What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-11 · 353 added, 496 removed, 1128 unchanged (43% of the section changed)

4 unchanged sentences

(Dollars in thousands, except share amounts)

June 30, 2022

September 30, 2022

December 31, 2021

5 unchanged sentences

Accounts receivable, net

Inventory, net

Note receivable, current portion

28 unchanged sentences

Lease liability, short-term

Contract liabilities

Contract liabilities, short-term

Other current liabilities

10 unchanged sentences

Contract liabilities, long-term

Deferred tax liability, long-term

Deferred tax liability

Other non-current liabilities

5 unchanged sentences

24,792  

Commitments and contingencies

Commitments and contingencies (Note 9)

Stockholders' equity

1 unchanged sentence

100,000,000 shares;

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

54,330,133 , shares as of September 30, 2022 and 44,007,257 as of December 31, 2021;

54,288,611 shares as of September 30, 2022 and 43,987,896 as of December 31, 2021

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

( 417 )  

16 unchanged sentences

(Dollars in thousands, except share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

$ 4,334  

$ 4,274  

$ 7,942  

$ 8,491  

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue, excluding depreciation and amortization

1 unchanged sentence

General and administrative expenses

15,711  

Selling and marketing expenses

Research and development expenses

Goodwill impairment

Depreciation and amortization

Total operating expenses

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

Income tax benefit (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:

Net loss from continuing operations

( 15,602 )  

( 4,761 )  

( 28,203 )  

Change in unrealized gain on short-term investments

1 unchanged sentence

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

Basic and diluted

47,154,453  

40,972,709  

45,625,492  

37,657,471  

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

12 unchanged sentences

Total Stockholders' Equity

Balance as of March 31, 2022

44,908,417  

( 41,522 )  

$ ( 417 )  

$ 176,348  

$ ( 82,484 )  

$ 93,451  

Balance as of July 1, 2022

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  

Foreign currency translation gain, net of income taxes

Balance as of September 30, 2022

Balance as of July 1, 2021

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

Shares issued as part of the Waycare Acquisition

Issuance upon exercise of stock options

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

43,987,896  

( 19,361 )  

$ ( 319 )  

$ 171,285  

$ ( 69,883 )  

$ 101,087  

Change in unrealized gain on short-term investments

Balance as of September 30, 2021

Balance as of January 1, 2022

Stock-based compensation

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

7,598,801  

20,407  

20,408  

Issuance upon exercise of stock options

19,638  

Issuance upon vesting of restricted stock units

216,304  

Shares withheld upon vesting of restricted stock units

( 22,161 )  

( 98 )  

Shares issued as part of the STS Acquisition

798,666  

Other comprehensive income, net of income taxes

( 28,203 )  

Balance as of June 30, 2022

52,621,305  

( 41,522 )  

$ ( 417 )  

$ 197,512  

$ ( 98,086 )  

$ 99,349  

Balance as of December 31, 2020

33,013,271  

240,861  

$ 68,238  

$ ( 43,050 )  

$ 25,191  

Foreign currency translation gain, net of income taxes

Balance as of September 30, 2022

Balance as of January 1, 2021

Stock-based compensation

Exercise of cashless warrants in exchange for common stock

62,921  

Exercise of warrants in exchange for common stock

54,235  

Exercise of warrants related to series A preferred stock

96,592  

Public underwriting

6,126,939  

70,124  

70,125  

Shares issued as part of the Waycare Acquisition

Conversion of series A preferred stock

899,174  

Conversion of series B preferred stock

517,611  

( 240,861 )  

Issuance upon exercise of stock options

65,402  

Issuance upon vesting of restricted stock units

176,621  

Shares withheld upon vesting of restricted stock units

( 19,361 )  

( 319 )  

Preferred stock dividends

( 51 )  

Accretion of Series A preferred stock

( 101 )  

Other comprehensive income, net of income taxes

( 10,168 )  

Balance as of June 30, 2021

41,012,766  

( 19,361 )  

$ ( 319 )  

$ 148,754  

$ ( 53,269 )  

$ 95,173  

Change in unrealized gain on short-term investments

Balance as of September 30, 2021

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

3 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

Net loss from continuing operations

$ ( 28,203 )  

Net loss from discontinued operations

( 28,203 )  

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

1 unchanged sentence

Amortization of right-of-use lease asset

Provision for deferred taxes

(Benefit) provision for deferred taxes

Share-based compensation

1 unchanged sentence

Amortization of intangible assets

Goodwill impairment

Loss due to change in value of equity investments

Unrealized gain on short-term investments

Changes in operating assets and liabilities:

Accounts receivable

( 44 )  

( 1,744 )  

Other current assets

( 286 )  

( 293 )  

Other long-term assets

Accounts payable, accrued expenses and other current liabilities

Contract liabilities

( 441 )  

Lease liability

Net cash used in operating activities - continuing operations

( 22,829 )  

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

Net cash used in operating activities

( 22,826 )  

Cash Flows from Investing Activities:

Cash paid for Waycare acquisition, net

SAFE Investment

( 450 )  

Capital expenditures

( 2,568 )  

Short-term investment activity, net

Down payment on capital expenditures

Cash paid for STS acquisition, net

( 6,389 )  

Investment in unconsolidated company

Net cash used in investing activities - continuing operations

( 9,407 )  

Net cash used in investing activities

Cash Flows from Financing Activities:

Proceeds from public offering

70,125  

Payment of notes payable

Proceeds from notes receivable

Repayments of loans payable

( 29 )  

Net proceeds from exercise of options

1 unchanged sentence

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

Repayments of loans payable

Net proceeds from at-the-market agreement

20,408  

Repurchases of common stock

( 98 )  

Net cash provided by financing activities - continuing operations

20,486  

70,589  

Net cash provided by financing activities

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

( 11,750 )  

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

26,601  

21,009  

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

$ 14,854  

$ 69,888  

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents at end of period - continuing operations

$ 13,988  

$ 69,032  

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

1 unchanged sentence

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

$ 14,854  

$ 69,888  

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

9 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 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 .

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 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 nine  month periods ended September 30, 2022 and 2021 .

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

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.

The results for the three and nine months ended September 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.

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, which is now a wholly-owned subsidiary of the Company.

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.

8 unchanged sentences

differ from those estimates under different assumptions or conditions.

Reclassifications

Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation.

Beginning in the third quarter of 2021, depreciation and amortization is presented separately from cost of revenue, general and administrative expenses, selling and marketing expenses and research and development expenses on the unaudited condensed consolidated statements of operations, whereas in prior periods these amounts were included together with the aforementioned financial statement captions.

Additionally, as of September 30, 2021, 

the Company began to present other current liabilities separately from accounts payable and accrued expenses.

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

Amounts for the three and 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.

Liquidity and Going Concern

For all annual and interim periods, management will assess going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and 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 management, management will consider various scenarios, forecasts, projections and estimates and will make certain key assumptions.

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

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

The Company has generated losses since its inception and has relied on cash on hand, external sources of financing to support cash flow from operations.

The Company attributes losses to non-capital expenditures related to the scaling of existing products, 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 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 ’

As of and for the nine months ended September 30, 2022 , the Company had a working capital deficit from continuing operations of $ 1,054,000  and a loss from continuing operations of $ 76,288,000 .

The Company’s cash decreased by $ 17,844,000  for the nine months ended September 30, 2022 , primarily due to the loss from continuing operations of $ 76,288,000 .

The decrease in cash was primarily a result of the loss from continuing operations, which was partially offset by certain non cash adjustments such as the goodwill impairment of $34,835,000 .

Additionally, the decrease in cash was offset by the net proceeds of $ 22,758,000  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.

Assuming the ability to complete sales of shares at current market prices under stable market conditions, as of Septem ber 

30, 2022, th e Company had $ 26,364,000 of gross funds available under the 2022 Sales Agreement. 

Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund operations for the next twelve months following the issuance of these unaudited condensed financial statements.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company is actively monitoring its operations, the cash on hand and working capital.

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

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 Company is currently in the process of reviewing external financing options in order to sustain its operations. 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 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. 

During the third quarter 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 September 

30, 2022, and determined that as of the reporting date the Company had an impairment related to its goodwill in the amount of $ 34,835,000 . 

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

1 unchanged sentence

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.

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

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

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

The carrying amount reported for long-term debt, contingent consideration and long-term receivables approximates fair value as of September 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 six months ended June 30, 2022 .

There were no changes in levels during the nine months ended September 30, 2022 .

Revenue Recognition

8 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Recurring revenue

2 unchanged sentences

$ 8,616  

$ 3,142  

Product and service revenue

53 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Government customers

16 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 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.

As of September 30, 2022 , the Company had approximately $ 28,606,000 of remaining performance obligations not yet satisfied or partially satisfied.

The Company expects to recognize approximately 58 %  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.

Unbilled accounts receivable

2 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 $ 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.

Unbilled accounts receivables of $ 605,000  and $ 415,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 , respectively.

Contract liabilities

1 unchanged sentence

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 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):

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

Contract liabilities as of September 30, 2022 and December 31, 2021 we re $ 4,586,000  and $ 3,272,000 , respec tively.

During the nine months ended September 30, 2022 , $ 2,023,000 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 September 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 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.

Restricted cash and cash equivalents for these client jurisdictions as of September 30, 2022 and December 31, 2021 were $ 888,000  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

1 unchanged sentence

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

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.

As of September 30, 2022  and December 31, 2021, the Company had deposits from continuing operations totaling $ 8,757,000  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 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.

Customer A accounted for 

13 % and less than 10 % of the Company’s unaudited condensed consolidated revenues for the three months ended September 30, 2022 and 2021 , respectively. 

Customer B accounted for less than 10 % and 13 % of the Company’s unaudited condensed consolidated revenues for the three months ended September 30, 2022 and 2021 , respectively. 

Customer C accounted for less than 10 % and 13 % of the Company’s unaudited condensed consolidated revenues for the nine  months ended September 30, 2022 and 2021 , respectively. 

Customer D accounted for less than 10 % and 19 % of the Company’s unaudited condensed consolidated revenues for the nine  months ended September 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 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.

three and nine months ended September 30, 2022 and 2021 .

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

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

No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of 

2 unchanged sentences

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

June 30, 2022

September 30, 2022

December 31, 2021

2 unchanged sentences

$ 1,673  

STS contingent consideration

Right of offset

Right of offset to restricted cash

$ 4,883  

1 unchanged sentence

Significant Accounting Policies

Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10 -K for the year ended December 31, 2021 .

New Accounting Pronouncements Effective in Future Periods

8 unchanged sentences

As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10 -K for the year ended December 31, 2021 .

NOTE 2 –

1 unchanged sentence

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.

The acquisition included total consideration of $ 12,799,000 including;

cash consideration of $ 6,500,000 , $ 1,001,000  related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $ 1,298,000  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 in the amount of $2,000,000  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.

1 unchanged sentence

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.

Any payment related to the STS Earnout will be paid within 60 days of December 

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 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):

16 unchanged sentences

Contract liabilities

Other current and non liabilities

Other current and non-current liabilities

Lease liability

Deferred tax liability

Total liabilities assumed

1 unchanged sentence

10,882  

$ 1,917  

Waycare Acquisition

30 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except per share data)

23 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 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.

As of September 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 % equity interest in Roker Inc.

(“Roker”).

1 unchanged sentence

This investment is accounted for under the equity method.

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 .

During the three and nine  months ended September 

30, 2021, the Company recognized a loss in its unconsolidated investments of $ 74,000  and $ 150,000 , respectively. As of September 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. 

6 unchanged sentences

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 June 30, 2022. 

No factors indicative of impairment were identified during the three months ended September 

NOTE 4  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the 

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

Six Months Ended June 30,

SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION

Supplemental non cash disclosures of cash flow information for the 

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

Nine Months Ended September 30,

Cash paid for interest

Cash paid for taxes

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

Investing activities:

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

20,287  

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

2 unchanged sentences

Note Consideration in connection with the acquisition of STS

Deferred tax liabilities resulting from purchase accounting adjustments in connection with the acquisition of STS

Loans issued for property and equipment

5 unchanged sentences

Recognition of operating lease - right-of-use lease asset

Lease incentive recognized in other current assets, net

Lease incentives

Recognition of operating lease - lease liability

6 unchanged sentences

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 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.

Operating lease expense from continuing operations for the three months ended September 30, 2022 and 2021 was $ 618,000  and $ 105,000 , and for the 

nine months ended September 30, 2022 and 2021  was $ 1,533,000  and $ 278,000 , 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 $ 273,000  and $ 245,000 fo r the nine months ended September 30, 2022 and 2021 , respectively.

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

1 unchanged sentence

Supplemental balance sheet information related to leases as of 

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

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

Operating lease right-of-use lease assets

1 unchanged sentence

Current portion of lease liability

$ 1,066  

Long-term portion of lease liability

16 unchanged sentences

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. 

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 nine  months ended September 

As part of the Company's preliminary purchase price allocation for the acquisition, the Company recognized $ 1,917,000 in goodwill, $ 3,400,000  in customer relationships and $ 700,000 of marketing related intangible assets related to the STS tradename. 

Intangible Assets Subject to Amortization

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

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

Useful Life (in Years)

December 31, 2021

June 30, 2022

September 30, 2022

Intangible assets subject to amortization

3 unchanged sentences

$ 3,660  

$ 2,105  

Marketing related

4 unchanged sentences

17,709  

18,579  

Internally capitalized software

5 unchanged sentences

$ 22,451  

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

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

Customer Relationships

7 unchanged sentences

$ 1,452  

$ 30,447  

Accumulated amortization

8 unchanged sentences

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 

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

Amortization expense for the three months ended 

September 30, 2022 and 2021 was $ 1,063,000 and $ 713,000 , respectively, and for the 

nine months ended September 30, 2022 and 2021 was 

$ 3,055,000  and $ 1,529,000 , 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):

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

2022, remaining

7 unchanged sentences

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.

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

Firestorm Notes

3 unchanged sentences

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.

$ 1,000,000 and $ 998,000 , net of unamortized interest, as of September 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 

2 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Contractual interest

2 unchanged sentences

Schedule of Principal Amounts Due of Debt

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

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

2022, remaining

2 unchanged sentences

$ 3,481  

Loan payable, current portion

Loan payable, long-term

Notes payable, current portion

Notes payable, long-term

Total notes payable

$ 3,479  

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 

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 June 30, 2022 .

The Company maintains a full valuation allowance against its net deferred taxes, outside of the deferred tax liability related to the indefinite lived intangible, through 

September 30, 2022 .

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

Federal, state or foreign income tax audits were in process as of September 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.

3 unchanged sentences

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.

nine months ended September 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 2021  tax years remain subject to examination by the Internal Revenue Service.

As a result of the acquisition of STS, the Company recognized a $ 4,545,000 in identified definite-lived tangible and intangible assets for which the Company received 

no  tax basis due to the stock acquisition.

As a result, the Company recorded a deferred tax liability of $ 954,000  which increased the Company's goodwill related to the STS acquisition.

Due to the overall valuation allowance position of the Company, the deferred tax liability was used to offset the Company's deferred tax asset and thus reducing the total valuation allowance.

This impact to the valuation allowance was booked as a tax benefit.

The tax benefit of $ 954,000  was recorded for the three and nine months ended September 

NOTE 9  

COMMITMENTS AND CONTINGENCIES

August 19, 2019, 

the Company filed suit in the United States District Court for the Southern District of New York against 

three  former executives of the Company who were founders of Firestorm (the “Firestorm Principals”)—

Rekor Systems, Inc.

Suzanne Loughlin, et al ., Case 

Firestorm Principals

On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company (the “Firestorm Principals”) who were founders of two related former subsidiaries—Rekor Systems, Inc.

Suzanne Loughlin, et al., Case no.

1:19 -cv- 07767 -VEC.

January 30, 2020, 

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

The Complaint also 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’

On January 30, 2020, we filed a Second Amended Complaint (the “Complaint”).

The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company in exchange for cash, the Firestorm Notes, the Firestorm Warrants and other consideration.

The Complaint also alleges claims for breach of fiduciary duty, conversion, and trespass to chattels arising from the Firestorm Principals’

alleged deletion of company email records.

The Complaint requests equitable rescission of the acquisition transaction and monetary damages.

The Complaint requests equitable rescission of the acquisition transaction, including relieving the Company from further obligations with respect to the Firestorm Notes and Firestorm Warrants,  and monetary damages.

The Firestorm Principals answered together with counterclaims on 

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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.

The defendants in the suits moved to dismiss the amended complaint.

At this stage of these litigations, the suits against 

two  of the directors have been dismissed and 

one  has been permitted to proceed.

September 28, 2021, 

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

October 21, 2021, 

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

which was denied on 

February 28, 2022. 

March 16, 2022, 

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

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

In July 2022, the Firestorm Principals obtained new counsel. 

2 unchanged sentences

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.

The Company intends to continue vigorously litigating its claims against the Firestorm Principals and believes that the Firestorm Principals’

In related lawsuits, in 2020,  the Firestorm Principals filed various suits in New York, Delaware and Virginia against directors and officers of the Company, alleging breach of fiduciary duty for failure to pay the Firestrom Notes and allow the exercise of the Firestorm Warrants and libel for disclosures related to its claims in the Company’s quarterly filing on Form 10 -Q.

The defendants in the suits moved to dismiss the amended complaint.

At this stage of these litigations, the suits against 

two  of the directors have been completely dismissed.

Appeal of the dismissal has been denied in one of these cases and is pending in the other.and 

one  has been permitted to proceed although the Firestorm Principals have not done so.

March 16, 2022, 

the court in the Virginia action dismissed the breach of fiduciary duty claim without prejudice, which would permit it to be refiled in Delaware Chancery Court, although the Firestorm Principals have not done so.

The Virginia Court denied the motion to dismiss the defamation claim on jurisdictional grounds.

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

The Delaware court has denied our motion to dismiss, but there was only limited discovery before the deadline expired.

The Firestrom Principals are now requesting an extension of the discovery deadline, which the defendant directors are opposing. 

At this stage of these litigations, we are unable to render an opinion regarding the likelihood of a favorable outcome, except where dismissal has been upheld on appeal.

We intend to continue vigorously litigating our claims against the Firestorm Principals and believe that the Firestorm Principals’

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

2 unchanged sentences

(“Fordham”) commenced a lawsuit against the Company in the Supreme Court for the State of New York, New York County.

Fordham alleges that the Company breached an underwriting agreement with Fordham.

Fordham has brought claims for breach of contract, a declaratory judgment, and attorneys’

fees and expenses, and seeks damages.

The Complaint was served on the Company on 

September 25, 2020. 

The Company issued a motion to dismiss counterclaims on 

June 23, 2021. 

The Court granted Fordham’s motion to dismiss Rekor’s counterclaims on 

October 23, 2021. 

November 29, 2021, 

the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by the plaintiff after it set the prices for the 

2018  offering. On 

March 3, 2022, 

the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims in the future, although the Company’s has filed an appeal in the appellate division.

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.

However, the Company maintains that Fordham’s claims have 

no  merit.

To that end it intends to vigorously litigate this action.

Fordham alleged that the Company offended an underwriting agreement with Fordham and brought claims for breach of contract.

On October 

17, 2022, the Court granted Fordham’s motion for summary judgment and denied the Company’s cross-motions for summary judgment and to compel discovery.

The Court awarded Fordham $ 1,025,000 , representing 3 % of the gross proceeds generated from the Company’s previously announced and concluded at-the-market equity program commenced on August 

14, 2019, plus pre-judgment interest accruing at 9 % per annum since April 

14, 2019, and reasonable attorneys’

The Company chose not to appeal the decision and satisfied the judgement.

In exchange for a payment of $ 1,320,000  by the Company, the plaintiff agreed to a full and complete discharge of the plaintiff’s claim. This amount was recorded in other (expense) income on the Company's unaudited condensed consolidated statements of operations. 

In addition, from time to time, the Company 

15 unchanged sentences

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 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.

For t he 

nine  months ended September 

30, 2022,  the Company sold 9,019,062  shares of common stock at a weighted-average selling price of $ 2.62  per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $ 22,758,000  after paying $169,000 related to the issuance cost, as well as 3.0% or $ 709,000 related to cash commissions provided to the Agent.

13 unchanged sentences

The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock.

Series A Cumulative Convertible Redeemable Preferred Stock

Of the 2,000,000 authorized shares of preferred stock, 505,000 shares were designated as $ 0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”).

The holders of Series A Preferred Stock were entitled to quarterly dividends of 7.0 % per annum per share.

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

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

The adjustment to the redemption value was recorded through additional paid-in 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.

Series B Cumulative Convertible Preferred Stock

Of the 2,000,000 authorized shares of preferred stock, 240,861 shares were designated as $ 0.0001 par value Rekor Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”).

As part of the TeamGlobal Merger, the Company issued 240,861 shares of $ 0.0001 par value Series B Preferred Stock.

All Series B Preferred Stock was issued at a price of $ 10.00 per share as part of the acquisition of TeamGlobal.

The Series B Preferred Stock had a conversion price of $ 5.00 per share.

Each Series B Preferred Stock had an automatic conversion feature based on the share price of Rekor.

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

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

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

Series A Preferred Stock Warrants (1)

8 unchanged sentences

Exercised warrants

Outstanding warrants as of June 30, 2022

41,996  

631,254  

15,556  

Outstanding warrants as of September 30, 2022

41,996  

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

631,254  

1 unchanged sentence

692,311  

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

$ 1.03  

$ 3.09  

Intrinsic value of outstanding warrants as of June 30, 2022

$ 6.06  

1 unchanged sentence

$ 3.02  

Intrinsic value of outstanding warrants as of September 30, 2022

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”).

11 unchanged sentences

EQUITY INCENTIVE PLAN

In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”).

The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants.

Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares.

In October 2021, the Company announced it had registered an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan.

Stock Options

4 unchanged sentences

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

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:

September 30, 2022 and 2021 was $ 2,000  and $ 30,000 , respectively, and for the nine  months ended September 

30, 2022 and 2021 was $ 43,000  and $ 90,000 , 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 September 30, 2022 is as follows:

Number of Shares Subject to Option

9 unchanged sentences

( 19,547 )  

Outstanding balance as of June 30, 2022

Outstanding balance as of September 30, 2022

960,152  

1 unchanged sentence

$ 95,000  

Exercisable as of June 30, 2022

Exercisable as of September 30, 2022

959,319  

1 unchanged sentence

$ 95,000  

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.

As of September 30, 2022 , there was $ 0 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan.

Restricted Stock Units

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

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.

September 30, 2022 and 2021  was $ 1,626,000  and $ 664,000 , respectively, and for the nine  months ended September 

30, 2022 and 2021 was $ 5,370,000  and $ 2,510,000 , 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 six months ended June 30, 2022 is as follows:

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

Number of Shares

7 unchanged sentences

( 360,576 )  

Outstanding balance as of June 30, 2022

Outstanding balance as of September 30, 2022

2,056,588  

2 unchanged sentences

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

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.

As of September 30, 2022 , ther e was $ 9,404,000 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 1.67  years.

NOTE 12  

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except per share data)

26 unchanged sentences

Basic and diluted loss per share from discontinued operations

( 0.00 )  

Basic and diluted loss per share

7 unchanged sentences

2,429,924  

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: 

As the Company had a net loss for the three and nine months ended September 30, 2022 , the follo wing 3,709,051  potentially dilutive securities were excluded from diluted loss per share: 

692,311 for outstanding warrants, 

960,152 related to outstanding options and 2,056,588  related to outstanding RSUs.

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.

As the Company had a net loss for the three and nine months ended September 30, 2021 , 

2,429,924  potentially dilutive securities were excluded from diluted loss per share: 

694,299  for outstanding warrants, 

1,082,971  related to outstanding options and 

652,654  related to outstanding RSUs.

NOTE 13  

SUBSEQUENT EVENTS

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. 

In the fourth  quarter of 2022 ,  the Company invested an additional $ 145,000  in the Roker SAFE. 

On October 17, 2022, 

a summary judgment was issued against the Company in the previously disclosed lawsuit brought by the Fordham.

In exchange for a payment of $ 1,320,000  by the Company, the plaintiff agreed to a full and complete discharge of the plaintiff’s claim.

MANAGEMENT ’

33 unchanged sentences

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;

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

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

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section of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.

We are a global leader in the development and implementation of intelligent infrastructure focused on addressing critical challenges across transportation management, public safety, and key commercial markets.

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

We provide products and services across 80 countries as we deliver transformative mission-critical intelligent infrastructure solutions and services for government agencies and commercial clients in the United States and around the world. 

Digital Divide

Society is increasingly digital, automated, and information flows occur in real-time. Technological advancements in the past decade have transformed the way people connect, interact, and transact with others and with the world around them.

Infrastructure is the backbone of a functioning economy:

people, vehicles, materials, and information all require 24/7 mobility, something that depends on well-maintained, synchronized networks and systems. Unfortunately, many areas of the world are faced with aging and legacy infrastructure today resulting from decades of neglect and underinvestment, particularly in the sectors of transportation, mobility, and public safety.

The cost, complexity and interdependency of these systems have made many organizations slow to adopt advances in technology. This creates a digital divide between what is made possible by technology, and the current reality of infrastructure today.

Continued population growth and increased urbanization present unprecedented economic, mobility, public safety, and environmental challenges to cities, states, and metropolitan areas.

Today’s challenges cannot be solved by simply replicating existing approaches and adding more legacy technology.

For the ongoing mobility transformation to keep up with fast-changing global dynamics requires inventive approaches.

Enhancements in data collection, analytics and communications can be employed. 

Smarter, data-driven solutions can make better use of existing infrastructure, rather than tearing it up and starting over.

Roads, bridges, tunnels, and residential areas have much “to tell us”

about how to optimally serve the public with an efficient, safe, and healthy living environment if we tap into the data it can provide and exploit that knowledge intelligently.

Successful approaches will leverage AI-powered software, smart devices, data, and solutions that can integrate into existing infrastructure and workflows.

We see this as the path to intelligence-driven infrastructure and one that gives us a clear market advantage. 

Bridging the Divide

Spurred by the 2021 Infrastructure Investment and Jobs Act in the United States, we expect the world to see a once-in-a-generation surge of investment in infrastructure and competitiveness.

We are a roadway intelligence and data services company providing products and solutions to meet the increasing demand for smarter, safer, and greener intelligent transportation infrastructure.

Our operations are conducted by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc., or Rekor Recognition, Waycare Technologies, Ltd., or (“Waycare”), and Southern Traffic Services, Inc., or (“STS”).

We specialize in:

1) the collection and aggregation of roadway and mobility related data from multiple sources, 2) the analysis and transformation of that data into knowledge and actionable insights, and 3) the distribution of those insights to multiple users in a secure environment using the highest levels of encryption and privacy standards.

Our intellectual property and proprietary technologies harness the latest advancements in artificial intelligence, machine learning, data analysis, edge processing and communications to address critical challenges in transportation management, public safety, urban mobility, and key commercial markets.

Our objective has been to create a collection and distribution service that aggregates multiple streams of data relevant to a transportation and mobility network, converges, processes and analyzes them, and provides real-time and predictive information to decision makers and users of that network in a flexible and rich user environment based on individual needs and use-cases.

Our Rekor One TM  

platform serves as a uniform architecture and backbone for the collection and delivery of roadway intelligence to increase roadway safety, efficiency and sustainability of roadways, and make communities safer, smarter, greener and more connected.

Providing products and services across 80 countries, we deliver intelligent infrastructure solutions for government agencies and commercial clients in the United States and around the world.

Transportation infrastructure is the backbone of a functioning economy.

People, vehicles, materials, and information all require 24/7 mobility, something that depends on well-maintained, synchronized networks and systems.

The cost, complexity and interdependency of these systems has made it difficult to keep pace in a rapidly growing and changing world.

Rekor’s data-driven solutions help make better use of existing infrastructure and have also been developed to aid in planning and implementing the next generation of transportation infrastructure, as well as be part of that infrastructure.

Roads, bridges, tunnels, and residential areas have much to tell us if we gather and analyze the data they can provide and exploit the knowledge that gives us about how to optimally serve the public with an efficient, safe, and healthy living environment.

Rekor is driven to help its customers generate and make intelligent use of that knowledge.

Spurred by the 2021 Infrastructure Investment and Jobs Act, we expect the United Sates to make an unprecedented investment in transportation infrastructure.

The bill allocates $550 billion in new spending, spread out over five years, to rebuild roads, bridges and rails, and airports, in addition to providing high-speed internet access and addressing climate concerns.

As part of this, federal, state, and local governments are prioritizing strategic investments dedicated to improving existing transportation management and increasing public safety through modern, efficient and connected infrastructure.

Officials are also planning for roadways of the future that can account for connected and autonomous vehicles.

With these investments, we estimate an addressable global intelligent infrastructure market of $148 billion by 2026.

With access to multiple sources of data and our award winning AI-driven innovations, we believe we have established a leadership position in intelligent infrastructure solutions that puts us at the center of this emerging opportunity.

With our advanced technology and domain expertise, we have developed solutions that address diverse use cases across a number of public and private sector segments. 

Using our proprietary centralized platform to maximize the value of our technology to customers, we are well positioned to help governments and businesses collect, analyze and turn infrastructure data into insights with new products and services that increase mobility and safety, drive revenue, and power innovation for billions of people and trillions of interactions.

As part of this, federal, state, and local governments are prioritizing strategic investments dedicated to improving existing transportation management and increasing public safety through modern, efficient and connected infrastructure.

We expect to play an important role in meeting the need for improved data as agencies plan for and build the transportation networks of the future.

Once completed, we also expect those networks to be data interactive:

generating and distributing real-time intelligence that can be used to improve traffic management, public safety, maintenance and emergency services, as well as by planning agencies and users such as connected and autonomous vehicles.

Our primary objective has been to develop the technology that will play a central role in that process.

Our first step was to develop the ability to extract a more accurate and detailed information of roadway and mobility activity than existing technology.

We call this “ground truth data”

and have used artificial intelligence algorithms and machine learning to design computer-vision software that provides a wealth of important data about the movements of motorized and non-motorized vehicles, including bicycles and pedestrians.

It includes vehicle classifications, counts, direction of travel, speed, make, model, color and other data.

Our technology allows this ground truth data to be extracted by optical and IoT sensors at the “edge”

of the network, close to the source of the activity being evaluated.

Extracting relevant data at the edge improves the ability to generate and communicate timely insights by reducing latency, response time, and the volume of raw data that needs to be communicated through the network.

Our platform also provides the ability to anonymize vehicle information and to distribute discrete information to multiple users based on the specific data that each user needs to know.

This permits us to provide unmatched cross-agency and public/private entity collaboration using a single source-of-truth while presenting customized information to multiple users simultaneously, where previously agencies would derive information from separate sources, at different times and with varying degrees of accuracy.

As a result, we can provide simultaneous alerts and consistent, real-time situational awareness during emergencies to separate agencies such as first-responders, police, fire and medical support, while also providing other agencies with the benefit of comprehensive, accurate and fully up-to-date archival information for use in planning, management and maintenance.

The ability of our platform to allow each sensor in the network to be linked together and to supply customized data to multiple users can provide significant reductions in costs for our clients as compared to the installation and maintenance of separate dedicated systems.

Thus, the combination of our software’s data extraction and distribution capabilities allows us to simplify the network environment while enhancing its functionality at the same time.

Simply put, we can dramatically increase the amount of usable data and actionable insights available to our clients at the same time that we can significantly reduce the number of sensors and infrastructure required to collect that data. 

Another advantage of our software is that it can be used with a wide variety of commercially available sensors, allowing customers as to achieve superior results leveraging existing infrastructure investments, and with much less expensive equipment than was previously necessary.

This makes applications of Rekor technology feasible in environments where costs were previously prohibitive or inaccessible.

While Rekor has developed a line of optical and IoT sensors that are purpose-built to make the most efficient use of our software, customers can use it with existing sensor systems and integrate to our network seamlessly, without needing to install new equipment.

This reduces installation and lead time in the adoption of our solutions and facilitates cross agency adoption and data unification.

Having achieved the ability to obtain comprehensive ground truth data more accurately and at less expense than existing systems, our next objective was to develop the ability to aggregate multiple sources of third-party data into the platform.

We have designed our platform to serve as a central exchange, so that third party data can be used in tandem with our ground truth data to provide a more holistic view of the transportation network within a particular region.

We call this the Rekor Partner Network (RPN). 

RPN members include Waze, Mobileye, Wejo, Otonomo, TomTom, Tomorrow.io, and dozens of other leading data companies around the world.

By incorporating weather forecasts, event and dispatch schedules, historical patterns and similar data into our analysis, we can provide a wide variety and volume of diverse and related insights that are more comprehensive, and predictive.

Using these additional sources of data, we are able to provide our clients with a regional technology environment that ingests and analyzes data from both existing infrastructure and third-party sources, producing superior visibility of the transportation and mobility network in real time, together with improved identification and predictions of disruptive events. 

Intelligence-Driven Innovation

As described below, we have concentrated on developing our intelligent infrastructure solutions to work through a single integrated platform, which creates a unique, market-advantaged position for us.

The volume, variety, velocity, and veracity of data that we capture and apply to our proprietary artificial intelligence and machine learning models provide us with an even greater advantage.

From the very beginning, we have been collecting, aggregating, cleansing, extracting, transforming, and using data to build and improve our models. 

Today, we can look at the roadway and extract and process a deeply detailed picture of the environment and what is moving in that environment with an unmatched level of accuracy in our inferences, predictive analytics, and insights.

We currently provide software, hardware and services to support intelligent transportation networks and enhance community safety and security. 

These products and services have been designed to support a single integrated platform:

Rekor One TM .

Using this proprietary platform, Rekor can extract real time data about the activity on a transportation network, aggregate it with multiple streams of data from other sources, analyze and reprocess it holistically, and then use it to distribute coherent information to customers that can be used to make decisions about how the network should be used and managed.

We have concentrated on developing a platform that facilitates the efficient collection, analysis and distribution of a large volume and variety of data.

The velocity and veracity of data that we have captured and applied in building our proprietary artificial intelligence and machine learning models have provided us with a significant first-mover advantage.

From the very beginning, we have been collecting, aggregating, cleansing, extracting, transforming, and using data to build and improve our models.

Today, we can extract and process a deeply detailed picture of a roadway environment and what is moving in that environment with an unmatched level of accuracy in our inferences, predictive analytics, and insights.

We are rapidly growing the geographic area connected by smart optical IoT devices at-the-edge to the open architecture of our Rekor One intelligence platform.

In addition to digitizing existing infrastructure by capturing real-time data from new and existing roadway devices, our platform enables us to extend the scope of our knowledge via proprietary algorithms that pull the data and process it through our models.

This reduces our clients’

need to invest in legacy system upgrades and gives them the ability to gain additional value from existing infrastructure.

Beyond this, we are augmenting our data through a growing network of data partners. 

This provides multiple trillions of additional data points that unlock further real-time and predictive operational insights about what is happening in a given transportation environment at every moment.

Example data sources from our partner network include mobility, navigation, and traffic applications, in-vehicle data, connected, autonomous vehicles (“CAV”) datasets, weather, supply chain, event management, and a rapidly growing list of customer-provided and crowd-sourced data.

Example data sources from our partner network include mobility, navigation, and traffic applications, in-vehicle data, connected, autonomous vehicles datasets, weather, supply chain, event management, and a rapidly growing list of customer-provided and crowd-sourced data.

The more data we capture and inject into our machine learning models, the smarter and more accurate they become.

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From these insights, customers can make better informed proactive decisions and achieve improved operational efficiency through a more strategic allocation of resources.

All of this is facilitated by our proprietary Rekor One™

intelligence platform.

Fueled by Data and Artificial Intelligence

At the core of all our intelligent infrastructure solutions is the Rekor One intelligence platform.

Fueled by rich data and powered by AI, Rekor One is purpose-built to be a single source of truth and insights serving multiple customer segments and multiple missions.

From Rekor One, we can simultaneously deliver vertical-specific solutions for traffic management, public safety, and commercial markets.

With the Rekor One platform as our foundation, we collect and transform data into information, and information into knowledge to give governments and businesses a comprehensive picture of roadways, vehicles, traffic, incidents, and more.

Our solutions deliver unrivaled insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.

Built on the foundation of Rekor One, we deliver vertical-specific solutions for traffic management, public safety, and commercial markets.

At the core of all our intelligent infrastructure solutions is the Rekor One TM intelligence platform.

Fueled by rich data and powered by AI, Rekor One TM is purpose-built to be a single source of truth and insights serving multiple customer segments and multiple missions.

Built on the foundation of Rekor One, we can simultaneously deliver vertical-specific solutions for traffic management, public safety, and commercial markets.

With our advanced technology and domain expertise, we have developed solutions that address diverse use cases across a number of public and private sector segments.

Example use-cases we can support include:

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Vehicle and license plate recognition for public safety

With access to multiple sources of data and our award-winning AI-driven innovations, we believe we have established a leadership position in providing these intelligent infrastructure solutions.

Our solutions deliver unrivaled insights that increase roadway safety, efficiency, and sustainability while enabling safer, smarter, and more connected cities and communities.

Using our proprietary centralized platform we can collect, analyze, and turn infrastructure data into insights with new products and services that help governments and businesses increase mobility and safety, drive revenue, and power innovation for billions of people and trillions of interactions.

The Road Ahead

We believe the world is at an inflection point.

In the next five years, governments will make significant investments to improve aging infrastructure, roadway conditions, and public safety via modern, efficient, and connected infrastructure.

Recent technological developments such as artificial intelligence, the internet of things, edge- and cloud-based computing, and advances in rich data management have put us in a unique position to help revolutionize mobility through intelligent infrastructure and close the gap between rapidly evolving technology and aging, legacy infrastructure.

In the next five years, governments will make significant investments to improve aging infrastructure.

Recent technological developments such as edge- and cloud-based computing artificial intelligence, advances in rich data management and the internet of things, have put us in a unique position to help revolutionize mobility by developing intelligent infrastructure that closes the gap between rapidly evolving technology and aging, legacy infrastructure.

These are not just our aspirational goals, but things we’re working on now.

By aggregating data from optical sensors, connected vehicles, and third-party providers, processing it using artificial intelligence, and packaging it to provide real-time insights and long-term solutions for intelligent infrastructure, we sustainably help governments and businesses address both issues of aging infrastructure and the unprecedented mobility, public safety, economic, and environmental challenges they face.

We believe our leadership in intelligent infrastructure solutions, advanced technology, and breadth of use cases across multiple industries puts us in an advantaged market position at the forefront of developing a new economy and poised to unlock massive gains as we provide governments and businesses with new products and services that use trillions of intelligent infrastructure interactions to increase safety and sustainability, drive revenue, and power innovation for the benefit of billions of people.

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

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

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

By aggregating data from optical sensors, connected vehicles, and third-party providers, processing it using artificial intelligence, and packaging it to provide real-time insights and long-term solutions, we can help governments and businesses address issues of aging infrastructure as well as the unprecedented mobility, public safety and environmental challenges they face.

We believe our leadership in in using advanced technology to develop intelligent infrastructure solutions puts us in an advantaged market position at the forefront of developing a new economy. 

As we provide governments and businesses with new products and services that use trillions of intelligent infrastructure interactions to increase safety and sustainability, drive revenue, and power innovation for the benefit of billions of people, we expect to serve both our shareholders and the world at large.

Opportunities, Trends and Uncertainties

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With roadside deployments experiencing explosive growth in count and density, scalability, latency and bandwidth have become aspects of competition in the market.

Our systems have been designed to address these issues through the use of more effective edge processing,  enabled both by incorporating the increasingly effective new GPUs into our systems and continual improvements in the efficiency of our AI algorithms.

Our systems have been designed to address these issues through the use of more effective edge processing, enabled both by incorporating the increasingly effective new GPUs into our systems and continual improvements in the efficiency of our AI algorithms.

Our edge processing systems ingest local HD video streams at the source and convert the raw video data to text data, dramatically reducing the volume of data that needs to be transferred through the network.

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●$150 million for the current administration to establish a grant program to modernize state data collection systems

●$500 million  for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety

●$500 million for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety

Components of Operating Results

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Revenue from direct sales is generally recognized when the hardware is delivered, or installation is completed in accordance with the terms of the contract.

Subscription revenues may include hardware and software subscriptions and are recognized as recurring revenue throughout the term of the lease agreement.

Revenue from hardware subscriptions may include software subscriptions and are recognized as recurring revenue throughout the term of the subscription agreement.

Our related services include customer support and implementation services, as well as management services such as violation notices, billing and collections, website portals and call centers related to programs that employ our software solutions.

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Our historical operating results in dollars are presented below.

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

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Research and development expenses

Goodwill impairment

Depreciation and amortization

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Loss before income taxes and equity method investments

Income tax provision

Income tax benefit (provision)

Equity in loss of investee

Net loss from continuing operations

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

Comparison of the Three and Nine Months Ended September 30, 2022 and the Three and Nine Months Ended September 30, 2021

Total Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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.

Revenue increased 184% to $7,425,000 for the three months ended September 30, 2022, compared to the prior corresponding quarter.

The increase in revenue for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was primarily attributable to the synergies with our recent acquisitions.

During the three months ended September 30, 2022, revenue attributable to our acquisition of STS was $3,503,000. 

Revenue increased 38% to $15,371,000 for the nine months ended September 30, 2022, compared to the corresponding prior nine-month period.

The increase in revenue for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily a result of our recent acquisition of STS and its existing customer base.

During the nine months ended September 30, 2022, revenue attributable our STS acquisition was $3,990,000.

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 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

Cost of revenue, excluding depreciation and amortization

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.

For the three and nine months ended September 30, 2022, cost of revenue, excluding depreciation and amortization increased by $2,717,000 and $4,075,000 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Research and development expenses

Goodwill impairment

Depreciation and amortization

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General and Administrative Expenses

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.

The increase in general and administrative expenses during the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, were primarily due to a $1,863,000 and $5,654,000 increase in personnel costs related to an increase in headcount, including a $62,000 and $184,000 increase in stock-based compensation, respectively. Additionally, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, we saw an increase in rent expenses mainly associated with our new offices throughout the United States and Israel.

During the three months ended September 30, 2022 we saw a decrease in professional fees compared to the same three month period in 2021 due to merger and acquisition activity experienced in the third quarter of 2021, which was related to the Waycare acquisition. 

Selling and Marketing Expenses

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.

The increase in selling and marketing expenses during the three and nine months ended September 30, 2022, compared to the three and nine months ended September 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 nine months ended September 30, 2022, there was an increase in staffing to support our growth plan which led to a $1,454,000 and $3,533,000 increase in personnel costs, including a $304,000 and $931,000 increase in stock-based compensation, respectively.

Research and Development Expense

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. 

The increase in research and development expenses during the three and nine months ended September 30, 2022, compared to the three and nine months ended September 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 nine months ended September 30, 2022, there was an increase in staffing to support the Company’s new products which led to a $2,215,000 and $7,162,000 increase in personnel costs, including a $520,000 and $1,559,000 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 $1,014,000 during t he nine  months ended September 30, 2022 compared to the nine months ended September 30, 2021 . 

Goodwill Impairment

During the third quarter of 2022, we experienced a significant decline in our market capitalization, which management deemed a triggering event related to goodwill.

As a result, we performed an interim impairment assessment as of September 30, 2022 and determined that as of the reporting date we had an impairment related to goodwill in the amount of $34,835,000. 

Depreciation and Amortization

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Other Expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Total other income (expense)

Interest expense and other income remained consistent period over period. 

Other expense increased as a result of a legal settlement. 

Non-GAAP Measures:

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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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss from continuing operations

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Loss due to change in value of equity investments

Goodwill impairment

Legal settlements

One-time consulting fees

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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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except percentages)

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Adjusted Gross Margin

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

Adjusted Gross Margin, for the three and nine months ended September 30, 2022 and 2021 decreased to 

44.5% from 46.4% , and 42.9% from 57.6%, respe ctively.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 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.

For the nine months ended September 30, 2022 we won contracts value d at $8,297,000 , compared to 

$7,294,000 of contracts won for the nine months ended September 30, 2021 .

This represents a $1,003,000  or 14%  increase, period over period. 

The increase 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.

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Performance Obligations

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.

As of September 30, 2022, we had approxim ately $28,606,000 of contracts that were closed prior to September 30, 2022 but have a contractual period beyond September 30, 2022 . This represents an increase of $6,019,000 or 27% 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 58% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.

On occasion, our customers will prepay the full contract or a substantial portion of the contract.

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

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

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

Lease Obligations

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

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

Columbia, Maryland – The corporate headquarters

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

Six Months Ended June 30,

Nine Months Ended September 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 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 $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.

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.

Net cash used in operating activities for the nine months ended September 30, 2022 had a net decrease of $17,772,000, which was attributable to the increase in the loss from continuing operations of $76,288,000.

This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $2,813,000 to $5,413,000 for the nine months ended September 30, 2022 compared to $2,600,000 for the nine months ended September 30, 2021.

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

Additionally, for the nine months ended September 30, 2022 we recognized an impairment related our goodwill of $34,835,000. 

The net increase in net cash used in investing activities of $32,821,000 was primarily due to an increase in the outflow of funds related to merger and acquisition activities.

During the nine months ended September 30, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS. During the nine months ended September 30, 2021, the Company had net cash outflows of $40,699,000 related to the acquisition of Waycare. 

Net cash provided by financing activities for the nine months ended September 30, 2022 decreased by $48,057,000 from the prior nine month period ended September 30, 2021.

During the nine months ended September 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 $22,758,000. 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 nine months ended September 30, 2022 and 2021, we funded our operations primarily through cash from operating activities and the sale of equity.

As of September 30, 2022, we had cash and cash equivalents from continuing operations of $8,757,000 and a working capital deficit of $1,054,000, 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.

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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 have generated losses since our inception and have relied on cash on hand and external sources of financing 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 ’

As of and for the nine months ended September 30, 2022, we had a working capital deficit from continuing operations of $1,054,000 and a loss from continuing operations of $76,288,000.

Our cash decreased by $17,844,000 for the nine months ended September 30, 2022 primarily due to the loss from continuing operations of $76,288,000.

The decrease in cash was partially offset by offset by certain non cash adjustments such as the goodwill impairment of $34,835,000.

Additionally, the decrease in cash was offset by the net proceeds of $22,758,000  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.

Assuming the ability to complete sales of shares at current market prices under stable market conditions,  as of September 30, 2022, we had $26,278,000 of gross funds available under the 2022 Sales Agreement. 

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company is actively monitoring its operations, the cash on hand and working capital.

2021 Public Offering

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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.

The acquisition included total consideration of 

$12,799,000  including;

cash consideration of $6,500,000, 798,666 shares of the Company’s common stock, valued at $2,000,000, 

$1,001,000 related to an earnout based on the achievement of certain performance metrics, 

$1,298,000 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. 

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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 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.

For t he nine months ended September 30, 2022, the Company sold 9,019,062 shares of common stock at a weighted-average selling price of $2.62 per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $22,758,000 after paying $169,000 related to the issuance cost, as well as 3.0% or $709,000 related to cash commissions provided to the Agent.

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

As of September 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