Rekor Systems, Inc. 10-K

ITEM 9A . CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures   An evaluation was carried out 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 Annual 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 at December 31, 2021.    Management ’ s Report on Internal Control Over Financial Reporting   Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.   Under the supervision and with the participation with our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2021.   In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.    Attestation Report of Registered Public Accounting Firm   This Annual Report does not include an attestation report of our independent registered public accounting firm because non-accelerated filers are not required to provide such a report.   Changes to Internal Control over Financial Reporting   There were no changes in our internal control over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   104     ITEM 9B.   OTHER INFORMATION   None.   ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS .   Not applicable. PART III   ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   The following table sets forth our directors and executive officers.   Name   Age   Position Executive Officer         Robert A. Berman   62   Chief Executive Officer and Executive Chairman of the Board David Desharnais   50   President (January 2022) Eyal Hen   49   Chief Financial Officer Rodney Hillman   56   Chief Operations Officer           Directors:         Paul A. de Bary   75   Lead Director Glenn Goord   70   Director David Hanlon   77   Director Christine J. Harada   49   Director (Left July 2021) Richard Nathan, Ph. D.   77   Director Steven D. Croxton   54   Director   105     Directors   Robert Berman has served as our Chief Executive Officer and a member of our Board of Directors since March 2016. In July 2020 Mr. Berman was appointed to be the Company’s Executive Chairman upon the recommendation of the Company’s Governance Committee. Since January 2000, Mr. Berman has served as the General Partner of Avon Road Partners, L.P., a limited partnership investing in real estate and the broadcast media industry. From 2006 through March 2015, Mr. Berman held the office of Chairman and Chief Executive Officer at Cinium Financial Services Corporation, a privately-held specialty finance company, and its predecessor, Upper Hudson Holdings, LLC. Prior to Cinium, Mr. Berman was Chief Executive Officer of Empire Resorts, Inc., a NASDAQ-listed gaming company, from 2002-2005. We believe Mr. Berman is qualified to serve on our Board of Directors due to his extensive executive leadership and management experience, his experience in private equity and with public companies, and his understanding of financial markets and mergers and acquisitions.   Richard Nathan, Ph.D ., has served on our Board of Directors since March 2016. From April 2016 until his retirement in February 2018, Dr. Nathan served as our Chief Operating Officer. Prior to that, Dr. Nathan was the Chief Executive Officer of AOC Key Solutions. Dr. Nathan has over 45 years of corporate management, program management and business and proposal development experience and experience managing service and technical contracts for federal departments and agencies and state governments. Dr. Nathan holds a BS in Chemistry from the Massachusetts Institute of Technology and a PhD in Chemistry from the Polytechnic Institute of Brooklyn. We believe Dr. Nathan is qualified to serve on our board of directors due to his technical background and executive leadership experience.   Glenn Goord has served on our Board of Directors since March 2016. From 1996 until his retirement in 2006, Mr. Goord served as Commissioner of the New York State Department of Correctional Services (“NYSDCS”), where he oversaw the state prison system. Mr. Goord received the Carl Robison Award, the highest honor bestowed by the Middle Atlantic States Correctional Association, in 1997. In 1998 he received the Charles Evans Hughes Award for public service from the Albany based Capital Area Chapter for the American Society for Public Administration (ASPA). In 2002, ASPA awarded Mr. Goord its highest honor, the Governor Alfred E. Smith Award, for his direction of the NYSDCA’s efforts to aid New York City following the September 11, 2001, terrorist attack. Mr. Goord holds a BA in Psychology from Fairleigh Dickinson University. We believe Mr. Goord is qualified to serve on our board of directors due to his experience with government operations and procurement.   Paul A. de Bary has served on our Board of Directors since January 2017 and as Lead Director since November 2017. Mr. de Bary has previously served as a partner in a Wall Street law firm and a managing director for several broker dealers, where he provided investment banking and financial advisory services to governmental units and private businesses. He has served as a director, general counsel or CFO for several public companies and currently serves as chair of the Board of Ethics of the Town of Greenwich, Connecticut. Mr. de Bary is a member of the American Bar Association, the New York State Bar Association and the Association of the Bar of the City of New York. Mr. de Bary holds a JD, an MBA and an A.B. from Columbia University. We believe Mr. de Bary is qualified to serve on our board of directors due to his legal and investment experience and his experience as a member of several boards of directors, including those of public companies.   David Hanlon has served on our Board of Directors since November 2018. Mr. Hanlon is a founding principal of Executive Hospitality Partners, a strategic and asset management firm. Since 2008, he has served as Chief Executive Officer of Hanlon Investments which provides project development consulting services to casinos, hotels and resorts. Mr. Hanlon has served as a member of Cornell University’s Industry Advisory Board, as well as on the Board of Directors of the Cornell Football Association and was elected to be a lifetime member of the Cornell University Administrative Advisory Board. He was also an advisor to the Wharton Entrepreneurial Program. Mr. Hanlon holds a B.S. in Hotel Administration from Cornell, an MBA in Finance and an M.S. in Accounting from the Wharton School at the University of Pennsylvania and graduated from the Advanced Management Program at the Harvard Business School. We believe Mr. Hanlon is qualified to serve on our board of directors due to his leadership and executive management experience and experience serving on public company boards of directors.   Steven D. Croxton  is the Managing Director of Rice, Voelker, LLC and has more than 30 years of experience in investment and commercial banking. During his career, Mr. Croxton has been involved in financing and advisory transactions totaling more than $35 billion for a variety of public and private corporations. He has previously served on the Board of Directors of Peninsula Gaming, LLC, and has held leadership roles with responsibilities related to investment, corporate, and international banking. Mr. Croxton earned a B.S. in Finance from Louisiana State University, and a Master of International Management from the American Graduate School of International Management (now Thunderbird School of Global Management), and holds FINRA Series 7, 24, 63, and 79 licenses. We believe Mr. Croxton is qualified to serve on our board of directors due to his in-depth knowledge of the capital markets, as well as an extensive background in financing and advisory of public corporations.   106     Christine J. Harada served on our Board of Directors from August 2017 to July 2021. Ms. Harada has over 20 years of experience leading government and management consulting organizations. From November 2015 to January 2017, she served as the Federal Chief Sustainability Officer. Prior to that role, Ms. Harada was the Acting Chief of Staff of the U.S. General Services Administration (“GSA”) from March 2015 through November 2015.   Executive Officers   Robert A. Berman, Chief Executive Officer, Executive Chairman of the Board  - The biography for Robert A. Berman is set forth above in the section entitled “Directors.”   David Desharnais, President -  On January 3, 2022, we publicly announced the appointment of David Desharnais, as our President.  Mr. Desharnais has over two decades of experience leading growth strategies for technology driven businesses from start-ups to multinational corporations and across multiple industries. Mr. Desharnais most recently served as Executive Vice President, Chief Digital Product Officer and as a member of the board of directors for IDEMIA, where he was responsible for global strategy and teams across product management, engineering and application development, customer delivery and integration, cybersecurity, data and analytics, strategic alliances and digital labs. Prior to IDEMIA, Mr. Desharnais was an executive at Amazon, where he served as the General Manager of Worldwide Industries for Amazon Web Services (AWS). Prior to Amazon, Mr. Desharnais was an executive at American Express, where he served as Senior Vice President and General Manager for Digital and Commercial Platforms and Global Commercial Payments. Mr. Desharnais graduated summa cum laude with a Bachelor of Science in electrical engineering technology from University of Calgary, and received a Master of Business Administration in strategy, finance, and marketing from the University of Washington, Michael G. Foster School of Business.   Eyal Hen, Chief Financial Officer - Mr. Hen has more than 17 years of experience as a global finance and business management executive in corporate environments, most recently with VAYA Pharma Inc. and Ormat Technologies, Inc. (NYSE: ORA). His expertise working as a finance executive in the public markets, where he oversaw financial reporting, compliance initiatives, investor communications, and financing, will be instrumental as the Company continues its growth. Mr. Hen holds a BA in Economics and Accounting from Ben Gurion University (Israel) and an MBA from the University of Phoenix.   Rodney Hillman, Chief Operating Officer  - Mr. Hillman joined the Company in May 2012 and served as its Strategy & Finance Analyst since October 2012 and as its Director of Operations from May 2012 to September 2012. Prior to joining the Company, Mr. Hillman served in various executive level capacities during his career. He spent 10 years as Chief Operating Officer, Chief Financial Officer, and Director of Game Trading Technologies, Inc. (“GMTD”), a publicly-traded company in the consumer electronics industry that he co-founded. Prior to his tenure at GMTD, Mr. Hillman was Vice President of Product Development at InterAct Accessories, Inc. and held various management positions at both Baltimore Gas & Electric and Constellation Energy Group. Mr. Hillman has an M.S. degree in Finance from Loyola College in Baltimore, Maryland, an M.B.A. degree from the University of Baltimore, and a B.S. degree in Electrical and Computer Engineering from The Johns Hopkins University.   107     Independence of Directors   Our Board is currently comprised of six members, five of whom are independent directors. As of December 31, 2021, Robert A. Berman is not an independent director.    The Board, upon recommendation of the Governance Committee, unanimously determined that each of our five non-employee directors is “independent,” as such term is defined in the Nasdaq Stock Market Rules (“Stock Market Rules”).   The definition of “independent director” included in the Stock Market Rules includes a series of objective tests, such as that the director is not an employee of the Company, has not engaged in various types of specified business dealings with the Company, and does not have an affiliation with an organization that has had specified business dealings with the Company. Consistent with the Company’s Corporate Governance Principles, the Board’s determination of independence is made in accordance with the Stock Market Rules, as the Board has not adopted supplemental independence standards. As required by the Stock Market Rules, the Board also has made a subjective determination with respect to each director that such director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), even if the director otherwise satisfies the objective independence tests included in the definition of an “independent director” included in the Stock Market Rules.   In determining that each individual who served as a member of the Board is independent, the Board considered that, in the ordinary course of business, transactions may occur between the Company and entities with which some of our directors are affiliated. The Board unanimously determined that the relationships discussed in Item 13 below were not material. No unusual discounts or terms were extended.    There are no family relationships among any of our directors or executive officers.   Committees of the Board   Our Board has four standing committees: Audit, Compensation, Nomination and Governance. Each of the committees is solely comprised of and chaired by independent directors, each of whom the Board has affirmatively determined is independent pursuant to the Stock Market Rules. Each of the committees operates pursuant to its charter. The committee charters are reviewed annually by the Governance Committee. If appropriate, and in consultation with the chairs of the other committees, the Governance Committee proposes revisions to the charters. The responsibilities of each standing committee are described in more detail below. From time to time, the Board of Directors may also appoint special committees for specific purposes. The Board has also chartered an Executive Committee to serve in the event that our Chief Executive Officer is unable to discharge duties for a limited period of time. The charters for the three standing committees are available on the Company's website at www.rekor.ai by following the link to “Investors” and then to “Corporate Governance.”   108     The Chair and members of each standing committee are summarized in the table below:   Name   Audit Committee   Compensation Committee   Governance Committee   Nominations Committee Paul A. de Bary - (Independent)   Chair   -   Member   - Richard Nathan - (Independent)   -   Member   Chair   Member Glenn Goord- (Independent)   -   Chair   Member   Member David Hanlon - (Independent)   Member   -   -   Chair Steven D. Croxton - (Independent)   Member   -   -   -   Audit Committee   We have an Audit Committee comprised of directors who are “independent” within the meaning of Nasdaq Rule 5605(b)(1). The Audit Committee assists our Board in overseeing the financial reporting process and maintaining the integrity of our financial statements, and our financial reporting processes and systems of internal audit controls, and our compliance with legal and regulatory requirements. The Audit Committee is responsible for reviewing the qualifications, independence and performance of our independent registered public accounting firm and review our internal controls, financial management practices and investment functions and compliance with financial legal and regulatory requirements. The Audit Committee is also responsible for performing risk and risk management assessments as well as preparing any report of the Audit Committee that may be required by the proxy rules of the SEC to be included in the Corporation’s annual proxy statement. Our Board has identified and appointed Paul de Bary as its “audit committee financial expert,” as defined by the SEC in Item 407 of Regulation S-K. Mr. de Bary serves as the Chair of the Audit Committee and is joined on the committee by Mr. Croxton, and Mr. Hanlon.    Compensation Committee   We have a Compensation Committee comprised of members who are “Non-Employee Directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “outside directors” within the meaning of Section 162(m) of the Code. They are also “independent” directors within the meaning of NASDAQ Rule 5605(b)(1). The Compensation Committee is responsible for overseeing the establishment and maintenance of our overall compensation and incentive programs to discharge the Board’s responsibilities relating to compensation of our executive officers and directors, including establishing criteria for evaluating performance and setting appropriate levels of compensation, and producing an annual report on executive compensation for inclusion in the Corporation’s proxy statement in accordance with the rules and regulations of the SEC. The Compensation Committee advises and makes recommendations to our Board on all matters concerning director compensation. Mr. Goord serves as Chair of the Compensation Committee and is joined by Mr. Nathan.    109     Governance Committee   Our Board has a Governance Committee that (1) reviews and recommends improvements to our governance guidelines and corporate policies; (2) assists management in the preparation of any required proxy statement disclosure regarding director independence and the operations of the Governance Committee; (3) reviews standards to be applied in making determinations as to the existence of material relationships between the Corporation and its directors and reviews and either disapproves or grants approval or ratification of those transactions between the Corporation and the Corporation’s related persons; (4) monitors compliance with our Code of Conduct and manages the whistleblower process; (5) reviews the performance of the Board of Directors and its various committees and makes recommendations intended to improve that performance, (6) evaluates and makes recommendations concerning changes in the charters of the various Committees of the Board of Directors; and (7) such other matters as may be required to ensure compliance with applicable federal and state laws or the requirements of any exchange on which the Company maintains a listing for its securities. The committee is required to be comprised of entirely “independent” directors within the meaning of NASDAQ Rule 5605(b)(1). Mr. Nathan currently serves as the Chair of the Governance Committee and is joined on the committee by Mr. Goord and Mr. de Bary.    Nominations Committee   The purpose of the Nominations Committee is to ensure proper performance of people and practices by (1) recommending new members of the Board; (2) training new members of the Board; (3) reviewing the performance of the Board and its various committees and making recommendations intended to improve that performance, (4) evaluating and making recommendations to the Governance Committee as to changes in the charters of the various committees of the Board, (5) evaluating the performance of the Chief Executive Officer, (6) overseeing the development and implementation of succession planning our senior management positions; and (7) identifying and recommending candidates for membership of the Board committees. Mr. Hanlon currently serves as the Chair of the Nominations Committee and is joined on the committee by Mr. Goord and Mr. Nathan.    110     Compensation of Rekor Directors   The following table provides the total compensation for each person who served as a non-employee member of our Board of Directors during fiscal year 2021, including all compensation awarded to, earned by or paid to each person who served as a non-employee director for some portion or all of fiscal year 2021:        Fees earned or paid in cash     Restricted stock awards     Total   Name   ($)     ($) (1)(2)(3)     ($)   Paul de Bary   $ 108,250     $ 151,414     $ 259,664   Glenn Goord     73,250       151,414       224,664   Christine Harada (4)     38,750       151,414       190,164   Richard Nathan, Ph. D.     68,500       151,414       219,914   David Hanlon     70,250       151,414       221,664   Steven D. Croxton     60,250       151,414       211,664     (1) The amount shown reflects the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification 718. (2) Amount represents the fair value of the issuances of 18,670 restricted stock units issued on January 6, 2021. Shares will vest 14 months after the date of grant for all directors who have remained independent directors as of the end of the calendar year in which the grant was made.  (3) Beginning in 2021, the number of RSU’s that will be granted to the independent directors as a group each January will be determined by taking one third of one percent of the preceding November’s average daily market capitalization as reported by NASDAQ, divided by the closing share price on the day preceding the grant. The number of shares granted to each independent director will be determined by dividing the total number of units so determined by the number of independent directors as of the date of the grant. (4) Ms. Harada left her position in our Board of Directors in July 2021.   111     For the year ended December 31, 2021 our non-employee directors are compensated for their services as follows:               Board Meeting Fee     Committee Meeting Fee       Annual Fee     In Person     Telephonic     In Person     Telephonic   Position   ($) (1)     ($)     ($)     ($)     ($)   Board Member     50,000       1,000       500       500       250   Audit Committee Chair     30,000       1,500       500       500       250   Compensation Committee Chair     10,000       1,500       500       500       250   Governance Committee Chair     15,000       1,500       500       500       250   Nominations Committee Chair     10,000       1,500       500       500       250   Special Committee     -       500       250       500       250   Lead Director     10,000       -       -       -       -   (1) Payments are made on a quarterly basis.   Directors who are officers or employees of Rekor or its subsidiaries do not receive any compensation for service on our Board, but employee directors will be reimbursed for expenses incurred in attending meetings of our Board or any committees thereof.    Code of Ethics   We have adopted a Code of Conduct, which serves as our Code of Ethics, which applies to all of our employees, including our Chief Executive Officer and our Chief Financial Officer. Our Code of Conduct is available on our website at www.rekor.ai. If we amend or grant a waiver of one or more of the provisions of our Code of Conduct, we intend to satisfy the requirements under Item 5.05 of Item 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Conduct that apply to our Principal Executive and Principal Financial Officer by posting the required information on our website at the above address. Our website is not part of this Annual Report on Form 10-K.   Section 16(a) Beneficial Ownership Reporting Compliance   Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers, and shareholders who own more than 10% of the Company’s stock to file forms with the SEC to report their ownership of the Company’s stock and any changes in ownership. The Company assists its directors and executives by identifying reportable transactions of which it is aware and preparing and filing the forms on their behalf. All persons required to file forms with the SEC must also send copies of the forms to the Company. We have reviewed all forms provided to us. Based on that review and written information given to us by our executive officers and directors, we believe that all Section 16(a) filings during the past fiscal year were filed on a timely basis.    112     ITEM 11.   EXECUTIVE COMPENSATION   This section discusses material components of our 2021 compensation program for our named executive officers identified in the 2021 Summary Compensation Table below.   2021 Summary Compensation Table   Name/Capacities in which compensation was received   Year   Base Salary       Bonus     Equity incentive awards       All other compensation (3)     Total   Robert Berman   2021   $ 645,000   (1)   $ -     $ 1,000,004   (2)   $ 24,877     $ 1,669,881   Chief Executive Officer   2020     495,000         -       -         24,826       519,826   Eyal Hen   2021     405,000   (4)     -       187,900   (5)     7,868       600,768   Chief Financial Officer   2020     371,667   (4)     15,000       237,000   (6)     19,862       643,529   Rodney Hillman   2021     342,500   (7)     -       -         12,358       354,858   Chief Operating Officer   2020     303,333   (7)     -       118,500   (8)     12,871       434,704     (1) In 2021, we increased Mr. Berman’s base salary from $495,000 to $695,000 per year effective April 1, 2021. (2) Amount represents the fair value of the issuance of 53,220 restricted stock units to Mr. Berman on March 17, 2021. (3) Amount represents 401(k) matching and health insurance contributions. (4) In 2021, we increased Mr. Hen’s base salary from $375,000 to $405,000 per year effective January 3, 2021. Additionally, in 2021, we increased Mr. Hen's base salary from $405,000 to $445,000 per year effective December 20, 2021. In 2020, we increased Mr. Hen’s base salary from $335,000 to $375,000 per year effective February 3, 2020. (5) Amount represents the fair value of the issuance of 10,000 restricted stock units to Mr. Hen on March 17, 2021. (6) Amount represents the fair value of the issuance of 50,000 restricted stock units to Mr. Hen on February 21, 2020. (7) In 2021, we increased Mr. Hillman’s base salary from $305,000 to $355,000 per year effective April 1, 2021. In 2020, we increased Mr. Hillman’s base salary from $285,000 to $305,000 per year effective February 3, 2020.  (8) Amount represents the fair value of the issuance of 50,000 restricted stock units to Mr. Hillman on February 21, 2020.   113     Narrative Disclosure to Summary Compensation Table   The primary components of our compensation program for named executive officers include salary, cash incentive compensation and equity incentive awards.   Base Salary   We pay our executive officers a base salary as the fixed component of our compensation program for named executive officers.   Equity Incentive Awards   In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”). The purpose of the 2017 Plan is to promote the interests of Rekor (including its subsidiaries and affiliates, if any) and its stockholders by using equity interests in Rekor to attract, retain and motivate its management, nonemployee directors and other eligible persons and to encourage and reward their contributions to our performance and profitability. The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants. The 2017 Plan reserved 3,000,000 shares of our common stock for future grants from time to time under awards administered by our Board of Directors. In 2021, the Company filed a registration statement on Form S-8 solely to register an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan. This increase was approved by the Company’s Board of Directors on May 7, 2021, and by the Company’s stockholders on September 14, 2021 at the Company’s annual meeting.   Rekor has also designed the 2017 Plan to include a number of provisions that Rekor’s management believes promote best practices by reinforcing the alignment of equity compensation arrangements for non-employee directors, officers, employees, consultants and stockholders' interests. These provisions include, but are not limited to, the following:   No Discounted Awards . Awards that have an exercise price cannot be granted with an exercise price less than the fair market value on the grant date.   No Repricing Without Stockholder Approval . Rekor cannot, without stockholder approval, reduce the exercise price of an award (except for adjustments in connection with a Rekor recapitalization), and at any time when the exercise price of an award is above the market value of Rekor common stock, Rekor cannot, without stockholder approval, cancel and re-grant or exchange such award for cash, other awards or a new award at a lower (or no) exercise price.   No Evergreen Provision . There is no evergreen feature under which the shares of common stock authorized for issuance under the 2017 Plan can be automatically replenished.   No Automatic Grants . The 2017 Plan does not provide for “reload” or other automatic grants to recipients.   114     No Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, unless approved by the Administrator.   No Tax Gross-Ups. The 2017 Plan does not provide for any tax gross-ups.   No Liberal Change-in-Control Definition. The change-in-control definition contained in the 2017 Plan is not a “liberal” definition that would be activated on mere stockholder approval of a transaction.   “Double-trigger ” Change in Control Vesting. If awards granted under the 2017 Plan are assumed by a successor in connection with a change in control of Rekor, such awards will not automatically vest and payout solely as a result of the change in control, unless otherwise expressly set forth in an award agreement.   No Dividends on Unearned Performance Awards . The 2017 Plan prohibits the current payment of dividends or dividend equivalent rights on unearned performance-based awards.   Limitation on Amendments.  No amendments to the 2017 Plan may be made without stockholder approval if any such amendment would materially increase the number of shares reserved or the per-participant award limitations under the 2017 Plan, diminish the prohibitions on repricing stock options or stock appreciation rights, or otherwise constitute a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of the principal exchange on which Rekor’s shares are traded.   Clawbacks. Awards based on the satisfaction of financial metrics that are subsequently reversed, due to a financial statement restatement or reclassification, are subject to forfeiture.   When making an award under the 2017 Plan, the Administrator may designate the award as “qualified performance-based compensation,” which means that performance criteria must be satisfied in order for an employee to be paid the award. Qualified performance-based compensation may be made in the form of restricted common stock, restricted stock units, common stock options, performance shares, performance units or other stock equivalents. The 2017 Plan includes the performance criteria the Administrator has adopted, subject to stockholder approval, for a “qualified performance-based compensation” award.   115     Outstanding Equity Awards at Fiscal Year-End   The following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awards held by our named executive officers at December 31, 2021.           Option Awards (3)   Restricted Stock Awards(3)   Name   Grant Date   Number of Securities Underlying Unexercised Option - Exercisable     Number of Securities Underlying Unexercised Options - Unexercisable       Option Exercise Price   Option Expiration Date   Number of Shares that Have Not Vested       Market Value of Shares of Stock that Have not Vested (2)   Robert Berman   5/8/2019     33,334       16,666   (1)     1.00   5/8/2029     -         -   Chief Executive Officer   5/8/2019     33,334       16,666   (1)     1.50   5/8/2029     -         -   Eyal Hen   3/17/2021                                 6,667   (1)     43,669   Chief Financial Officer   2/21/2020                                 16,667   (1)     109,169       5/15/2019     33,334       16,666   (1)     0.78   5/15/2029     -         -   Rodney Hillman   11/9/2017                                 8,334   (1)     54,588   Chief Operating Officer   11/9/2017     -       16,666   (1)     0.80   5/8/2029                     (1) The options and awards vest in equal annual installments over three years. (2) Represents the market value of the restricted stock award or restricted stock unit based on the closing price of our common stock of $6.55 per share on December 31, 2021. (3) All of the options and restricted stock unit awards listed in the table were granted under our 2017 Equity Award Plan.   Employment Agreements and Potential Payments Upon Termination or Change in Control   We entered into written employment offer letters with each of our Named Executive Officers in connection with their initial employment with us.   Some of these employment offer letters were superseded and replaced in their entirety by amended and restated employment agreements which were entered into and effective as of May 2019.   116     Potential Payments Upon Termination or Change in Control    In the event of a “Change of Control”, as defined in the Employment Agreement, whether during the initial term or thereafter, we shall have the right to terminate the Named Executive Officers Employment Agreement. The Named Officer Executive is eligible to receive two times his base salary then in effect if his employment with the Company is terminated within 120 days of a change in control.   The Named Executive Officers also agreed as consideration for entering into the Employment Agreements, that for the period during his employment and for twelve months thereafter, (i) he will not compete with the Company in the “Geographic Area”, as defined in the Employment Agreement, and (ii) he will not solicit any of our existing employees, suppliers or customers.   Securities authorized for issuance under equity compensation plans   The following table provides information about our equity compensation plans as of December 31, 2021.   Equity Compensation Plan Information       Number of securities to be issued upon exercise of outstanding options and restricted stock units     Weighted-average exercise price of outstanding options and restricted stock units     Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))       (a)     (b)     (c)   Equity compensation plans approved by security holders     2,360,215     $ 1.28       4,247,289   Total     2,360,215     $ 1.28       4,247,289     117     ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   The following table sets forth, as of March 31, 2022, information concerning the beneficial ownership of our common stock by, each person or group of persons known to beneficially own more than 5% of the outstanding shares of our common stock, each person who is our executive officer or director, and all such executive officers and directors as a group. Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC. Under these rules, beneficial ownership generally includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of March 31, 2022, through the exercise of any option, warrant, conversion privilege or similar right. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of outstanding options and warrants that are exercisable within 60 days of March 31, 2022, are considered to be outstanding. These shares, however, are not considered outstanding when computing the percentage ownership of any other person.     To our knowledge, except as indicated in the footnotes to the following table, all beneficial owners named in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The percentage of ownership is based on 44,949,939 shares of common stock outstanding as of March 31, 2022.       Shares Beneficially Owned   Name and address of beneficial owner (1)   Number of Shares beneficially owned (2)       Percent of class   Directors and Named Executive Officers                   Robert A. Berman     3,265,323   (3)     7.3 % Richard Nathan     1,634,439   (4)     3.6 % Paul de Bary     147,169   (5)     *   Glenn Goord     185,669   (6)     *   David Hanlon     89,669   (7)     *   Steven Croxton     67,169   (8)     *   Eyal Hen     89,926   (9)     *   Rodney Hillman     85,443   (10)     *   All directors and named executive officers as a group (11 persons)     5,564,807         12.4 % 5% or Greater Shareholders                   Avon Road Partners, L.P.     2,165,104   (3)     4.8 % Goldman Sachs Group Inc     2,276,054   (11)     5.1 % Arctis Global, LLC     2,322,782   (12)     5.2 % BlackRock, Inc.     2,264,368   (13)     5.0 %   * Less than 1%   118     (1) Unless otherwise indicated, the address of those listed is c/o Rekor Systems, Inc., 6721 Columbia Gateway Drive, Suite 400, Columbia, MD 21046. Unless otherwise indicated, all shares are owned directly by the beneficial owner (2) Based on 44,949,939 shares of our common stock issued and outstanding as of the March 31, 2022. (3) As the general partner and Manager of Avon Road Partners, L.P. and Rekor Holdings LLC, respectively, Mr. Berman may be deemed to be the beneficial owner of 3,265,323 shares of Rekor Systems, Inc. common stock, or 7.8% of the class of securities. He may be deemed to share with Avon Road (and not with any third-party) the power to vote or direct the vote of and to dispose or direct the disposition of the 2,165,104 shares of Rekor Systems, Inc. common stock beneficially owned by Avon Road, or 5.3% of the class of securities. It also consists of 973,609 shares of our common stock, 26,610 restricted stock units and options to purchase 100,000 shares of our common stock exercisable with 60 days of March 31, 2022. Based on the Schedule 13D/A Amendment No. 7 filed with the SEC by Avon Road and Mr. Berman on November 19, 2021. (4) Consists of 1,629,590 shares of our common stock and an Unit Warrant to purchase 4,849 shares of our common stock exercisable within 60 days of March 31, 2022. (5) Consists of options to purchase 108,499 shares of our common stock exercisable within 60 days of March 31, 2022, and 38,670 shares of our common stock. (6) Consists of options to purchase 70,999 shares of our common stock exercisable within 60 days of March 31, 2022, and 114,670 shares of our common stock. (7) Consists of options to purchase 70,999 shares of our common stock exercisable within 60 days of March 31, 2022, and 18,670 shares of our common stock. (8) Consists of options to purchase 48,499 shares of our common stock exercisable within 60 days of March 31, 2022, and 18,670 shares of our common stock. (9) Mr. Hen has served as our Chief Financial Officer and Principal Financial and Accounting Officer since May 15, 2019 and consists of options to purchase 50,000 shares of our common stock exercisable within 60 days of March 31, 2022, and 39,926 shares of our common stock. (10) Consists of options to purchase 16,666 shares of our common stock exercisable within 60 days of March 31, 2022 and 68,777 shares of our common stock. (11) Based on the Schedule 13G filed with the Securities and Exchange Commission on January 24, 2022, reporting indirect ownership of 2,276,054 shares of Rekor Systems, Inc. common stock, representing a beneficial ownership of 5.2% based on 43,977,218 shares issued and outstanding. The address of the reporting person is 200 West Street, New York, New York 10282. (12) Based on the Schedule 13G filed with the Securities and Exchange Commission on May 11, 2021, reporting beneficial ownership of 5.7% based on 40,994,510 shares issued and outstanding. The address of the reporting person is 70 East 77th Street, 8A, New York, New York 10075. (13) Based on the Schedule 13G filed with the Securities and Exchange Commission on February 4, 2022, reporting beneficial ownership of 2,264,368 shares of Rekor Systems, Inc. common stock, reporting beneficial ownership of 5.1% based on 43,977,218 shares issued and outstanding. The address of the reporting person is 55 East 52nd Street New York, NY 10055.     ITEM 13 .  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   The Governance Committee has responsibility for reviewing and, if appropriate, for approving any related party transactions that would be required to be disclosed pursuant to applicable SEC rules.   Described below are any transactions since January 1, 2020 through December 31, 2021 and any currently proposed or subsequent transactions to which the Company was a party in which:     ● The amounts involved exceeded or will exceed the lower of either $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years; and   ● A director, executive officer, holder of more than 5% of the outstanding capital stock of the Company, or any member of such person’s immediate family had or will have a direct or indirect material interest.   119     Review and Approval, or Ratification of Transactions with Related Parties   Prior to adoption of the Company’s Code of Conduct in August 2017, we had no formal, written policy or procedure for the review and approval of related-party transactions. The Code of Conduct requires all Company personnel to seek review of and obtain approval or ratification of any Company transaction which involves them or certain family members or businesses they have economic interests in. The Charter of our Governance Committee also requires that any transaction with a related person that must be reported under applicable rules of the SEC must be reviewed and either approved, disapproved or ratified by our Governance Committee.   In February 2020, to further implement these requirements, the Board of Directors adopted a Conflict of Interest and Related Parties Transaction Policy upon the recommendation of the Governance Committee. In the case of all directors and senior officers, this policy requires review and approval of such transactions to be obtained from the Governance Committee.   Each of the transactions described below was approved by the Board of Directors after review and recommendation by the Governance Committee, which consists entirely of officers and directors without any personal, business or family interest in the transactions described:   AOC Key Solutions Transaction   On March 16, 2020, the Corporation announced that it had received an offer to purchase its AOC Key Solutions subsidiary, for an aggregate price of $4 million, from PurpleReign, LLC (“PurpleReign”), an entity formed by Mr. Greg McCarthy, the then Chief Executive Officer of AOC Key Solutions. As founders of AOC Key Solutions and persons related to a principal in PurpleReign and a key executive of AOC Key Solutions, Mr. James McCarthy, the then-Chair of our Board of Directors, and Dr. Richard Nathan, as a member of our Board of Directors, recused themselves from participation in any discussions with management or the Board concerning the potential sale. In connection with its review of the transaction, the Governance Committee retained the investment banking services of B. Riley FBR, Inc. (“BRFBR”) to review the terms of the proposed transaction and advise the Company whether the consideration to be received was fair to the Company’s public stockholders. On April 2, 2020, the Company divested its AOC Key Solutions subsidiary.   Investment in 2019 Promissory Notes and Exchange for Equity   On March 12, 2019, we financed the acquisition of certain assets through an agreement pursuant to which investors loaned us $20,000,000 in exchange for promissory notes (the “2019 Notes”) and we issued warrants to purchase 2,500,000 shares of our common stock to the investors. The investors included Avon Road, an affiliate of Robert Berman, Rekor’s Chief Executive Officer and a member of our Board of Directors and Matt Hill, a principal in the company selling the assets, who is now the Company’s Chief Science Officer. On July 15, 2020, the “Company completed an exchange provided for in connection with the 2019 Notes. Approximately $15.1 million aggregate principal amount of the 2019 Notes were exchanged for 4,349,497 shares of the Company’s common stock pursuant to the previously disclosed Exchange Agreements dated June 30, 2020. As part of the exchange, Matt Hill, Chief Science Officer exchanged $1,726,676 into 431,669 common shares. After this transaction Matt Hill owns 961,669 common shares.   McCarthy – Berman Stock Purchase Agreement   On August 5, 2020, our former Chairman, Mr. James McCarthy entered into a privately negotiated Stock Purchase Agreement with Mr. Robert A. Berman, our current CEO, President, and Executive Chairman, to sell Mr. Berman 2,725,836 shares of the Company’s common stock, at a price per share of approximately $2.57. The transfer of the shares is conditioned upon Mr. Berman's full payment of the purchase price of $7,000,000 within forty-five days, after which Mr. McCarthy will cease to be a beneficial owner of the Company’s common stock.   120     ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES   The Audit Committee reviews and pre-approves both audit and all permissible non-audit services provided by our independent registered public accounting firm.   Friedman LLP (“Friedman”) has served as our principal auditor since June 2019.   The Audit Committee has considered whether the provision of services, other than services rendered in connection with the audit of our annual financial statements, is compatible with maintaining Friedman’s independence.    Aggregate fees billed or incurred related to the following years for professional services rendered by Friedman for 2021 and 2020 are set forth below.       Year ended December 31,       2021     2020       (Dollars in thousands)   Audit fees   $ 289     $ 204   All other fees     -       16   Total   $ 289     $ 220     Audit Fees for 2021 and 2020 include fees associated with the audits of the annual financial statements and the quarterly reviews of the unaudited interim financial statements included in the Company’s Annual and Quarterly Reports on Form 10-K and 10-Q, respectively. Audit-related fees for 2021 primarily include costs associated with SEC filings and the supplemental audit and disclosure documents.  121     PART IV   ITEM 15.   EXHIBITS, FINANCIAL STATEMENTS SCHEDULES   (a)    (1) List Financial Statements   See Index to Financial Statements in Part II, Item 8 of this annual report.   (2) List of Financial Statements Schedules   All applicable schedule information is included in our Financial Statements in Part II, Item 8 of this annual report.    (b) Exhibits Index. We hereby file, as exhibits to this Annual Report, those exhibits listed on the Exhibit Index immediately following the signature page hereto.           Incorporated   by   Reference     Exhibit Number   Exhibit   Description   Form   File   No.   Exhibit   FilingDate   Filed/ FurnishedHerewith                           2.1   Second Amended and Restated Agreement and Plan of Merger dated July 12, 2017, by and among Novume Solutions, Inc., KeyStone Solutions, Inc., Brekford Traffic Safety, Inc., KeyStone Merger Sub, LLC, and Brekford Merger Sub, Inc.   S-4/A   333-216014   2.1   7/13/17     3.1   Amended and Restated Certificate of Incorporation of Novume Solutions, Inc. as filed with the Secretary of State of Delaware on August 21, 2017   8-K   333-216014   3.1   8/25/17     3.2   Certificate of Amendment to Certificate of Incorporation of Novume Solutions, Inc. as filed with the Secretary of State of Delaware on April 30, 2019    8-K     001-38338   3.1   4/30/19     122     3.3   Second Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Rekor Systems, Inc., dated March 18, 2020    8-K     001-38338   3.1   3/18/20     3.5   Amended and Restated Bylaws of Rekor Systems, Inc.   8-K   001-38338   3.2   12/15/21     4.1   Form of Common Stock Purchase Warrant issued by Novume Solutions, Inc. on January 25, 2017   S-4/A   333-216014   4.3   6/9/17     4.2   Form of Common Stock Purchase Warrant issued by Novume Solutions, Inc. on January 25, 2017   S-4/A   333-216014   4.4   6/9/17     4.3   Unsecured Subordinated Promissory Note issued to Harry Rhulen by Novume Solutions, Inc. on September 29, 2017   8-K   000-55833   10.2   10/3/17     4.4   Unsecured Subordinated Promissory Note issued to Suzanne Loughlin by Novume Solutions, Inc. on September 29, 2017   8-K   000-55833   10.3   10/3/17     4.5   Unsecured Subordinated Promissory Note issued to James Satterfield by Novume Solutions, Inc. on September 29, 2017   8-K   000-55833   10.4   10/3/17     4.6   Unsecured Subordinated Promissory Note issued to Lancer Financial Group, Inc. by Novume Solutions, Inc. on September 29, 2017   8-K   000-55833   10.5   10/3/17     10.1#   2017 Equity Award Plan of Novume Solutions, Inc. (as amended and restated as of September 14, 2021)                   * 10.2   Assignment and Assumption Agreement, dated as of October 1, 2017, by and between KeyStone Solutions LLC and Novume Solutions, Inc.   8-K   000-55833   10.1   10/3/17     10.3#   Form of Rekor Systems, Inc. Incentive Stock Option Award Agreement   10-K   001-38338   10.18   4/11/19     10.4#   Form of Rekor Systems , Inc. Non-Qualified Stock Option Award Agreement   10-K   001-38338   10.19   4/11/19     10.5#   Employment Agreement with Eyal Hen effective May 15, 2019   8-K   001-38338   10.1   5/21/19     123     10.6#   Employment Agreement with Robert Berman effective May 15, 2019   8-K   001-38338   10.2   5/21/19     10.7#   Employment Agreement with David Deshanais dated as of December 10, 2021   8-K   001-38338   10.1   1/3/22     10.8   Form of Rekor Systems, Inc. Restricted Stock Unit Agreement                   * 10.9   First Amendment to Note Purchase Agreement, dated March 26, 2020, by and among the Company, the Purchasers from time to time party thereto and the Agent.   8-K     001-38338   10.1   3/26/20      10.10   Limited Waiver, dated as of March 26, 2020, by and among the Company and the undersigned Purchasers.    8-K     001-38338   10.2   3/26/20      10.11   Share Purchase Agreement, dated August 6, 2021, by and among Rekor Systems Inc., Waycare Technologies Ltd., the sellers named therein, and Shareholder Representative Services LLC, solely in its capacity as representative of the sellers.   8-K   001-38338   10.1   8/9/21     21.1   Subsidiaries of Rekor Systems, Inc.                   * 23.1   Consent of Friedman LLP., Independent Registered Public Accounting Firm                   * 31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                   * 31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                   * 32.1   Section 1350 Certification of Chief Executive Officer                   ** 32.2   Section 1350 Certification of Chief Financial Officer                   ** 101.INS   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 (formatted in Inline XBRL and included in Exhibit 101)               * Filed herewith. ** Furnished herewith. # Indicates management contract or compensatory plan. ^ Confidential treatment has been granted with respect to redacted portions of this exhibit. Redacted portions of this exhibit have been filed separately with the SEC.   ITEM 16. FORM 10-K SUMMARY   None.   124       SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.       Rekor Systems, Inc.           /s/ Robert A. Berman   Name: Robert A. Berman   Title: Chief Executive Officer Principal Executive Officer   Date: March 31, 2022       /s/ Eyal Hen   Name: Eyal Hen   Title: Chief Financial Officer (Principal Financial and Accounting Officer)   Date: March 31, 2022   Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.   Signature   Title   Date           /s/ Robert A. Berman Robert A. Berman   Chief Executive Officer (Principal Executive Officer), Chairman of the Board and Director   March 31, 2022           /s/ Eyal Hen Eyal Hen   Chief Financial Officer (Principal Financial and Accounting Officer)   March 31, 2022           /s/ Richard Nathan Dr.   Richard Nathan   Director   March 31, 2022           /s/ Glenn Goord Glenn Goord   Director   March 31, 2022           /s/ Paul de Bary Paul de Bary   Director   March 31, 2022           /s/ David Hanlon David Hanlon   Director   March 31, 2022           /s/ Steven D. Croxton Steven D. Croxton   Director   March 31, 2022   125