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 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 August 14, 2024, 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, 2023 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 June 30, 2024
REKOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
June 30, 2024 | December 31, 2023 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable, net | ||||||||
Inventory | ||||||||
Note receivable, current portion | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Long-term assets | ||||||||
Property and equipment, net | ||||||||
Right-of-use operating lease assets, net | ||||||||
Right-of-use financing lease assets, net | ||||||||
Goodwill | ||||||||
Intangible assets, net | ||||||||
Note receivable, long-term | ||||||||
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 operating, short-term | ||||||||
Lease liability financing, short-term | ||||||||
Contract liabilities | ||||||||
Liability for ATD Holdback Shares | ||||||||
Other current liabilities | ||||||||
Total current liabilities | ||||||||
Long-term Liabilities | ||||||||
Notes payable, long-term | ||||||||
2023 Promissory Notes, net of debt discount of $ and $ , respectively | ||||||||
2023 Promissory Notes - related party, net of debt discount of $ and $ , respectively | ||||||||
Series A Prime Revenue Sharing Notes, net of debt discount of $ and $ , respectively | ||||||||
Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ and $ , respectively | ||||||||
Loan payable, long-term | ||||||||
Lease liability operating, long-term | ||||||||
Lease liability financing, long-term | ||||||||
Contract liabilities, long-term | ||||||||
Deferred tax liability | ||||||||
Other non-current liabilities | ||||||||
Total long-term liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders' equity | ||||||||
Preferred stock, $ par value, authorized, shares designated as Series A and shares designated as Series B as of June 30, 2024 and December 31, 2023, respectively. preferred stock was issued or outstanding as of June 30, 2024 or December 31, 2023, respectively. | ||||||||
Common stock, $ par value; authorized; shares; issued: shares as of June 30, 2024 and as of December 31, 2023; outstanding: shares as of June 30, 2024 and as of December 31, 2023. | ||||||||
Treasury stock, and shares as of June 30, 2024 and December 31, 2023, 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 and per share amounts)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
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): | ||||||||||||||||
(Loss) gain on extinguishment of debt | ( | ) | ||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gain on remeasurement of ATD Holdback Shares | ||||||||||||||||
Other income | ||||||||||||||||
Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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
(Dollars in thousands, except share amounts)
(Unaudited)
Shares of Common Stock | Common Stock | Shares of Treasury Stock | Treasury Stock at Cost | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||
Balance as of March 31, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Issuance upon exercise of stock options | ||||||||||||||||||||||||||||
Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||
Issuance upon exercise of 2023 Warrants | ||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Balance as of March 31, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Issuance upon exercise of stock options | ||||||||||||||||||||||||||||
Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||
Issuance of common stock upon exercise of pre-funded warrants | ||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Balance as of January 1, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Issuance upon exercise of stock options | ||||||||||||||||||||||||||||
Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||
Shares withheld upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Shares issued as part of the ATD Acquisition | ||||||||||||||||||||||||||||
Retirement of the 2023 Promissory Notes | ||||||||||||||||||||||||||||
2024 Public Offering | ||||||||||||||||||||||||||||
Issuance upon exercise of 2023 Warrants | ||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Balance as of January 1, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Issuance upon exercise of stock options | ||||||||||||||||||||||||||||
Issuance upon vesting of restricted stock units | ||||||||||||||||||||||||||||
Fair value allocated to warrants with 2023 Promissory Notes | - | - | ||||||||||||||||||||||||||
Shares withheld upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Issuance of common stock and warrants | ||||||||||||||||||||||||||||
Issuance of common stock upon exercise of pre-funded warrants | ||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ |
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)
Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Bad debt expense | ||||||||
Depreciation | ||||||||
Amortization of right-of-use financing lease asset | ||||||||
Non-cash operating lease expense | ||||||||
Share-based compensation | ||||||||
Amortization of debt discount | ||||||||
Amortization of intangible assets | ||||||||
Impairment of SAFE Agreement | ||||||||
Loss due to the remeasurement of the STS Earnout and Contingent Consideration | ||||||||
Gain on remeasurement of ATD Holdback Shares | ( | ) | ||||||
Loss on the sale of property and equipment | ||||||||
Loss (gain) on extinguishment of debt | ( | ) | ||||||
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: | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Proceeds from the sale of property and equipment | ||||||||
Cash paid for ATD acquisition, net | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from the public offering | ||||||||
Net proceeds 2022 Promissory Notes - related party, exchanged for 2023 Promissory Notes - related party | ||||||||
Net proceeds 2023 Promissory Notes | ||||||||
Net proceeds 2023 Promissory Notes - related party | ||||||||
Net proceeds 2023 Registered Direct Offering | ||||||||
Net proceeds from the exercise of the pre-funded warrants | ||||||||
Proceeds from notes receivable | ||||||||
Net proceeds from exercise of options | ||||||||
Net proceeds from exercise of warrants | ||||||||
Repayments of loans payable | ( | ) | ( | ) | ||||
Payments for financing leases | ( | ) | ( | ) | ||||
Repurchases of common stock | ( | ) | ( | ) | ||||
Repayment of 2023 Promissory Notes | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash - continuing operations | ( | ) | ||||||
Net decrease in cash, cash equivalents and restricted cash - discontinued operations | ( | ) | ||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
Cash, cash equivalents and restricted cash at beginning of period | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
Cash and cash equivalents at end of period | $ | $ | ||||||
Restricted cash at end of period | ||||||||
Cash, cash equivalents and restricted cash 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
Rekor Systems, Inc. (“Rekor”) was formed in February 2017. The consolidated financial statements include the accounts of Rekor, the parent company, and its wholly-owned subsidiaries Rekor Recognition Systems, Inc., Waycare Technologies Inc. and Waycare Technologies Ltd. (collectively, "Waycare"), Southern Traffic Services, Inc. ("STS") and All Traffic Data Services, LLC ("ATD") (collectively, the “Company”). The Company serves the roadway intelligence sector, developing products and services to be used in advancing public safety, urban mobility, and transportation management. The Company's vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities. The Company works towards this vision by collecting, connecting, and organizing mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.
On January 2, 2024, the Company completed the acquisition of ATD by acquiring
These unaudited condensed consolidated interim financial statements of 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 statements as of and for the periods ended June 30, 2024.
The financial data and other information disclosed in these notes are unaudited. The results for the three and six months ended June 30, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2024.
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, 2023. 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 nearest $1,000.
Correction of Previously Issued (Unaudited) Interim Financial Statements
While undergoing a review of its unaudited condensed consolidated interim financial statements, the Company determined it had incorrectly classified the ATD Holdback Shares issued in connection with the acquisition of ATD as equity classified instead of liability classified. This impacted previously reported amounts for goodwill, current liabilities and additional paid in capital, among other line items in the unaudited condensed consolidated interim financial statements as of and for the three months ended March 31, 2024.
In accordance with Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the adjustment detailed above, and determined the related impact did not materially misstate its unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2024. Although the Company concluded that the misstatement was not material to its unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2024, the Company has determined it is appropriate to adjust its unaudited condensed consolidated financial statements as of March 31, 2024 on a prospective basis to provide appropriate context to stakeholders within comparative financial statements. The impact on the statement of operations will be displayed on the Company’s unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2024. The following tables set forth the effects of the error corrections on affected items within the Company’s previously reported interim unaudited condensed consolidated balance sheet and statement of shareholders' equity as of the periods indicated had the adjustments been made in the corresponding quarter (dollars in thousands):
March 31, 2024 | ||||||||||||
Changes in Condensed Consolidated Balance Sheet | As reported | Adjusted | As corrected | |||||||||
Long-term assets | ||||||||||||
Goodwill | $ | $ | ( | ) | $ | |||||||
Total assets | ( | ) | ||||||||||
Current liabilities | ||||||||||||
Liability for ATD Holdback Shares | ||||||||||||
Total liabilities | ||||||||||||
Stockholders' equity | ||||||||||||
Additional paid-in capital | ( | ) | ||||||||||
Total stockholders’ equity | $ | $ | ( | ) | $ | |||||||
Changes in Condensed Consolidated Statement of Shareholders' Equity | ||||||||||||
Shares of common stock outstanding | ( | ) |
The following tables set forth the effects of the error corrections on affected items within the Company’s previously reported interim condensed statements of operations for the periods indicated had the adjustments been made in the corresponding quarters (dollars in thousands, except share amounts):
Three Months Ended March 31, 2024 | ||||||||||||
Changes in Condensed Consolidated Statements of Operations | As reported | Adjusted | As corrected | |||||||||
Loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Weighted average shares outstanding basic and diluted | ( | ) |
Use of Estimates
The preparation of the 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.
Liquidity and Going Concern
Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these 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 has considered 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 and negative operating cashflows since its inception and has relied on external sources of financing to support cash flow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these products and services. As of and for the six months ended June 30, 2024, the Company had a working capital deficit of $
Our cash decreased by $
Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations for the next twelve months following the issuance of these unaudited condensed consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company is actively monitoring its operations, cash on hand and working capital. The Company is currently in the process of reviewing and exploring external financing options in order to sustain its operations. If additional financing is not available, the Company also has contingency plans to continue to reduce or defer expenses and cash outlays in the look-forward period.
Significant Accounting Policies
Goodwill
The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill. Goodwill is subject to impairment testing on an annual basis. The Company will assess goodwill for impairment annually on October 1st of each year, 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 will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock. As of June 30, 2024, the Company did not identify any events that would cause it to assess goodwill for impairment.
Business Combination
Management conducts a valuation analysis on the tangible and intangible assets acquired and liabilities assumed at the acquisition date thereof. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The Company allocates a portion of the purchase price to the fair value of identifiable intangible assets. The fair value of identifiable intangible assets is based on a detailed valuation that uses information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of June 30, 2024 and December 31, 2023 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 June 30, 2024 and December 31, 2023, 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.
The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 3 inputs.
The Company does not have any Level 1 or Level 2 assets or liabilities. The Company considers its contingent consideration and ATD Holdback Shares to be Level 3 investments as the fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 fair value measurement.
There were no changes in levels during the period ended June 30, 2024.
The following is a rollforward of the company’s contingent consideration and ATD Holdback Share liabilities:
STS Contingent Consideration | ||||
Balance as of January 1, 2024 | $ | |||
Loss (gain) due to change in fair value | ||||
Balance as of June 30, 2024 | $ | |||
ATD Holdback Shares | ||||
Acquisition of ATD January 2, 2024 | $ | |||
Loss (gain) due to change in fair value | ( | ) | ||
Balance as of June 30, 2024 | $ |
The following are the inputs in company’s ATD Holdback Share as of January 2, 2024 and June 30, 2024:
January 2, 2024 | June 30, 2024 | |||||||
Closing stock price | $ | $ | ||||||
Discount for marketability | $ | ( | ) | $ | ( | ) |
Revenue Recognition
The Company derives its revenues primarily from the licensing and sale of its roadway data and traffic management product and service offerings. These offerings include a mixture of data collection, implementation, engineering, customer support and maintenance services, as well as software and hardware. 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
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 both from long-term contracts with customers that provide for periodic payments and from 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 Software-as-a-Service ("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 contracts with customers are generally for a term of one to five years. The payments 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 data collection services and bundled hardware and software over a period. Payments for these services and 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 that can be purchased online and activated through a digital key. The Company's contracts with eCommerce 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 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 implementation revenue, perpetual license sales, hardware sales, engineering services and contactless compliance revenue.
Implementation revenue is recognized when the Company provides installation, construction and other implementation services to its customers. These services involve a fee and are typically associated with the sale of the Company’s data collection services, software and hardware. The Company’s implementation revenue is recognized over time as the implementation is completed.
In addition to recurring revenue from software sales, the Company recognizes point-in-time revenue related to the sale of perpetual software licenses. The Company sells perpetual licenses that 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 has 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 also generates revenue through the sale of hardware through its partner program and internal sales force distribution channels. The Company satisfies its performance obligation upon the transfer of control of hardware to its customers. The Company invoices end-user customers upon transfer of control of the hardware to its customers. The Company provides hardware installation services to customers which range from one to six months. The revenue related to the installation component is recognized over time as the implementation is completed.
Contactless compliance revenues reflect arrangements to provide hardware systems and services that identify uninsured motor vehicles, notify owners of non-compliance through a diversion citation, and assist them in obtaining the required insurance as an alternative to traditional enforcement methods. Revenue is recognized monthly based on the number of diversion citations collected by the relevant jurisdiction.
The Company also generates revenue through its engineering services. These services are provided at the request of its customers and the revenue related to these services is recognized over time as the service is completed.
Revenue by Customer Type
The following table presents a summary of revenue by customer type (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Urban Mobility | $ | $ | $ | $ | ||||||||||||
Transportation Management | ||||||||||||||||
Public Safety | ||||||||||||||||
Total revenue | $ | $ | $ | $ |
Urban Mobility
Urban Mobility revenue consists of revenue derived from the Company's roadway data aggregation activities. These activities can include the use of software applications that are part of the Rekor Discover™ platform, the primary application being Rekor’s count, class & speed application. This application fully automates the aggregation of Federal Highway Administration (“FHWA”) 13-bin vehicle classification, speed, and volume data. Revenues associated with the deployment of other traffic sensors, traffic studies, or construction associated with traffic data collection are also part of data aggregation revenue, which is generated through both recurring pay-for-data contracts and hardware sales with a recurring software maintenance component.
Transportation Management
Transportation Management revenue is associated with the Rekor Command™ platform and the associated applications underneath the platform. These provide traffic operations and traffic management centers with support through actionable, real-time incident reports integrated into a cross-agency communication and response system. Revenue is generated through contracts that include an upfront as well as recurring component.
Public Safety
Public Safety revenue consists of licensing of the Rekor Scout™ platform, licensing of Rekor CarCheck™ API, licensing of Rekor’s vehicle recognition software, as well as systems deployed for security, contactless compliance and public safety. Revenue is generated through recurring and perpetual license sales as well as one-time hardware sales.
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.
Where performance obligations for the remaining term of 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 June 30, 2024, the unsatisfied portion of the remaining performance obligation was 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 six months to five years, depending on the length of the period during which services are to be provided. This revenue and the corresponding decrease in liabilities is recognized on a contract-by-contract basis at the end of each reporting period and reflected on the unaudited condensed consolidated balance sheet for such period. Changes in the contract balances during the six months ended June 30, 2024 were not materially impacted by any other factors. During the six months ended June 30, 2024, $
The services due for contract liabilities described above are shown below as of June 30, 2024 (dollars in thousands):
2024, remaining | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
Cash and Cash Equivalents, and Restricted Cash and Cash Equivalents
The Company considers all highly liquid debt instruments to be cash equivalents.
Cash subject to contractual restrictions and not readily available for use is classified as restricted cash. 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 June 30, 2024 and December 31, 2023 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 June 30, 2024 and December 31, 2023, the Company had deposits from operations totaling $
No single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three and six months ended June 30, 2024 and 2023, respectively, except that Customer A accounted for
As of June 30, 2024, no single customer accounted for more than 10% of the Company's unaudited condensed consolidated accounts receivable balance. As of December 31, 2023, Customer A and Customer B accounted for
Accounts Payable, Accrued and Other Current Liabilities
As of June 30, 2024 and December 31, 2023, amounts owed to related parties of $
A summary of other current liabilities is as follows (in thousands):
June 30, 2024 | December 31, 2023 | |||||||
Payroll and payroll related expense | $ | $ | ||||||
Right of offset to restricted cash | ||||||||
STS Contingent Consideration | ||||||||
Other | ||||||||
Total | $ | $ |
New Accounting Pronouncements Effective in Future Periods
In November 2023, FASB issued ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources. The guidance is effective for our annual period beginning January 1, 2025, and interim periods thereafter, applied retrospectively with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard on its financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. The guidance is effective for the Company's annual periods beginning January 1, 2025 on a prospective basis, with a retrospective option, and early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its financial statements and disclosures.
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.
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, 2023.
NOTE 2 – ACQUISITION
ATD Acquisition
On January 2, 2024 (the “Closing Date”), the Company acquired All Traffic Data Services, LLC, a Colorado limited liability company (“ATD”), pursuant to that certain Interest Purchase Agreement (the “ATD Purchase Agreement”), dated as of the Closing Date, by and among the Company, ATD and All Traffic Holdings, LLC (the “Seller”). The Seller is a portfolio company of Seaport Capital, a private equity firm. ATD is engaged in the business of advanced traffic data collection. Under the terms of the ATD Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”).
The acquisition met the criteria to be accounted for as a business in accordance with ASC 805, Business Combinations (“ASC 805”). This method requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment. The aggregate purchase price for the interests of ATD was approximately $
The Company incurred $
In accordance with the acquisition method of accounting for a business combination, the purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the Closing Date. Since the acquisition of ATD occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three months ended June 30, 2024. The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):
Consideration | ||||
Cash paid | $ | |||
Liability classified holdback shares ( shares measured at fair value as of the Closing Date) | ||||
Common stock issued ( shares at closing price of $ per share) | ||||
Total Consideration | $ | |||
Recognized amounts of identifiable assets acquired and liabilities assumed | Estimated Fair Value | |||
Assets | ||||
Cash and cash equivalents | $ | |||
Accounts receivable | ||||
Property and equipment | ||||
Right-of-use operating lease assets | ||||
Other current assets | ||||
Intangible assets | ||||
Total assets acquired | $ | |||
Liabilities | ||||
Accounts payable and accrued expenses | $ | |||
Lease liability operating | ||||
Other current liabilities | ||||
Total liabilities assumed | $ | |||
Fair value of identifiable net assets acquired | ||||
Purchase price consideration | ||||
Goodwill | $ |
Operations of Combined Entities
The following unaudited pro forma combined financial information gives effect to the acquisition of ATD and the Series A Prime Revenue Sharing Notes interest expense, as if they were consummated as of January 1, 2023. A portion of the proceeds from the Series A Prime Revenue Sharing Notes was used to fund the acquisition of ATD and therefore the Company has included the impact of the issuance of the debt in its pro forma financial information. 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 and the issuance of the Series A Prime Revenue Sharing Notes been completed as of January 1, 2023 (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 June 30, | Six Months Ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
(Dollars in thousands, except per share data) | (Dollars in thousands except for per share data) | |||||||||||||||
Total revenue | $ | $ | $ | $ | ||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Basic and diluted number of shares |
NOTE 3 – SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for taxes | ||||||||
Decrease in accounts payable and accrued expenses related to purchases of property and equipment | ( | ) | ||||||
Increase (decrease) in accounts payable and accrued expenses related to purchases of inventory | ( | ) | ||||||
Decrease in deposits related to property and equipment received | ||||||||
Decrease in property and equipment that was uninstalled and moved to inventory | ||||||||
Non-cash financing activities: | ||||||||
2022 Promissory Notes exchanged for 2023 Promissory Notes - related party | ||||||||
Warrants issued in connection with the 2023 Promissory Notes | ||||||||
Warrants issued in connection with the 2023 Promissory Notes - related party | ||||||||
Fair market value of shares issued in connection with the acquisition of ATD | ||||||||
Fair market value of ATD Holdback Shares | ||||||||
2023 Promissory Note redemption premium settled in shares of the Company’s common stock | ||||||||
New Leases under ASC-842: | ||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||||
Right-of-use assets obtained in exchange for new finance lease liabilities |
NOTE 4 – INTANGIBLE ASSETS AND GOODWILL
ATD Acquisition
The purchase price for the ATD acquisition has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the acquisition occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2024. As part of the Company's preliminary purchase price allocation for the acquisition, the Company recognized $
Intangible Assets Subject to Amortization
The following provides a breakdown of identifiable intangible assets, net as of June 30, 2024 and December 31, 2023 (dollars in thousands):
June 30, 2024 | December 31, 2023 | |||||||
Customer relationships | $ | $ | ||||||
Marketing related | ||||||||
Technology based | ||||||||
Internally capitalized software | ||||||||
Total | ||||||||
Less: accumulated amortization | ( | ) | ( | ) | ||||
Identifiable intangible assets, net | $ | $ |
These intangible assets are amortized on a straight-line basis over their estimated useful life. Amortization expense for the three months ended June 30, 2024 and 2023 was $
As of June 30, 2024, the estimated impact from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):
2024, remaining | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
NOTE 5 – DEBT
On June 17, 2022, pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $
2023 Promissory Notes
On January 18, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $
On March 4, 2024, the Company elected to prepay the outstanding 2023 Promissory Notes. The 2023 Promissory Notes were redeemed at the redemption price of
The 2023 Promissory Notes were a senior secured obligation of the Company and ranked senior to all indebtedness of the Company, subject to certain exceptions, had a maturity date of July 18, 2025 (the “Maturity Date”), and bore an interest rate of
Series A Prime Revenue Sharing Notes
On December 15, 2023, the Company issued $
Interest will be paid based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers in five states, each of which has been rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies. The Company entered into a base Indenture for the Series A Prime Revenue Sharing Notes as of December 15, 2023 with Argent Institutional Trust Company, as trustee. The Indenture creates a first priority security interest for the benefit of the holders of all subsequent notes issued under the Indenture. The Series A Prime Revenue Sharing Notes rank senior to the Company’s existing and future secured and unsecured debt with respect to the pool of revenue securing the Series A Prime Revenue Sharing Notes.
As part of the terms of the Series A Prime Revenue Sharing Notes the Company is required to maintain an interest reserve related to not less than three times the next monthly interest payment. Additionally, there is a sinking fund requirement which takes effect if the three year value of eligible contracts is less than
The Company may prepay the Series A Prime Revenue Sharing Notes at any time after December 15, 2024 until December 15, 2026 by paying a premium ranging from
Interest Expense
The following table presents the interest expense net of interest income related to the contractual interest and the amortization of debt issuance costs for the Company’s debt arrangements (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Contractual interest expense | $ | $ | $ | $ | ||||||||||||
Amortization of debt issuance costs | ||||||||||||||||
Total interest expense | ||||||||||||||||
Less: interest income | ||||||||||||||||
Total interest expense, net | $ | $ | $ | $ |
Schedule of Principal Amounts Due of Debt
The principal amounts due for long-term notes payable are shown below as of June 30, 2024 (dollars in thousands):
2024, remaining | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | ||||
Less unamortized debt discount | ( | ) | ||