the Company did not record any interest or penalties related to unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax expense. The 2017 through 2019 tax years remain subject to examination by the Internal Revenue Service.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

On August 19, 2019, the Company filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of Firestorm (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC. The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company. The Complaint requests equitable rescission of that transaction, or, alternatively, monetary damages.

 

 
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Following an initial amended complaint, answer and counterclaims, and defendants’ motion for judgment on the pleadings, on January 30, 2020, the Company filed a Second Amended Complaint, which the Firestorm Principals answered together with counterclaims on February 28, 2020. Thereafter, on March 30, the Company moved to dismiss certain counterclaims against certain directors and officers named as counterclaim-defendants, which resulted in the Firestorm Principals voluntarily dismissing the counterclaims against those parties. The Company thereafter filed its response and affirmative defenses to the Counterclaims on April 22, 2020. On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which the Company has opposed. In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees. With respect to the Firestorm Principals’ motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety. In that same order, the Court granted in part and denied in part the Firestorm Principals’ fee advance motion.

 

On April 27, 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of the Company’s claims and the Firestorm Principals’ counterclaims, along with supporting declarations and exhibits. After the Court decided to allow the proposed motion to proceed, the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed their opposition to the partial summary judgment motion on June 21, 2021. The Firestorm Principals filed their reply in support of their partial summary judgment motion on July 9, 2021.

 

In 2020, the Firestorm Principals filed various suits in New York, Delaware and Virginia against directors and officers of the Company, alleging breach of fiduciary duty and libel. The defendants in the suits moved to dismiss the amended complaint. At this stage of these litigations, suits against two of the directors have been dismissed and one has been permitted to proceed. On September 28, 2021, the Court issued an order denying the motion to dismiss. On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s September 28, 2021 order.

 

At this stage of these litigations, the Company is unable to render an opinion regarding the likelihood of a favorable outcome. The Company intends to continue vigorously litigating its claims against the Firestorm Principals and believes that the Firestorm Principals’ remaining counterclaims and suits against Rekor directors and officers are without merit.

 

On January 31, 2020, the Company’s wholly owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc. (“PCS”) for breach of software license agreements pursuant to which software was licensed to PCS. On June 14, 2020, PCS filed its operative answer to the Complaint. On June 21, 2020, PCS filed a motion to join the Company and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counter claims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships. On July 13, 2020, OpenALPR filed an opposition to the motion for joinder. On November 23, 2020, the court denied PCS’s Motion for Joinder with prejudice. On August 30, 2021, OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on August 31, 2021. The Company considers this matter closed.

 

On September 18, 2020, Fordham Financial Management, Inc. (“Fordham”) commenced a lawsuit against the Company in the Supreme Court for the State of New York, New York County. Fordham alleges that the Company breached an underwriting agreement with Fordham. Fordham has brought claims for breach of contract, a declaratory judgment, and attorneys’ fees and expenses, and seeks damages. The Complaint was served on the Company on September 25, 2020. The Company issued a motion to dismiss counterclaims on June 23, 2021, Rekor’s opposition has been filed and Fordham’s reply will be due on August 19, 2021. The Court granted Fordham’s motion to dismiss Rekor’s counterclaims on October 21, 2021.

 

At this stage of the Fordham litigation, the Company is unable to render an opinion regarding the likelihood of a favorable outcome. However, the Company maintains that Fordham’s claims have no merit. To that end it intends to vigorously litigate this action.

 

 
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In June 2021, a putative shareholder class action lawsuit (captioned Miller v. Rekor Systems, Inc. et al.) was filed in in the United States District Court for the District of Maryland, naming as defendants Rekor Systems, Inc. and certain of its officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to Rekor’s automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and seeks damages on behalf of shareowners who acquired Rekor stock between April 12, 2019 and May 25, 2021. In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice the Lawsuit that it had filed against the Company and several of its executives.

 

In addition, from time to time, the Company may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated. It is the Company’s opinion that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

Effective March 18, 2020, the Company adopted and approved an amendment to increase the number of authorized shares of common stock from 30,000,000 to 100,000,000, $0.0001 par value. The rights and privileges terms of the additional authorized shares of common stock are identical to those of the currently outstanding shares of common stock. However, because the holders of common stock do not have preemptive rights to purchase or subscribe for any new issuances of common stock, the subsequent potential issuance of additional shares of common stock will reduce the current stockholders’ percentage ownership interest in the total outstanding shares of common stock. The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’ relative rights and limitations.

 

Form S-3 Registration Statement

 

On September 13, 2021 the Company filed a Form S-3 Registration Statement SEC, using a “shelf” registration process. By using a shelf registration statement, the Company may sell securities from time to time and in one or more offerings up to a total dollar amount of $350,000,000.

 

Waycare Acquisition

 

In connection with the acquisition as described in NOTE 2 – ACQUISITIONS, the Company issued 2,784,474 shares of the Company’s common stock as part of the consideration.

 

Public Offering

 

On February 9, 2021, the Company issued and sold 6,126,939 shares of its common stock (which includes 799,166 shares of common stock sold pursuant to the exercise of an overallotment option) (the “Public Offering”). The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $70,125,000. The shares were sold pursuant to an underwriting agreement with B. Riley Securities, Inc. and Lake Street Capital Markets, LLC, as representatives of the several underwriters named therein under the Company’s shelf registration statement on Form S-3 (Registration Statement No. 333-224423) filed by the Company with the SEC that became effective on April 30, 2018. On February 4, 2021, a prospectus supplement and accompanying prospectus were filed with the SEC in connection with the offering and a related registration statement (File No. 333-252735) was filed pursuant to Rule 462(b) promulgated under the Securities Act.

 

 
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Preferred Stock

 

The Company is authorized to issue up to 2,000,000 shares of preferred stock, $0.0001 par value. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of the winding-up of its affairs. The authorized but unissued shares of the preferred stock may be divided into, and issued in, designated series from time to time by one or more resolutions adopted by the Board of Directors of the Company. The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock.

 

Series A Cumulative Convertible Redeemable Preferred Stock

 

Of the 2,000,000 authorized shares of preferred stock, 505,000 shares were designated as $0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”). The holders of Series A Preferred Stock were entitled to quarterly dividends of 7.0% per annum per share.

 

Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2020.

 

Rekor adjusted the value of the Series A Preferred Stock to redemption value at the end of each reporting period. The adjustment to the redemption value was recorded through additional paid in capital of $0 and $220,000 for the three months ended September 30, 2021 and 2020, respectively, and $101,000 and $638,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

As a result of the closing of the Public Offering in the first quarter of 2021, all of the issued and outstanding Series A Preferred Stock was converted pursuant to the original terms of the agreement into 899,174 shares of the Company’s common stock.

 

Series B Cumulative Convertible Preferred Stock

 

Of the 2,000,000 authorized shares of preferred stock, 240,861 shares were designated as $0.0001 par value Rekor Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”). As part of the TeamGlobal Merger, the Company issued 240,861 shares of $0.0001 par value Series B Preferred Stock. All Series B Preferred Stock was issued at a price of $10.00 per share as part of the acquisition of TeamGlobal. The Series B Preferred Stock had a conversion price of $5.00 per share. Each Series B Preferred Stock had an automatic conversion feature based on the share price of Rekor.

 

As a result of the volume weighted average share price of the Company’s common stock being over $7.50 for thirty consecutive days, in the first quarter of 2021, all of the Company’s issued and outstanding Series B Preferred Stock was converted pursuant to the original terms of the agreement into 517,611 shares of the Company’s common stock.

 

Warrants

 

A summary of the warrant activity for the Company for the period ended September 30, 2021 is as follows:

 

 

 

Series A Preferred Stock Warrants (1)

 

 

Firestorm Warrants (2)

 

 

Secure Education Warrants (3)

 

 

2018 Public Offering Warrants (4)

 

 

2019 Promissory Note Warrants (5)

 

 

Total

 

Active warrants January 1, 2021

 

 

141,789

 

 

 

631,254

 

 

 

66,666

 

 

 

4,886

 

 

 

68,750

 

 

 

913,345

 

Exercised warrants

 

 

(97,805)

 

 

-

 

 

 

(51,110)

 

 

(1,381)

 

 

(68,750)

 

 

(219,046)

Outstanding warrants September 30, 2021

 

 

43,984

 

 

 

631,254

 

 

 

15,556

 

 

 

3,505

 

 

 

-

 

 

 

694,299

 

Weighted average strike price of outstanding warrants

 

$1.03

 

 

$3.09

 

 

$6.06

 

 

$1.00

 

 

$0

 

 

$3.02

 

Shares of common stock issued during the three months ended September 30, 2021

 

 

97,805

 

 

 

-

 

 

 

51,110

 

 

 

1,280

 

 

 

64,766

 

 

 

214,961

 

 

 
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(1)

As part of a Regulation A Offering in fiscal year 2016 and 2017, the Company issued warrants to the holders of Series A Preferred Stock (the “Series A Preferred Stock Warrants”). The exercise price for these warrants is $1.03. The expiration date of the Series A Preferred Stock Warrants is November 8, 2023.

 

 

(2)

As part of the acquisition of Firestorm on January 24, 2017, the Company issued warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $2.5744per share, and warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $3.6083 per share (the “Firestorm Warrants”). The expiration date of the Firestorm Warrants is January 24, 2022. The Company has rejected requests from the holders of the Firestorm Warrants to exercise them pending resolution of pending litigation (see NOTE - 10 COMMITMENTS AND CONTINGENCIES).

 

 

(3)

Pursuant to the Company’s acquisition of Secure Education Consultants on January 1, 2018, the Company issued warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share, and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “Secure Education Warrants”). The expiration date of the Secure Education Warrants is January 1, 2023.

 

 

(4)

On November 1, 2018, in connection with an underwritten public offering of its common stock, the Company issued to the underwriters warrants to purchase 206,250 shares of its common stock (the “2018 Public Offering Warrants”), exercisable over a period of five years, at an exercise price of $1.00 per share. These warrants were exercisable commencing April 27, 2019 and expire on October 29, 2023.

 

 

(5)

On March 12, 2019, in connection with the 2019 Promissory Notes, the Company issued warrants to purchase 2,500,000 shares of its common stock (the “2019 Promissory Note Warrants”), which were immediately exercisable at an exercise price of $0.74 per share, to certain individuals and entities. Of the 2,500,000 warrants, 625,000 were issued as partial consideration for the OpenALPR Technology Acquisition.

 

NOTE 12 – EQUITY INCENTIVE PLAN

 

In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”) which replaced the 2016 Equity Award Plan (the “2016 Plan”). The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants. Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares. In October 2021, the Company announced it had registered an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan.

 

Stock Options

 

Stock options granted under the 2017 Plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. Stock options are granted at exercise prices as determined by the Board of Directors. The vesting period is generally three years with a contractual term of ten years.

 

Stock compensation expense related to stock options for the three months ended September 30, 2021 and 2020 was $30,000 and $63,000, respectively, and for the nine months ended September 30, 2021 and 2020 was $90,000 and $208,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

A summary of stock option activity under the Company’s 2017 Plan for the period ended September 30, 2021 is as follows:

 

 
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Number of

Shares Subject

to Option

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (Years)

 

 

Aggregate

Intrinsic Value

 

Outstanding Balance at December 31, 2020

 

 

1,291,753

 

 

$1.44

 

 

 

7.57

 

 

$7,827

 

Exercised

 

 

(195,782)

 

 

2.24

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(13,000)

 

 

0.90

 

 

 

 

 

 

 

 

 

Outstanding Balance at September 30, 2021

 

 

1,082,971

 

 

 

1.40

 

 

 

6.52

 

 

$10,313

 

Exercisable at September 30, 2021

 

 

887,806

 

 

$1.48

 

 

 

6.30

 

 

$8,472

 

 

As of September 30, 2021, there was $82,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over a weighted average period of 0.69 years.

 

Restricted Stock Units

 

Stock compensation expense related to RSU’s for the three months ended September 30, 2021 and 2020 was $664,000 and $139,000, respectively, and for the nine months ended September 30, 2021 and 2020 was $2,510,000 and $331,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

Pursuant to the terms of the Waycare purchase agreement, the Company reserved for issuance to Waycare’s continuing employees an aggregate of 686,248 restricted stock units, which were issued on October 28, 2021 pursuant to the terms of the Company’s 2017 Equity Award Plan, as amended. The restricted stock units are subject to customary vesting schedules and are intended to incentivize the continued performance of Waycare’s employees.

 

A summary of RSU activity under the Company’s 2017 Plan for the nine months ended September 30, 2021 is as follows:

 

 

 

Number of Shares

 

 

Weighted Average Unit Price

 

 

Weighted Average Remaining Contractual Term (Years)

 

Outstanding Balance at December 31, 2020

 

 

479,984

 

 

$4.45

 

 

 

2.12

 

Granted

 

 

482,040

 

 

 

12.36

 

 

 

1.86

 

Vested

 

 

(215,430)

 

 

7.43

 

 

 

 

 

Forfeited

 

 

(93,940)

 

 

5.74

 

 

 

 

 

Outstanding Balance at September 30, 2021

 

 

652,654

 

 

$9.12

 

 

 

1.92

 

 

The grant date fair value is based on the estimated fair value of the Company’s common stock on the date of grant. All RSUs granted vest upon the satisfaction of a service-based vesting condition.

 

As of September 30, 2021, there was $4,552,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.92 years.

 

NOTE 13 – LOSS PER SHARE

 

The following table provides information relating to the calculation of loss per common share:

 

 
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Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands, except per share data)

 

 

(Dollars in thousands, except per share data)

 

Basic and diluted loss per share

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$(9,613)

 

$(6,667)

 

$(19,777)

 

$(10,860)

Less: preferred stock accretion

 

 

0

 

 

 

(220)

 

 

(101)

 

 

(638)

Less: preferred stock dividends

 

 

0

 

 

 

(115)

 

 

(51)

 

 

(345)

Net loss attributable to shareholders from continuing operations

 

$(9,613)

 

$(7,002)

 

$(19,929)

 

$(11,843)

Net loss from discontinued operations

 

 

0

 

 

 

(2)

 

 

(4)

 

 

(215)
Net loss attributable to shareholders

 

$(9,613)

 

$(7,004)

 

$(19,933)

 

$(12,058)

Weighted average common shares outstanding - basic and diluted

 

 

41,938,863

 

 

 

26,907,069

 

 

 

38,357,167

 

 

 

22,781,807

 

Basic and diluted loss per share from continuing operations

 

$(0.23)

 

$(0.26)

 

$(0.52)

 

$(0.52)

Basic and diluted loss per share from discontinued operations

 

 

0.00

 

 

 

(0.00)

 

 

(0.00)

 

 

(0.01)

Basic and diluted loss per share

 

$(0.23)

 

$(0.26)

 

$(0.52)

 

$(0.53)
Common stock equivalents excluded due to anti-dilutive effect

 

 

2,429,924

 

 

 

4,134,979

 

 

 

2,429,924

 

 

 

4,134,979

 

 

As the Company had a net loss for the three and nine months ended September 30, 2021, the following 2,429,924 potentially dilutive securities were excluded from diluted loss per share: 694,299 for outstanding warrants, 1,082,971 related to outstanding options and 652,654 related to outstanding RSUs.

 

As the Company had a net loss for the three and nine months ended September 30, 2020, the following 4,134,979 potentially dilutive securities were excluded from diluted loss per share: 1,004,155 for outstanding warrants, 923,844 related to the Series A Preferred Stock, 509,325 related to the Series B Preferred Stock, 1,287,921 related to outstanding options and 409,734 related to outstanding RSUs.

 

NOTE 14 – SUBSEQUENT EVENTS

 

Forgiveness of PPP Loans

 

In October 2021, the Company was informed the Loans, as described in NOTE 8 – DEBT, forgiveness was processed by the Small Business Administration (“SBA”) and the Company’s Loans have been fully forgiven. These Loans are now considered paid in full by SBA.

 

S-8 Amendment to the 2017 Plan

 

The Company previously filed a Registration Statement on Form S-8 (File No. 333-220864) with the SEC in connection with the registration of an aggregate of 3,000,000 shares of the Company’s common stock, to be issued under the 2017 Plan. Pursuant to General Instruction E of Form S-8, the Company filed a registration statement on Form S-8 solely to register an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan. This increase was approved by the Company’s Board of Directors on May 7, 2021, and by the Company’s stockholders on September 14, 2021 at the Company’s annual meeting.

 

Form S-3 Registration Statement Resale Shares

 

On October 29, 2021 the Company filed a prospectus related to the resale from time to time of up to 2,186,931 shares (the “Resale Shares”) of our common stock, by the selling stockholders in connection with the acquisition.

 

The Company issued the Resale Shares to the selling stockholders on August 18, 2021, as a portion of the purchase price consideration. The Company registered the Resale Shares on behalf of the selling stockholders pursuant to the Waycare purchase agreement.

 

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

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties including particularly statements regarding our future results of operations and financial position, business strategy, prospective products and services, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products and services. These statements involve uncertainties, such as known and unknown risks, and are dependent on other important factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements we express or imply. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties, and assumptions described under the sections in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports for the quarter’s ended March 31, 2021 and June 30, 2021, entitled “Risk Factors” and elsewhere in this Quarterly Report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of this filing. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. We undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise.

 

Specific factors that might cause actual results to differ from our expectations include, but are not limited to:

 

 

significant risks, uncertainties and other considerations discussed in this report;

 

 

operating risks, including supply chain, equipment or system failures, cyber and other malicious attacks and other events that could affect the amounts and timing of revenues and expenses;

 

 

 

 

reputational risks affecting customer confidence or willingness to do business with us;

 

 

financial market conditions and the results of financing efforts;

 

 

our ability to successfully identify, integrate and complete acquisitions and dispositions, including the integration of the Waycare Acquisition;

 

 

our ability to access the public markets for debt or equity capital;

 

 

political, legal, regulatory, governmental, administrative and economic conditions and developments in the United States (“U.S.”) and other countries in which we operate and, in particular, the impact of recent and future federal, state and local regulatory proceedings and changes, including legislative and regulatory initiatives associated with our products;

 

 

current and future litigation;

 

 

competition from other companies with an established position in the markets we have recently entered or are seeking to enter or from other companies who are seeking to enter markets we already serve;

 

 

our failure to successfully develop products using our technology that are accepted by the markets we serve or intend to serve or the development of new technologies that change the nature of our business or provide our customers with products or services superior to or less expensive than ours;

 

 

the inability of our strategic plans and goals to expand our geographic markets, customer base and product and service offerings;

 

 
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risks associated with pandemics and other global health emergencies, such as the spread of a novel strain of coronavirus (“COVID-19”) around the world since the first quarter of 2020 which has caused significant volatility in U.S. and international markets and has created significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies; and

 

 

risks associated with cyberattacks on international, national, local and Company information infrastructure by rogue businesses or criminal elements or by agents of governments engaged in asymmetric disruptions for competitive, economic, or military reasons.

 

Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Other than as required by law, we undertake no obligation to update forward-looking statements even though our situation may change in the future. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), our Quarterly Reports for the quarters ended March 31, 2021 and June 30, 2021 and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.

 

General

 

Overview

 

Rekor Systems, Inc. develops innovative products and services for the intelligent infrastructure market and is working to drive the world to be safer, smarter, and more efficient. As a provider of comprehensive, continuous and real-time roadway intelligence, Rekor delivers integrated solutions, actionable insights and predictions that increase roadway safety, increase efficiency and better protect the environment. With a global footprint across 65 countries, we provide actionable and real-time insights to commercial clients, as well as government entities.

 

Our vision is to provide innovations that improve the lives, safety and well-being of people using AI and other advanced technologies. Our capabilities appeal to businesses and governmental entities in solving a wide variety of real-world mobility and infrastructure-related operational challenges. Using the latest technology that gathers and collates comprehensive data and transforms this data into actionable insights, the Company delivers useable solutions that empower smart cities and intelligent roadways. Our suite of solutions is seamless, easy to use, and can tie directly into customer workflows, providing value directly to users in their daily operations. Our products and services contribute to building environmentally friendly cities and roadways that leverage our insights to operate more efficiently and sustainably. Customers can operate our technology on existing systems or use our advanced sensors and third-party data to create a holistic view of the roadway and infrastructure. Currently, customers use our solutions for a variety of applications, including roadway safety and incident management, traffic and infrastructure analytics, sustainability and green initiatives, public safety and contactless compliance. We create safer communities by providing government agencies with the technology they need to effectively protect and serve their citizens and provide businesses with solutions to improve customer experience, enhance revenue, reduce operating costs and drive operational efficiency.

 

Rekor aggregates data using mobile and mounted optical sensors with on-device (“edge”) processing, as well as through the acquisition of data feeds from third party vendors such as connected vehicles, weather, construction, and traffic data. Our tech stack, with its open architecture, allows seamless integration with any Internet Protocol (“IP”) optical device, reducing our clients’ need to invest in legacy system upgrades and affording them the ability to gain additional value from existing infrastructure. Our advanced sensors use edge processing to capture, store, and process real-time data close to the source, allowing them to provide almost instant actionable insights from the roadway. We use artificial intelligence and machine learning to process the large amounts of information we capture and integrate and use it to provide tailored solutions to our clients. Our sophisticated and proprietary personally identifiable information (“PII”) filter de-identifies relevant data in an irreversible way so that it is incorporated into our intelligent infrastructure platform in full compliance with the security and privacy requirements of each end user. Authorized entities can also leverage our operational data to improve public safety and institute contactless compliance programs.

 

 
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Rekor One™ is our single source platform for intelligent infrastructure. Rekor One provides government agencies with real-time roadway intelligence using cutting edge artificial intelligence and machine learning technology that can be significantly enhanced using our proprietary advanced sensors. The result is a powerful analytics platform that delivers a comprehensive picture of vehicles, traffic, incidents and more within a particular jurisdiction. Rekor One’s actionable insights improve operations, enable better informed decision making, and allow for more strategic allocation of resources. The solution is hardware and software agnostic, allowing for seamless integration without interrupting existing systems in place. Our platform was built to allow us to create custom applications for an array of use cases. Some use cases used today include:

 

 

·

Traffic and Congestion Forecasting

 

·

Cross-Agency Incident Management

 

·

Electric Vehicle Monitoring

 

·

Commercial Vehicle and Tonnage Monitoring

 

·

Environmental Impact

 

·

On-Demand Traffic View

 

·

Contactless Compliance

 

·

License Plate Recognition & Vehicle Recognition for Public Safety

  

Ultimately, we seek to deliver insights through an expanding software portfolio that not only addresses the challenges our customers are currently facing but also empowers them to effectively deal with their evolving challenges in the future.

 

Our vehicle recognition solution has the capability to analyze multi-spectral images and video streams using AI trained algorithms and concurrently extract license plate data by state or province from approximately 80 countries, together with the vehicle’s make, model, color, body type, and direction of travel. When combined with speed-optimized code, parallel processing capability and best-in-class hardware accessories, such as optical sensors and communications modules, the solution captures license plate data and vehicle characteristics at extremely high vehicle speeds with a high degree of accuracy. It is also able to effectively operate in unusually difficult conditions, such as low lighting, poor weather, extreme camera viewing angles, and obstructions.

 

Our incident management solution also uses artificial intelligence and machine learning to detect anomalies in regular traffic patterns. A jurisdiction will be broken down into sections of roadway that are then analyzed methodically by our platform. Historical incident information will be fed into the system from multiple sources. This data contains clues that the algorithm can use to identify when a roadway is most likely to exhibit high crash risk, is displaying irregular patterns of traffic, or there might be an incident on the road. Based on current variables at play and the knowledge the system has gained, our platform displays these insights on the live map for agencies to assess and respond to proactively. Each insight and its outcomes are used in the machine learning algorithms to improve the accuracy of our modeling.

 

It is with this advanced technology and breadth of use-cases across multiple industries that we seek to address issues of aging infrastructure, increasing traffic congestion, and depletion of natural resources, by providing customers with the ability to collect, analyze and communicate actionable roadway and community intelligence in an accurate, real-time, and cost-effective manner. We provide actionable and differentiated answers on a single platform that is built to serve multiple missions.

 

Our operations are conducted by our wholly owned subsidiary, Rekor Recognition Systems, Inc. (“Rekor Recognition”) and Waycare. In October 2020, we announced the launch of Rekor One™, an advanced platform that serves as a unifying source of roadway intelligence for multiple government agencies across cities, counties, and states. Rekor One™ next generation operating system purpose built for the intelligent infrastructure industry. Using patented AI and Machine learning, our operating system joins many disparate data points and transforms them into purpose-built solutions that provide a more complete picture of the roadway. This technology disrupts the 100-year-old intelligent transportation systems (“ITS”) legacy systems that exist today and brings real-time solutions to customers, all unified under a single platform that helps municipalities and businesses make the world safer, smarter, and more efficient.

 

 
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Recent Developments

 

The most significant developments in our company and business since January 1, 2021 are described below:

 

 

·

On October 22, 2021, we announced that our Waycare subsidiary was honored with a Nevada Traffic Safety Project of the Year Award for its part in Nevada’s “Road to Zero” program. The Nevada Highway Patrol (NHP) and the Regional Transportation Commission of Southern Nevada (RTC) were joint recipients of the award. The accolade, which was announced October 18 at the 2021 Nevada Traffic Safety Summit in Las Vegas, recognizes individuals and organizations that have made an outstanding effort to eliminate serious injury and fatal crashes on Nevada roadways.

 

 

 

 

·

On October 19, 2021, we announced that the City of Chattanooga, Tennessee (or the “City”) has selected our Rekor One™ platform to provide traffic analytics in support of its Smart Corridor+ infrastructure initiative. With a total area of 144.6 square miles and a population of 181,099, the City will be using Rekor One as part of a pilot program to capture and analyze traffic data to help the City discover new approaches for battling traffic congestion, improve forecasting, estimate emissions from real-time data, and increase public safety.

 

 

 

 

·

On October 11, 2021, we announced that our wholly owned subsidiary, Waycare Technologies (“Waycare”) was selected for a strategic research initiative by Volvo Cars to ascertain how artificial intelligence can be used to enable predictive awareness in a smart city context. This marks the first deployment in Europe for the company’s crash prediction technology. The six-month pilot test, beginning in October 2021, involves the Waycare technology being used for AI-based crash prediction in Volvo Cars’ hometown of Gothenburg, Sweden. Volvo Cars is leading the research project for Drive Sweden’s AI Aware program, which investigates and tests central traffic control that supports connected and automated vehicles. The test will be performed in conjunction with the Swedish Transport Administration (“STA”) and the Gothenburg Traffic Management Center (“TMC”).

 

 

 

 

·

On October 5, 2021, we announced that we have partnered with the world’s leading Weather Intelligence Platform, Tomorrow.io. The partnership will enable data integration to provide transportation agencies increased visibility into weather-related challenges impacting traffic conditions. Government agencies and other field users will benefit from predictive insights to identify high risk zones and routes and enable proactive operational decisions to increase road safety prior to weather impact.

 

 

 

 

·

On October 4, 2021, we announced that three Mid-Atlantic customers will deploy Rekor solutions to improve public safety in their respective municipalities. With each of these customers, Rekor’s technology met or exceeded rigorous performance requirements necessary to support public safety missions including being a turnkey, cloud-based solution that is not dependent on proprietary infrastructure.

 

 

 

 

·

On September 30, 2021, we announced that our wholly owned subsidiary Waycare has collaborated with the Toyota Mobility Foundation (“TMF”) to reduce traffic congestion and incidents in Bangkok, Thailand. The deployment, which is expected to run for a year, targets Thailand’s oldest and busiest road—Rama IV Road in Bangkok.

 

 

 

 

·

On September 21, 2021, we announced that our wholly owned subsidiary Waycare launched a Road Safety Pilot with the Utah Department of Transportation (“UDOT”) and Utah Department of Public Safety (“DPS”). The pilot, which launched in July 2021, will focus on major corridors in the Salt Lake City region along Interstates 15, 215, and 80, as well as Utah State Route 201. The agencies will leverage the Company's solutions to enable quicker, more efficient incident management and mitigation strategies, in addition to improving its collaboration and reporting capabilities.

 

 

 

 

·

On September 9, 2021, we announced that our wholly owned subsidiary Waycare has been selected by the Louisiana Department of Transportation and Development (“LaDOTD”) for a pilot program to help reduce congestion and collisions in the Baton Rouge area and promote speed harmonization for a safer driving experience. The initial deployment, which kicked off July 15, 2021, focuses on some of the region’s most dangerous sections of highway: Interstate 10 (“I-10”) and Interstate 12 (“I-12”).

 

 
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On August 19, 2021, we announced the successful closing of the acquisition of Waycare Technologies Ltd. a privately held company focused on optimizing traffic management systems using predictive analytics. Pursuant to the purchase agreement the Company provided $61,000,000 in total consideration consisting of a combination of cash and common stock and acquired 100% of the issued and outstanding capital stock of Waycare from its stockholders.

 

 

 

In July 2021, we announced the selection of or Rekor One™ vehicle recognition system by the City of Albany, New York, in partnership with the Albany Police Department. Rekor was selected after a competitive bid process in June 2021 to help maintain the safety and security of the community and its citizens.

 

 

In July 2021, we announced that Wisconsin’s Waukesha County has selected the Rekor One™ vehicle recognition system for implementation at eight of its public park entrances. The solution was selected after a competitive bid process in early 2021, to help maintain the security of each location and to ensure entrance fee compliance.

 

 

 

 

On February 26, 2021, we announced that the State of North Dakota Parks and Recreation Department selected our Rekor One™ solution to help state park leadership understand use patterns and plan for future needs.

 

 

In February 2021, we completed an underwritten public offering of 6,126,939 shares of common stock of the Company at a price to the public of $12.25 per share. We received aggregate gross proceeds of approximately $75.1 million from the offering, prior to deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use these proceeds to increase our product development, sales and marketing efforts and to consider strategic partnerships and acquisitions in our target markets. As a result of the offering, all of our Series A Cumulative Convertible Redeemable Preferred Stock automatically converted into 899,174 shares of our common stock. In addition, on February 9, 2021, we issued 517,611 shares of our common stock, due to the automatic conversion of 240,861 shares of Series B Preferred Stock, as a result of the volume weighted share price of our common stock exceeding certain thresholds. These automatic conversions resulted in the retirement of all of our outstanding preferred shares.

 

 

On January 7, 2021, we announced that the State of Oklahoma had integrated our Rekor One™ platform across relevant state systems to provide vehicle information associated with uninsured motorists as part of the state’s Uninsured Vehicle Enforcement Diversion (“UVED”) Program, which is operated by the Oklahoma District Attorneys Council. Oklahoma’s UVED Program uses our vehicle recognition technology to leverage existing state resources to ensure that all drivers have at least the minimum required amount of liability insurance, ultimately leading to safer roadways. The platform allows for real-time detection of non-compliant vehicles and instant data consolidation into a regularly updating insurance system connected to the state’s enforcement and intervention programs. We assist Oklahoma drivers by providing a one-stop web portal for uninsured motorists to easily find non-standard and standard insurance for their vehicles. With the successful implementation of Oklahoma’s UVED Program, we have now established a leading position in the implementation of an innovative program under active consideration by a number of other states.

 

 
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Opportunities, Trends and Uncertainties

 

We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time. Although there are many that we may not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following:

 

 

Growing Smart City Market – According to a United Nation’s report, about two-thirds of the world population will live in urban areas by 2050. Our cities are getting larger, our commute longer, roads bigger and the impact on the environment and the quality of life is worse than ever been. This trend requires forward-thinking officials to manage assets and resources more efficiently than they have in the past. We believe that advancements in “big data”, connected devices and artificial intelligence will allow for ITS solutions and applications that can be used to reduce congestion, keep travelers safe, improve transportation, protect the environment, respond to climate change, and enhance the quality of life. We believe our data-driven, artificial intelligence aided solutions provide the necessary tools to more effectively tackle the challenges cities and communities are facing today and over the coming decades.

 

 

 

 

AI for Infrastructure – We believe that the application of AI to the analysis of infrastructure, including roadways and roadway conditions will significantly affect vehicular travel in the future. As vehicles move towards full automation, there is a need for real-time data and actionable insights around traffic flow, identification of anomalous and unsafe movements – e.g. wrong way vehicles, stopped vehicles, or/and pedestrians on the roadway. Marketers and drive-thru retailers with loyalty programs can also benefit from rapid, lower cost identification of existing and potential customers in streamlining and accelerating vehicular flow as well as data around the vehicles on the roadway.

 

 

 

 

Connected Vehicle Data – Today’s vehicles are equipped with dozens of sensors, collecting information about internal systems, external hazards, and driving behaviors. This data is an untapped resource for cities and transportation agencies alike. Notably, the data from these vehicles represent a virtual network that is independent of the infrastructure which is maintained and operated by the public agencies. Connected vehicle sensors provide important information related to hazardous conditions, speed variations, intersection performance, and more. This data can help agencies and cities gain more visibility on their roads, supplementing the existing city infrastructure and providing untapped transportation information in more rural areas, that are not currently available from the current ITS infrastructure. Our utilization and greater use of cellular-enabled connected vehicle data can be another step towards vehicle safety as the Federal Communications Commissions and the U.S. Department of Transportation sort out the next iteration in connectivity.

 

 

New and Expanded Uses for Vehicle Recognition Systems – We believe that reductions in the cost of vehicle recognition products and services will significantly broaden the market for these systems. We currently serve a number of users who could not afford the cost or adapt to, the restrictions of conventional vehicle recognition systems. These include smaller municipalities, homeowners’ associations, and organizations finding new applications such as innovative customer loyalty programs. We have seen and responded to an increase in the number of smaller jurisdictions and municipalities that are testing automated license plate recognition (“ALPR”) systems or that issued requests for proposals to install a network of ALPR cameras. We also expect the availability of faster, higher accuracy, lower cost systems to dramatically increase the ability of crowded urban areas to manage traffic congestion and implement smart city programs.

 

 

 

 

Adaptability of the Current ALPR Market – We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy, affordability and ability to capture additional vehicle data will allow them to compete effectively with existing providers. Based on published benchmarks, our software currently outperforms competitors in almost every metric. However, large users of existing ALPR technology, such as toll roads, have long-term contracts with service providers that have made considerable investments in their existing technologies and may not consider the improvements in accuracy or reductions in cost sufficient to justify abandoning their current systems in the near future. In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop or secure their advanced vehicle recognition systems. As a result, our success in establishing a major position in these markets will depend on being able to effectively communicate our presence, develop strong customer relationships, and maintain leadership in providing the capabilities that customers want. As with any large market, this will require considerable effort and resources.

 

 
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Expansion of Automated Enforcement of Motor Vehicle Laws – We believe that future legislation will allow for automated enforcement of motor vehicle regulations, including insurance requirements, to be expanded as the types of violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where automated enforcement is beneficial. In addition, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states are considering authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road. Legislative implementation is a deliberative and necessarily time-consuming process. However, as states expand auto enforcement, the market for our products and services should increase and broaden in the public safety market.

 

 

 

 

Graphic Processing Unit (“GPU”) Improvements – We expect our business to benefit from more powerful and affordable GPU hardware that has recently been developed. These GPUs are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central processing units (“CPUs”) for algorithms that process large blocks of data, such as those produced by video streams. GPUs also provide superior memory bandwidth and efficiencies as compared to their CPU counterparts. The most recent versions of our software have been designed to use the increased GPU speeds to accelerate image recognition. The GPU market is predicted to grow as a result of a surge in the adoption of the Internet of Things (“IoT”) by the industrial and automotive sectors. As GPU manufacturers increase production volume, we hope to benefit from the reduced cost to manufacture the hardware included in our products or available to others using our services.

 

 

Edge Processing – Demand for actionable roadway information continues to grow in parallel with camera resolutions. Over the last several decades, cameras have evolved from 25K pixels to 8.3 million pixels and beyond, with each advancement unlocking new capabilities thereby fueling growth. Further, cellular networks are optimized for downloading data not for uploading data, and while speeds have improved over time, what amounts to large infrastructure changes has resulted in relatively small improvements to cellular upload speeds. With road-side deployments experiencing explosive growth in count and density, scalability has become an obstacle for competition in the market. All of these factors mean that scalability, latency and bandwidth concerns require edge processing which are enabled by the continued growth of the increasingly effective graphic processing units and continual improvements in the efficiency of our AI algorithms. Edge processing ingests local high definition (“HD”) video streams and converts the raw video data to text data, thus reducing the volume of data that needs to be transferred. Edge processing allows massive scale without the bandwidth, cost, latency and dependability limitations that would be experienced with streaming to the cloud solution.

 

 

 

 

Accelerated Business Development and Marketing – Our ability to compete in a large, competitive and rapidly evolving industry will require us to achieve and maintain a leadership position. As a result, we have accelerated our business development marketing and eCommerce activities to increase awareness and market adoption of our new technology and products within the market. We anticipate that an increased presence in the market, the continued development of strategic partnerships and other economies of scale will significantly reduce the level of costs necessary to support sales of our products and services. However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain.

 

 
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COVID 19 - The spread of a novel strain of COVID-19 around the world since the first quarter of 2020 has caused significant volatility in U.S. and international markets. Despite the roll-out of vaccinations, there continues to be significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, we are unable to determine the full impact to our operations. However, we have also seen a positive impact of COVID-19 on the technology sector, in which we are competing. The pandemic has accelerated adoption of technology across businesses by several years. According to a McKinsey Global Survey of executives, their companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years. Funding for digital initiatives has increased, creating opportunities for innovate solution providers such as Rekor.

 

 

Pressure on Government Budgets COVID-19 has caused significant strain on government budgets. With less money to spend and more need for resources, government agencies need affordable, effective, and scalable solutions for revenue recovery and discovery. With subscription pricing and an intelligent infrastructure platform that accomplishes multiple agency missions, we are uniquely positioned to provide agencies force-multiplying tools when money and human resources are limited. Agencies can be better positioned to improve public safety, manage resources more effectively, and make an impact on their citizens quality of life with limited capital expenditure. In addition, states adopting contactless compliance programs may be able to garner significant net cash contributions to their annual budgets while reducing the number of noncompliant vehicles on their roadways.

 

 

 

 

American Jobs Plan (“AJP”) - Through the AJP, President Biden is calling on Congress to make a national investment in the transit systems in the United States. The current legislative text provides approximately $1 trillion in total spending, with approximately $550 billion in new spending over the five year period between 2022 and 2026. This includes more than $50 billion annually during this period on surface transportation. It also includes $250 million in funding, for each year 2022-2026, for transportation infrastructure finance and innovation; $50 million in funding, for each year 2022-2026, for congestion relief; more than $2 billion over the five year period for charging and fueling infrastructure; $147 million in funding, for each year 2022-2026, for highway research and development; $110 million in funding, for each year 2022-2026, for technology innovation and deployment; and $110 million in funding, for each year 2022-2026, for intelligent transportation systems. The Senate has passed this legislation and it is now awaiting action in the House. We believe that our offerings with Rekor One, and its ability to provide a comprehensive offering of solutions position the Company well to emerge as a technology leader in this proposed transformation and development of this nascent and rapidly expanding market of intelligent infrastructure.

 

Components of Operating Results

 

Revenues

 

We derive revenues substantially from Software-as-a-Service products (“SaaS”), licensing and subscriptions, customer support services, contactless compliance solutions, implementation services, perpetual license sales, and the sale of hardware in connection with our software solutions. Revenue is recognized upon transfer of control of promised products and services to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.

 

Costs of revenues, excluding depreciation and amortization

 

Direct costs of revenues consist primarily of the portion of technical and non-technical salaries and wages and payroll-related costs incurred in connection with revenue generating activities. Direct costs of revenues also include production expenses, data subscriptions, sub-consultant services and other expenses that are incurred in connection with our revenue generating activities. Direct costs of revenues exclude the portion of technical and non-technical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. We expense direct costs of revenues when incurred.

 

 
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Operating Expenses

 

Our operating expenses consist of general and administrative expenses, sales and marketing, research and development and depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses. Operating expenses also include depreciation, amortization and impairment of assets.

 

General and Administrative

 

General and administrative expense consist of personnel costs for our executive, finance, legal, human resources and administrative departments. Additional expenses include office leases, professional fees and insurance.

 

We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future due to additional costs associated with accounting, compliance, insurance and investor relations as a public company. However, we expect our general and administrative expense to decrease as a percentage of our revenue over the long term, although our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

 

Sales and Marketing

 

Sales and marketing expenses consist of personnel costs, marketing programs, travel and entertainment associated with sales and marketing personnel, expenses for conferences and trade shows. We intend to make significant investments in our sales and marketing expenses to grow revenue, further penetrate the market and expand our customer base.

 

Research and Development

 

Research and development expenses consists of personnel costs, software used to develop our products and consulting and professional fees for third-party development resources. Our research and development expenses support our efforts to continue to add capabilities to and improve the value of our existing products and services, as well as develop new products and services.

 

We expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our AI solutions. However, we expect our research and development expenses to decrease as a percentage of our revenue over the long term, although our research and development expense may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

 

Depreciation and Amortization

 

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of right-of-use assets, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.

 

Other Income (Expense)

 

Other income (expense) consists primarily of interest expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, and interest income earned on cash and cash equivalents, short-term investments and note receivables.

 

Income Tax Provision

 

Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

 

 
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Critical Accounting Estimates and Assumptions

 

A comprehensive discussion of our critical accounting estimates and assumptions is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

New Accounting Pronouncements

 

See Note 1 to our unaudited condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements.

 

Results of Operations

 

Our historical operating results in dollars are presented below. The analysis of operation is solely related to continuing operations and does not consider the results of discontinued operations.

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$2,615

 

 

$2,126

 

 

$11,105

 

 

$6,399

 

Cost of revenue, excluding depreciation and amortization

 

 

1,402

 

 

 

979

 

 

 

4,705

 

 

 

2,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

6,813

 

 

 

2,676

 

 

 

16,094

 

 

 

7,518

 

Selling and marketing expenses

 

 

1,125

 

 

 

560

 

 

 

3,044

 

 

 

1,356

 

Research and development expenses

 

 

2,000

 

 

 

781

 

 

 

4,741

 

 

 

2,143

 

Depreciation and amortization

 

 

930

 

 

 

497

 

 

 

2,169

 

 

 

1,386

 

Operating expenses

 

 

10,868

 

 

 

4,514

 

 

 

26,048

 

 

 

12,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(9,655)

 

 

(3,367)

 

 

(19,648)

 

 

(8,749)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

-

 

 

 

(3,081)

 

 

-

 

 

 

(3,281)

Interest expense

 

 

(21)

 

 

(218)

 

 

(72)

 

 

(2,468)

Gain on the sale of business

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,631

 

Other income

 

 

66

 

 

 

6

 

 

 

103

 

 

 

27

 

Total other income (expense)

 

 

45

 

 

 

(3,293)

 

 

31

 

 

 

(2,091)

Loss before income taxes

 

 

(9,610)

 

 

(6,660)

 

 

(19,617)

 

 

(10,840)

Income tax provision

 

 

(3)

 

 

(7)

 

 

(10)

 

 

(20)

Equity in loss of investee

 

 

-

 

 

 

-

 

 

 

(150)

 

 

-

 

 Net loss from continuing operations

 

 

(9,613)

 

 

(6,667)

 

 

(19,777)

 

 

(10,860)

Net loss from discontinued operations

 

 

-

 

 

 

(2)

 

 

(4)

 

 

(215)
Net loss

 

 

(9,613)

 

 

(6,669)

 

 

(19,781)

 

 

(11,075)
Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(9,613)

 

 

(6,667)

 

 

(19,777)

 

 

(10,860)

Change in unrealized gain on short-term investments

 

 

3

 

 

 

-

 

 

 

6

 

 

 

-

 

Total comprehensive loss from continuing operations

 

 

(9,610)

 

 

(6,667)

 

 

(19,771)

 

 

(10,860)
Total comprehensive loss

 

$(9,610)

 

$(6,669)

 

$(19,775)

 

$(11,075)

 

 
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Comparison of the Three and Nine months ended September 30, 2021 and the Three and Nine months ended September 30, 2020

 

Total Revenue

 

 

 

Three Months ended September 30,

 

 

Change

 

 

Nine Months ended September 30,

 

 

Change

 

(dollars in thousands)

 

2021

 

 

2020

 

 

 $

 

 

 %

 

 

2021

 

 

2020

 

 

$  

 

 

%

 

Revenue

 

$2,615

 

 

$2,126

 

 

$489

 

 

 

23%

 

$11,105

 

 

$6,399

 

 

$4,706

 

 

 

74%

 

The increase in revenue for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, was a result of additional products and programs we offered, increases in our direct sales and Partners Program sales.

 

In 2021, we initiated services for Oklahoma’s UVED Program which has generated revenue of $345,000 and $975,000 during the three and nine months ended September 30, 2021.

 

During the three and nine months ended September 30, 2021, $260,000 of revenue was attributed to Waycare.

 

Additionally, during the nine months ended September 30, 2021, we had a higher volume of agreements with significant customers in which the revenue recognition was bifurcated into point in time revenue recognition related to the sale of hardware and perpetual licenses, as well as recurring revenue recognition related to the software and customer support fees.

 

Cost of Revenue, Excluding Depreciation and Amortization

 

 

 

Three Months ended September 30,

 

 

Change

 

 

Nine Months ended September 30,

 

 

Change

 

(dollars in thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

Cost of revenue, excluding depreciation and amortization

 

$1,402

 

 

$979

 

 

$423

 

 

 

43%

 

$4,705

 

 

$2,745

 

 

$1,960

 

 

 

71%

 

For the three and nine months ended September 30, 2021, cost of revenue, excluding depreciation and amortization increased by $423,000 and $1,960,000 compared to the corresponding prior periods. The increase was primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our increase in revenue.

 

Operating Expenses

 

 

 

Three Months ended September 30,

 

 

Change

 

 

Nine Months ended September 30,

 

 

Change

 

(dollars in thousands)

 

2021

 

 

2020

 

 

 $

 

 

 %

 

 

2021

 

 

2020

 

 

 $

 

 

 %

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

$6,813

 

 

$2,676

 

 

$4,137

 

 

 

155%

 

$16,094

 

 

$7,518

 

 

$8,576

 

 

 

114%

Selling and marketing expenses

 

 

1,125

 

 

 

560

 

 

 

565

 

 

 

101%

 

 

3,044

 

 

 

1,356

 

 

 

1,688

 

 

 

124%

Research and development expenses

 

 

2,000

 

 

 

781

 

 

 

1,219

 

 

 

156%

 

 

4,741

 

 

 

2,143

 

 

 

2,598

 

 

 

121%

Depreciation and amortization

 

 

930

 

 

 

497

 

 

 

433

 

 

 

87%

 

 

2,169

 

 

 

1,386

 

 

 

783

 

 

 

56%

Operating expenses

 

$10,868

 

 

$4,514

 

 

$6,354

 

 

 

141%

 

$26,048

 

 

$12,403

 

 

$13,645

 

 

 

110%

 

General and Administrative Expenses

 

The majority of the increase in general and administrative expenses is attributable to increased headcount and equity award expenses. Additionally, for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, we saw an increase in professional fees mainly associated with our merger and acquisition initiatives.

 

Selling and Marketing Expenses

 

The increase in selling and marketing expenses during the year is attributable mainly to increased marketing efforts to promote our products and services including digital marketing and other sales efforts. In connection with these efforts, there was an increase in staffing to support the Company’s growth plan.

 

Research and Development Expense

 

The overall increase in research and development expenses is primarily attributable to the development of new products and additional software capabilities, as a result of our increased focus on technology offerings. The increase in research and development expenses is mainly attributable to an increase in headcount and hours associated with research and development activities.

 

 
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Depreciation and Amortization

 

The increase in depreciation and amortization during the year is attributable primarily to increased technology-based intangible assets that were acquired as part of our acquisition of Waycare.

 

Other Expense

 

 

 

Three Months ended September 30,

 

 

Change

 

 

Nine Months ended September 30,

 

 

Change

 

(dollars in thousands)

 

2021

 

 

2020

 

 

$

 

 

 %

 

 

2021

 

 

2020

 

 

$

 

 

 %

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

$-

 

 

$(3,081)

 

$3,081

 

 

 

-100%

 

$-

 

 

$(3,281)

 

$3,281

 

 

 

-100%

Interest expense

 

 

(21)

 

 

(218)

 

$197

 

 

 

90%

 

 

(72)

 

 

(2,468)

 

 

2,396

 

 

 

97%

Gain on the sale of business

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0%

 

 

-

 

 

 

3,631

 

 

 

(3,631)

 

 

-100%

Other income

 

 

66

 

 

 

6

 

 

 

60

 

 

1000

%

 

 

103

 

 

 

27

 

 

 

76

 

 

 

281%

Total other income (expense)

 

$45

 

 

$(3,293)

 

$3,338

 

 

 

-101%

 

$31

 

 

$(2,091)

 

$2,122

 

 

 

-101%

 

The decrease in interest expense and debt extinguishment costs for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 is due to the retirement of the 2019 Promissory notes in 2020.

 

Additionally, during the nine months ended September 30, 2020, we sold our non-core businesses which resulted in a gain of $3,631,000.

 

Non-GAAP Measures: EBITDA and Adjusted EBITDA

 

EBITDA and Adjusted EBITDA

 

We calculate EBITDA as net loss before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs and (vii) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should not be considered as an alternative to net earnings or cash flow from operating activities as indicators of our operating performance or as a measure of liquidity or any other measures of performance derived in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of a company’s ability to service and/or incur debt. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do.

 

The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands):

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Total comprehensive loss from continuing operations

 

$(9,610)

 

$(6,667)

 

$(19,771)

 

$(10,860)
Income taxes

 

 

3

 

 

 

7

 

 

 

10

 

 

 

20

 

Interest

 

 

21

 

 

 

218

 

 

 

72

 

 

 

2,468

 

Depreciation and amortization

 

 

930

 

 

 

497

 

 

 

2,169

 

 

 

1,386

 

EBITDA

 

$(8,656)

 

$(5,945)

 

$(17,520)

 

$(6,986)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

$-

 

 

$3,081

 

 

$-

 

 

$3,281

 

Share-based compensation

 

 

694

 

 

 

202

 

 

 

2,600

 

 

 

539

 

Gain on sale of business

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,631)

Loss due to change in value of equity investments

 

 

-

 

 

 

-

 

 

 

150

 

 

 

-

 

One-time consulting fees

 

 

1,249

 

 

 

-

 

 

 

2,025

 

 

 

-

 

Adjusted EBITDA

 

$(6,713)

 

$(2,662)

 

$(12,745)

 

$(6,797)

 

Adjusted Gross Profit and Adjusted Gross Margin

 

Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross Margin to continue to improve over time to the extent that we can gain efficiencies through the adoption of our technology and successfully cross-selling and upselling our current and future offerings. However, our ability to improve Adjusted Gross Margin over time is not guaranteed and could be impacted by the factors affecting our performance. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors, as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other nonrecurring operating expenses.

 

 
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The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included:

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands, except percentages)

 

 

(in thousands, except percentages)

 

Revenue

 

$2,615

 

 

$2,126

 

 

$11,105

 

 

$6,399

 

Cost of revenue, excluding depreciation and amortization

 

 

1,402

 

 

 

979

 

 

 

4,705

 

 

 

2,745

 

Adjusted Gross Profit

 

$1,213

 

 

$1,147

 

 

$6,400

 

 

$3,654

 

Adjusted Gross Margin

 

 

46.4%

 

 

54.0%

 

 

57.6%

 

 

57.1%

 

Adjusted Gross Margin, for the nine months ended September 30, 2021 and 2020 increased to 57.6% from 57.1%, respectively, and Adjusted Gross Margin for the three months ended September 30, 2021 and 2020 decreased to 46.4% from 54.0%, respectively. The fluctuations in Adjusted Gross Margin were driven primarily by our mix of software and hardware sales. Software sales will carry a higher margin than hardware sales as there are fewer human costs associated with software sales. Additionally, as part of our planned go-to-market strategy, we offer our customers short-term pilot programs which range from three to six months. Our pilot programs generally have lower margins due to additional upfront costs we incur to lay the foundation for our solutions.

 

Key Performance Indicators

 

We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

 

Recurring Revenue Growth

 

Our recurring revenue model and revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business.

 

 

 

Three Months ended September 30,

 

 

Change

 

 

Nine Months ended September 30,

 

 

Change

 

(dollars in thousands)

 

2021

 

 

2020

 

 

 $

 

 

 %

 

 

2021

 

 

2020

 

 

 $

 

 

%

 

Recurring revenue

 

$1,233

 

 

$964

 

 

$269

 

 

 

28%

 

$3,142

 

 

$2,876

 

 

$266

 

 

 

9%

 

As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform.

 

Total Contract Value

 

The total contract value of contracts won in the current period provides us visibility into our future operating results and cash flows from operations. There are certain assumptions that we make when determining the total contract value of an agreement, such as, success rate of renewal periods, cancellations and usage estimates. For the nine months ended September 30, 2021 we won contracts valued at $7,663,000, compared to $3,682,000 of contracts won for the nine months ended September 30, 2020. This growth represents a $3,981,000 or 108% growth, period over period.

 

 
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Unsatisfied Performance Obligations

 

As of September 30, 2021, we had approximately $23,845,000 of contracts that were closed prior to September 30, 2021 but have a contractual period beyond September 30, 2021. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately 36% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.

 

Lease Obligations

 

At September 30, 2021, we leased building space at the following locations in the U.S. and Israel:

 

 

Columbia, Maryland – The corporate headquarters

 

 

Linthicum, Maryland

 

 

Orlando, Florida

 

 

 

 

Tel Aviv, Israel

 

 We believe our facilities are in good condition and adequate for their current use. We expect to improve, replace and increase facilities as considered appropriate to meet the needs of our planned operations.

 

Liquidity and Capital Resources

 

The following table sets forth the components of our cash flows for the period included (dollars in thousands):

 

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

 

 

 

 

 

 %

Net cash used in operating activities - continuing operations

 

$(12,321)

 

$(7,860)

 

$(4,461)

 

 

-57%

Net cash (used in) provided by investing activities - continuing operations

 

 

(43,392)

 

 

5,081

 

 

 

(48,473)

 

 

-954%

Net cash provided by financing activities - continuing operations

 

 

70,874

 

 

 

25,356

 

 

 

45,518

 

 

 

180%

Net increase in cash, cash equivalents and restricted cash and cash equivalents - continuing operations

 

$15,161

 

 

$22,577

 

 

$(7,416)

 

 

-33%

 

Net cash used in operating activities – continuing operations for the nine months ended September 30, 2021 had a net decrease of $4,461,000, which was attributable to the increase in the loss from continuing operations of $8,871,000. This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $2,061,000 from $2,600,000 for the nine months ended September 30, 2021 compared to $539,000 for the nine months ended September 30, 2020. This increase is due to the number of shares that were issued as well as the increase in our stock price. Additionally, for the nine months ended September 30, 2020, there was a $3,631,000 gain on the sale of AOC Key Solutions and TeamGlobal. The gain on the sale is shown as a decrease in cash flow from operations and an increase in cash flow from investing activities to reflect the nature of the transactions.

 

The net increase in net cash used in investment activities – continuing operations of $48,473,000 was primarily due to the net cash outlay in relation to the acquisition of Waycare of $40,699,000 and the $1,000,000 SAFE investment in Roker. During the nine months ended September 30, 2020, the cash provided by investing activities from continuing operations was primarily due to the cash proceeds of the sale of AOC Key Solutions and TeamGlobal.

 

Net cash provided by financing activities – continuing operations for the nine months ended September 30, 2021 increased $45,518,000 from the prior nine month period ended September 30, 2020. In the current year, through our Public Offering, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $70,125,000.

 

For the three and nine months ended September 30, 2021 and 2020, we funded our operations primarily through cash from operating activities, the sale of our subsidiaries and the sale of equity. As of September 30, 2021, we had cash and cash equivalents from continuing operations of $35,102,000 and working capital of $28,203,000, as compared to cash and cash equivalents of $20,595,000 and working capital of $18,324,000 as of December 31, 2020.

 

 
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Public Offering

 

On February 9, 2021, we issued and sold 6,126,939 shares of our common stock (which included 799,166 shares of common stock sold pursuant to the exercise of an overallotment option) (the “Public Offering”). The net proceeds to us, after deducting the underwriting discounts and commissions and offering expenses payable by the us, were approximately $70,125,000.

 

Waycare Acquisition

 

On August 18, 2021, we entered into a share purchase agreement (the “Purchase Agreement”) by and among the Company, Waycare, the sellers of Waycare named in the Purchase Agreement (the “Sellers”) and Shareholder Representative Services LLC, solely in its capacity as the representative of the Sellers, pursuant to which we acquired 100% of the issued and outstanding capital stock of Waycare from the Sellers (the “Acquisition”). The aggregate purchase price for the shares of Waycare was $61,100,000, less the amount of Waycare’s debt and certain transaction expenses and subject to a customary working capital adjustment. The purchase price was comprised of $40,813,000 of cash and 2,784,474 shares of our common stock, valued at $20,287,000. As a result of the transaction, Waycare became our wholly-owned subsidiary.

 

As of September 30, 2021, we had commitments to purchase $2,479,000 in property and equipment. This commitment has been recognized and recorded in our financial statements as of September 30, 2021.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, Rekor is not required to provide information required by this Item 3.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

 

Based on management’s review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2021.

 

Changes to Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of Firestorm (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC. The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company. The Complaint requests equitable rescission of that transaction, or, alternatively, monetary damages.

 

Following an initial amended complaint, answer and counterclaims, and defendants’ motion for judgment on the pleadings, on January 30, 2020, we filed a Second Amended Complaint, which the Firestorm Principals answered together with counterclaims on February 28, 2020. Thereafter, on March 30, we moved to dismiss certain counterclaims against certain directors and officers named as counterclaim-defendants, which resulted in the Firestorm Principals voluntarily dismissing the counterclaims against those parties. Thereafter we filed our response and affirmative defenses to the Counterclaims on April 22, 2020. On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which we have opposed. In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees. With respect to the Firestorm Principals’ motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety. In that same order, the Court granted in part and denied in part the Firestorm Principals’ fee advance motion.

 

On April 27, 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of our claims and the Firestorm Principals’ counterclaims, along with supporting declarations and exhibits. After the Court decided to allow the proposed motion to proceed, we, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed their opposition to the partial summary judgment motion on June 21, 2021. The Firestorm Principals filed their reply in support of their partial summary judgment motion on July 9, 2021.

 

In 2020, the Firestorm Principals filed various suits in New York, Delaware and Virginia against our directors and officers, alleging breach of fiduciary duty and libel. The defendants in the suits moved to dismiss the amended complaint. At this stage of these litigations, suits against two of the directors have been dismissed and one has been permitted to proceed. On September 28, 2021, the Court issued an order denying the motion to dismiss. On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s September 28, 2021 order.

 

At this stage of these litigations, we are unable to render an opinion regarding the likelihood of a favorable outcome. The we intend to continue vigorously litigating its claims against the Firestorm Principals and believe that the Firestorm Principals’ remaining counterclaims and suits against Rekor directors and officers are without merit.

 

On January 31, 2020, our wholly owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc. (“PCS”) for breach of software license agreements pursuant to which software was licensed to PCS. On June 14, 2020, PCS filed its operative answer to the Complaint. On June 21, 2020, PCS filed a motion to join us and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counter claims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships. On July 13, 2020, OpenALPR filed an opposition to the motion for joinder. On November 23, 2020, the court denied PCS’s Motion for Joinder with prejudice. On August 30, 2021, OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on August 31, 2021. We consider this matter closed.

 

On September 18, 2020, Fordham Financial Management, Inc. (“Fordham”) commenced a lawsuit against us in the Supreme Court for the State of New York, New York County. Fordham alleges that we breached an underwriting agreement with Fordham. Fordham has brought claims for breach of contract, a declaratory judgment, and attorneys’ fees and expenses, and seeks damages. The Complaint was served to us on September 25, 2020. We issued a motion to dismiss counterclaims on June 23, 2021, our opposition has been filed and Fordham’s reply will be due on August 19, 2021. The Court granted Fordham’s motion to dismiss our counterclaims on October 21, 2021.

 

 
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At this stage of the Fordham litigation, we are unable to render an opinion regarding the likelihood of a favorable outcome. However, we maintain that Fordham’s claims have no merit. To that end we intend to vigorously litigate this action.

 

In June 2021, a putative shareholder class action lawsuit (captioned Miller v. Rekor Systems, Inc. et al.) was filed in in the United States District Court for the District of Maryland, naming as defendants Rekor Systems, Inc. and certain of its officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to our automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and seeks damages on behalf of shareowners who acquired our stock between April 12, 2019 and May 25, 2021. The court has appointed a lead plaintiff. In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice the Lawsuit that it had filed against us and several of our executives.

 

In addition, from time to time, we may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings we accrue reserves when a loss is probable, and the amount of such loss can be reasonably estimated. It is our opinion that the outcome of these proceedings, individually and collectively, will not be material to our consolidated financial statements as a whole.

 

ITEM 1A. RISK FACTORS

 

Other than the risk factors listed below, there have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC on March 12, 2021, and in our Quarterly Reports on Form 10-Q as filed with the SEC on May 10, 2021 and August 16, 2021. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K and Form 10-Q, as well as those contained in Part 1, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.

 

We rely, in part, on third party date providers and existing camera networks to grow our business. If we are unable to enter into agreements with third party data providers or successfully maintain them, our growth may be adversely impacted.

 

We rely, in part, on access the third party data and access to existing camera networks to grow our business. The majority of the third party data agreements allow us to access connected vehicle data, existing camera networks or other data services, thereby increasing the data points used in our solutions.

 

Any agreement we enter into with a third party may not be on favorable terms, and the expected benefits and growth from these agreements may not materialize as planned. Despite our past experience, opportunities to grow our business through third party data may not be available to us in the future.

 

The market for our Rekor One platform is new and unproven, and may decline or experience limited growth and is dependent in part on data consumers continuing to adopt its platform and use its services.

 

The market for an ecosystem that connects government agencies, service providers and, ultimately, drivers is relatively new and some aspects of it are unproven. Therefore, it is subject to a number of risks and uncertainties. We believe that our future success will significantly depend in large part on the growth, if any, of this market. The use of advanced vehicle recognition systems and marketplace data to obtain data on vehicles, drivers and the environment is still relatively new and consumers may not recognize the need for, or benefits of, our platform and solutions. Moreover, if they do not recognize the need for and benefits of our platform and solutions, they may decide to adopt alternative services to satisfy some portion of their business needs.

 

 
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In order to grow its business and extend our market position, we intend to focus on educating potential customers about the benefits of its services and platform, expanding the range of our services and bringing new technologies to market to increase market acceptance and use of our platform. Our ability to expand the market that our platform and solutions address depends upon a number of factors, including the cost, performance and perceived value associated with them. The market for our platform and solutions could fail to grow significantly or there could be a reduction in demand for its services as a result of a lack of acceptance, technological challenges, competing services, decreases in spending by current and prospective customers, weakening economic conditions and other causes. If our market does not experience significant growth, or demand for its services decreases, then its business, results of operations, and financial condition could be adversely affected.

 

Our internal investments and go-to-market strategy may place downward pressure on our operating margins.

 

To increase our revenue growth, we continue to invest in our business, including investments into new markets as part of our go-to-market strategy and investment in continued innovation and product development to expand the suite of solutions we provide to our customers. Our operating margins may experience downward pressure in the short term as a result of these investments. Furthermore, our investments may not produce the expected results. If we are unable to successfully execute our go-to-market strategy, we may experience decreases in our revenues and operating margins.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Note Exchange Agreement

 

In an agreement reached on June 30, 2020, the 2019 Lenders of the 2019 Promissory Notes agreed to a redemption of approximately 77% of the remaining principal balance of the 2019 Promissory Notes as of June 30, 2020. Per the Exchange Agreement, $17,398,000, was redeemed in exchange for 4,349,497 shares of the Company’s common stock, at a rate of $4 per share (the “Note Exchange”). At the time of the Exchange Agreement the net amount of long-term debt redeemed for common stock was $14,688,000. This included the existing principal balance subject to conversion, the portion of the exit fee associated with the notes subject to conversion, offset by the portion of unamortized issuance costs associated with the notes subject to conversion. There was also $226,000 related to the paid-in-kind (“PIK”) interest associated to the notes subject to conversion that was exchanged as part of the Exchange Agreements. The difference between the market value of the shares issued and the net carrying amount of the obligations above was recorded as part of debt extinguishments costs in the accompanying consolidated statements of operations.

 

On July 15, 2020, we completed the Note Exchange by issuing our common stock to the 2019 Lenders in connection with the Note Exchange Transaction in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.

 

Automatic Conversion of Series A Cumulative Convertible Redeemable Preferred Stock and Series B Cumulative Convertible Redeemable Preferred Stock

 

As a result of the closing of the Public Offering, all of our issued and outstanding Series A Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and Series B Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) were automatically converted pursuant to their respective terms into an aggregate of 1,416,785 shares of our common stock. As a result of the automatic conversion of the Series A Preferred, the Series A Preferred is no longer quoted on the OTC Pink. The Series B Preferred was not quoted on any trading market.

 

 
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Waycare Acquisition

 

On August 18, 2021, the Company completed its acquisition of Waycare by acquiring 100% of the issued and outstanding shares of Waycare. As a result of the acquisition, Waycare is a wholly owned subsidiary of the Company. The aggregate purchase price for the shares of Waycare was $61,100,000, less the amount of Waycare’s debt and certain transaction expenses and subject to a customary working capital adjustment. The purchase price was comprised of $40,813,000 of cash and 2,784,474 shares of the Company’s common stock, valued at $20,287,000. As a result of the transaction, Waycare became a wholly-owned subsidiary of the Company. Additionally, pursuant to the terms of the Waycare purchase agreement, the Company reserved for issuance to Waycare’s continuing employees an aggregate of 686,248 restricted stock units, which were issued on October 28, 2021 pursuant to the terms of the Company’s 2017 Equity Award Plan, as amended. The restricted stock units are subject to customary vesting schedules and are intended to incentivize the continued performance of Waycare’s employees.

   

Use of Proceeds

 

We have generated losses since our inception and have relied on cash on hand, external bank lines of credit, short-term borrowing arrangements, issuance of debt, the sale of a note, sale of our non-core subsidiaries, and the sale of common stock to provide cash for operations. We attribute losses to financing costs, public company corporate overhead, lower than expected revenue, and lower gross profit of some of our subsidiaries. Our proceeds have been primarily used for research and development and sales and marketing expenses related to new product development and our strategic shift to develop and promote capabilities of our technology offerings.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 
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ITEM 6. EXHIBITS

 

(a) Exhibits

 

 

 

 

 

Incorporated by Reference

 

Filed/Furnished

Exhibit Number

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Rekor Systems, Inc (formerly known as Novume Solutions, Inc.) as filed with the Secretary of State of Delaware on August 21, 2017.

 

8-K

 

333-216014

 

3.1

 

8/25/17

 

 

 

 

 

 

 

3.2

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Rekor Systems, Inc. as filed with the Secretary of State of Delaware on April 30, 2019.

 

8-K

 

001-38338

 

3.1

 

4/30/19

 

 

 

 

 

 

 

3.3

 

Second Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Rekor Systems, Inc. as filed with the Secretary of State of Delaware on March 18, 2020.

 

8-K

 

001-38338

 

3.1

 

3/18/20

 

 

 

 

 

 

 

3.4

 

Amended and Restated Bylaws of Rekor Systems, Inc.

 

8-K

 

001-38338

 

3.2

 

4/30/19

 

 

 

 

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

 

 

 

 

 

*

 

 

 

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

 

 

 

 

 

 

 

 

 

*

 

 

 

 

 

 

 

 

32.1

 

Section 1350 Certification of Chief Executive Officer.

 

 

 

 

 

**

 

 

 

 

 

 

32.2

 

Section 1350 Certification of Chief Financial Officer.

 

 

 

 

 

**

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

 *

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

 *

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

 *

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

 *

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 *

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

 *

 

* Filed herewith.

 

** Furnished herewith.

 

 
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SIGNATURES

 

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.

 

 

Rekor Systems, Inc.

 

 

 

 

 

By:

/s/ Robert A. Berman

 

 

Name:

Robert A. Berman

 

 

Title:

President and Chief Executive Officer

Principal Executive Officer

 

 

Date:

November 15, 2021

 

 

 

 

 

 

By:

/s/ Eyal Hen

 

 

Name:

Eyal Hen

 

 

Title:

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

Date:

November 15, 2021

 

 

 
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