UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _________ to _________
Commission File Number:
| Rekor Systems, Inc. |
| (Exact name of registrant as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address principal executive offices)
(Zip Code)
(
(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.
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).
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 | ☐ |
| | ☒ | 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
As of May 16, 2022, the Registrant had
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, 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 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.
REKOR SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2022
REKOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Note receivable, current portion | ||||||||
| Other current assets, net | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use lease assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Note receivable, long-term | ||||||||
| SAFE investment | ||||||||
| Deposits | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable, current portion | ||||||||
| Loan payable, current portion | ||||||||
| Lease liability, short-term | ||||||||
| Contract liabilities | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities | ||||||||
| Loan payable, long-term | ||||||||
| Lease liability, long-term | ||||||||
| Contract liabilities, long-term | ||||||||
| Deferred tax liability, long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity | ||||||||
| Common stock, $ par value; authorized; shares; issued: , shares as of March 31, 2022 and as of December 31, 2021; outstanding: shares as of March 31, 2022 and as of December 31, 2021 | ||||||||
| Treasury stock, and shares as of March 31, 2022 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
REKOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue, excluding depreciation and amortization | ||||||||
| Operating expenses: | ||||||||
| General and administrative expenses | ||||||||
| Selling and marketing expenses | ||||||||
| Research and development expenses | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Loss before income taxes and equity method investments | ( | ) | ( | ) | ||||
| Income tax provision | ( | ) | ||||||
| Equity in loss of investee | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Net loss from discontinued operations | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Comprehensive loss: | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Change in unrealized gain on short-term investments | ||||||||
| Total comprehensive loss from continuing operations | ( | ) | ( | ) | ||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per common share from continuing operations - basic and diluted | ( | ) | ( | ) | ||||
| Loss per common share discontinued operations - basic and diluted | ( | ) | ||||||
| Loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at the market offering, net | ||||||||||||||||||||||||||||||||||||||||
| Issuance upon exercise of stock options | ||||||||||||||||||||||||||||||||||||||||
| Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||||||||||||||
| Shares withheld upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exercise of cashless warrants in exchange for common stock | ||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants in exchange for common stock | ||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants related to series A preferred stock | ||||||||||||||||||||||||||||||||||||||||
| Public underwriting | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance upon exercise of stock options | ||||||||||||||||||||||||||||||||||||||||
| Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||||||||||||||
| Shares withheld upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Accretion of Series A preferred stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Change in unrealized gain on short-term investments | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
REKOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debt expense | ||||||||
| Depreciation | ||||||||
| Amortization of right-of-use lease asset | ||||||||
| Provision for deferred taxes | ||||||||
| Share-based compensation | ||||||||
| Amortization of financing costs | ||||||||
| Amortization of intangible assets | ||||||||
| Loss due to change in value of equity investments | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Accounts payable, accrued expenses and other current liabilities | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Lease liability | ( | ) | ||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities - discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| SAFE Investment | ( | ) | ||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Short-term investment activity, net | ( | ) | ||||||
| Investment in unconsolidated company | ( | ) | ||||||
| Net cash (used in) provided by investing activities - continuing operations | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from public offering | ||||||||
| Proceeds from notes receivable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Net proceeds from exercise of options | ||||||||
| Net proceeds from exercise of warrants | ||||||||
| Net proceeds from exercise of warrants associated with the Series A Preferred Stock | ||||||||
| Net proceeds from at-the-market agreement | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| Net increase in cash, cash equivalents and restricted cash and cash equivalents - continuing operations | ( | ) | ||||||
| Net decrease in cash, cash equivalents and restricted cash and cash equivalents - discontinued operations | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash and cash equivalents | ( | ) | ||||||
| Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash and cash equivalents at end of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
| Cash and cash equivalents at end of period - continuing operations | $ | $ | ||||||
| Restricted cash and cash equivalents at end of period - continuing operations | ||||||||
| Cash and cash equivalents at end of period - discontinued operations | ||||||||
| Cash, cash equivalents and restricted cash and cash equivalents at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 March 31, 2022, the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’ equity and unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2022 and 2021.
The financial data and other information disclosed in these notes are unaudited. The results for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
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, 2021. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
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 global leader in intelligent infrastructure focused on addressing the world’s most critical challenges across transportation management, public safety, and key commercial markets. With a real-time intelligence platform driven by deep access to data, AI-powered software, and smart optical devices at-the-edge, the Company combines its industry expertise and advanced proprietary technologies to deliver insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.
On August 18, 2021, the Company completed its acquisition of Waycare Technologies Ltd. (“Waycare”) by acquiring
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. On an ongoing 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 month period ending March 31, 2021 and the period ended December 31, 2021, 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, capital raises and working capital, 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, 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 cash flow 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 three months ended March 31, 2022, the Company had working capital from continuing operations of $
The Company’s cash decreased by $
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 if additional financing 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. The Company performs its annual impairment assessment on October 1, or more frequently, when events or circumstances indicate impairment may have occurred. During the three months ended March 31, 2022 and 2021, the Company did not recognize any impairment to goodwill from continuing operations.
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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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.
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.
There were no changes in levels during the three months ended March 31, 2022.
Revenue Recognition
The Company derives its revenues primarily from the sale of software, hardware and related services, including customer support and implementation services and management services in connection with our traffic safety 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.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five 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):
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Recurring revenue | $ | $ | ||||||
| Product and service revenue | ||||||||
| Total revenue | $ | $ | ||||||
Revenues
Recurring revenue
Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue from long-term contracts with customers that provide periodic payments and short-term contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales.
Recurring revenues are generated through the Company’s SaaS model, where the Company provides customers with the right to access the Company’s software 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 arrangements ratably over the term of the contractual agreement.
The Company also currently receives recurring revenues under contracts entered into using a subscription model for bundled hardware and software over a period. Payments for these subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement. In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface. The subscription arrangements with these 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 solutions over the contractual period. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Accordingly, any fixed consideration related to the arrangement is generally recognized as recurring revenue 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 and activated through a digital key. The Company's contracts with customers are generally for a term of one month with automatic renewal each month. The Company invoices and receives fees from its customers monthly.
Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates. 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. 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 a long-term license for the software. 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. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the customer support obligation, 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.
Contactless compliance solutions revenues reflect arrangements to provide traffic safety systems to several jurisdictions 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 support 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 jurisdiction.
Implementation revenue is recognized 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 and direct sales. 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 March 31, | ||||||||
| 2022 | 2021 | |||||||
| Government customers | $ | $ | ||||||
| Commercial customers | ||||||||
| Total revenue | $ | $ | ||||||
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 March 31, 2022, the Company had approximately $
Unbilled accounts receivable
The timing of revenue recognition, billings and cash collections result 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 $
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 three months ended March 31, 2022 were not materially impacted by any other factors. Contract liabilities as of March 31, 2022 and December 31, 2021 were $
The services due for contract liabilities described above are shown below as of March 31, 2022 (dollars in thousands):
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Costs to Obtain and Fulfill a Contract
Practical Expedients Election ‒ Costs to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. When the amortization period would be one year or less, the Company elects to use the practical expedient election to expense the costs to obtain a contract as they are incurred.
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 March 31, 2022 and December 31, 2021 were $
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 March 31, 2022 and December 31, 2021, the Company had deposits from continuing operations totaling $
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
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three months ended March 31, 2022 and 2021.
As of March 31, 2022,
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of December 31, 2021.
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, 2021.
New Accounting Pronouncements Effective in Future Periods
In June 2016, the FASB issued Accounting Standards Update ("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
The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date. The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):
| Cash paid | $ | |||
| Common stock issued | ||||
| Total Consideration | $ | |||
| Assets | ||||
| Cash and cash equivalents | $ | |||
| Restricted cash and cash equivalents | ||||
| Accounts receivable | ||||
| Other current assets | ||||
| Property and equipment | ||||
| Acquired technology | ||||
| Total assets acquired | ||||
| Liabilities | ||||
| Accounts payable and accrued expenses | ||||
| Contract liabilities | ||||
| Deferred tax liability | ||||
| Total liabilities assumed | ||||
| Fair value of identifiable net assets acquired | ||||
| Goodwill | $ |
The technology acquired by the Company as part of the acquisition has an estimated useful life of years and is presented as part of intangible assets, net on the unaudited condensed consolidated balance sheets.
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, 2021. 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, 2021 (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 March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands, except per share data) | ||||||||
| Total revenue from continuing operations | $ | $ | ||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted number of shares | ||||||||
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
In June 2020, the Company announced a joint venture in which the Company would have a
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
Roker SAFE
In April 2021, in exchange for $
NOTE 4 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the three months ended March 31, 2022 and 2021 were as follows (dollars in thousands):
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | ||||||||
| Financing activities: | ||||||||
| Series A Cumulative Convertible Redeemable Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock | ( | ) | ||||||
| Series A Cumulative Convertible Redeemable Preferred stock included in temporary equity, settled in common stock | ( | ) | ||||||
| Series B Cumulative Convertible Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock | ( | ) | ||||||
| New Leases under ASC-842: | ||||||||
| Recognition of operating lease - right-of-use lease asset | ||||||||
| Lease incentive recognized in other current assets, net | ||||||||
| Recognition of operating lease - lease liability | $ | ( | ) | $ | ||||
NOTE 5 – OPERATING LEASES
The Company has operating leases for office facilities in various locations throughout the United States and Israel. The Company’s leases have remaining terms of to 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 March 31, 2022 and 2021 was $
Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $
In the first quarter of 2022, the Company entered into a lease agreement for its Israeli operations. As part of the lease agreement, there were $
Supplemental balance sheet information related to leases as of March 31, 2022 was as follows (dollars in thousands):
| Operating lease right-of-use lease assets | $ | |||
| Current portion of lease liability | $ | |||
| Long-term portion of lease liability | ||||
| Total lease liability | $ | |||
| Weighted average remaining lease term - operating leases (years) | ||||
| Weighted average discount rate - operating leases | % | |||
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less imputed interest | ||||
| Maturities of lease liabilities | $ |
NOTE 6 – INTANGIBLE ASSETS
Intangible Assets Subject to Amortization
The following summarizes the change in intangible assets from December 31, 2021 to March 31, 2022 (dollars in thousands):
| December 31, 2021 | Additions | Amortization | March 31, 2022 | |||||||||||||
| Intangible assets subject to amortization | ||||||||||||||||
| Customer relationships | $ | $ | $ | ( | ) | $ | ||||||||||
| Marketing related | ( | ) | ||||||||||||||
| Technology based | ( | ) | ||||||||||||||
| Internally capitalized software | ( | ) | ||||||||||||||
| Intangible assets subject to amortization | $ | $ | $ | ( | ) | $ | ||||||||||
The following provides a breakdown of identifiable intangible assets as of March 31, 2022 (dollars in thousands):
| Customer Relationships | Marketing Related | Technology Based | Internally Capitalized Software | Total | ||||||||||||||||
| Identifiable intangible assets | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Identifiable intangible assets, net | $ | $ | $ | $ | $ | |||||||||||||||
These intangible assets are amortized on a straight-line basis over their estimated useful life. Amortization expense attributable to continuing operations for the three months ended March 31, 2022 and 2021 was $
As of March 31, 2022, 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):
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 7 – DEBT
Firestorm Notes
On January 25, 2017, pursuant to the terms of the Company’s acquisition of Firestorm, the Company issued $
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 March 31, | ||||||||
| 2022 | 2021 | |||||||
| Contractual interest | $ | $ | ||||||
| Amortization of debt issuance costs | ||||||||
| Total interest expense | $ | $ | ||||||
Schedule of Principal Amounts Due of Debt
The principal amounts due for long-term notes payable are shown below as of March 31, 2022 (dollars in thousands):
| 2022, remaining | $ | |||
| 2023 | ||||
| Total notes payable | $ | |||
| Loan payable, current portion | $ | |||
| Loan payable, long-term | ||||
| Notes payable, current portion | ||||
| Total notes payable | $ |
NOTE 8 – INCOME TAXES
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 March 31, 2022.
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 March 31, 2022.
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 three months ended March 31, 2022 and 2021, the Company did 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 2018 through 2020 tax years remain subject to examination by the Internal Revenue Service.
NOTE 9 – 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. On January 30, 2020, the Company filed a Second Amended Complaint (the “Complaint’) alleging that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company. The Complaint also alleges claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’ alleged deletion of company email records. The Complaint requests equitable rescission of the acquisition transaction and monetary damages.
The Firestorm Principals answered together with counterclaims on February 28, 2020. Thereafter, on March 30, the Company moved to dismiss the counterclaims against certain directors and officers named as counterclaim-defendants, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties. Thereafter the Company 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 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.
In April 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, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed its 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. On March 14, 2022, the Court issued an opinion and order which denied summary judgment to the Firestorm Principals on the Company's main fraudulent omission claim, the conversion and trespass to chattels claims as to Defendants Loughlin and Rhulen and the breach of fiduciary duty claim as to Defendant Loughlin. The Court also denied summary judgment to the Firestorm Principals on their breach of warrants, anticipatory breach of warrants, and anticipatory breach of promissory notes counterclaims and the breach of contract counterclaim asserted by Defendant Satterfield. In March 2022, the Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims. The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $
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, the 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 dismissal order; that reconsideration motion was denied on February 28, 2022. On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds. The defamation claim will now be challenged on substantive grounds.
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 counterclaims 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. The Court granted Fordham’s motion to dismiss Rekor’s counterclaims on October 23, 2021. On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by the plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims in the future. Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.
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.
In June 2021, a putative shareholder class action lawsuit (captioned Miller v. Rekor Systems, Inc. et al.) was filed 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 the class action lawsuit without prejudice. This matter was voluntarily dismissed without prejudice.
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 10 – 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
At-the-Market Offering
On February 24, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”) to create an at the market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $
For the three months ended March 31, 2022, based on the settlement date, the Company sold
Waycare Acquisition
In connection with the acquisition as described in NOTE 2 – ACQUISITIONS, the Company issued
2021 Public Offering
On February 9, 2021, the Company issued and sold
Preferred Stock
The Company is authorized to issue up to
Series A Cumulative Convertible Redeemable Preferred Stock
Of the
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.
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 $
As a result of the closing of the 2021 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
Series B Cumulative Convertible Preferred Stock
Of the
As a result of the volume weighted average share price of the Company’s common stock being over $
Warrants
A summary of the warrant activity for the Company for the period ended March 31, 2022 is as follows:
| Series A Preferred Stock Warrants (1) | Firestorm Warrants (2) | Secure Education Warrants (3) | 2018 Public Offering Warrants (4) | Total | ||||||||||||||||
| Active warrants as of January 1, 2022 | ||||||||||||||||||||
| Exercised warrants | ||||||||||||||||||||
| Outstanding warrants as of March 31, 2022 | ||||||||||||||||||||
| Weighted average strike price of outstanding warrants as of March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| (1) | As part of a Regulation A Offering in fiscal years 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 $ |
| (2) | As part of the acquisition of Firestorm on January 24, 2017, the Company issued warrants to purchase |
| (3) | Pursuant to the Company’s acquisition of Secure Education Consultants on January 1, 2018, the Company issued warrants to purchase |
| (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 |
NOTE 11 – EQUITY INCENTIVE 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 years with a contractual term of years.
Stock compensation expense related to stock options for the three months ended March 31, 2022 and 2021 was $
A summary of stock option activity under the Company’s 2017 Plan for the period ended March 31, 2022 is as follows:
| Number of Shares Subject to Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding Balance as of December 31, 2021 | $ | $ | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding balance as of March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable as of March 31, 2022 | $ | $ | ||||||||||||||
As of March 31, 2022, there was $
Restricted Stock Units
Stock compensation expense related to RSU’s for the three months ended March 31, 2022 and 2021 was $
Pursuant to the terms of the Waycare purchase agreement, the Company reserved for issuance to Waycare’s continuing employees an aggregate of
A summary of RSU activity under the Company’s 2017 Plan for the three months ended March 31, 2022 is as follows:
| Number of Shares | Weighted Average Unit Price | Weighted Average Remaining Contractual Term (Years) | ||||||||||
| Outstanding balance as of December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding balance as of March 31, 2022 | $ | |||||||||||
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 March 31, 2022, there was $
NOTE 12 – LOSS PER SHARE
The following table provides information relating to the calculation of loss per common share:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands, except per share data) | ||||||||
| Basic and diluted loss per share | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Less: preferred stock accretion | ( | ) | ||||||
| Less: preferred stock dividends | ( | ) | ||||||
| Net loss attributable to shareholders from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to shareholders from discontinued operations | ( | ) | ||||||
| Net loss attributable to shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
| Basic and diluted loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share from discontinued operations | ||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Common stock equivalents excluded due to the anti-dilutive effect | ||||||||
As the Company had a net loss for the three months ended March 31, 2022, the following
As the Company had a net loss for the three months ended March 31, 2021, the following
NOTE 13 – SUBSEQUENT EVENTS
At-the-Market Issuance Sales Agreement
The Company issued an additional
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, 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; |
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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 |
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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, 2021 (the “2021 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.
General
Overview
We are a global leader in the development and implementation of intelligent infrastructure focused on addressing critical challenges across transportation management, public safety, and key commercial markets. With a real-time intelligence platform driven by deep access to data, AI-powered software, and smart optical devices at-the-edge, we combine our industry expertise and advanced proprietary technologies to deliver unrivaled insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities. We provide products and services across 80 countries as we deliver transformative mission-critical intelligent infrastructure solutions and services for government agencies and commercial clients in the United States and around the world.
Digital Divide
Society is increasingly digital, automated, and information flows occur in real-time. Technological advancements in the past decade have transformed the way people connect, interact, and transact with others and with the world around them. Infrastructure is the backbone of a functioning economy: people, vehicles, materials, and information all require 24/7 mobility, something that depends on well-maintained, synchronized networks and systems. Unfortunately, many areas of the world are faced with aging and legacy infrastructure today resulting from decades of neglect and underinvestment, particularly in the sectors of transportation, mobility, and public safety. The cost, complexity and interdependency of these systems have made many organizations slow to adopt advances in technology. This creates a digital divide between what is made possible by technology, and the current reality of infrastructure today.
Continued population growth and increased urbanization present unprecedented economic, mobility, public safety, and environmental challenges to cities, states, and metropolitan areas. Today’s challenges cannot be solved by simply replicating existing approaches and adding more legacy technology. For the ongoing mobility transformation to keep up with fast-changing global dynamics requires inventive approaches. Enhancements in data collection, analytics and communications can be employed.
Smarter, data-driven solutions can make better use of existing infrastructure, rather than tearing it up and starting over. Roads, bridges, tunnels, and residential areas have much “to tell us” about how to optimally serve the public with an efficient, safe, and healthy living environment if we tap into the data it can provide and exploit that knowledge intelligently. Successful approaches will leverage AI-powered software, smart devices, data, and solutions that can integrate into existing infrastructure and workflows. We see this as the path to intelligence-driven infrastructure and one that gives us a clear market advantage.
Bridging the Divide
Spurred by the 2021 Infrastructure Investment and Jobs Act in the United States, we expect the world to see a once-in-a-generation surge of investment in infrastructure and competitiveness. The bill allocates $550 billion in new spending, spread out over five years, to rebuild roads, bridges and rails, and airports, in addition to providing high-speed internet access and addressing climate concerns. As part of this, federal, state, and local governments are prioritizing strategic investments dedicated to improving existing transportation management and increasing public safety through modern, efficient and connected infrastructure. Officials are also planning for roadways of the future that can account for connected and autonomous vehicles. With these investments, we estimate an addressable global intelligent infrastructure market of $148 billion by 2026.
With access to multiple sources of data and our award winning AI-driven innovations, we believe we have established a leadership position in intelligent infrastructure solutions that puts us at the center of this emerging opportunity. With our advanced technology and domain expertise, we have developed solutions that address diverse use cases across a number of public and private sector segments. Using our proprietary centralized platform to maximize the value of our technology to customers, we are well positioned to help governments and businesses collect, analyze and turn infrastructure data into insights with new products and services that increase mobility and safety, drive revenue, and power innovation for billions of people and trillions of interactions.
Intelligence-Driven Innovation
As described below, we have concentrated on developing our intelligent infrastructure solutions to work through a single integrated platform, which creates a unique, market-advantaged position for us. The volume, variety, velocity, and veracity of data that we capture and apply to our proprietary artificial intelligence and machine learning models provide us with an even greater advantage. From the very beginning, we have been collecting, aggregating, cleansing, extracting, transforming, and using data to build and improve our models.
Today, we can look at the roadway and extract and process a deeply detailed picture of the environment and what is moving in that environment with an unmatched level of accuracy in our inferences, predictive analytics, and insights. We are rapidly growing the geographic area connected by smart optical IoT devices at-the-edge to the open architecture of our Rekor One intelligence platform. In addition to digitizing existing infrastructure by capturing real-time data from new and existing roadway devices, our platform enables us to extend the scope of our knowledge via proprietary algorithms that pull the data and process it through our models. This reduces our clients’ need to invest in legacy system upgrades and gives them the ability to gain additional value from existing infrastructure. Beyond this, we are augmenting our data through a growing network of data partners. This provides multiple trillions of additional data points that unlock further real-time and predictive operational insights about what is happening in a given transportation environment at every moment. Example data sources from our partner network include mobility, navigation, and traffic applications, in-vehicle data, connected, autonomous vehicles (“CAV”) datasets, weather, supply chain, event management, and a rapidly growing list of customer-provided and crowd-sourced data. The more data we capture and inject into our machine learning models, the smarter and more accurate they become. Due to the incredible strength and accuracy of our models, we can extract more data from the roadways than ever before possible, and generate rich multi-dimensional insights for our customers about what is happening in real-time. In addition, we use AI-driven predictive analytics to forecast what will happen in the next five minutes, in 12 or 24 hours, and even days and months into the future. From these insights, customers can make better informed proactive decisions and achieve improved operational efficiency through a more strategic allocation of resources. All of this is facilitated by our proprietary Rekor One™ intelligence platform.
Fueled by Data and Artificial Intelligence
At the core of all our intelligent infrastructure solutions is the Rekor One intelligence platform. Fueled by rich data and powered by AI, Rekor One is purpose-built to be a single source of truth and insights serving multiple customer segments and multiple missions. From Rekor One, we can simultaneously deliver vertical-specific solutions for traffic management, public safety, and commercial markets.
With the Rekor One platform as our foundation, we collect and transform data into information, and information into knowledge to give governments and businesses a comprehensive picture of roadways, vehicles, traffic, incidents, and more. Our solutions deliver unrivaled insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.
Built on the foundation of Rekor One, we deliver vertical-specific solutions for traffic management, public safety, and commercial markets.
Example use-cases we can support include:
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Traffic management and analytics |
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Predictive traffic congestion modeling and forecasting |
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Roadway monitoring and incident detection and response |
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Support systems for integrated corridor management |
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Electric vehicle adoption and charge station planning |
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Commercial vehicle and tonnage monitoring and analysis |
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Real-time emissions analysis, sustainability, and green initiatives |
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Live and archival HD video management and traffic surveillance |
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Law enforcement and intelligence-based policing |
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Contactless compliance and enforcement |
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Vehicle and license plate recognition for public safety |
The Road Ahead
We believe the world is at an inflection point. In the next five years, governments will make significant investments to improve aging infrastructure, roadway conditions, and public safety via modern, efficient, and connected infrastructure. Recent technological developments such as artificial intelligence, the internet of things, edge- and cloud-based computing, and advances in rich data management have put us in a unique position to help revolutionize mobility through intelligent infrastructure and close the gap between rapidly evolving technology and aging, legacy infrastructure. These are not just our aspirational goals, but things we’re working on now. By aggregating data from optical sensors, connected vehicles, and third-party providers, processing it using artificial intelligence, and packaging it to provide real-time insights and long-term solutions for intelligent infrastructure, we sustainably help governments and businesses address both issues of aging infrastructure and the unprecedented mobility, public safety, economic, and environmental challenges they face.
We believe our leadership in intelligent infrastructure solutions, advanced technology, and breadth of use cases across multiple industries puts us in an advantaged market position at the forefront of developing a new economy and poised to unlock massive gains as we provide governments and businesses with new products and services that use trillions of intelligent infrastructure interactions to increase safety and sustainability, drive revenue, and power innovation for the benefit of billions of people.
Our operations are conducted by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc. (“Rekor Recognition”) and Waycare Technologies, Ltd. (“Waycare”).
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:
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Growing Smart City Market – According to a United Nations report, about two-thirds of the world population will live in urban areas by 2050. Our cities are getting larger, with longer commutes, bigger roads and the resulting impact on the environment and the quality of life. This trend requires forward-thinking officials to manage assets and resources more efficiently. We believe that advancements in “big data” connected devices and artificial intelligence can provide Intelligent Transportation System (“ITS”) solutions 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 useful tools that can effectively tackle the challenges cities and communities are facing today and will face over the coming decades. |
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AI for Infrastructure – We believe that the application of AI to the analysis of conditions on roadways and other infrastructure can significantly affect the safety and efficiency of 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 local vehicular flow as well as data about the vehicles on the roadway. |
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Connected Vehicle Data – Today’s new 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 data from existing infrastructure and providing untapped transportation information from rural areas that are not served by ITS infrastructure. |
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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 many 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 vehicle recognition systems or that issued requests for proposals to install a network of vehicle recognition sensors. 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. |
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Adaptability of the 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. However, large users of existing technology, such as toll road operators, 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 their own or secure advanced vehicle recognition systems from others who are also working to develop them. 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 expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial. We believe that future legislation will increasingly allow for automated enforcement of regulations such as motor vehicle insurance requirements. Communities are currently searching for better means of achieving compliance with minor vehicle offenses, such as lapsed registrations, and safety issues such as motorists who fail to stop for school buses. For example, 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. To the extent that legislative implementation is required, a deliberative and necessarily time-consuming process is involved. However, as states expand auto enforcement, the market for our products and services should broaden in the public safety market. |
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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. |
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Edge Processing – Demand for actionable roadway information continues to grow in parallel with camera resolutions. Over the last several decades, cameras have evolved and unlocked new capabilities with each advancement. Further, cellular networks have been optimized for downloading data rather than uploading data. As a result, while download speeds have improved significantly due to large investments in cellular infrastructure, this has resulted in relatively small improvements to cellular upload speeds. With roadside deployments experiencing explosive growth in count and density, scalability, latency and bandwidth have become aspects of competition in the market. Our systems have been designed to address these issues through the use of more effective edge processing, enabled both by incorporating the increasingly effective new GPUs into our systems and continual improvements in the efficiency of our AI algorithms. Our edge processing systems ingest local HD video streams at the source and convert the raw video data to text data, dramatically reducing the volume of data that needs to be transferred through the network. Edge processing allows us to scale a network dramatically without the bandwidth, cost, latency and dependability limitations that are experienced by other networks where raw video needs to be streamed to the cloud for processing. |
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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 visible 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. As such, we are unable to determine the full impact on 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 the adoption of new technologies by businesses. According to a McKinsey Global Survey of executives, their companies have accelerated the digitization of their customer and supply-chain interactions and their internal operations by three to four years. Funding for digital initiatives has increased, creating opportunities for innovative solution providers such as Rekor. |
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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 with 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 citizen's 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 non-compliant vehicles on their roadways. |
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Infrastructure Investment and Jobs Act (“IIJA”) - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems. We believe that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for intelligent infrastructure that will benefit from this legislation. We have identified opportunities to access federal funding streams, and we are working to implement a program that capitalizes on this unprecedented U.S. federal investment in public safety, homeland security, and transportation infrastructure and ensures that our customers are positioned to capture as much of this extraordinary government spending as possible. Beyond the many recurring federal grant programs that could support customer purchases, and the $350 billion in American Rescue Plan Act allocations that public agencies are receiving now, we are particularly excited about the prospect of engaging in the following new funding streams that are contained in the IIJA. ●$200 million annually for a “Safe Streets and Roads for All” program that would make competitive grants for state projects that significantly reduce or eliminate transportation-related fatalities. ●$150 million for the current administration to establish a grant program to modernize state data collection systems ●$500 million for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety |
Components of Operating Results
Revenues
We derive revenues substantially from the sale of software, hardware and related services.
Software sales include subscriptions for the use of our software as a service (“SaaS”) and software licenses. SaaS revenues are treated as recurring revenue and provided both through negotiated agreements with larger governmental and commercial customers and through subscriptions from smaller customers. License sales are typically term agreements, including agreements for perpetual licenses, that may include maintenance obligations for software updates that keep up with changes in vehicle models and license plate designs.
Hardware is sold through direct sales or subscriptions and is typically sold with a software subscription or license arrangement. Revenue from direct sales is generally recognized when the hardware is delivered, or installation is completed in accordance with the terms of the contract. Subscription revenues may include hardware and software subscriptions and are recognized as recurring revenue throughout the term of the lease agreement.
Our related services include customer support and implementation services, as well as management services such as violation notices, billing and collections, website portals and call centers related to programs that employ our software solutions. In addition, we engage in pilot programs with governmental and commercial entities that include extension or renewal features that may result in recurring revenues and/or additional point-in-time revenues at the completion of the pilot program.
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.
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 expenses 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 remain high for the foreseeable future due to the costs associated with our growth and the costs of accounting, compliance, insurance and investor relations as a public company. 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. However, we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term.
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 consist 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 expenses 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.
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, 2021.
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 March 31, |
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| (Dollars in thousands) |
2022 |
2021 |
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| Revenue |
$ | 3,608 | $ | 4,216 | ||||
| Cost of revenue, excluding depreciation and amortization |
1,983 | 1,922 | ||||||
| Operating expenses: |
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| General and administrative expenses |
7,388 | 4,907 | ||||||
| Selling and marketing expenses |
1,352 | 937 | ||||||
| Research and development expenses |
4,092 | 1,222 | ||||||
| Depreciation and amortization |
1,399 | 536 | ||||||
| Total operating expenses |
14,231 | 7,602 | ||||||
| Loss from operations |
(12,606 | ) | (5,308 | ) | ||||
| Other income (expense): |
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| Interest expense |
(9 | ) | (32 | ) | ||||
| Other income |
14 | 16 | ||||||
| Total other income (expense) |
5 | (16 | ) | |||||
| Loss before income taxes and equity method investments |
(12,601 | ) | (5,324 | ) | ||||
| Income tax provision |
- | (3 | ) | |||||
| Equity in loss of investee |
- | (76 | ) | |||||
| Net loss from continuing operations |
$ | (12,601 | ) | $ | (5,403 | ) | ||
Comparison of the Three months ended March 31, 2022 and the Three months ended March 31, 2021
Total Revenue
| Three Months Ended March 31, |
Change |
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| (Dollars in thousands) |
2022 |
2021 |
$ |
% |
||||||||||||
| Revenue |
$ | 3,608 | $ | 4,216 | $ | (608 | ) | -14 | % | |||||||
The decrease in revenue for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was a result of a decrease in product and service revenue in the current period. As part of our change in selling strategy, we have focused on a sales model that employs contracts with recurring revenue. We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict. During the three months ended March 31, 2021, there was one customer who accounted for $1,673,000 of revenue as a result of a one-time sale of hardware and software. The decrease in one-time sale revenues during the three months ended March 31, 2022, was partially offset by an $831,000 increase in recurring revenue during the period. The increase in recurring revenue is primarily attributable to our Waycare acquisition and our current land and expand strategy, which involves expanding the services and solutions we provide to existing customers, and also facilitating cooperation between our existing customers and new customers as part of a broader information network.
Cost of Revenue, Excluding Depreciation and Amortization
| Three Months Ended March 31, |
Change |
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| (Dollars in thousands) |
2022 |
2021 |
$ |
% |
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| Cost of revenue, excluding depreciation and amortization |
$ | 1,983 | $ | 1,922 | $ | 61 | 3 | % | ||||||||
For the three months ended March 31, 2022, cost of revenue, excluding depreciation and amortization increased by $61,000 compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our new go-to-market strategy.
Operating Expenses
| Three Months Ended March 31, |
Change |
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| (Dollars in thousands) |
2022 |
2021 |
$ |
% |
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| Operating expenses: |
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| General and administrative expenses |
$ | 7,388 | $ | 4,829 | $ | 2,559 | 53 | % | ||||||||
| Selling and marketing expenses |
1,352 | 937 | 415 | 44 | % | |||||||||||
| Research and development expenses |
4,092 | 1,222 | 2,870 | 235 | % | |||||||||||
| Depreciation and amortization |
1,399 | 614 | 785 | 128 | % | |||||||||||
| Total operating expenses |
$ | 14,231 | $ | 7,602 | $ | 6,629 | 87 | % | ||||||||
General and Administrative Expenses
The increase in general and administrative expenses during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, were primarily due to a $2,319,000 increase in personnel costs related to an increase in headcount, including a $473,000 increase in stock-based compensation.
Selling and Marketing Expenses
The increase in selling and marketing expenses during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was 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 our growth plan which led to a $513,000 increase in personnel costs, including a $125,000 increase in stock-based compensation.
Research and Development Expense
The increase in research and development expenses during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was primarily attributable to the development of new products and additional software capabilities, mainly as a result of an increase in headcount and hours associated with research and development activities. In the current period, there was an increase in staffing to support the Company’s new products which led to a $1,811,000 increase in personnel costs, including a $476,000 increase in stock-based compensation.
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 March 31, |
Change |
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| (Dollars in thousands) |
2022 |
2021 |
$ |
% |
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| Other income (expense): |
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| Interest expense |
$ | (9 | ) | $ | (32 | ) | $ | 23 | 72 | % | ||||||
| Other income, net |
14 | 16 | (2 | ) | -13 | % | ||||||||||
| Total other income (expense) |
$ | 5 | $ | (16 | ) | $ | 21 | 131 | % | |||||||
Interest expense and other income remained consistent period over period.
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 March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Net loss from continuing operations |
$ | (12,601 | ) | $ | (5,403 | ) | ||
| Income taxes |
- | 3 | ||||||
| Interest |
9 | 32 | ||||||
| Depreciation and amortization |
1,399 | 614 | ||||||
| EBITDA |
$ | (11,193 | ) | $ | (4,754 | ) | ||
| Share-based compensation |
$ | 1,900 | $ | 781 | ||||
| Loss due to change in value of equity investments |
- | 76 | ||||||
| Adjusted EBITDA |
$ | (9,293 | ) | $ | (3,897 | ) | ||
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 overtime 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.
The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| (Dollars in thousands, except percentages) |
||||||||
| Revenue |
$ | 3,608 | $ | 4,216 | ||||
| Cost of revenue, excluding depreciation and amortization |
1,983 | 1,922 | ||||||
| Adjusted Gross Profit |
$ | 1,625 | $ | 2,294 | ||||
| Adjusted Gross Margin |
45.0 | % | 54.4 | % | ||||
Adjusted Gross Margin, for the three months ended March 31, 2022 and 2021 decreased to 45.0% from 54.4%, respectively. Fluctuations in Adjusted Gross Margin are primarily the result of the mix of software and hardware sales experienced in the quarter. Software sales carry a higher margin than hardware sales as there are fewer costs associated with software sales, while hardware sales are typically associated with a software component which increases our performance obligations and provides higher margin recurring revenue in the future. However, as part of our planned go-to-market strategy, we have recently offered certain 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 establish the program, which will not be incurred again if the pilot program is converted into a long-term program.
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 March 31, |
Change |
|||||||||||||||
| 2022 |
2021 |
$ |
% |
|||||||||||||
| Recurring revenue |
$ | 1,695 | $ | 864 | $ | 831 | 96 | % | ||||||||
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
There are certain assumptions that we make when determining the total contract value of an agreement, such as the success rate of renewal periods, cancellations and usage estimates. For the three months ended March 31, 2022 we won contracts valued at $1,525,000, compared to $2,531,000 of contracts won for the three months ended March 31, 2021. This decline represents a $1,006,000 or 40% decline, period over period.
Performance Obligations
As of March 31, 2022, we had approximately $21,288,000 of contracts that were closed prior to March 31, 2022 but have a contractual period beyond March 31, 2022. This represents a decline of $1,299,000 or 6% compared to $22,587,000 of performance obligations as of December 31, 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 41% 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.
The decrease in total contract value and performance obligations is partially related to our go-to-market strategy. Our go-to-market strategy involves entering into pilot programs that require low initial commitments by our customers in the short term and develop into larger commitments over time. This helps grow our pipeline and demand for our products. As pilot programs convert into longer term and larger scale contracts, we expect to see our KPIs improve.
Lease Obligations
As of March 31, 2022, 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 |
|
| ● |
Los Angeles, California |
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):
| Three Months Ended March 31, |
||||||||||||||||
| 2022 |
2021 |
Change |
||||||||||||||
| $ |
% |
|||||||||||||||
| Net cash used in operating activities |
$ | (12,156 | ) | $ | (3,159 | ) | $ | (8,997 | ) | -285 | % | |||||
| Net cash used in investing activities |
(1,964 | ) | (24,494 | ) | 22,530 | 92 | % | |||||||||
| Net cash provided by financing activities |
3,113 | 70,499 | (67,386 | ) | -96 | % | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents |
$ | (11,007 | ) | $ | 42,846 | $ | (53,853 | ) | -126 | % | ||||||
Net cash used in operating activities for the three months ended March 31, 2022 had a net decrease of $8,997,000, which was attributable to the increase in the loss from continuing operations of $12,601,000. This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $1,119,000 to $1,900,000 for the three months ended March 31, 2022 compared to $781,000 for the three months ended March 31, 2021. This increase is due to the number of equity incentive shares that were issued to employees and directors.
The net decrease in net cash used in investing activities of $22,530,000 was primarily due to a decrease in short-term investments that were previously made in during the three months ended March 31, 2021, of $23,994,000 which were previously invested in U.S. Treasury Bills that have maturity dates over three months, but less than a year.
Net cash provided by financing activities for the three months ended March 31, 2022 decreased by $67,386,000 from the prior three month period ended March 31, 2022. During the three months ended March 31, 2022, as part of our 2022 Sales Agreement, we received net proceeds after deducting the underwriting discounts and commissions and offering expenses payable by us, of $3,134,000. In the prior comparable quarterly period, through our 2021 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 months ended March 31, 2022 and 2021, we funded our operations primarily through cash from operating activities and the sale of equity. As of March 31, 2022, we had cash and cash equivalents from continuing operations of $15,593,000 and working capital of $9,297,000, as compared to cash and cash equivalents of $26,600,000 and working capital of $16,989,000 as of December 31, 2021.
2021 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 “2021 Public Offering”). The net proceeds to us, after deducting the underwriting discounts and commissions and offering expenses payable by 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.
On February 24, 2022, we entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”) to create an at the market equity program under which we from time to time may offer and sell shares of our common stock, par value $0.0001 per share, having an aggregate offering price of up to $50,000,000 (the “Shares”) through or to the Agent. The Agent is entitled to a commission equal to 3.0% of the gross proceeds from each sale. We incurred issuance costs of approximately $169,000 related to legal, accounting, and other fees in connection with the 2022 Sales Agreement. These costs were charged against the gross proceeds of the 2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying unaudited condensed consolidated balance sheets.
For the three months ended March 31, 2022, based on the settlement date, we sold 728,452 shares of common stock at a weighted-average selling price of $4.67 per share in accordance with the 2022 Sales Agreement. Net cash provided from the 2022 Sales Agreement was $3,134,000 after paying $169,000 related to the issuance cost, as well as, 3.0% or $102,000 related to cash commissions provided to the Agent.
As of March 31, 2022, we did not have any material commitments for capital expenditures.
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 the information required by 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 March 31, 2022.
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.
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 two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC. On January 30, 2020, we filed a Second Amended Complaint (the “Complaint”). 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 also alleges claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’ alleged deletion of company email records. The Complaint requests equitable rescission of the acquisition transaction and monetary damages.
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, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties. Thereafter the Company 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 we 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, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, opposed. On March 14, 2022, the Court issued an opinion and order which denied summary judgment to the Firestorm Principals on the Company's main fraudulent omission claim, the conversion and trespass to chattels claims as to Defendants Loughlin and Rhulen and the breach of fiduciary duty claim as to Defendant Loughlin. The Court also denied summary judgment to the Firestorm Principals on their breach of warrants, anticipatory breach of warrants, and anticipatory breach of promissory notes counterclaims and the breach of contract counterclaim asserted by Defendant Satterfield. The Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims. The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $25,500 amount at issue could not be set off by or recouped from our damages in the case.
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 these complaints. At this stage of these litigations, suits against two of the directors have been dismissed. On September 28, 2021, the Court issued an order denying the motion to dismiss one of the actions in Delaware. On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s dismissal order; that reconsideration motion was denied on February 28, 2022. On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds. The defamation claim will now be challenged on substantive grounds.
At this stage of these litigations, we are unable to render an opinion regarding the likelihood of a favorable outcome. 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 counterclaims 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. The Court granted Fordham’s motion to dismiss our counterclaims on October 23, 2021. On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims. Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.
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 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 sought damages on behalf of shareowners who acquired our stock between April 12, 2019 and May 25, 2021. The court appointed a lead plaintiff. In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice. This matter was voluntarily dismissed without prejudice.
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.
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 31, 2022. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as well as those contained in Part 1, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 2021 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.
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 the capabilities of our technology offerings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
(a) Exhibits
| Incorporated by Reference |
Filed/Furnished |
|||||||||||
| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Herewith |
||||||
| 3.1 |
8-K |
333-216014 |
3.1 |
8/25/17 |
||||||||
| 3.2 |
8-K |
001-38338 |
3.1 |
4/30/19 |
||||||||
| 3.3 |
8-K |
001-38338 |
3.1 |
3/18/20 |
||||||||
| 3.4 |
8-K |
001-38338 |
3.2 |
12/15/21 |
||||||||
| 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 |
** |
|||||||||||
| 32.2 |
** |
|||||||||||
| 101.INS |
Inline XBRL Instance Document |
* |
||||||||||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
* |
||||||||||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
* |
||||||||||
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
* |
||||||||||
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
* |
||||||||||
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
* |
||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) | |||||||||||
* Filed herewith.
** Furnished herewith.
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: |
Chief Executive Officer Principal Executive Officer |
||
| Date: |
May 16, 2022 |
||
| By: |
/s/ Eyal Hen |
||
| Name: |
Eyal Hen |
||
| Title: |
Chief Financial Officer Principal Financial and Accounting Officer |
||
| Date: |
May 16, 2022 |
||
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Berman, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Rekor Systems, Inc. |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d 15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared. |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation. and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information. and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: May 16, 2022 |
/s/ Robert A. Berman |
|
|
Robert A. Berman |
||
|
Chief Executive Officer |
||
|
Principal Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eyal Hen, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Rekor Systems, Inc. |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d 15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared. |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation. and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information. and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 16, 2022 |
/s/ Eyal Hen |
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Eyal Hen |
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Chief Financial Officer and Principal Financial and Accounting Officer |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to, and as required by, 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that the Quarterly Report of Rekor Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: May 16, 2022 |
/s/ Robert A. Berman |
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Robert A. Berman |
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Chief Executive Officer |
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Principal Executive Officer |
A signed original of this written statement required by Section 906 of the Sarbanes Oxley Act of 2002 has been provided to Rekor Systems, Inc. and will be retained by Rekor Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to, and as required by, 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that the Quarterly Report of Rekor Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: May 16, 2022 |
/s/ Eyal Hen |
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Eyal Hen |
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Chief Financial Officer and Principal Financial and Accounting Officer |
A signed original of this written statement required by Section 906 of the Sarbanes Oxley Act of 2002 has been provided to Rekor Systems, Inc. and will be retained by Rekor Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
| Common stock, shares issued (in shares) | 44,949,939 | 44,007,257 |
| Common stock, shares outstanding (in shares) | 44,908,417 | 43,987,896 |
| Treasury stock, shates (in shares) | 41,522 | 19,361 |
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
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Common Stock [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
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Common Stock [Member] |
Treasury Stock [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
|
Treasury Stock [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
|
Treasury Stock [Member] |
Preferred Stock [Member]
Series B Preferred Stock [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
|
Preferred Stock [Member]
Series B Preferred Stock [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
|
Preferred Stock [Member]
Series B Preferred Stock [Member]
|
Additional Paid-in Capital [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
|
Additional Paid-in Capital [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
|
Additional Paid-in Capital [Member] |
AOCI Attributable to Parent [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
|
AOCI Attributable to Parent [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
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AOCI Attributable to Parent [Member] |
Retained Earnings [Member]
Conversion of Series A Preferred stock into Common Stock [Member]
|
Retained Earnings [Member]
Conversion of Series B Preferred Stock To Common Stock [Member]
|
Retained Earnings [Member] |
Conversion of Series A Preferred stock into Common Stock [Member] |
Conversion of Series B Preferred Stock To Common Stock [Member] |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2020 | 33,013,271 | 0 | 240,861 | ||||||||||||||||||
| Balance at Dec. 31, 2020 | $ 3 | $ 0 | $ 0 | $ 68,238 | $ 0 | $ (43,050) | $ 25,191 | ||||||||||||||
| Stock-based compensation | $ 0 | $ 0 | $ 0 | 781 | 0 | 0 | 781 | ||||||||||||||
| Issuance of common stock (in shares) | 6,126,939 | 0 | |||||||||||||||||||
| Issuance of common stock | $ 1 | $ 0 | $ 0 | 70,124 | 0 | 0 | 70,125 | ||||||||||||||
| Issuance upon exercise of stock options (in shares) | 65,402 | 0 | 0 | ||||||||||||||||||
| Issuance upon exercise of stock options | $ 0 | $ 0 | $ 0 | 226 | 0 | 0 | 226 | ||||||||||||||
| Issuance upon vesting of restricted stock units (in shares) | 134,991 | 0 | 0 | ||||||||||||||||||
| Issuance upon vesting of restricted stock units | $ 0 | $ 0 | $ 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Shares withheld upon vesting of restricted stock units (in shares) | 0 | (19,361) | 0 | ||||||||||||||||||
| Shares withheld upon vesting of restricted stock units | $ 0 | $ (319) | $ 0 | 0 | 0 | 0 | (319) | ||||||||||||||
| Net loss | $ 0 | $ 0 | $ 0 | 0 | 0 | (5,406) | (5,406) | ||||||||||||||
| Exercise of cashless warrants in exchange for common stock (in shares) | 47,612 | 0 | 0 | ||||||||||||||||||
| Exercise of cashless warrants in exchange for common stock | $ 0 | $ 0 | $ 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Exercise of warrants in exchange for common stock (in shares) | 52,013 | 0 | 0 | ||||||||||||||||||
| Exercise of warrants in exchange for common stock | $ 0 | $ 0 | $ 0 | 294 | 0 | 0 | 294 | ||||||||||||||
| Exercise of warrants related to series A preferred stock (in shares) | 95,864 | 0 | 0 | ||||||||||||||||||
| Exercise of warrants related to series A preferred stock | $ 0 | $ 0 | $ 0 | 99 | 0 | 0 | 99 | ||||||||||||||
| Conversion of preferred stock (in shares) | 899,174 | 517,611 | 0 | 0 | 0 | (240,861) | |||||||||||||||
| Conversion of preferred stock | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 7,775 | $ 179 | $ 0 | $ 0 | $ 0 | $ 0 | $ 7,775 | $ 179 | ||||||||
| 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 | 2 | 0 | 2 | ||||||||||||||
| Balance (in shares) at Mar. 31, 2021 | 40,952,877 | (19,361) | 0 | ||||||||||||||||||
| Balance at Mar. 31, 2021 | $ 4 | $ (319) | $ 0 | 147,615 | 2 | (48,507) | 98,795 | ||||||||||||||
| Balance (in shares) at Dec. 31, 2021 | 43,987,896 | (19,361) | 0 | ||||||||||||||||||
| Balance at Dec. 31, 2021 | $ 4 | $ (319) | $ 0 | 171,285 | 0 | (69,883) | 101,087 | ||||||||||||||
| Stock-based compensation | $ 0 | $ 0 | $ 0 | 1,900 | 0 | 0 | 1,900 | ||||||||||||||
| Issuance of common stock (in shares) | 728,452 | 0 | 0 | ||||||||||||||||||
| Issuance of common stock | $ 0 | $ 0 | $ 0 | 3,134 | 0 | 0 | 3,134 | ||||||||||||||
| Issuance upon exercise of stock options (in shares) | 12,971 | 0 | 0 | ||||||||||||||||||
| Issuance upon exercise of stock options | $ 0 | $ 0 | $ 0 | 29 | 0 | 0 | 29 | ||||||||||||||
| Issuance upon vesting of restricted stock units (in shares) | 179,098 | 0 | 0 | ||||||||||||||||||
| Issuance upon vesting of restricted stock units | $ 0 | $ 0 | $ 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Shares withheld upon vesting of restricted stock units (in shares) | 0 | (22,161) | 0 | ||||||||||||||||||
| Shares withheld upon vesting of restricted stock units | $ 0 | $ (98) | $ 0 | 0 | 0 | 0 | (98) | ||||||||||||||
| Net loss | $ 0 | $ 0 | $ 0 | 0 | 0 | (12,601) | (12,601) | ||||||||||||||
| Balance (in shares) at Mar. 31, 2022 | 44,908,417 | (41,522) | 0 | ||||||||||||||||||
| Balance at Mar. 31, 2022 | $ 4 | $ (417) | $ 0 | $ 176,348 | $ 0 | $ (82,484) | $ 93,451 |
Note 1 - General, Basis of Presentation, and Summary of Significant Accounting Policies |
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| Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] |
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 March 31, 2022, the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’ equity and unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2022 and 2021.
The financial data and other information disclosed in these notes are unaudited. The results for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
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, 2021. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
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 global leader in intelligent infrastructure focused on addressing the world’s most critical challenges across transportation management, public safety, and key commercial markets. With a real-time intelligence platform driven by deep access to data, AI-powered software, and smart optical devices at-the-edge, the Company combines its industry expertise and advanced proprietary technologies to deliver insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.
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.
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. On an ongoing 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 month period ending March 31, 2021 and the period ended December 31, 2021, 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, capital raises and working capital, 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, 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 cash flow 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 three months ended March 31, 2022, the Company had working capital from continuing operations of $9,297,000 and a comprehensive loss from continuing operations of $12,601,000.
The Company’s cash decreased by $11,007,000 for the three months ended March 31, 2022 primarily due to the loss from continuing operations of $12,601,000. This amount was offset by the net proceeds of $3,134,000 from the 2022 Sales Agreement (see NOTE 10 - STOCKHOLDERS’ EQUITY for details on the 2022 Sales Agreement).
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 if additional financing 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. The Company performs its annual impairment assessment on October 1, or more frequently, when events or circumstances indicate impairment may have occurred. During the three months ended March 31, 2022 and 2021, the Company did not recognize any impairment to goodwill from continuing operations.
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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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.
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.
There were no changes in levels during the three months ended March 31, 2022.
Revenue Recognition
The Company derives its revenues primarily from the sale of software, hardware and related services, including customer support and implementation services and management services in connection with our traffic safety 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.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
The following table presents a summary of revenue (dollars in thousands):
Revenues
Recurring revenue
Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue from long-term contracts with customers that provide periodic payments and short-term contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales.
Recurring revenues are generated through the Company’s SaaS model, where the Company provides customers with the right to access the Company’s software 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 arrangements ratably over the term of the contractual agreement.
The Company also currently receives recurring revenues under contracts entered into using a subscription model for bundled hardware and software over a period. Payments for these subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement. In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface. The subscription arrangements with these 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 solutions over the contractual period. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Accordingly, any fixed consideration related to the arrangement is generally recognized as recurring revenue 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 and activated through a digital key. The Company's contracts with customers are generally for a term of one month with automatic renewal each month. The Company invoices and receives fees from its customers monthly.
Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates. 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. 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 a long-term license for the software. 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. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the customer support obligation, 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.
Contactless compliance solutions revenues reflect arrangements to provide traffic safety systems to several jurisdictions 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 support 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 jurisdiction.
Implementation revenue is recognized 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 and direct sales. 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):
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 March 31, 2022, the Company had approximately $21,288,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 41% of this amount as revenue over the succeeding months, and the remainder is expected to be recognized over the next to years thereafter.
Unbilled accounts receivable
The timing of revenue recognition, billings and cash collections result 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 $400,000 and $415,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 were not materially impacted by any other factors. Contract liabilities as of March 31, 2022 and December 31, 2021 were $3,067,000 and $3,272,000, respectively. During the three months ended March 31, 2022, $949,000 of the contract liabilities balance as of December 31, 2021 was recognized as revenue.
The services due for contract liabilities described above are shown below as of March 31, 2022 (dollars in thousands):
Costs to Obtain and Fulfill a Contract
Practical Expedients Election ‒ Costs to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. When the amortization period would be one year or less, the Company elects to use the practical expedient election to expense the costs to obtain a contract as they are incurred.
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 March 31, 2022 and December 31, 2021 were $987,000 and $804,000, 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.
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 March 31, 2022 and December 31, 2021, the Company had deposits from continuing operations totaling $15,593,000 and $26,600,000, respectively, in three U.S. financial institutions and one Israeli 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% and 40% of the Company’s total revenues for the three months ended March 31, 2022 and 2021, respectively.
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three months ended March 31, 2022 and 2021.
As of March 31, 2022, no single customer accounted for more than 10% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2021, Company B accounted for 13% of the unaudited condensed consolidated accounts receivable balance.
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of December 31, 2021.
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, 2021.
New Accounting Pronouncements Effective in Future Periods
In June 2016, the FASB issued Accounting Standards Update ("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. |
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Note 2 - Acquisitions |
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| Business Combination Disclosure [Text Block] |
NOTE 2 – ACQUISITIONS
On August 18, 2021, the Company completed its acquisition of Waycare by acquiring 100% of the issued and outstanding capital stock of Waycare. The aggregate purchase price for the shares of Waycare was $60,171,000, 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 $39,884,000 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. The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):
The technology acquired by the Company as part of the acquisition has an estimated useful life of years and is presented as part of intangible assets, net on the unaudited condensed consolidated balance sheets.
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, 2021. 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, 2021 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.
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Note 3 - Investments |
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Mar. 31, 2022 | |
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| Equity Method Investments and Joint Ventures Disclosure [Text Block] |
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 March 31, 2022 and December 31, 2021 the investment in Global Public Safety had a value of $0.
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 months ended March 31, 2022 and 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 months ended March 31, 2022 and 2021.
Roker SAFE
In April 2021, in exchange for $1,000,000 the Company entered into a SAFE with Roker (the “Roker SAFE”). In October 2021 and March 2022, the Company invested an additional $250,000 and $150,000, respectively, in 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. No factors indicative of impairment were identified during the three months ended March 31, 2022.
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Note 4 - Supplemental Disclosures of Cash Flow Information |
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| Cash Flow, Supplemental Disclosures [Text Block] |
NOTE 4 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the three months ended March 31, 2022 and 2021 were as follows (dollars in thousands):
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Note 5 - Operating Leases |
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| Lessee, Operating Leases [Text Block] |
NOTE 5 – OPERATING LEASES
The Company has operating leases for office facilities in various locations throughout the United States and Israel. The Company’s leases have remaining terms of to 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 March 31, 2022 and 2021 was $411,000 and $89,000, 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 $25,000 and $85,000 for the three months ended March 31, 2022 and 2021, respectively.
In the first quarter of 2022, the Company entered into a lease agreement for its Israeli operations. As part of the lease agreement, there were $919,000 in lease incentives provided to the Company which will be used to update the structure of the leased space and furnish the leased space.
Supplemental balance sheet information related to leases as of March 31, 2022 was as follows (dollars in thousands):
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Note 6 - Intangible Assets |
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| Intangible Assets Disclosure [Text Block] |
NOTE 6 – INTANGIBLE ASSETS
Intangible Assets Subject to Amortization
The following summarizes the change in intangible assets from December 31, 2021 to March 31, 2022 (dollars in thousands):
The following provides a breakdown of identifiable intangible assets as of March 31, 2022 (dollars in thousands):
These intangible assets are amortized on a straight-line basis over their estimated useful life. Amortization expense attributable to continuing operations for the three months ended March 31, 2022 and 2021 was $1,001,000 and $409,000, respectively and is presented as part of depreciation and amortization in the accompanying unaudited condensed consolidated statements of operations.
As of March 31, 2022, 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):
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Note 7 - Debt |
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| Debt Disclosure [Text Block] |
NOTE 7 – 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 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 $1,000,000 and $998,000, net of unamortized interest, as of March 31, 2022 and December 31, 2021, respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $0 and $2,000, respectively. The Company is not paying current interest on these notes and did not pay the 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 9- COMMITMENTS AND CONTINGENCIES).
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):
Schedule of Principal Amounts Due of Debt
The principal amounts due for long-term notes payable are shown below as of March 31, 2022 (dollars in thousands):
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Note 8 - Income Taxes |
3 Months Ended |
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Mar. 31, 2022 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 8 – INCOME TAXES
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 March 31, 2022.
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 March 31, 2022.
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 three months ended March 31, 2022 and 2021, the Company did 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 2018 through 2020 tax years remain subject to examination by the Internal Revenue Service.
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Note 9 - Commitments and Contingencies |
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Mar. 31, 2022 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 9 – 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. On January 30, 2020, the Company filed a Second Amended Complaint (the “Complaint’) alleging that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company. The Complaint also alleges claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’ alleged deletion of company email records. The Complaint requests equitable rescission of the acquisition transaction and monetary damages.
The Firestorm Principals answered together with counterclaims on February 28, 2020. Thereafter, on March 30, the Company moved to dismiss the counterclaims against certain directors and officers named as counterclaim-defendants, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties. Thereafter the Company 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 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.
In April 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, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed its 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. On March 14, 2022, the Court issued an opinion and order which denied summary judgment to the Firestorm Principals on the Company's main fraudulent omission claim, the conversion and trespass to chattels claims as to Defendants Loughlin and Rhulen and the breach of fiduciary duty claim as to Defendant Loughlin. The Court also denied summary judgment to the Firestorm Principals on their breach of warrants, anticipatory breach of warrants, and anticipatory breach of promissory notes counterclaims and the breach of contract counterclaim asserted by Defendant Satterfield. In March 2022, the Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims. The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $25,500 amount at issue could not be set off by or recouped from our damages in this case.
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, the 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 dismissal order; that reconsideration motion was denied on February 28, 2022. On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds. The defamation claim will now be challenged on substantive grounds.
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 counterclaims 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. The Court granted Fordham’s motion to dismiss Rekor’s counterclaims on October 23, 2021. On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by the plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims in the future. Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.
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.
In June 2021, a putative shareholder class action lawsuit (captioned Miller v. Rekor Systems, Inc. et al.) was filed 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 the class action lawsuit without prejudice. This matter was voluntarily dismissed without prejudice.
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.
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Note 10 - Stockholders' Equity |
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| Stockholders' Equity Note Disclosure [Text Block] |
NOTE 10 – 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 to 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.
At-the-Market Offering
On February 24, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”) to create an at the market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50,000,000 (the “Shares”) through or to the Agent. The Agent is entitled to a commission equal to 3.0% of the gross proceeds from each sale. The Company incurred issuance costs of approximately $169,000 related to legal, accounting, and other fees in connection with the 2022 Sales Agreement. These costs were charged against the gross proceeds of the 2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying unaudited condensed consolidated balance sheets.
For the three months ended March 31, 2022, based on the settlement date, the Company sold 728,452 shares of common stock at a weighted-average selling price of $4.67 per share in accordance with the 2022 Sales Agreement. Net cash provided from the 2022 Sales Agreement was $3,134,000 after paying $169,000 related to the issuance cost, as well as, 3.0% or $102,000 related to cash commissions provided to the Agent.
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.
2021 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 “2021 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.
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.
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 $101,000 for the three months ended March 31, 2022 and 2021, respectively.
As a result of the closing of the 2021 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 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 March 31, 2022 is as follows:
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Note 11 - Equity Incentive Plan |
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| Share-Based Payment Arrangement [Text Block] |
NOTE 11 – EQUITY INCENTIVE 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 years with a contractual term of years.
Stock compensation expense related to stock options for the three months ended March 31, 2022 and 2021 was $28,000 and $30,000, respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development 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 March 31, 2022 is as follows:
As of March 31, 2022, there was $19,000 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 0.23 years.
Restricted Stock Units
Stock compensation expense related to RSU’s for the three months ended March 31, 2022 and 2021 was $1,872,000 and $751,000, respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development 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 three months ended March 31, 2022 is as follows:
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 March 31, 2022, there was $15,030,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 2.20 years.
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Note 12 - Loss Per Share |
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| Earnings Per Share [Text Block] |
NOTE 12 – LOSS PER SHARE
The following table provides information relating to the calculation of loss per common share:
As the Company had a net loss for the three months ended March 31, 2022, the following 3,858,220 potentially dilutive securities were excluded from diluted loss per share: 692,311 for outstanding warrants, 996,865 related to outstanding options and 2,169,044 related to outstanding RSUs.
As the Company had a net loss for the three months ended March 31, 2021, the following 2,436,750 potentially dilutive securities were excluded from diluted loss per share: 714,293 for outstanding warrants, 1,167,852 related to outstanding options and 554,605 related to outstanding RSUs.
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Note 13 - Subsequent Events |
3 Months Ended |
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| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
NOTE 13 – SUBSEQUENT EVENTS
At-the-Market Issuance Sales Agreement
The Company issued an additional 1,521,755 shares of its common stock in exchange for net cash of $4,928,000 under the 2022 Sales Agreement.
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Significant Accounting Policies (Policies) |
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| Use of Estimates, Policy [Policy Text Block] | 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. On an ongoing 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 |
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| Reclassification, Comparability Adjustment [Policy Text Block] | 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 month period ending March 31, 2021 and the period ended December 31, 2021, have been reclassified to conform to the current year’s presentation. |
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| Liquidity [Policy Text Block] | 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, capital raises and working capital, 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, 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 cash flow 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 three months ended March 31, 2022, the Company had working capital from continuing operations of $9,297,000 and a comprehensive loss from continuing operations of $12,601,000.
The Company’s cash decreased by $11,007,000 for the three months ended March 31, 2022 primarily due to the loss from continuing operations of $12,601,000. This amount was offset by the net proceeds of $3,134,000 from the 2022 Sales Agreement (see NOTE 10 - STOCKHOLDERS’ EQUITY for details on the 2022 Sales Agreement).
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 if additional financing is not available. |
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| Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | 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. The Company performs its annual impairment assessment on October 1, or more frequently, when events or circumstances indicate impairment may have occurred. During the three months ended March 31, 2022 and 2021, the Company did not recognize any impairment to goodwill from continuing operations. |
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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.
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.
There were no changes in levels during the three months ended March 31, 2022. |
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| Revenue from Contract with Customer [Policy Text Block] | Revenue Recognition
The Company derives its revenues primarily from the sale of software, hardware and related services, including customer support and implementation services and management services in connection with our traffic safety 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.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
The following table presents a summary of revenue (dollars in thousands):
Revenues
Recurring revenue
Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue from long-term contracts with customers that provide periodic payments and short-term contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales.
Recurring revenues are generated through the Company’s SaaS model, where the Company provides customers with the right to access the Company’s software 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 arrangements ratably over the term of the contractual agreement.
The Company also currently receives recurring revenues under contracts entered into using a subscription model for bundled hardware and software over a period. Payments for these subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement. In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface. The subscription arrangements with these 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 solutions over the contractual period. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Accordingly, any fixed consideration related to the arrangement is generally recognized as recurring revenue 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 and activated through a digital key. The Company's contracts with customers are generally for a term of one month with automatic renewal each month. The Company invoices and receives fees from its customers monthly.
Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates. 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. 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 a long-term license for the software. 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. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the customer support obligation, 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.
Contactless compliance solutions revenues reflect arrangements to provide traffic safety systems to several jurisdictions 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 support 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 jurisdiction.
Implementation revenue is recognized 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 and direct sales. 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):
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 March 31, 2022, the Company had approximately $21,288,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 41% of this amount as revenue over the succeeding months, and the remainder is expected to be recognized over the next to years thereafter.
Unbilled accounts receivable
The timing of revenue recognition, billings and cash collections result 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 $400,000 and $415,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 were not materially impacted by any other factors. Contract liabilities as of March 31, 2022 and December 31, 2021 were $3,067,000 and $3,272,000, respectively. During the three months ended March 31, 2022, $949,000 of the contract liabilities balance as of December 31, 2021 was recognized as revenue.
The services due for contract liabilities described above are shown below as of March 31, 2022 (dollars in thousands):
Costs to Obtain and Fulfill a Contract
Practical Expedients Election ‒ Costs to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. When the amortization period would be one year or less, the Company elects to use the practical expedient election to expense the costs to obtain a contract as they are incurred. |
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| Cash and Cash Equivalents, Policy [Policy Text Block] | 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 March 31, 2022 and December 31, 2021 were $987,000 and $804,000, 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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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | 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 March 31, 2022 and December 31, 2021, the Company had deposits from continuing operations totaling $15,593,000 and $26,600,000, respectively, in three U.S. financial institutions and one Israeli 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% and 40% of the Company’s total revenues for the three months ended March 31, 2022 and 2021, respectively.
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three months ended March 31, 2022 and 2021.
As of March 31, 2022, no single customer accounted for more than 10% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2021, Company B accounted for 13% of the unaudited condensed consolidated accounts receivable balance.
No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of December 31, 2021. |
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| New Accounting Pronouncements, Policy [Policy Text Block] | New Accounting Pronouncements Effective in Future Periods
In June 2016, the FASB issued Accounting Standards Update ("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. |
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Note 1 - General, Basis of Presentation, and Summary of Significant Accounting Policies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of Revenue [Table Text Block] |
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| Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block] |
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Note 2 - Acquisitions (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Business Acquisitions, by Acquisition [Table Text Block] |
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| Business Acquisition, Pro Forma Information [Table Text Block] |
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Note 4 - Supplemental Disclosures of Cash Flow Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Cash Flow, Supplemental Disclosures [Table Text Block] |
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Note 5 - Operating Leases (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets and Liabilities, Lessee [Table Text Block] |
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Note 6 - Intangible Assets (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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| Finite-Lived Intangible Assets Amortization Expense [Table Text Block] |
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Note 7 - Debt (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Interest Expense on Debt [Table Text Block] |
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| Schedule of Maturities of Long-Term Debt [Table Text Block] |
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Note 10 - Stockholders' Equity (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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Note 11 - Equity Incentive Plan (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Share-Based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block] |
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Note 12 - Loss Per Share (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 1 - General, Basis of Presentation, and Summary of Significant Accounting Policies 2 (Details Textual) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-04-01 |
Mar. 31, 2022 |
|---|---|
| Revenue, Remaining Performance Obligation, Percentage | 41.00% |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month) | 12 months |
| Minimum [Member] | |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month) | 2 years |
| Maximum [Member] | |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month) | 4 years |
Note 1 - General, Basis of Presentation, and Summary of Significant Accounting Policies - Summary of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue | $ 3,608 | $ 4,216 |
| Government Customers [Member] | ||
| Revenue | 2,003 | 3,105 |
| Commercial Customers [Member] | ||
| Revenue | 1,605 | 1,111 |
| Recurring Revenue [Member] | ||
| Revenue | 1,695 | 864 |
| Product and Service, Other [Member] | ||
| Revenue | $ 1,913 | $ 3,352 |
Note 1 - General, Basis of Presentation, and Summary of Significant Accounting Policies - Services Due for Contract Liabilities (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| 2022, remaining | $ 1,927 |
| 2023 | 651 |
| 2024 | 303 |
| 2025 | 124 |
| 2026 | 56 |
| Thereafter | 6 |
| Total | $ 3,067 |
Note 2 - Acquisitions (Details Textual) - Waycare Technologies Ltd. [Member] |
Aug. 18, 2021
USD ($)
shares
|
|---|---|
| Business Acquisition, Percentage of Voting Interests Acquired | 100.00% |
| Business Combination, Consideration Transferred, Total | $ 60,171,000 |
| Payments to Acquire Businesses, Gross | $ 39,884,000 |
| Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | shares | 2,784,474 |
| Business Combination, Consideration Transferred, Equity Interests Issued and Issuable | $ 20,287,000 |
| Technology-Based Intangible Assets [Member] | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 7 years |
Note 2 - Acquisitions - Purchase Price Allocation (Details) - USD ($) |
Aug. 18, 2021 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Goodwill | $ 53,451,000 | $ 53,451,000 | |
| Waycare Technologies Ltd. [Member] | |||
| Payments to Acquire Businesses, Gross | $ 39,884,000 | ||
| Business Combination, Consideration Transferred, Equity Interests Issued and Issuable | 20,287,000 | ||
| Total Consideration | 60,171,000 | ||
| Cash and cash equivalents | 25,000 | ||
| Restricted cash and cash equivalents | 89,000 | ||
| Accounts receivable | 486,000 | ||
| Other current assets | 150,000 | ||
| Property and equipment | 72,000 | ||
| Acquired technology | 16,897,000 | ||
| Total assets acquired | 17,719,000 | ||
| Accounts payable and accrued expenses | 794,000 | ||
| Contract liabilities | 36,000 | ||
| Deferred tax liability | 3,833,000 | ||
| Total liabilities assumed | 4,663,000 | ||
| Fair value of identifiable net assets acquired | 13,056,000 | ||
| Goodwill | $ 47,115,000 |
Note 2 - Business Acquisitions - Pro Forma Information (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Total revenue from continuing operations | $ 3,608 | $ 4,599 |
| Net loss from continuing operations | $ (12,601) | $ (6,183) |
| Basic and diluted loss per share from continuing operations (in dollars per share) | $ (0.29) | $ (0.17) |
| Basic and diluted number of shares (in shares) | 44,087,911 | 38,728,829 |
Note 3 - Investments (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 |
Oct. 31, 2021 |
Apr. 30, 2021 |
Mar. 31, 2022 |
Mar. 31, 2021 |
Sep. 30, 2020 |
Dec. 31, 2021 |
Jun. 30, 2020 |
Feb. 28, 2017 |
|
| Income (Loss) from Equity Method Investments | $ 0 | $ (76,000) | |||||||
| Proceeds from Equity Method Investment, Distribution | 0 | 0 | |||||||
| Proceeds from (Payments for) SAFE Investments | (150,000) | 0 | |||||||
| Roker SAFE [Member] | |||||||||
| Proceeds from (Payments for) SAFE Investments | $ (150,000) | $ (250,000) | $ (1,000,000) | ||||||
| Global Public Safety [Member] | |||||||||
| Equity Method Investment, Ownership Percentage | 19.90% | ||||||||
| Equity Securities without Readily Determinable Fair Value, Amount | $ 0 | 0 | $ 0 | ||||||
| Roker Inc. [Member] | |||||||||
| Equity Method Investment, Ownership Percentage | 50.00% | ||||||||
| Payments to Acquire Equity Method Investments | 75,000 | $ 75,000 | |||||||
| Equity Method Investments | 150,000 | ||||||||
| Income (Loss) from Equity Method Investments | $ 0 | $ (150,000) | |||||||
Note 4 - Supplemental Disclosures of Cash Flow Information - Supplemental Disclosures of Cash Flow Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Cash paid for interest | $ 0 | $ 0 |
| Cash paid for taxes | 5 | 0 |
| Recognition of operating lease - right-of-use lease asset | 3,485 | 0 |
| Lease incentive recognized in other current assets, net | 919 | 0 |
| Recognition of operating lease - lease liability | (4,404) | 0 |
| Series A Convertible Redeemable Preferred Stock [Member] | ||
| Preferred stock dividends settled in common stock | 0 | (1,005) |
| Series A Cumulative Convertible Redeemable Preferred stock included in temporary equity, settled in common stock | 0 | (6,770) |
| Series B Cumulative Convertible Preferred Stock [Member] | ||
| Preferred stock dividends settled in common stock | $ 0 | $ (179) |
Note 5 - Operating Leases (Details Textual) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Operating Lease, Expense | $ 411,000 | $ 89,000 |
| Operating Lease, Payments | 25,000 | $ 85,000 |
| Payments for (Proceeds from) Tenant Allowance | $ (919,000) | |
| Minimum [Member] | ||
| Lessee, Operating Lease, Remaining Lease Term (Year) | 1 year | |
| Maximum [Member] | ||
| Lessee, Operating Lease, Remaining Lease Term (Year) | 10 years | |
Note 5 - Operating Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Operating lease right-of-use lease assets | $ 9,548 | $ 6,163 |
| Current portion of lease liability | 676 | 229 |
| Long-term portion of lease liability | 14,259 | $ 10,061 |
| Total lease liability | $ 14,935 | |
| Weighted average remaining lease term - operating leases (years) (Year) | 9 years 10 months 17 days | |
| Weighted average discount rate - operating leases | 9.00% | |
| 2022, remaining | $ 837 | |
| 2023 | 2,293 | |
| 2024 | 2,254 | |
| 2025 | 2,271 | |
| 2026 | 2,306 | |
| Thereafter | 13,628 | |
| Total lease payments | 23,589 | |
| Less imputed interest | 8,654 | |
| Maturities of lease liabilities | $ 14,935 |
Note 6 - Intangible Assets (Details Textual) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Amortization of Intangible Assets | $ 1,001,000 | $ 409,000 |
Note 6 - Intangible Assets - Estimated Annual Amortization Expense (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| 2022, remaining | $ 2,953 | |
| 2023 | 3,777 | |
| 2024 | 3,474 | |
| 2025 | 3,465 | |
| 2026 | 2,653 | |
| Thereafter | 4,083 | |
| Total | $ 20,405 | $ 21,406 |
Note 7 - Debt (Details Textual) - USD ($) |
Jan. 25, 2017 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Firestorm Notes [Member] | |||
| Debt Instrument, Face Amount | $ 1,000,000 | ||
| Debt Instrument, Term (Year) | 5 years | ||
| Long-Term Debt, Total | $ 1,000,000 | $ 998,000 | |
| Interest Payable | $ 0 | $ 2,000 | |
| Firestorm Notes, One [Member] | |||
| Debt Instrument, Face Amount | $ 500,000 | ||
| Debt Instrument, Interest Rate, Stated Percentage | 2.00% | ||
| Firestorm Notes, Two, Three and Four [Member] | |||
| Debt Instrument, Face Amount | $ 500,000 | ||
| Debt Instrument, Interest Rate, Stated Percentage | 7.00% |
Note 7 - Debt - Interest Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Contractual interest | $ 7 | $ 27 |
| Amortization of financing costs | 2 | 5 |
| Total interest expense | $ 9 | $ 32 |
Note 7 - Debt - Schedule of Principal Amounts Due of Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| 2022, remaining | $ 1,028 | |
| 2023 | 37 | |
| Total notes payable | 1,065 | |
| Loan payable, current portion | 37 | $ 37 |
| Loan payable, long-term | 28 | 37 |
| Notes payable, current portion | $ 1,000 | $ 998 |
Note 8 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total | $ 0 | $ 0 |
Note 9 - Commitments and Contingencies (Details Textual) |
Apr. 27, 2021
USD ($)
|
|---|---|
| Litigation Case, Claims, Bill for Services From A Company Related to Firestorm Principal [Member] | |
| Loss Contingency, Damages Sought, Value | $ 25,500 |
Note 10 - Stockholders' Equity - Summary of Warrant Activity (Details) |
3 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2022
$ / shares
shares
| ||||||||||
| Balance (in shares) | 692,311 | |||||||||
| Exercised warrants (in shares) | 0 | |||||||||
| Balance (in shares) | 692,311 | |||||||||
| Weighted average strike price of outstanding warrants (in dollars per share) | $ / shares | $ 3.02 | |||||||||
| Series A Preferred Stock Warrants [Member] | ||||||||||
| Balance (in shares) | 41,996 | [1] | ||||||||
| Exercised warrants (in shares) | 0 | [1] | ||||||||
| Balance (in shares) | 41,996 | [1] | ||||||||
| Weighted average strike price of outstanding warrants (in dollars per share) | $ / shares | $ 1.03 | [1] | ||||||||
| Firestorm Warrants [Member] | ||||||||||
| Balance (in shares) | 631,254 | [2] | ||||||||
| Exercised warrants (in shares) | 0 | [2] | ||||||||
| Balance (in shares) | 631,254 | [2] | ||||||||
| Weighted average strike price of outstanding warrants (in dollars per share) | $ / shares | $ 3.09 | [2] | ||||||||
| Secure Education Warrants [Member] | ||||||||||
| Balance (in shares) | 15,556 | [3] | ||||||||
| Exercised warrants (in shares) | 0 | [3] | ||||||||
| Balance (in shares) | 15,556 | [3] | ||||||||
| Weighted average strike price of outstanding warrants (in dollars per share) | $ / shares | $ 6.06 | [3] | ||||||||
| The2018 Public Offering Warrants [Member] | ||||||||||
| Balance (in shares) | 3,505 | [4] | ||||||||
| Exercised warrants (in shares) | 0 | [4] | ||||||||
| Balance (in shares) | 3,505 | [4] | ||||||||
| Weighted average strike price of outstanding warrants (in dollars per share) | $ / shares | $ 1.00 | [4] | ||||||||
| ||||||||||
Note 12 - Loss Per Share (Details Textual) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 3,858,220 | 2,436,750 |
| Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 692,311 | 714,293 |
| Share-Based Payment Arrangement, Option [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 996,865 | 1,167,852 |
| Restricted Stock Units (RSUs) [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 2,169,044 | 554,605 |
Note 12 - Loss Per Share - Loss Per Share (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Net loss from continuing operations | $ (12,601,000) | $ (5,403,000) |
| Less: preferred stock accretion | 0 | (101,000) |
| Less: preferred stock dividends | 0 | (51,000) |
| Net loss attributable to shareholders from continuing operations | (12,601,000) | (5,555,000) |
| Net loss from discontinued operations | 0 | (3,000) |
| Net loss attributable to shareholders | $ (12,601,000) | $ (5,558,000) |
| Basic and diluted (in shares) | 44,087,911 | 35,944,355 |
| Loss per common share from continuing operations - basic and diluted (in dollars per share) | $ (0.29) | $ (0.15) |
| Basic and diluted loss per share from discontinued operations (in dollars per share) | 0 | 0 |
| Loss per common share - basic and diluted (in dollars per share) | $ (0.29) | $ (0.15) |
| Common stock equivalents excluded due to the anti-dilutive effect (in shares) | 3,858,220 | 2,436,750 |
Note 13 - Subsequent Events (Details Textual) - At-the-market Offering [Member] - USD ($) |
3 Months Ended | ||
|---|---|---|---|
May 16, 2022 |
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Proceeds from Issuance of Common Stock | $ 3,134,000 | $ 0 | |
| Subsequent Event [Member] | |||
| Stock Issued During Period, Shares, New Issues (in shares) | 1,521,755 | ||
| Proceeds from Issuance of Common Stock | $ 4,928,000 | ||