What changed in this filing

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Item 1. Financial Statements

2022-08-11 compared with 2022-05-16 · 444 added, 211 removed, 1180 unchanged (36% of the section changed)

4 unchanged sentences

(Dollars in thousands, except share amounts)

March 31, 2022

June 30, 2022

December 31, 2021

5 unchanged sentences

Accounts receivable, net

Inventory, net

Note receivable, current portion

35 unchanged sentences

Long-term Liabilities

Notes payable, long-term

Loan payable, long-term

4 unchanged sentences

Deferred tax liability, long-term

Other non-current liabilities

Total long-term liabilities

8 unchanged sentences

100,000,000 shares;

44,949,939 , shares as of March 31, 2022 and 44,007,257 as of December 31, 2021;

44,908,417 shares as of March 31, 2022 and 43,987,896 as of December 31, 2021

Treasury stock, 41,522 and 19,361 shares as of March 31, 2022 and December 31, 2021, respectively

52,662,827 , shares as of June 30, 2022 and 44,007,257 as of December 31, 2021;

52,621,305 shares as of June 30, 2022 and 43,987,896 as of December 31, 2021

Treasury stock, 41,522 and 19,361 shares as of June 30, 2022 and December 31, 2021, respectively

( 417 )  

4 unchanged sentences

( 98,086 )  

Accumulated other comprehensive income

Total stockholders’

9 unchanged sentences

(Dollars in thousands, except share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

$ 4,334  

$ 4,274  

$ 7,942  

$ 8,491  

Cost of revenue, excluding depreciation and amortization

1 unchanged sentence

General and administrative expenses

15,711  

Selling and marketing expenses

3 unchanged sentences

17,219  

31,449  

15,179  

Loss from operations

( 15,551 )  

( 4,685 )  

( 28,155 )  

Other income (expense):

Interest expense

( 17 )  

( 18 )  

( 26 )  

Other (expense) income

( 34 )  

( 22 )  

Total other income (expense)

( 51 )  

( 48 )  

Loss before income taxes and equity method investments

( 15,602 )  

( 4,684 )  

( 28,203 )  

Income tax provision

Equity in loss of investee

( 74 )  

Net loss from continuing operations

( 15,602 )  

( 4,761 )  

( 28,203 )  

Net loss from discontinued operations

$ ( 15,602 )  

$ ( 4,762 )  

$ ( 28,203 )  

Comprehensive loss:

1 unchanged sentence

( 15,602 )  

( 4,761 )  

( 28,203 )  

Change in unrealized gain on short-term investments

Foreign currency translation gain

Total comprehensive loss from continuing operations

( 15,267 )  

( 4,760 )  

( 27,868 )  

Total comprehensive loss

$ ( 15,267 )  

$ ( 4,761 )  

$ ( 27,868 )  

Loss per common share from continuing operations - basic and diluted

( 0.33 )  

( 0.12 )  

( 0.62 )  

Loss per common share discontinued operations - basic and diluted

( 0.00 )  

Loss per common share - basic and diluted

$ ( 0.33 )  

$ ( 0.12 )  

$ ( 0.62 )  

Weighted average shares outstanding

2 unchanged sentences

40,972,709  

45,625,492  

37,657,471  

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

EQUITY (DEFICIT)

(Dollars in thousands, except share amounts)

8 unchanged sentences

Total Stockholders' Equity

Balance as of March 31, 2022

44,908,417  

( 41,522 )  

$ ( 417 )  

$ 176,348  

$ ( 82,484 )  

$ 93,451  

Stock-based compensation

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

6,870,349  

17,273  

17,274  

Issuance upon exercise of stock options

Issuance upon vesting of restricted stock units

37,206  

Shares issued as part of the STS Acquisition

798,666  

Other comprehensive income, net of income taxes

( 15,602 )  

Balance as of June 30, 2022

52,621,305  

( 41,522 )  

$ ( 417 )  

$ 197,512  

$ ( 98,086 )  

$ 99,349  

Balance as of March 31, 2021

40,952,877  

( 19,361 )  

$ ( 319 )  

$ 147,615  

$ ( 48,507 )  

$ 98,795  

Stock-based compensation

Exercise of cashless warrants in exchange for common stock

15,309  

Exercise of warrants in exchange for common stock

Exercise of warrants related to series A preferred stock

Issuance upon vesting of restricted stock units

41,630  

Other comprehensive income, net of income taxes

( 4,762 )  

Balance as of June 30, 2021

41,012,766  

( 19,361 )  

$ ( 319 )  

$ 148,754  

$ ( 53,269 )  

$ 95,173  

Balance as of December 31, 2021

8 unchanged sentences

7,598,801  

20,407  

20,408  

Issuance upon exercise of stock options

5 unchanged sentences

( 98 )  

Shares issued as part of the STS Acquisition

798,666  

Balance as of March 31, 2022

Other comprehensive income, net of income taxes

( 28,203 )  

Balance as of June 30, 2022

52,621,305  

3 unchanged sentences

$ ( 98,086 )  

$ 99,349  

Balance as of December 31, 2020

31 unchanged sentences

( 101 )  

Change in unrealized gain on short-term investments

Other comprehensive income, net of income taxes

( 10,168 )  

Balance as of March 31, 2021

Balance as of June 30, 2021

41,012,766  

9 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

14 unchanged sentences

( 44 )  

( 1,744 )  

Other current assets

2 unchanged sentences

Accounts payable, accrued expenses and other current liabilities

( 2,580 )  

Contract liabilities

3 unchanged sentences

( 22,829 )  

Net cash used in operating activities - discontinued operations

Net cash provided by (used in) operating activities - discontinued operations

Net cash used in operating activities

6 unchanged sentences

Short-term investment activity, net

Cash paid for STS acquisition, net

( 6,389 )  

Investment in unconsolidated company

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

Net cash used in investing activities - continuing operations

( 9,407 )  

4 unchanged sentences

Repayments of loans payable

( 29 )  

Net proceeds from exercise of options

2 unchanged sentences

Net proceeds from at-the-market agreement

20,408  

Repurchases of common stock

2 unchanged sentences

20,486  

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

70,589  

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

( 11,750 )  

Net decrease in cash, cash equivalents and restricted cash and cash equivalents - discontinued operations

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

48,883  

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

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

( 11,747 )  

48,879  

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

24 unchanged sentences

GAAP for annual financial statements.

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of March 31, 2022 , the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’

equity and unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2022 and 2021 .

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of June 30, 2022 , the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’

equity and unaudited condensed consolidated statements of cash flows for the three and six month periods ended June 30, 2022 and 2021 .

The financial data and other information disclosed in these notes are unaudited.

The results for the three months ended March 31, 2022 , are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

The results for the three and six months ended June 30, 2022 , are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2021 .

3 unchanged sentences

With a real-time intelligence platform driven by deep access to data, AI-powered software, and smart optical devices at-the-edge, the Company combines its industry expertise and advanced proprietary technologies to deliver insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.

On June 17, 2022, the Company completed its acquisition of Southern Traffic Services ("STS") by acquiring 100 % of the issued and outstanding capital stock of STS.

Since the acquisition of STS occurred on June 17, 

2022, the results of operations for STS from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2022.

On August 18, 2021, the Company completed its acquisition of Waycare Technologies Ltd.

14 unchanged sentences

Other current liabilities primarily consist of payroll and payroll related accounts.

Amounts for the three month period ending March 31, 2021 and the period ended December 31, 2021 , have been reclassified to conform to the current year’s presentation.

Amounts for the three and six month periods ending June 30, 2021 and the period ended December 31, 2021 , have been reclassified to conform to the current year’s presentation.

For all annual and interim periods, management will assess going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand, capital raises and working capital, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.

3 unchanged sentences

The Company attributes losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services.

As of and for the three months ended March 31, 2022 , the Company had working capital from continuing operations of $ 9,297,000  and a comprehensive loss from continuing operations of $ 12,601,000 .

The Company’s cash decreased by $ 11,007,000  for the three months ended March 31, 2022 primarily due to the loss from continuing operations of $ 12,601,000 . 

This amount was offset by the net proceeds of $ 3,134,000  fro m the 2022 Sales Agreement (see NOTE 10 - STOCKHOLDERS ’

As of and for the six months ended June 30, 2022 , the Company had working capital from continuing operations of $ 7,285,000  and a loss from continuing operations of $ 28,203,000 .

The Company’s cash decreased by $ 11,747,000  for the six months ended June 30, 2022 primarily due to the loss from continuing operations of $ 28,203,000 .

The decrease in cash was offset by the net proceeds of $ 20,408,000  fro m the 2022 Sales Agreement (see NOTE 10 - STOCKHOLDERS ’

EQUITY for details on the 2022 Sales Agreement).

As of June 30, 2022, the Company had $ 28,788,000 of gross funds available under the 2022 Sales Agreement. 

Management believes that based on relevant conditions and events that are known and reasonably knowable, its current forecasts and projections for one year from the date of the filing of the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10 -Q, indicate the Company’s ability to continue operations as a going concern for at least that one -year period.

1 unchanged sentence

Should access to funds be unavailable, the Company will need to seek out additional sources of funding.

Furthermore, the Company has contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period if additional financing is not available.

If additional financing is not available, the Company also has contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period.

The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill.

The Company will assess goodwill for impairment annually, or more often if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. The Company performs its annual impairment assessment on October 1, or more frequently, when events or circumstances indicate impairment may have occurred. During the three months ended March 31, 2022 and 2021 , the Company did 

not recognize any impairment to goodwill from continuing operations.

During the first half of 2022, the Company experienced a significant decline in its market capitalization, which management deemed a triggering event related to goodwill.

As a result, the Company performed an interim impairment assessment as of June 30, 2022 and determined that as of the reporting date the Company did not have an impairment of goodwill. 

The Company utilized a weighted combination of the income-based approach and market-based approach to determine the fair value of the reporting unit.

Key assumptions used in the income-based approach included forecasts of revenue, operating income, depreciation and amortization expense, capital expenditures and future working capital requirements, terminal growth rates, and discount rates based upon the reporting unit's weighted-average cost of capital adjusted for the risk associated with the operations at the time of the assessment.

The income-based approach largely relied on inputs that were not observable to active markets, which would be deemed “Level 3”

fair value measurements, as defined in the Fair Value Measurements section above.

Key assumptions used in the market-based approach included the selection of appropriate peer group companies.

Changes in the estimates and assumptions used to estimate fair value could materially affect the determination of fair value and the impairment test result.

Fair Value of Financial Instruments

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fair value as of March 31, 2022 and December 31, 2021 , because of the relatively short-term maturity of these financial instruments.

The carrying amount reported for long-term debt and long-term receivables approximates fair value as of March 31, 2022 and December 31, 2021 , given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fair value as of June 30, 2022 and December 31, 2021 , because of the relatively short-term maturity of these financial instruments.

The carrying amount reported for long-term debt and long-term receivables approximates fair value as of June 30, 2022 and December 31, 2021 , given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.

The determination of fair value is based upon the fair value framework established by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”

14 unchanged sentences

Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

There were no changes in levels during the three months ended March 31, 2022 .

There were no changes in levels during the six months ended June 30, 2022 .

Revenue Recognition

8 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Recurring revenue

$ 2,078  

$ 3,773  

$ 1,757  

Product and service revenue

2 unchanged sentences

$ 4,274  

$ 7,942  

$ 8,491  

Recurring revenue

10 unchanged sentences

Payments for these subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement.

In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface.

In addition, some of our subscription revenue includes providing access through a web server 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.

Instead, customers are granted 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.

13 unchanged sentences

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

Contactless compliance solutions revenues reflect arrangements to provide traffic safety systems to several jurisdictions in North America.

Contactless compliance revenues reflect arrangements to provide traffic safety systems to several jurisdictions in North America.

These systems include hardware that identifies red light and school safety zone traffic violations and software that captures and records forensic images and analyzes the images to provide data and support citation management services.

6 unchanged sentences

The Company’s pilot program revenue is recognized at various stages of completion.

In addition to the recurring software sales, the Company will recognize revenue related to the sale of perpetual software licenses.

The Company sells perpetual licenses which provide customers the right to use software for an indefinite period in exchange for a one -time license fee, which is generally paid at contract inception.

In addition to the recurring software sales, the Company recognizes 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 have significant stand-alone functionality.

1 unchanged sentence

The Company generates revenue through the sale of hardware through its partner program distribution channels and direct sales.

The Company satisfies its performance obligation upon the transfer of control of hardware to its customers.

The Company invoices end-user customers upon transfer of control of the hardware to its customers.

The Company satisfies its performance obligation and invoices end-user customers upon transfer of control of the hardware to the customers.

The Company offers hardware installment to customers which ranges from one to six months.

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Government customers

1 unchanged sentence

$ 2,751  

$ 4,390  

$ 2,632  

Commercial customers

2 unchanged sentences

$ 4,274  

$ 7,942  

$ 8,491  

Performance obligations

5 unchanged sentences

Where performance obligations for a contract with a customer are not yet satisfied or have only been partially satisfied as of a particular date, the unsatisfied portion is to be recognized as revenue in the future.

As of March 

31, 2022, the Company h ad approximately $ 21,288,000 of remaining performance obligations not yet satisfied or partially satisfied.

As of June 30, 2022, the Company had approximately $ 31,940,000 of remaining performance obligations not yet satisfied or partially satisfied.

The Company expects to recognize approximately 57 % of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

3 unchanged sentences

When billing occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days, but typically no longer than over the next twelve months.

Unbilled accounts receivables of $ 400,000  and $ 415,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 , respectively.

Unbilled accounts receivables of $ 551,000  and $ 415,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 , respectively.

Contract liabilities

When the Company advance bills clients prior to providing services, generally such amounts will be earned and recognized in revenue within the next nine months to five years, depending on the subscription or licensing period.

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 subscription or licensing period.

These assets and liabilities are reported on the unaudited condensed consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

Changes in the contract asset and liability balances during the three months ended March 31, 2022 were not materially impacted by any other factors.

Contract liabilities as of March 31, 2022 and December 31, 2021 we re $ 3,067,000  and $ 3,272,000 , respec tively.

During the three months ended March 31, 2022 , $ 949,000 of the contract liabilities balance as of December 31, 2021 was recognized as revenue.

The services due for contract liabilities described above are shown below as of March 31, 2022 (dollars in thousands):

Changes in the contract asset and liability balances during the six months ended June 30, 2022 were not materially impacted by any other factors.

Contract liabilities as of June 30, 2022 and December 31, 2021 we re $ 2,887,000  and $ 3,272,000 , respec tively.

During the six months ended June 30, 2022 , $ 1,538,000 of th e contract liabilities balance as of December 31, 2021 was recognized as revenue.

The services due for contract liabilities described above are shown below as of June 30, 2022 (dollars in thousands):

2022, remaining

11 unchanged sentences

The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions.

Restricted cash and cash equivalents for these client jurisdictions as of March 31, 2022 and December 31, 2021 were $ 987,000  and $ 804,000 , res pectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

Restricted cash and cash equivalents for these client jurisdictions as of June 30, 2022 and December 31, 2021 were $ 865,000  and $ 804,000 , res pectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

Concentrations of Credit Risk

The Company deposits its temporary cash investments with highly rated quality financial institutions that are located in the United States and Israel.

The Company deposits its temporary cash investments with highly rated financial institutions that are located in the United States and Israel.

The United States deposits are federally insured up to $250,000 per account.

As of March 31, 

2022 and December 31, 2021, the Company had deposits from continuing operations totaling $ 15,593,000  and $ 26,600,000 , respectively, in three  U.S.

As of June 30, 

2022 and December 31, 2021, the Company had deposits from continuing operations totaling $ 14,853,000  and $ 26,600,000 , respectively, in five  U.S.

financial institutions and one Israeli financial institution.

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

Customer A accounted for less than 10 % and 40 % of the Company’s total revenues for the three months ended March 31, 2022 and 2021 , respectively. 

Customer A accounted for less than 10 % and 28 % of the Company’s unaudited condensed consolidated revenues for the three months ended June 30, 2022 and 2021 , respectively. Customer A accounted for less than 10 % and 16 % of the Company’s unaudited condensed consolidated revenues for the six months ended June 30, 2022 and 2021, respectively.

No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the 

three months ended March 31, 2022 and 2021 .

As of March 31, 2022 , no single customer accounted for more than 10%  of the unaudited condensed consolidated accounts receivable balance.

three and six months ended June 30, 2022 and 2021 .

As of June 30, 2022 , no single customer accounted for more than 10%  of the unaudited condensed consolidated accounts receivable balance.

As of December 31, 2021 , Company B accounted for 13 % of the unaudited condensed consolidated accounts receivable balance.

1 unchanged sentence

December 31, 2021 .

Other Current Liabilities

A summary of other current liabilities is as follows (in thousands):

June 30, 2022

December 31, 2021

Payroll and payroll related

$ 3,185  

$ 1,673  

STS contingent consideration

Right of offset

$ 6,364  

$ 2,904  

Significant Accounting Policies

11 unchanged sentences

NOTE 2 –

STS Acquisition

On June 17, 2022, the Company completed its acquisition of Southern Traffic Services ("STS") by acquiring 100 % of the issued and outstanding capital stock of STS.

The acquisition included total consideration of $ 14,500,000  including;

cash consideration of $ 6,500,000 , $ 2,000,000 related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $ 2,000,000 contingent on the closing of a future contract ("STS Contingent Consideration") ,798,666  shares of the Company’s common stock, valued at $ 2,000,000 , and a $ 2,000,000 note.

As a result of the transaction, STS has become a wholly-owned subsidiary of the Company. 

The STS Contingent Consideration will be paid in cash if on or prior to October 30, 2024, the Company enters into a multi-year extension of the Georgia Department of Transportation Contract on substantially similar terms and conditions.

The STS Contingent Consideration shall be payable within 30  days of the effectiveness of the extension of the Georgia Department of Transportation Contract. STS Contingent Consideration is presented as part of other non-current liabilities on the unaudited condensed consolidated balance sheets.

The Company shall pay the STS Earnout payment based on the STS EBITDA for the twelve month period ended December 31, 2022. 

The STS Earnout payment shall in no event exceed $ 2,000,000 .

Any payment related to the STS Earnout will be paid within 60 days of December, 31, 2022.

The STS Earnout is presented as part of other current liabilities on the unaudited condensed consolidated balance sheets. 

The purchase price for the acquisition of 

STS has been preliminarily allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):

$ 6,500  

Common stock issued

Earnout consideration

Contingent consideration

Note consideration

Total consideration

$ 14,500  

Cash and cash equivalents

Accounts receivable

Other current assets

Customer relationships

Property and equipment

Right of use assets

Total assets acquired

10,807  

Accounts payable and accrued expenses

Contract liabilities

Other current and non liabilities

Lease liability

Total liabilities assumed

Fair value of identifiable net assets acquired

$ 4,999  

Waycare Acquisition

On August 18, 2021, the Company completed its acquisition of Waycare by acquiring 100 % of the issued and outstanding capital stock of Waycare.

The aggregate purchase price for the shares of Waycare was $ 60,171,000 , less the amount of Waycare’s debt and certain transaction expenses and subject to a customary working capital adjustment.

The aggregate purchase price for the shares of Waycare was $ 60,171,000 .

The purchase price was comprised of $ 39,884,000 of cash and 2,784,474 shares of the Company’s common stock, valued at $ 20,287,000 .

As a result of the transaction, Waycare has become a wholly-owned subsidiary of the Company.

The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):

The purchase price for the acquisition of Waycare has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

The table below shows the breakdown related to the purchase price allocation for the acquisition (dollars in thousands):

$ 39,884  

19 unchanged sentences

$ 47,115  

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

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

Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of Waycare as if it was consummated as of January 1, 2021.

The following unaudited pro forma combined financial information gives effect to the acquisition of Waycare and STS as if it was consummated as of January 1, 2021.

This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2021 ( the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except per share data)

(Dollars in thousands except for per share data)

Total revenue from continuing operations

1 unchanged sentence

$ 8,939  

$ 13,827  

$ 15,958  

Net loss from continuing operations

$ ( 15,655 )  

$ ( 5,593 )  

$ ( 28,696 )  

Basic and diluted loss per share from continuing operations

$ ( 0.33 )  

$ ( 0.13 )  

$ ( 0.62 )  

Basic and diluted number of shares

1 unchanged sentence

44,555,849  

46,388,662  

41,240,611  

NOTE 3 –

3 unchanged sentences

This equity investment does not have a readily determinable fair value and the Company reports this investment at cost, less impairment.

As of March 31, 2022 and December 31, 2021 the investment in Global Public Safety had a value of $ 0 .

As of June 30, 2022 and December 31, 2021 the investment in Global Public Safety had a value of $ 0 .

In June 2020, the Company announced a joint venture in which the Company would have a 50 percent equity interest in Roker Inc.

(“Roker”).

In the third quarter of 2020 and the first quarter of 2021, the Company contributed $ 75,000 for its 50 percent equity interest for a total investment of $ 150,000 .

In the third quarter of 2020 and the first quarter of 2021, the Company contributed $ 75,000 for its 50 % equity interest for a total investment of $ 150,000 .

This investment is accounted for under the equity method.

During the three months ended March 31, 2022  and 2021, the Company recognized a loss in its unconsolidated investments of $ 0 and $ 150,000 , respectively.

The carrying amount of the Company’s investments are included as part of investments in unconsolidated companies in the unaudited condensed consolidated balance sheets.

There were no distributions or earnings received from either investment in the three months ended March 31, 2022 and 2021 .

During the three and six months ended June 30, 2021, the Company recognized a loss in its unconsolidated investments of $ 74,000  and $ 150,000 , respectively. As of June 30, 2022 and December 31, 2021 the investment in Roker had a value of $0 .

There have been no distributions or earnings received from either investment. 

In April 2021, in exchange for $ 1,000,000 the Company entered into a SAFE with Roker (the “Roker SAFE”). In 

October 2021  

and March 2022, 

the Company invested an additional $ 250,000 and $ 150,000 , respectively, in the Roker SAFE. The Roker SAFE allows the Company to participate in future equity financings of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”).

and during the 

2022 fiscal year, the Company invested an additional $ 250,000 and $ 450,000 , respectively, in the Roker SAFE. The Roker SAFE allows the Company to participate in future equity financings of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”).

Alternatively, upon the occurrence of a change of control or an initial public offering (other than a qualified financing), the Company has the option to receive either (i) cash payment equal to the invested amount under the SAFE, or (ii) a number of shares of common stock equal to the invested amount divided by the liquidity price set forth in the Roker SAFE.

1 unchanged sentence

If the Company identifies factors that may be indicative of impairment, the Company will review the investment for impairment.

No factors indicative of impairment were identified during the three months ended March 31, 2022. 

No factors indicative of impairment were identified during the three months ended June 30, 2022. 

NOTE 4  

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Supplemental disclosures of cash flow information for the 

three months ended March 31, 2022 and 2021 were as follows (dollars in thousands):

Three Months Ended March 31,

six months ended June 30, 2022 and 2021 were as follows (dollars in thousands):

Six Months Ended June 30,

Cash paid for interest

Cash paid for taxes

Investing activities:

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

Contingent Consideration in connection with the acquisition of STS

Earnout Consideration in connection with the acquisition of STS

Note Consideration in connection with the acquisition of STS

Loans issued for property and equipment

Financing activities:

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When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining total future lease payments.

Operating lease expense from continuing operations for the three months ended 

March 31, 2022 and 2021 was $ 411,000  and $ 89,000 , respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $ 25,000  and $ 85,000 f or the three months ended March 31, 2022 and 2021 , respectively.

Operating lease expense from continuing operations for the three months ended June 30, 2022 and 2021 was $ 504,000  and $ 84,000 , and for the six months ended June 30, 2022 and 2021 was $ 915,000  and $ 173,000 , respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $ 52,000  and $ 171,000 fo r the six months ended June 30, 2022 and 2021 , respectively.

In the first  quarter of 2022, the Company entered into a lease agreement for its Israeli operations.

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Supplemental balance sheet information related to leases as of 

March 31, 2022 was as follows (dollars in thousands):

June 30, 2022 was as follows (dollars in thousands):

Operating lease right-of-use lease assets

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NOTE 6  

INTANGIBLE ASSETS

INTANGIBLE ASSETS AND GOODWILL

STS Acquisition

The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

Since the acquisition of STS occurred on June 

17, 2022, the results of operations for STS from the date of acquisition have been included in the Company’s consolidated statement of operations for the three and six  months ended June 

As part of the Company's preliminary purchase price allocation for the acquisition, the Company recognized $ 4,999,000 in goodwill and $ 1,793,000 in customer relationships. 

Intangible Assets Subject to Amortization

The following summarizes the change in intangible assets from December 31, 2021 to March 31, 2022 (dollars in thousands):

The following summarizes the change in intangible assets from December 31, 2021 to June 30, 2022 (dollars in thousands):

Useful Life (in Years)

December 31, 2021

March 31, 2022

June 30, 2022

Intangible assets subject to amortization

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10 - 15  

$ 1,793  

$ ( 16 )  

$ 2,105  

Marketing related

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( 1,725 )  

18,579  

Internally capitalized software

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$ ( 1,992 )  

The following provides a breakdown of identifiable intangible assets as of March 31, 2022 (dollars in thousands):

$ 21,207  

The following provides a breakdown of identifiable intangible assets as of June 30, 2022 (dollars in thousands):

Customer Relationships

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$ 1,452  

$ 28,140  

Accumulated amortization

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$ 18,579  

$ 21,207  

These intangible assets are amortized on a straight-line basis over their estimated useful life.

Amortization expense attributable to continuing operations for the three months ended 

March 31, 2022 and 2021 was $ 1,001,000  and $ 409,000 , r espectively and is presented as part of depreciation and amortization in the accompanying unaudited condensed consolidated statements of operations.

As of March 31, 2022 , the estimated impact on continuing operations from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

June 30, 2022 and 2021 was $ 991,000 and $ 409,000 , respectively, and for the six months ended June 30, 2022 and 2021 was 

$ 1,992,000  and $ 818,000 , r espectively and is presented as part of depreciation and amortization in the accompanying unaudited condensed consolidated statements of operations.

As of June 30, 2022 , the estimated impact on continuing operations from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

2022, remaining

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NOTE 7  

On June 17, 2022, pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $ 2,000,000 of notes payable in the form of two  unsecured, subordinated promissory notes, each in the principal amount of $ 1,000,000 and bearing an interest rate of 3.0 % per annum, payable quarterly. 

The notes mature on June 14, 2024 

and June 17, 

2025, respectively.

The aggregate balance of these notes payable was $ 2,000,000 as of 

June 30, 2022  and is included in Notes payable long-term, in the unaudited condensed consolidated balance sheets.

Firestorm Notes

On January 25, 2017, pursuant to the terms of the Company’s acquisition of Firestorm, the Company issued $ 1,000,000 in the aggregate form of four unsecured, subordinated promissory notes with interest payable over five years.

On January 25, 2017, pursuant to the terms of the Company’s acquisition of certain now discontinued subsidiaries (collectively referred to herein as “Firestorm”), the Company issued $ 1,000,000 in the aggregate form of four unsecured, subordinated promissory notes with interest payable over five years.

The principal amount of one of the notes payable is $ 500,000 payable at an interest rate of 2.0 % and the remaining three notes are evenly divided over the remaining $ 500,000 and payable at an interest rate of 7.0 %.

The notes mature on January 25, 2022.

The aggregate balance of these notes payab le was 

$ 1,000,000 and $ 998,000 , net of unamortized interest, as of March 31, 2022 and December 31, 2021 , respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rate s of $ 0 and $ 2,000 , respect ively.

The aggregate balance of these notes payable was 

$ 1,000,000 and $ 998,000 , net of unamortized interest, as of June 30, 2022 and December 31, 2021 , respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $ 0 and $ 2,000 , respectively.

The Company is not paying current interest on these notes and did 

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Contractual interest

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Schedule of Principal Amounts Due of Debt

The principal amounts due for long-term notes payable are shown below as of March 31, 2022 (dollars in thousands):

The principal amounts due for long-term notes payable are shown below as of June 30, 2022 (dollars in thousands):

2022, remaining

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Notes payable, current portion

Notes payable, long-term

Total notes payable

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NOTE 8  

The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance, outside of the deferred tax liability related to the indefinite lived intangible, through the three months ended March 31, 2022 .

June 30, 2022 .

The Company files income tax returns in the United States and in various states.

Federal, state or foreign income tax audits were in process as of March 31, 2022 .

Federal, state or foreign income tax audits were in process as of June 30, 2022 .

The Company evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets.

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If it is determined in future periods that portions of the Company’s net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly.

For the three months ended March 31, 2022  and 2021, the Company did not record any interest or penalties related to unrecognized tax benefits.

For the three and 

six months ended June 30, 2022  and 2021, the Company did not record any interest or penalties related to unrecognized tax benefits.

It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax expense.

The 2018  through 2020  tax years remain subject to examination by the Internal Revenue Service.

NOTE 9 –

NOTE 9  

COMMITMENTS AND CONTINGENCIES

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the Company filed a Second Amended Complaint (the “Complaint’) alleging that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.

The Complaint also alleges claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’

The Complaint also alleged claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’

alleged deletion of company email records.

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The Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do 

not  apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against 

one  defendant because Rekor represented it was prepared to dismiss those claims.

not  apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment to one defendant on our conversion, and trespass to chattels claims because Rekor represented it was prepared to dismiss those claims.

The Court also granted summary judgment on 

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not  be set off by or recouped from our damages in this case.

In April 2022, The Company filed a notice of motion seeking partial summary judgement on several of the of the Company’s claims and the Firestorm Principals’

counterclaims, which the Firestorm Principals opposed.

On July 29 th , 2022, the Court issued an opinion and order, which granted the motion in part and denied it in part.

The order dismissed the Firestorm Principal’s counterclaim against the Company for libel.

The order also dismissed the Company’s claim for breach of fiduciary duty against one  defendant on the ground that he was not employed by the Company, but by a subsidiary of the Company that is not a party to the case.

The court also denied summary judgement to the Company as to the breach of fiduciary duty claim against the other defendants and as to the trespass to chattels and conversion claims as to all defendants, on the ground that issues of fact remain contested.

On the same ground, the court also denied summary judgement to the Company as to a breach of contract claim  by one defendant relating to an alleged change in employment status.

2020,  the Firestorm Principals filed various suits in New York, Delaware and Virginia against directors and officers of the Company, alleging breach of fiduciary duty and libel.

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September 28, 2021, 

the Court issued an order denying the motion to dismiss.

the Delaware court issued an order denying the defendant’s motion to dismiss.

October 21, 2021, 

the Delaware Action defendants filed a motion for reconsideration of the Court’s dismissal order;

that reconsideration motion was denied on 

the defendants filed a motion for reconsideration of the Delaware court’s dismissal order;

which was denied on 

February 28, 2022. 

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the court in the Virginia action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds.

The defamation claim will now be challenged on substantive grounds.

The defamation claim in Virginia will now be challenged on substantive grounds.

In July 2022, the Firestorm Principals obtained new counsel. 

On July 21, 2022, the Firestorm Principals’

new counsel requested an adjournment of the October 17, 2022 trial date and related pre-trial deadlines, which the Company did not oppose. 

On July 22, 2022, the Court granted the request and rescheduled trial to begin on February 13, 2023.

At this stage of these litigations, the Company is unable to render an opinion regarding the likelihood of a favorable outcome.

1 unchanged sentence

remaining counterclaims and suits against Rekor directors and officers are without merit.

January 31, 2020, 

the Company’s wholly-owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc.

(“PCS”) for breach of software license agreements pursuant to which software was licensed to PCS.

June 14, 2020, 

PCS filed its operative answer to the Complaint.

June 21, 2020, 

PCS filed a motion to join the Company and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counterclaims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships.

July 13, 2020, 

OpenALPR filed an opposition to the motion for joinder.

November 23, 2020, 

the court denied PCS’s Motion for Joinder with prejudice.

August 30, 2021, 

OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on 

August 31, 2021. 

The Company considers this matter closed. 

September 18, 2020, 

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March 3, 2022, 

the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims in the future.

Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is 

May 30, 2022.

The Company has cross-moved for summary judgment seeking the dismissal of plaintiff’s complaint on the basis that plaintiff opted against exercising its right of first refusal when it declined the opportunity to manage the 2019 ATM Program. 

Both plaintiff’s motion and Rekor’s cross-motion are now returnable on August 18, 2022.

At this stage of the Fordham litigation, the Company is unable to render an opinion regarding the likelihood of a favorable outcome.

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To that end it intends to vigorously litigate this action.

June 2021, 

a putative shareholder class action lawsuit (captioned Miller v.

Rekor Systems, Inc.

et al.) was filed in the United States District Court for the District of Maryland, naming as defendants Rekor Systems, Inc.

and certain of its officers.

It alleges violations of Sections 

10 (b) and 

20 (a) and Rule 

10b - 5  of the Securities Exchange Act of 

1934  related to Rekor’s automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and seeks damages on behalf of shareowners who acquired Rekor stock between 

April 12, 2019 

May 25, 2021. 

November 2021, 

the plaintiff filed an order of dismissal, seeking to voluntarily dismiss the class action lawsuit without prejudice. This matter was voluntarily dismissed without prejudice.

In addition, from time to time, the Company 

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STOCKHOLDERS ’

Effective March 18, 2020, the Company adopted and approved an amendment to increase the number of authorized shares of common stock from 30,000,000 to 100,000,000 , $ 0.0001 par value.

The rights and privileges terms of the additional authorized shares of common stock are identical to those of the currently outstanding shares of common stock.

However, because the holders of common stock do not have preemptive rights to purchase or subscribe to any new issuances of common stock, the subsequent potential issuance of additional shares of common stock will reduce the current stockholders’

percentage ownership interest in the total outstanding shares of common stock.

The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’

relative rights and limitations.

At-the-Market Offering

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(the “Agent”) to create an at the market equity program under which the Company from time to time 

may  offer and sell shares of its common stock, par value $0.0001  per share, having an aggregate offering price of up to $ 50,000,000  (the “Shares”) through or to the Agent.

offer and sell shares of its common stock, par value $0.0001  per share, having an aggregate offering price of up to $ 50,000,000  (the “Shares”) through or to the Agent.

The Agent is entitled to a commission equal to 3.0 % of the gross proceeds from each sale.

The Company incurred issuance costs of approximate ly $ 169,000 related to legal, accounting, and other fees in connection with the 2022 Sales Agreement. These costs were charged against the gross proceeds of the 2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying unaudited condensed consolidated balance sheets.

For the three months ended March 31, 2022, based on the settlement date, the Company so ld 

728,452  shares of c ommon stock at a weighted-average selling price of $ 4.67  per s hare in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement w as $ 3,134,000  after payin g $169,000 related to the issuance cost, as well as, 3.0% or $ 102,000 related to cash commissions provided to the Agent.

For the six months ended June 30, 2022, 

the Company sold 

7,598,801  shares of common stock at a weighted-average selling price of $ 2.79 per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $ 20,408,000  after paying $169,000 related to the issuance cost, as well as 3.0% or $ 635,000 related to cash commissions provided to the Agent.

STS Acquisition

In connection with the acquisition as described in NOTE 2 –

ACQUISITIONS , the Company issued 798,666 shares of the Company’s common stock as part of the consideration.

Waycare Acquisition

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Rekor adjusted the value of the Series A Preferred Stock to redemption value at the end of each reporting period.

The adjustment to the redemption value was recorded through additional paid-in capi tal of $ 0 and $ 101,000 for th e three months ended March 31, 2022 and 2021 , respectively.

The adjustment to the redemption value was recorded through additional paid-in capi tal of $ 0 and $ 101,000 for th e three months ended June 30, 2022 and 2021 , respectively.

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

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

A summary of the warrant activity for the Company for the period ended March 31, 2022 is as follows:

A summary of the warrant activity for the Company for the period ended June 30, 2022 is as follows:

Series A Preferred Stock Warrants (1)

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Exercised warrants

Outstanding warrants as of March 31, 2022

Outstanding warrants as of June 30, 2022

41,996  

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692,311  

Weighted average strike price of outstanding warrants as of March 31, 2022

Weighted average strike price of outstanding warrants as of June 30, 2022

$ 1.03  

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$ 3.02  

Intrinsic value of outstanding warrants as of June 30, 2022

$ 31,000  

$ 3,000  

$ 34,000  

As part of a Regulation A Offering in fiscal years 2016 and 2017, the Company issued warrants to the holders of Series A Preferred Stock (the “Series A Preferred Stock Warrants”).

17 unchanged sentences

Stock compensation expense related to stock options for the three months ended 

March 31, 2022 and 2021 wa s $ 28,000 and $ 30,000 , re spectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the accompanying unaudited condensed consolidated statements of operations.

A summary of stock option activity under the Company’s 2017 Plan for the period ended March 31, 2022 is as follows:

June 30, 2022 and 2021 was $ 14,000  and $ 31,000 , respectively, and for the six months ended June 30, 2022 and 2021 was $ 42,000  and $ 60,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the accompanying unaudited condensed consolidated statements of operations. 

A summary of stock option activity under the Company’s 2017 Plan for the period ended June 30, 2022 is as follows:

Number of Shares Subject to Option

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( 6,666 )  

Outstanding balance as of March 31, 2022

( 5,000 )  

Outstanding balance as of June 30, 2022

981,032  

$ 1.28  

Exercisable as of March 31, 2022

$ 565,000  

Exercisable as of June 30, 2022

965,035  

$ 1.25  

As of March 31, 2022 , there was $ 19,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over a weighted average period of 0.23  years.

$ 565,000  

As of June 30, 2022 , there was $ 3,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over a weighted average period of 0.18  years.

Restricted Stock Units

Stock compensation expense related to RSU’s for the three months ended 

March 31, 2022 and 2021 w as $ 1,872,000 and $ 751,000 , r espectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the accompanying unaudited condensed consolidated statements of operations.

June 30, 2022 and 2021  was $ 1,871,000  and $ 1,094,000 , respectively, and for the six months ended June 30, 2022 and 2021 was $ 3,743,000  and $ 1,846,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the accompanying unaudited condensed consolidated statements of operations.

Pursuant to the terms of the Waycare purchase agreement, the Company reserved for issuance to Waycare’s continuing employees an aggregate of 686,248 restricted stock units, which were issued on October 28, 2021, pursuant to the terms of the Company’s 2017 Equity Award Plan, as amended.

The restricted stock units are subject to customary vesting schedules and are intended to incentivize the continued performance of Waycare’s employees.

A summary of RSU activity under the Company’s 2017 Plan for the three months ended March 31, 2022 is as follows:

A summary of RSU activity under the Company’s 2017 Plan for the six months ended June 30, 2022 is as follows:

Number of Shares

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( 88,730 )  

Outstanding balance as of March 31, 2022

Outstanding balance as of June 30, 2022

2,507,597  

2 unchanged sentences

All RSUs granted vest upon the satisfaction of a service-based vesting condition.

As of March 31, 2022 , ther e was $ 15,030,000 of unre cognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining p eriod of 2.20  years.

As of June 30, 2022 , ther e was $ 13,838,000 of unre cognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining p eriod of 2.00  years.

NOTE 12  

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except per share data)

Basic and diluted loss per share

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$ ( 15,602 )  

$ ( 4,761 )  

$ ( 28,203 )  

preferred stock accretion

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$ ( 15,602 )  

$ ( 4,761 )  

$ ( 28,203 )  

Net loss attributable to shareholders from discontinued operations

1 unchanged sentence

$ ( 15,602 )  

$ ( 4,762 )  

$ ( 28,203 )  

Weighted average common shares outstanding - basic and diluted

1 unchanged sentence

40,972,709  

45,625,492  

37,657,471  

Basic and diluted loss per share from continuing operations

$ ( 0.33 )  

$ ( 0.12 )  

$ ( 0.62 )  

Basic and diluted loss per share from discontinued operations

( 0.00 )  

Basic and diluted loss per share

$ ( 0.33 )  

$ ( 0.12 )  

$ ( 0.62 )  

Common stock equivalents excluded due to the anti-dilutive effect

1 unchanged sentence

2,446,906  

As the Company had a net loss for the three months ended March 31, 2022 , the follo wing 

3,858,220  potentially dilutive securities were excluded from diluted loss per share: 

4,180,940  

2,446,906  

As the Company had a net loss for the three and six months ended June 30, 2022 , the follo wing 

4,180,940 potentially dilutive securities were excluded from diluted loss per share: 

692,311 for outstanding warrants, 

981,032 related to outstanding options and 2,507,597  related to outstanding RSUs.

As the Company had a net loss for the three months ended March 31, 2021 , the following 2,436,750 potentially dilutive securities were excluded from diluted loss per share:

As the Company had a net loss for the three and six months ended June 30, 2021 , the following 2,446,906 potentially dilutive securities were excluded from diluted loss per share:

695,512 for outstanding warrants, 1,167,852 related to outstanding options and 583,542 related to outstanding RSUs.

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SUBSEQUENT EVENTS

At-the-Market Issuance Sales Agreement

The Company issued an additional 1,521,755 shares of its common stock in exchange for net cash of $ 4,928,000  under the 

At-the-Market Is suance Sales Agreement

Subsequent to June 30, 2022, the Company issued an additional 899,413  shares of its common stock in exchange for net cash of $ 1,638,000  under the 

2022  Sales Agreement. 

In the third quarter of 

2022,  the Company invested an additional $ 160,000  in the Roker SAFE. 

MANAGEMENT ’

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financial market conditions and the results of financing efforts;

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

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

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

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Our operations are conducted by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc.

(“Rekor Recognition”) and Waycare Technologies, Ltd.

(“Waycare”).

(“Rekor Recognition”), Waycare Technologies, Ltd.

(“Waycare”) and Southern Traffic Services, Inc.

Opportunities, Trends and Uncertainties

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The analysis of operation is solely related to continuing operations and does not consider the results of discontinued operations.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

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Interest expense

Other (expense) income

Total other income (expense)

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Net loss from continuing operations

Comparison of the Three months ended March 31, 2022 and the Three months ended March 31, 2021

Comparison of the Three and Six Months Ended June 30, 2022 and the Three and Six Months Ended June 30, 2021

Total Revenue

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

The decrease in revenue for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was a result of a decrease in product and service revenue in the current period.

The increase in revenue for the three months ended, June 30, 2022, compared to the three months ended June 30, 2021, was primarily attributable to the synergies with our recent acquisitions and our land and expand strategy, which involves expanding the services and solutions we provide to existing customers and also facilitating cooperation between our existing customers and new customers as part of a broader information network.

During the three months ended June 30, 2022, revenue increased $603,000 and $485,000 as a result of our acquisition of Waycare and STS, respectively. 

The decrease in revenue for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, was primarily a result of a decrease in product and service revenue in the current period.

As part of our change in selling strategy, we have focused on a sales model that employs contracts with recurring revenue.

We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict.

During the three months ended March 31, 2021, there was one customer who accounted for $1,673,000 of revenue as a result of a one-time sale of hardware and software.

The decrease in one-time sale revenues during the three months ended March 31, 2022, was partially offset by an $831,000 increase in recurring revenue during the period.

The increase in recurring revenue is primarily attributable to our Waycare acquisition and our current land and expand strategy, which involves expanding the services and solutions we provide to existing customers, and also facilitating cooperation between our existing customers and new customers as part of a broader information network. 

During the six months ended June 30, 2021, there was one customer who accounted for $1,673,000 of revenue as a result of a one-time sale of hardware and software.

The decrease in one-time sale revenues during the six months ended June 30, 2022, was partially offset by revenue attributable to the synergies with our recent acquisitions and our land and expand strategy as described above. During the six months ended June 30, 2022, revenue increased $1,310,000 and $485,000 as a result of our acquisition of Waycare and STS, respectively. 

Cost of Revenue, Excluding Depreciation and Amortization

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

Cost of revenue, excluding depreciation and amortization

For the three months ended March 31, 2022, cost of revenue, excluding depreciation and amortization increased by $61,000 compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our new go-to-market strategy.

For the three and six months ended June 30, 2022, cost of revenue, excluding depreciation and amortization increased by $1,285,000 and $1,345,000 compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our new go-to-market strategy. As part of a sales strategy to more quickly expand our market reach, we have recently offered certain customers short-term pilot programs which range from three to six months.

Our pilot programs generally have lower margins due to additional upfront costs we incur to establish the program, which will not be incurred again if the pilot program is converted into a long-term program. In addition, the Company experienced lower margins on certain hardware sales during these quarters.

Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

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General and Administrative Expenses

The increase in general and administrative expenses during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, were primarily due to a $2,319,000 increase in personnel costs related to an increase in headcount, including a $473,000 increase in stock-based compensation. 

The increase in general and administrative expenses during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, were primarily due to a $1,414,000 and $3,560,000 increase in personnel costs related to an increase in headcount, including a $351,000 decrease and $121,000 increase in stock-based compensation, respectively. Additionally, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, we saw an increase in professional fees mainly associated with our merger and acquisition activities and rent expenses mainly associated with our new offices throughout the United States and Israel.

Selling and Marketing Expenses

The increase in selling and marketing expenses during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was attributable mainly to increased marketing efforts to promote our products and services including digital marketing and other sales efforts.

In connection with these efforts, there was an increase in staffing to support our growth plan which led to a $513,000 increase in personnel costs, including a $125,000 increase in stock-based compensation.

The increase in selling and marketing expenses during the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, was attributable mainly to increased marketing efforts to promote our products and services including digital marketing and other sales efforts.

In connection with these efforts, for the three and six month periods ended June 30, 2022, there was an increase in staffing to support our growth plan which led to a $1,549,000 and $2,089,000 increase in personnel costs, including a $503,000 and $627,000 increase in stock-based compensation, respectively.

Research and Development Expense

The increase in research and development expenses during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was primarily attributable to the development of new products and additional software capabilities, mainly as a result of an increase in headcount and hours associated with research and development activities.

In the current period, there was an increase in staffing to support the Company’s new products which led to a $1,811,000 increase in personnel costs, including a $476,000 increase in stock-based compensation.

The increase in research and development expenses during the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, was primarily attributable to the development of new products and additional software capabilities, mainly as a result of an increase in headcount and hours associated with research and development activities.

For the three and six months ended June 30, 2022, there was an increase in staffing to support the Company’s new products which led to a $3,058,000 and $4,975,000 increase in personnel costs, including a $561,000 and $1,039,000 increase in stock-based compensation, respectively.

Additionally, there was an increase in sub-contractor labor associated with the development of new products and software of $671,000 during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. 

Depreciation and Amortization

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Other Expense

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

1 unchanged sentence

Interest expense

Other income, net

Other (expense) income

Total other income (expense)

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net loss from continuing operations

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Loss due to change in value of equity investments

One-time consulting fees

Adjusted EBITDA

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except percentages)

Cost of revenue, excluding depreciation and amortization

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Adjusted Gross Margin

Adjusted Gross Margin, for the three months ended March 31, 2022 and 2021 decreased to 

45.0% from 54.4% , respe ctively.

Fluctuations in Adjusted Gross Margin are primarily the result of the mix of software and hardware sales experienced in the quarter.

Software sales carry a higher margin than hardware sales as there are fewer costs associated with software sales, while hardware sales are typically associated with a software component which increases our performance obligations and provides higher margin recurring revenue in the future.

However, as part of our planned go-to-market strategy, we have recently offered certain customers short-term pilot programs which range from three to six months.

Adjusted Gross Margin, for the three and six months ended June 30, 2022 and 2021 decreased to 

38.5% from 67.7% , and 41.5% from 61.1%, respe ctively.

As part of a sales strategy to more quickly expand our market reach, we have recently offered certain customers short-term pilot programs which range from three to six months.

Key Performance Indicators

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This visibility enables us to better manage and invest in our business.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Recurring revenue

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There are certain assumptions that we make when determining the total contract value of an agreement, such as the success rate of renewal periods, cancellations and usage estimates.

For the three months ended March 31, 2022 we won contracts value d at $1,525,000 , compared to 

$2,531,000 of contracts won for the three months ended March 31, 2021 .

This decline represents a $1,006,000  or 40%  decline, period over period.

For the six months ended June 30, 2022 we won contracts value d at $4,979,000 , compared to 

$5,785,000 of contracts won for the six months ended June 30, 2021 .

This decline represents a $806,000  or 14%  decline, period over period. 

The decrease in total contract value is partially related to our strategy of entering into pilot programs that require low initial commitments by our customers in the short term in the expectation that they will develop into larger commitments over time.

This helps grow our pipeline and demand for our products.

As pilot programs convert into longer term and larger scale contracts, we expect to see our KPIs improve. 

Performance Obligations

As of March 31, 2022, we had approxim ately $21,288,000 of contracts that were closed prior to March 31, 2022 but have a contractual period beyond March 31, 2022 . 

This represents a decline of $1,299,000 or 6% compared to $22,587,000 of performance obligations as of December 31, 2021. 

These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term.

As of June 30, 2022, we had approxim ately $31,940,000 of contracts that were closed prior to June 30, 2022 but have a contractual period beyond June 30, 2022 . This represents an increase of $9,353,000 or 41% compared to $22,587,000 of performance obligations as of December 31, 2021. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term.

We currently expect to recognize approximately 57% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.

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Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.

The decrease in total contract value and performance obligations is partially related to our go-to-market strategy.

Our go-to-market strategy involves entering into pilot programs that require low initial commitments by our customers in the short term and develop into larger commitments over time.

This helps grow our pipeline and demand for our products.

As pilot programs convert into longer term and larger scale contracts, we expect to see our KPIs improve.

The increase in total our performance obligations is related to our acquisition of STS. 

Lease Obligations

As of March 31, 2022, we leased building space at the following locations in the U.S.

As of June 30, 2022, we had material leased building space at the following locations in the U.S.

Columbia, Maryland – The corporate headquarters

Linthicum, Maryland

Orlando, Florida 

Tel Aviv, Israel

Los Angeles, California 

We believe our facilities are in good condition and adequate for their current use.

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

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities

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Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

Net cash used in operating activities for the three months ended March 31, 2022 had a net decrease of $8,997,000, which was attributable to the increase in the loss from continuing operations of $12,601,000.

This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $1,119,000 to $1,900,000 for the three months ended March 31, 2022 compared to $781,000 for the three months ended March 31, 2021.

Net cash used in operating activities for the six months ended June 30, 2022 had a net increase of $15,986,000, which was attributable to the increase in the loss from continuing operations of $28,203,000.

This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $1,879,000 to $3,785,000 for the six months ended June 30, 2022 compared to $1,906,000 for the six months ended June 30, 2021.

This increase is due to the number of equity incentive shares that were issued to employees and directors. 

The net decrease in net cash used in investing activities of $22,530,000 was primarily due to a decrease in short-term investments that were previously made in during the three months ended March 31, 2021, of $23,994,000 which were previously invested in U.S.

The net decrease in net cash used in investing activities of $5,456,000 was primarily due to a decrease in short-term investments that were previously made during the six months ended June 30, 2021, of $12,995,000 which were previously invested in U.S.

Treasury Bills that have maturity dates over three months, but less than a year.

Net cash provided by financing activities for the three months ended March 31, 2022 decreased by $67,386,000 from the prior three month period ended March 31, 2022.

During the three months ended March 31, 2022, as part of our 2022 Sales Agreement, we received net proceeds after deducting the underwriting discounts and commissions and offering expenses payable by us, of $3,134,000. In the prior comparable quarterly period, through our 2021 Public Offering, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $70,125,000.

For the three months ended March 31, 2022 and 2021, we funded our operations primarily through cash from operating activities and the sale of equity.

As of March 31, 2022, we had cash and cash equivalents from continuing operations of $15,593,000 and working capital of $9,297,000, as compared to cash and cash equivalents of $26,600,000 and working capital of $16,989,000 as of December 31, 2021.

During the six months ended June 30, 2022, the Company had net cash outflows of $,6,389,000 related to the acquisition of STS. 

Net cash provided by financing activities for the six months ended June 30, 2022 decreased by $50,103,000 from the prior six month period ended June 30, 2021.

During the six months ended June 30, 2022, as part of our 2022 Sales Agreement, we received net proceeds after deducting the underwriting discounts and commissions and offering expenses payable by us, of $20,408,000. In the prior comparable quarterly period, through our 2021 Public Offering, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $70,125,000.

For the three and six months ended June 30, 2022 and 2021, we funded our operations primarily through cash from operating activities and the sale of equity.

As of June 30, 2022, we had cash and cash equivalents from continuing operations of $14,853,000 and working capital of $7,285,000, as compared to cash and cash equivalents of $26,600,000 and working capital of $16,989,000 as of December 31, 2021.

For all annual and interim periods, we will assess going concern uncertainty in our unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand, capital raises and working capital, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.

As part of this assessment, based on conditions that are known and reasonably knowable to us, we will consider various scenarios, forecasts, projections and estimates and will make certain key assumptions.

These assumptions include, among other factors, its ability to raise additional capital, the expected timing and nature of our programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent we have the proper authority to do so and consider probable that those implementations can be achieved within the look-forward period.

We have generated losses since our inception and have relied on cash on hand, external bank lines of credit, the sale of a note, proceeds from the sale of common stock, proceeds from the private sale of our non-core subsidiaries, proceeds from note receivables, debt financings and a public offering of our common stock to support cash flow from operations.

We attribute losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services.

As of and for the six months ended June 30, 2022, the  had working capital from continuing operations of $7,285,000 and a loss from continuing operations of $28,203,000.

Our cash decreased by $11,747,000 for the six months ended June 30, 2022 primarily due to the loss from continuing operations of $28,203,000.

The decrease in cash was offset by the net proceeds of $20,408,000  fro m the 2022 Sales Agreement (see NOTE 10 - STOCKHOLDERS ’

EQUITY for details on the 2022 Sales Agreement).

As of June 30, 2022, we had $28,788,000 of gross funds available under the 2022 Sales Agreement. 

We believe that based on relevant conditions and events that are known and reasonably knowable, our current forecasts and projections for one year from the date of the filing of the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, indicate our ability to continue operations as a going concern for at least that one-year period.

We are actively monitoring its operations, the cash on hand and working capital.

Should access to funds be unavailable, we will need to seek out additional sources of funding.

If additional financing is not available, we have contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period.

2021 Public Offering

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As a result of the transaction, Waycare became our wholly-owned subsidiary.

STS Acquisition

On June 17, 2022, the Company completed its acquisition of Southern Traffic Services ("STS") by acquiring 100% of the issued and outstanding capital stock of STS.

The acquisition included total consideration of $14,500,000 including;

cash consideration of $6,500,000, 798,666 shares of the Company’s common stock, valued at $2,000,000, $2,000,000 related to an earnout based on the achievement of certain performance metrics, $2,000,000 contingent on the closing of a future contract and a $2,000,000 note.

As a result of the transaction, STS has become a wholly-owned subsidiary of the Company. 

At-the-Market Offering

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We incurred issuance costs of approximately $169,000 rel ated to legal, accounting, and other fees in connection with the 2022 Sales Agreement. These costs were charged against the gross proceeds of the 2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying unaudited condensed consolidated balance sheets.

For the three months ended March 31, 2022, based on the settlement date, we s old 

728,452  shares of common stock at a weighted-average selling price of $4.67 per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $3,134,000  aft er paying $169,000 related to the issuance cost, as well as, 3.0% or $102,000 related to cash commissions provided to the Agent.

As of March 31, 2022, we did not have any material commitments for capital expenditures.

For the six months ended June 30, 2022, based on the settlement date, the Company sold 7,598,801 shares of common stock at a weighted-average selling price of $2.79 per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $20,408,000 after paying $169,000 related to the issuance cost, as well as 3.0% or $635,000 related to cash commissions provided to the Agent.

As of June 30, 2022, we did not have any material commitments for capital expenditures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements