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Item 8. Financial Statements and Supplementary Data

2023-03-29 compared with 2022-03-31 · 1172 added, 1188 removed, 1715 unchanged (58% of the section changed)

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We undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise.

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 operate 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 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.

We see an array of corresponding concerns around mobility, public safety, and sustainability impact:

Staggering fatalities and injuries:

 Globally, roadway crashes cause nearly 1.3 million preventable deaths and 50 million injuries each year –

making it the leading killer of children and young people worldwide.

These numbers in both absolute and relative terms, have remained largely unchanged for the past 20 years.

Urbanization complexities:

 As of 2021, 57% of the world's population lives in urban areas, and expected to increase to 68% by 2050, adding about 2.22 billion “connected”

people to urban areas.

Complexities of urban traffic has been forcing city planners and governments to find smarter ways to improve mobility by reducing traffic congestion, ensure road safety and above all limit serious environmental damage due to increased pollution.

Mushrooming Congestion:

Traffic congestion costs Americans an average of 97 hours and more than $1,000 in wasted fuel and time every year.

Disjointed systems and siloed communication:

 Traffic managers and first responders today rely on a patchwork of separate, non-integrated systems. 

The inability to seamlessly share data between systems and communicate analytical results between agencies and departments in real time, means critical decisions are being made without the most accurate and up-to-date information.

Legacy and underused technology:

 Most technology currently used for traffic management and public safety is limited to a single purpose and does not make use of the most recent advances in imaging, data science and communications.

It is also often priced at a premium, placing it outside the reach of many agencies and departments.

Manual and analog approaches:

 Current incident and hazard detection relies heavily on physical inspections, observation, and citizen reporting.

This creates knowledge gaps, burdens resources, and slows responses.

Traffic managers and first responders are obligated to use manual processes to monitor roadway status and communicate with supporting departments.

Outdated, damaged highways:

 The National Highway System was built in 1956. 

Since then the population of the United States has more than doubled, while vehicle miles traveled have quadrupled.

Toda y, 50% of roa ds are rated in poor or mediocre condition.

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

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

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

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

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

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

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

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

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

Bridging the Divide

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

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

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

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

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

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

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

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

Intelligence-Driven Innovation

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

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

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

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

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

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

This reduces our clients’

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

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

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

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

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

Due to the incredible strength and accuracy of our models, we can extract more data from the roadways than ever before possible, and generate rich multi-dimensional insights for our customers about what is happening in real-time.

In addition, we use AI-driven predictive analytics to forecast what will happen in the next five minutes, in 12 or 24 hours, and even days and months into the future.

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

All of this is facilitated by our proprietary Rekor One™

intelligence platform.

Fueled by Data and Artificial Intelligence

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

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

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

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

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

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

Example use-cases we can support include:

Traffic management and analytics

Predictive traffic congestion modeling and forecasting

Roadway monitoring and incident detection and response

Support systems for integrated corridor management

Electric vehicle adoption and charge station planning

Commercial vehicle and tonnage monitoring and analysis

Real-time emissions analysis, sustainability, and green initiatives

Live and archival HD video management and traffic surveillance

Law enforcement and intelligence-based policing

Contactless compliance and enforcement

Vehicle and license plate recognition for public safety

Rekor stands at the forefront of innovation, leading the charge to become the premier provider of roadway intelligence and data-driven mobility insights on a global scale.

As a technology company, we are dedicated to transforming the public safety, urban mobility, and transportation management market segments worldwide with our cutting-edge, AI-driven solutions tailored specifically to the unique needs of each sector.

Our commitment to delivering mission-critical solutions for roadway intelligence is driven by our vision of creating smarter, safer, and more sustainable streets for all communities.

To achieve this vision, we strive to collect, connect, and organize the world's mobility data, harnessing its full potential to provide the most essential, real-time, and predictive actionable mobility insights.

With our innovative approach and relentless pursuit of excellence, we are making mobility data universally accessible and useful for all, empowering our customers to make informed decisions and drive meaningful progress towards a better future.

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

A New Operating System for Roadways

The condition of national transportation infrastructure systems is a matter of great concern, particularly in the United States.

As the private sector continues to innovate and make headlines with cutting-edge technologies such as autonomous vehicles, flying taxis, and smart delivery drones, it's paradoxical that essential issues such as roadway congestion, safety, vehicle emissions and equitable access are worsening at an alarming rate.

So much so that on February 2, 2023, the US Department of Transportation declared a national crisis and state of emergency for roadway safety and launched an urgent roadway safety call-to-action demanding stakeholders to commit to specific actions to reverse the spike in serious injuries and deaths on our roadways.

According to a report from the American Society of Civil Engineers ("ASCE"), US infrastructure has been graded a C minus, indicating that there is significant and urgent need for improvement.

Over 65% of the 4.3 million miles of US roadways are rated in poor condition, which impacts the safety of drivers and passengers.

The issue of congestion is also a serious concern, estimated to cost US citizens a whopping $120 billion per year in economic and productivity losses.

Furthermore, transportation-related greenhouse gas emissions –

motorists' emissions, particularly when trapped in traffic account for a significant proportion of the country's total emissions are a leading contributor to declining sustainability, which has far-reaching environmental impacts.

Addressing the road infrastructure issue is imperative for both economic and ecological reasons.

Last but not least, tragically, more than 43,000 people lose their lives each year while using the nation's transportation network of streets, roads, and highways, which represents a stark failure in public safety and policy.

If these transportation network issues remain unaddressed, it is projected that the United States will face a $10 trillion gap in its gross domestic product.

To address urgent transportation issues and ensure the competitiveness of the US economy, an unprecedented amount of funding has been made available from the federal government through the Infrastructure Investment and Jobs Act ("IIJA"), Inflation Reduction Act, and CHIPS and Science Act to create digitally-enabled transportation infrastructure that will provide public goods and new economic value.

This represents a once-in-a-generation level of investment and bipartisan support for creating and scaling transportation digital infrastructure for the 21st century.

Rather than a complete reset or rebuilding of infrastructure, the focus is rather to leverage their power of funding and policymaking to build on previous investments, promote new technology layers, and ensure universal access to digital infrastructure systems throughout the country.

The ultimate objective is to adopt an augmented approach to existing physical infrastructure that blends the strengths of physical, digital, and operational infrastructure with mobility data, including mobile phones, connected vehicles, roadway sensors, and more.

The goal is to enable and coordinate private and public collaboration through a digital-enabled mobility internet and operating system for the roadways that will advance smarter, safer, greener roadways for all.

This is a unique moment for Rekor, and one that we have been preparing for since 2018.

Roadway Intelligence

Rekor has been dedicated to being a leader in roadway intelligence by collecting, connecting, and organizing global mobility data since its inception.

Today, our comprehensive portfolio offers multiple cutting-edge, AI-driven, edge-based Internet of Things ("IoT") devices for roadside data collection, a vast array of curated and integrated data sets from a network of transportation ecosystem data providers, tailored platforms, applications, and data streams that provide accurate, real-time, and predictive actionable insights for any moving objects on roadways.

We specialize in collecting and aggregating mobility-related data from multiple sources into our Rekor One™ roadway intelligence engine, transforming this data into knowledge and actionable insights, and securely distributing those insights to multiple users across our software platforms and applications.

Our proprietary technologies use recent advances in artificial intelligence, machine learning, data analysis, edge processing, and communications.

They are designed to be integrated into existing roadway and roadway sensor infrastructure to deliver real-time and predictive analytics that address critical challenges in transportation management, public safety, urban mobility, and other key commercial markets.

By applying a multi-layer architectural approach and protocols inspired by the Open System Interconnection ("OSI") model, which was instrumental in creating computer operating systems in the 1970s and the internet in the 1980s, we are collaborating with members of the Rekor Partner Network to integrate various transportation infrastructure systems into a cohesive network of roadway intelligence assets and insights.

This involves consolidating fragmented and disparate systems, as well as adding new layers of connectivity, to create a unified infrastructure.

To achieve this goal, we are working closely with a wide range of stakeholders, including local and federal government agencies, law enforcement, transit providers, infrastructure owners/operators, automotive OEMs, and technology and communications providers.

At Rekor, we are building a future for our customers where the mobility internet is interactive, generating and distributing real-time transportation intelligence to improve traffic management, public safety, maintenance, and emergency services, and planning agencies, as well as by connected and autonomous vehicles.

Our primary objective has been and remains to develop unique and differentiated AI-based and edge-based IoT that will play a central role in facilitating this process, while aligning with key partners in the transportation ecosystem to provide the most comprehensive view of roadways.

We will continue to optimize our investments to uniquely combine physical and digital infrastructure that is foundational to a new operating system for the roadways.

As agencies plan for and build the transportation network of the future, Rekor expects to play a critical and disproportionately valuable role in meeting the essential need for real-time and predictive roadway intelligence.

Roadway Intelligence Powered by Rekor

Rekor's cutting-edge technology and domain expertise gives us a position of strength in the emerging field of roadway intelligence.

Rekor One™

roadway intelligence engine is purpose-built to be a single source of truth, fueled by rich data and powered by AI.

With access to multiple sources of data and our award-winning AI-driven innovations, we provide a range of solutions that address diverse use cases across various public and private sector segments.

Our platform facilitates the efficient collection, analysis, and distribution of vast amounts of data, unlocking real-time and predictive operational insights like never before.

Using our advanced technology and centralized platform, we are well-positioned to provide a single-source of truth for roadway intelligence, and help governments and businesses turn infrastructure data into actionable insights that increase mobility and safety, drive revenue, and power innovation for billions of people and trillions of interactions.

At the core of our roadway intelligence solutions is the Rekor One roadway intelligence engine.

It is through this engine that we deliver a range of solutions that cater to public safety, urban mobility, transportation management, and commercial markets.

Within Rekor One, our proprietary algorithms curate data from multiple sources, including edge-based IoT devices, existing roadway sensors, and a growing network of transportation data partners, unlocking multiple trillions of additional data points.

We use this data to generate multi-dimensional insights in real-time, and AI-driven predictive analytics that leverage patterns of what happened in the past so that we can forecast what will happen in the future.

These insights enable our customers to make better-informed proactive decisions and achieve improved operational efficiency through strategic resource allocation.

Rekor's solutions can support diverse use cases, including real-time incident detection and response, data driven traffic operations and traffic management, proactive traffic calming around events, Federal Highway Administration ("FHWA") mandated vehicle classification, counts, and speed collection and reporting, analytics for bicycle, pedestrians, and other micromobility modes, patterns and hot spots for greenhouse gas emissions, high-definition ("HD") video management and traffic surveillance, law enforcement and intelligence-based policing, citation management, contactless compliance and enforcement, among others.

With our advanced technology and domain expertise, we are well-equipped to serve multiple public agencies and private sector segments with comprehensive roadway intelligence.

To summarize, Rekor One roadway intelligence engine, along with our Rekor Partner Network allows us to collect, connect, and organize more data from the roadways than ever before possible, and generate rich insights that enable our customers to make thoughtful decisions impacting their communities every day.

With our deep expertise and technology, Rekor is well positioned to help businesses and governments unlock the true potential of their infrastructure data, driving innovation and enhancing the lives of billions of people worldwide.

The Road Ahead

We believe the world is at an inflection point.

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

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

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

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

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

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

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

(“Waycare”).

We find ourselves at a pivotal moment in history, where governments are investing heavily in upgrading and digitizing outdated infrastructure.

Recent technological advances, such as edge- and cloud-based computing, artificial intelligence, and the internet of things, have given us an unprecedented opportunity to revolutionize mobility and bridge the divide between rapidly evolving technology and aging infrastructure.

These endeavors are not simply aspirations, but active pursuits we are currently engaged in as described in detail below.

Rekor is a technology company that provides state-of-the-art AI-driven roadway intelligence solutions to enhance public safety, urban mobility, and transportation management.

By collecting, connecting, and organizing the world’s mobility data, Rekor delivers precise, real-time, and predictive actionable insights for any moving objects on roadways.

Our unwavering dedication to delivering mission-critical solutions is propelled by our vision of helping to creating intelligent, secure, and sustainable streets for all communities.

The ultimate objective is for Rekor to be the foundation of a digital-enabled internet and operating system for roadways that will enable smarter, safer, and more eco-friendly mobility for all.

Rekor is making mobility data widely accessible and useful for all, empowering customers to make informed decisions and drive meaningful progress towards a brighter future.

Platforms, Products, and Solutions

We generate revenue through the sale of software and software related data services as well as through the sale of associated hardware and peripheral products.

Our Rekor One™

platform has been designed as the engine of a unifying operating system that supports the assimilation analysis and distribution of the data generated from these products and services as well as data incorporated from other sources.

While we expect to continue to provide long-term licenses with maintenance contracts in the case of certain strategic partnerships and customized fulfillment for large customers, we expect the bulk of our current solutions to be sold through subscriptions using a software as a service (“SaaS”) sales model.

In some cases, these subscriptions are associated with hardware sales, while in others they are provided for use with existing systems.

An advantage of the Rekor One™

platform is that it is designed to enable customers to subscribe to our software services for use on a network of existing sensors and then supplement and upgrade the network over time using our custom-designed proprietary sensor systems.

Rekor's revenue streams are driven by our cutting-edge software and data services, along with complementary hardware and peripheral products.

The Rekor One™

platform is the central hub of an integrated operating system, supporting the assimilation, analysis, and distribution of data from various sources.

Our sales strategy involves offering subscriptions for our software solutions, utilizing the software as a service (“SaaS”) model.

These subscriptions can be provided with or without hardware sales, and our platform is designed to enable customers to enhance their existing sensor network by integrating our proprietary sensors into the network over time.

While we may continue to offer long-term licenses for certain strategic partnerships, we anticipate that the bulk of our revenue will come from our innovative subscription-based model.

Rekor One™

Intelligence Platform

Rekor One™

was purpose-built to be our foundation as a single AI-powered intelligence platform designed to serve multiple missions.

Rekor One™

is a modular, configurable, rapid development platform that houses the machine learning models and other proprietary technology that power all our business lines and solutions, including Rekor One™

for Traffic Management, Rekor One™

 for Public Safety, and multiple commercial use-cases. 

Rekor One™

and all our intelligent infrastructure solutions powered by Rekor One™

use industry leading security technologies and standards to protect all captured and connected data from unauthorized access or use.

We use end-to-end encryption and proprietary data filters as additional protective measures.

Data that we capture is used to feed our services and solutions under strict privacy protocols.

Customers can access their data 24/7 until it is purged and have the flexibility to manage their data retention periods based on their needs and local regulations.

Our platform also uses AWS GovCloud hosting for secure data handling and is stored in secure databases where only authorized system admins have access.

Additionally, Rekor One™

incorporates Rekor’s privacy filter to strip personally identifiable information (“PII”) from data using our proprietary algorithm that is completely irreversible. 

Rekor One™

Traffic Management Solutions

Our suite of Traffic Management solutions is powered by the Rekor One™

intelligence platform and its proprietary data, artificial intelligence, and machine learning technologies.

Within the Traffic Management vertical, we provide a wide range of solutions that can benefit cities, states, municipalities, departments of transportation and transit agencies.

These products include software modules for Roadway Monitoring and Response (“RMR”), Traffic and Infrastructure Analytics (“TIA”), and our Live and Archival Traffic View (“LATV”).

In all instances, our Rekor One™

Traffic Management solutions include a subscription that allows customers to effectively digitize their data resources from existing infrastructure and leverage that data with third-party data and software based services we provide.

As described below, these solutions give them advanced tools to make critical real-time decisions as well as develop long-range strategies that improve the lives of their citizens.

Rekor One™

Traffic Management - Roadway Monitoring and Response

Powered by Rekor One™, our RMR solution is a full-scale cross-agency incident detection and management solution that allows customers to effectively implement incident detection and management within their existing workflow and gain real-time access to vital information needed to rapidly identify, manage, and recover from incidents.

The RMR solution is used to identify and verify incidents as well as assist in responding to and clearing them.

It uses Rekor’s proprietary technology to detect anomalies and irregularities in traffic patterns, understand when incidents happen, and even identify areas of high risk where incidents can potentially occur in the future.

These tools make incident detection far more reliable and efficient.

Departments of Transportation (“DOT”) are now able to quickly identify the anomalies and incidents on roads in real-time and see them displayed on a user-friendly live map interface.

Dashboards provide comprehensive monitoring of roadways and the ability to share information with partner agencies and directly to the public in real-time.

RMR also includes reporting capabilities to archive incident and event information, and analytics to help users better understand trends, patterns, and planning.

This helps the DOT to make proactive decisions based on the incident spot and immediate incident alarm, providing accurate information about what is happening in the public passageway using the existing surveillance infrastructure.

Users are quickly notified of incidents and are alerted to areas of risk identified by our algorithms using multi-sourced data and trends.

These insights are just a part of our suite of traffic management solutions which provide a wide array of analytics, reports, data sharing, public communications, and unique HD video management features to help support planning, situational awareness, operations that is vital for our customers.

The RMR solution provides dedicated modules that are tailor-made for different users, including modules for traffic management centers, freeway service patrol, first responders, maintenance crews, and transit.

Each module provides unique value to individual users, while our proprietary platform brings them all together into one seamless environment.

Customers can integrate their current roadside cameras and other devices to feed information directly into the RMR solution and can deploy our advanced IP optical edge devices and cameras to gather additional data from the roadway in real-time.

This, in combination with third-party data including data from connected vehicles, GPS, events, construction, weather, and a number of other sources, provides a truly complete view of the roadway and infrastructure systems for customers.

These improvements over the traditional incident management infrastructure, and the benefits they offer, have gained significant attention from governing authorities across the globe.

Rekor One™

Traffic Management –

Traffic and Infrastructure Analytics 

Traditional approaches to capturing data for roadway and infrastructure analytics and planning employ expensive, manual processes that use antiquated technology to capture a fraction of the information needed for a fraction of the time.

Powered by Rekor One, our TIA solution enables customers get access to comprehensive, de-identified traffic and infrastructure analytics that not only provide instant information on current roadway activity, but also historic information, so that planners and engineers can track patterns, trends, and formulate decisions using both real-time and complete archival data.

Customers access their dashboard on web-based cloud instances and review on-demand traffic reports and analytics that breakdown vehicle volumes and patterns, vehicle classification, estimated tonnage, electric vehicle adoption and volume, average greenhouse gas emissions, smog scores, average speed over distance, along with many other tailored views that a customer may select.

Customers can easily group different geographies and regions and compare them against one other, drill down into specific dates and times of interest, and even export raw data to further pursue their planning needs.

In addition, customers can easily leverage live stream HD video from the edge of the roadway at any time to meet their core missions via our deployed advanced IP optical edge devices and cameras that gather volumes of de-identified data from the roadway in real-time.

Our TIA solution can also be of immense value for commercial entities.

Many businesses need to understand the vehicle flow, patterns, types, and other important analytics regarding vehicles around their businesses.

In addition, the vehicle recognition technology that we deploy to capture this data can be readily leveraged to accomplish a wide range of commercial use-cases.

Whether it is a quick-service restaurant that wants to easily identify repeat customers so they can present them with their favorite orders and facilitate contactless payment, or it is a shipping and logistics provider that wants to understand and control the flow of vehicles coming in and out of important areas, our cutting-edge technology can facilitate it.

Rekor One™

Traffic Management –

Live and Archival Traffic View

Our LATV solution provides highway departments and other agencies an inexpensive and scalable way of delivering more detailed and comprehensive situational awareness of what is happening on their roadways.

Many of them already have legacy infrastructure in place to provide situational awareness on the roadway, but much of it focuses only on major roadways, provides limited storage capacity and relies on expensive equipment that often delivers less quality and resolution than is desired.

Our LATV solution offers live stream HD video from the edge of the roadway that users can access on-demand.

Multiple locations are easily networked and viewed through an optimized web-based dashboard.

Users can quickly review and assess locations of interest for instant situational awareness and also search and retrieve archival footage of interest that can be stored on our edge devices for up to 30 days.

Authorized agencies are also able to easily share key video footage via secure public and private links.

Rekor One™

Public Safety

Our public safety solution includes license plate and vehicle recognition technology that can analyze multi-spectral images and video streams using AI trained algorithms.

It can concurrently extract license plate data by state or province from many countries, together with the vehicle’s make, model, color, body type, and direction of travel.

Our technology can also capture subtle and unique vehicle characteristics including rust, the presence of a roof rack, mismatched paint, or the like, so law enforcement can leverage that information for investigative policing and forensics.

When combined with high performance reads, parallel processing capability and best-in-class hardware accessories, such as optical sensors and communications modules, the solution captures license plate data and vehicle characteristics across multiple lanes at high vehicle speeds with a high degree of accuracy.

Our optical sensors are also able to effectively operate in unusually difficult conditions, such as low lighting, poor weather, extreme camera viewing angles, and obstructions.

Rekor One ™

Public Safety - Rekor Contactless Compliance

Rekor’s Contactless Compliance application delivers a turnkey information and citation management solution for cities, states, and municipalities for both primary and secondary offenses.

Our plate-based Contactless Compliance product provides a safe, equitable, and unbiased enforcement method that requiresno human involvement.

Rekor’s contactless compliance programs issue notices and/or send information to registered vehicle owners when a non-compliant vehicle is detected by an optical sensor.

Rekor One™, is the bedrock of our cutting-edge AI-powered roadway intelligence platforms, serving multiple missions with modular and rapid development capabilities.

Our proprietary technology and machine learning models power all our solutions, including Rekor Command™

for transportation management, Rekor Discover™

for urban mobility, Rekor Scout™

for public safety, plus various commercial use cases.

The security of Rekor One™, and all our market facing solutions is our top priority.

We use industry-leading security technologies and standards, including end-to-end encryption and proprietary data filters, to ensure that all captured and connected data is protected from unauthorized access or use.

We adhere to strict privacy protocols and provide customers with 24/7 access to their data until it is purged.

Our platform is hosted on AWS GovCloud for secure data handling and stored in secure databases with limited access only to authorized system administrators.

Moreover, Rekor One™

incorporates a privacy filter that uses a proprietary algorithm to strip personally identifiable information (“PII”) from data, ensuring that data privacy is always safeguarded.

Rekor Command™

for Transportation Management

Commuters today face staggering congestion, widespread safety concerns, and rising fatalities that are made far worse by outdated, siloed transportation and traffic management systems that are often overwhelmed by large amounts of unusable data.

Rekor enables municipalities to transform their approach to transportation management by sourcing, managing, and transforming massive amounts of data, including connected vehicle, event, construction, weather, telematics, existing customer infrastructure, and much more, into actionable insights through AI-enabled technology.

Authorities can now shift from being siloed and reactive to an interoperable and proactive approach, saving lives, improving traffic flow, and reducing pollution in their cities.

Rekor Command acts as a seamless command center for traffic operations and traffic management centers so they can have a holistic view of their roadways in real-time, and take appropriate action to help improve safety, sustainability, and efficiency for citizens across their communities.

It’s been built to identify more incidents faster, to enable proactive traffic management through crash-risk prediction, and to do this in a collaborative way connecting agencies and stakeholders, including notifying citizens and the public.

As a comprehensive cross-agency platform, Rekor Command offers dedicated applications for traffic management centers, freeway service patrol, first responders and maintenance crews, aligning them all to better address traffic challenges while arming them with the vital information needed to identify, manage, and recover from incidents, events and irregularities on their roadways.

Rekor Command –

Roadway Monitoring Core Application & Events Management Application

The Roadway Monitoring Core application and Events Management application are fundamental applications that sit within the Rekor Command platform providing cross-agency incident detection and management functionality that allows customers to effectively implement incident detection and management within their existing workflows while accessing real-time information needed to rapidly identify, manage, and recover from incidents.

Traffic management agencies are able to access a live map view of their roadways and are alerted to irregular events and potential incidents that have been identified through AI leveraging multiple sources of data.

Once confirmed by the agency, multiple responders are notified to rapidly approach and clear the roadways, enabling traffic to continue and roadway safety to improve.

Rekor Command –

Community Connect Application

The Community Connect application within the Rekor Command platform allows agencies to integrate with systems that can notify public in real-time of events or incidents that are impacting the roadway.

This application is a channel for agencies to interact directly with the public, keeping citizens the up to date and aware of potentially dangerous events and incidents to help prevent additional incidents from occurring.

Rekor Command –

Advanced Analytics Application

The Advanced Analytics application within the Rekor Command platform provides agencies with reporting capabilities to archive incident and event information, as well as analytics to help users better understand trends, patterns, and planning.

This helps Departments of Transportation ("DOTs") to understand historic patterns and arms them with the insights needed to make more proactive decisions around resource allocation and planning.

Rekor Command –

Road Conditions Application

The Road Conditions application within the Rekor Command platform provides several layers of critical information about real-time conditions happening on an agency’s roadways, including real-time weather information with high geospatial specificity, regular and irregular congestion, heightened crash risk, transit impact, and current roadway status.

These additional insights and data feeds help further the real-time view agencies have of their roadways and provide additional layer of information that drive decision-making.

Rekor Command –

Asset View Application

The Asset View application within the Rekor Command platform allows agencies to integrate with their existing assets on the roadway and showcase these assets in real-time within the Command platform.

Agency assets become an additional layer of data to drive decision making and resource allocation.

Assets that are typically integrated include freeway service patrol vehicles, highway police vehicles, city police vehicles, fire department vehicles, construction vehicles, EMS, maintenance vehicles, street sweep vehicles, and snowplows.

Rekor Discover™

for Urban Mobility

Traditional approaches to capturing roadway and infrastructure analytics for planning and engineering employ expensive, manual processes that use antiquated technology to capture a fraction of the information needed for a fraction of the time.

Cities, states, and municipalities know that having a clear and accurate picture of what’s happening in and around the roadway is critical as they plan and invest in the infrastructure needed for smart cities, smart transit, self-driving vehicles, and multi-modal movement across their geographies.

The Rekor Discover platform ingests data from Rekor’s state-of-the-art hardware and fully automates comprehensive analytics and actionable insights about the movement of objects across the roadway.

Whether its passenger vehicles, or multi-axle commercial trucks, Rekor Discover pulls ground truth insights, both in real-time and historically, allowing agencies to better organize and execute their next-generation roadway planning and city building initiatives in a smart, safe, and future-proof way.

Customers access their dashboard on web-based cloud instances and review on-demand traffic reports and analytics that breakdown vehicle volumes and patterns, FHWA 13-bin vehicle classification, electric vehicle volumes and hot spots, geospatial greenhouse gas emissions from vehicles, smog scores, average and spot speeds, along with a variety of other insights.

In addition to agencies, many businesses need to understand the vehicle flow, patterns, types, and other important analytics regarding vehicles in their geographies.

Whether it is an engineering firm collecting roadway data for their customers, or a real estate developer planning development in a specific area, the capture of accurate, holistic roadway data is valuable for their unique use cases.

Rekor Discover –

Count, Class and Speed Application

The Count, Class and Speed ("CCS") application within the Rekor Discover platform delivers per vehicle record ("PVR") data and analytics that fully automate FHWA reporting requirements for 13-bin classification.

Agencies can leverage Rekor’s portable or fixed AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the CCS application's cloud-based dashboards.

In addition to FHWA-13 vehicle category classification, the application also provides vehicle counting, traffic data, and speed reporting, all accessible by different agencies determined time frames.

Agencies can generate reports and extract data through a REST API or also by exporting data in multiple Traffic Monitoring Guide ("TMG") standard formats (PRN, .CSV, and .PDF) for integration with the tools they may already be using.

With this technology agencies can make better-informed planning decisions with ground truth information.

Rekor Discover –

Sustainability Planning Application

The Sustainability Planning application within the Rekor Discover platform helps agencies better plan for electric vehicle ("EV") charge station deployment, understand the movement of EVs and their adoption, and gather insights on where emissions and greenhouse gasses are emitted from the roadway.

The application provides cloud-based dashboards and reports the count of EVs, provide heatmaps for EVs as well as a breakdown of EV models, greenhouse gas emissions and smog, and other useful metrics.

Agencies can leverage Rekor’s AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the sustainability planning application.

Rekor Scout™

for Public Safety

Rekor is transforming the typically siloed, reactive, single-purpose world of legacy law enforcement and security technology with real-time, AI-driven solutions that act as connectors between agencies and force multipliers in a chronically under-resourced space.

The Rekor Scout platform fully automates previously manual processes with collaborative solutions that keep all stakeholders apprised of developing situations and accelerate reaction times to incidents and offenders.

The platform provides accurate license plate and vehicle recognition on nearly any IP, traffic, or security camera.

It provides integrated AI support for both existing cameras and any proprietary Rekor AI systems in the network and displays results on a web-based dashboard that can be accessed from anywhere by any authorized user.

The platform can connect authorized law enforcement agencies to National Crime Information Center (“NCIC”) lists, allowing them to establish customized hotlists with alerts, apply customized data retention policies and share data with other agencies.

Vehicles listed on "blacklists" (stolen, terrorists, amber alerts, etc.) generate an alarm in the dispatching room so that they can be intercepted by a patrol.

Millions of cars per week are automatically checked in this way.

Through this platform agencies can access real-time alerting, forensic research tools, and investigative tools that accelerate public safety and security missions.

Agencies and customers can access plate data by state or province from over 50 countries together with the vehicles’

make, model, color, body type, and direction of travel.

Users can also access subtle and unique vehicle characteristics including rust, the presence of a roof rack, mismatched paint, or the like, which can be used for investigative policing and forensics.

When combined with high performance reads, parallel processing capability and best-in-class hardware such as those built and deployed by Rekor, Rekor Scout can be an absolute force multiplier capturing license plate data and vehicle characteristics across multiple lanes at high vehicle speeds with a high degree of accuracy.

Rekor Scout can also be accessed through a smartphone app designed specifically for law enforcement.

This app enables advanced data capture by public safety officers in the palm of the hand, providing access to extremely accurate license plate recognition in areas not covered by stationary or mobile sensors, even where there is no network connectivity.

The mobile application retrieves vehicle license plate number and state of registration and automatically organizes information by sessions, capturing date, location, and timestamp.

Verified reads then sync with the Rekor Scout™

platform, and users can receive in-app alerts using plate matches from custom and connected hotlists.

With on-device encrypted lists and data, the mobile application is compliant with the Federal Bureau of Investigation’s Criminal Justice Information System (“CJIS”).

Through our eCommerce platform, we also offer commercial versions of Rekor Scout which are sold as a subscription service.

Rekor Scout for commercial users includes specialized offerings that bring value to a variety of industries including parking, retail, logistics and security.

Additional Products Supporting Additional and Commercial Use-Cases

Rekor AutoNotice ™

Application for Contactless Compliance

Rekor’s AutoNotice is a cloud-based financial management application that delivers a turnkey information and citation management solution for cities, states, and municipalities for both primary and secondary offenses.

Our plate-based application provides a safe, equitable, and unbiased enforcement method that requires no human involvement.

The application issues notices and/or sends information to registered vehicle owners when a non-compliant vehicle is detected by a Rekor AI system.

Non-compliant vehicles are any vehicles actively detected to be violating the law or otherwise requiring a compliance notice.

Non-compliance may include uninsured vehicles, vehicles with expired registration, and vehicles with outdated emissions/inspection statuses.

Our contactless compliance programs also include red light and speed violations which have an immediate impact to the safety of others on the road.

We provide an application programming interface for third-party payment gateways for credit card transactions to accommodate both phone and web payments.

In addition to the application, there is an application programming interface for third-party payment gateways for credit card transactions to accommodate both phone and web payments.

The interface can also automatically record payments in the system and provide functionality to research, manage unapplied payments, and reconcile receipts.

A full call-center is also provided with our Contactless Compliance product to help facilitate payment or information distribution to non-compliant citizens remotely.

We have active deployments of our contactless compliance solution scanning millions of plates and delivering thousands of notices/tickets, including a program for the State of Oklahoma that facilitates enrolling uninsured motorists as well as a number of Automated Traffic Safety Enforcement (“ATSE”) deployments enforcing red light and speed violations.

Rekor One ™

Public Safety - Rekor Scout™

Rekor Scout provides accurate license plate and vehicle recognition on nearly any IP, traffic, or security camera and can be subscribed to separately for use with existing camera or sensor systems.

It displays results on a web-based dashboard that can be accessed from anywhere by any authorized user.

The platform connects to National Crime Information Center (“NCIC”) lists and permits the agency to establish customized hotlists with alerts, apply customized data retention policies and share data with other agencies. Vehicles listed on "blacklists" (stolen, terrorists, amber alerts, etc.) generate an alarm in the dispatching room so that they can be intercepted by a patrol.

Millions of cars per week are automatically checked in this way.

Rekor One ™

Public Safety - Rekor Blue ™

Rekor Blue™

is our premier smartphone app designed specifically for law enforcement.

Built using the same recognition engine as Rekor Scout™, it  delivers public safety officers advanced data capture in the palm of the hand, providing access to extremely accurate license plate recognition in areas not covered by stationary or mobile sensors, even without network connectivity.

Rekor Blue™ 

retrieves vehicle license plate number and state of registration and automatically organizes information by sessions, capturing date, location, and timestamp.

Verified Rekor Blue™

reads can then sync with the Rekor Scout™

environment and users can receive in-app alerts using plate matches from custom and connected hotlists.

With on-device encrypted lists and data, Rekor Blue™ 

is compliant with the Federal Bureau of Investigation’s Criminal Justice Information System (“CJIS”).

Additional Software Products Supporting Transportation, Public Safety and Commercial Use-Cases

There are many uses for automated recognition systems that provide vehicle identification faster, and more accurately and efficiently without having to increase the number of monitoring personnel.

Our solutions are used for car park management, retail park security, weighbridges, tolling, bus lane enforcement, and other intelligent transport applications.

Since the acquisition of our industry leading vehicle recognition systems in 2019, we have refined and rebranded our software to highlight different software services and released several hardware products packaged with preloaded versions of our vehicle recognition engine.

These can provide an advanced turnkey system for LPR and vehicle recognition at-the-edge.

We have also developed a broad range of vehicle recognition product and service lines, starting with security and parking operations and expanding into roadway compliance program operations, auto wash and service, quick service restaurants and drive-in retail.

We have also launched a robust eCommerce portal on the OpenALPR.com site, enabling customers to conveniently purchase software products with just a credit card and a click.

This allows owners to immediately enhance their business operations while reducing the operating cost for us.

A full call-center is also provided with our AutoNotice application to help facilitate payment or information distribution to non-compliant citizens remotely.

We have active deployments of our AutoNotice application for contactless compliance scanning millions of plates and delivering thousands of notices/tickets, including a program for the State of Oklahoma that facilitates enrolling uninsured motorists into a diversion program.

Rekor CarCheck ™

Through our eCommerce platform, we offer commercial versions of Rekor Scout which are sold as a subscription service.

Rekor Scout for commercial users includes specialized offerings that bring value to a variety of industries including parking, retail, logistics and security.

In addition, we also offer an API of our vehicle recognition technology for commercial applications under the name Rekor CarCheck™.

This API supports nearly any programming language, analyzes still images of vehicles from different countries and responds in seconds with accurate license plate data, vehicle make, model, body type and color.

Rekor CarCheck is also sold through a subscription-based plan and is used by a broad range of industries for various use cases.

Any mission that has a need for cost-efficient state-of-the-art vehicle and/or license plate recognition can benefit from the use of Rekor CarCheck™.

AutoNotice™ 

is a cloud-based financial management application.

AutoNotice provides a plate-based management account system that offers our customers a multi-tiered database that can assist with most record management operations.

AutoNotice also provides an application programming interface for third-party payment gateways for credit card transactions to accommodate both phone and web payments.

AutoNotice can automatically record payments in the system and provide functionality to research, manage unapplied payments and reconcile receipts.

Hardware Products

We also have a unique and differentiated portfolio of AI-based state-of-the-art hardware products purpose-built to optimize the value of our software as well as bring the advantages of edge processing to any capture of real-time roadway data.

Our edge processing systems provide for the execution, directly on the device at the point of capture, of data aggregation and manipulation as well as other artificial intelligence routines.

This allows our customers to capture, process and transform roadway data at the source and in real-time, so it can be deployed quickly and affordably with reduced bandwidth requirements.

Rekor’s law enforcement products and services also include speed trailer and other in-car and mobile vehicle recognition devices.

Rekor Edge Series

Our Rekor Edge Series is a family of mountable vehicle recognition systems that seamlessly capture and process vehicle data.

Multiple configurations are available depending on read distance, traffic speed, and lane coverage needs.

All Edge Series devices can easily mount to a building or pole and be optionally solar-powered.

Features of all Edge Series devices are:

Operation Ready:  On-device video processing, 1920x1080 HD Camera(s), Capture speeds up to 120 mph, Cover 1-6 lanes/300 ft max range

State-of-the-Art Recognition:

Advanced vehicle recognition with plate, make, type, color, and direction of travel, accurate in day/night and all-weather conditions, read paper, temporary, and vanity plates, real-time alerting

Powerful Performance:

Outdoor rated, IP66/IP67, NEMA4, 4G LTE, Ethernet ready, ready connection to Rekor Scout Cloud or on-prem

Rekor Edge Pro

Application Program Interface ("API")

Rekor CarCheck allows our powerful AI based vehicle and license plate recognition technology to be conveniently accessed for a wide range of commercial applications.

Rekor Hardware Products

Rekor’s portfolio of AI-based state-of-the-art hardware products are purpose-built to optimize the value of our software as well as bring the advantages of edge processing to capture real-time roadway data.

Data capture, aggregation and AI/ML analysis is done on device, at the point of capture on the roadway.

This allows us and our customers to gather insights from the roadway in real-time where it matters.

It also allows our systems to work with significantly reduced bandwidth requirements, allowing us to deploy in almost any area, at scale, while also reducing costs.

Rekor’s law enforcement products and services also include speed trailers and other in-car and mobile vehicle recognition devices.

Rekor Edge Max ™

Rekor Edge Max is a fixed traffic data collection system that captures and transforms high-resolution roadway data into holistic traffic insights.

Engineered for high-speed primary roadways and highways up to 120 mph, 3-4 lanes (up to 6 lanes with dual cameras), and 300 ft max range, Edge Max seamlessly captures and processes vehicle data on-device and from advanced distances.

The system features a durable enclosure, onboard modem, easy mounting, optional solar power, and can be configured with two cameras to increase capture range.

The system captures and analyzes vehicles using the embedded Edge Processing Unit ("EPU") and AI-powered video processing.

The Edge Max can be integrated into a network and features an onboard modem, easy mounting, optional solar power, and can even be configured with multiple cameras to increase capture range. 

Rekor Edge Pro ™

Rekor Edge Pro is a complete vehicle recognition solution that can be used on a standalone basis or integrated into a network.

Engineered for roadway speeds up to 70 mph, 1-2 lanes, and 75 ft max range, the system can be deployed in neighborhoods, campuses, business districts, and also be used for parking and access control.

Engineered for roadway speeds up to 70 mph, 1-2 lanes, and 75 ft max range, the system can be deployed in neighborhoods, campuses, business districts, and can also be used for parking and access control.

It captures and processes data on-device within a durable enclosure.

The unit is simple to install and features optional solar power that expands the number of locations where Rekor Edge Pro can meet the customer’s needs. 

Rekor Edge Max

Rekor Edge Max is also a complete vehicle recognition solution that can be used on a standalone basis or integrated into a network.

The system features a durable enclosure, onboard modem, easy mounting, optional solar power, and can be configured with two cameras to increase capture range.

Rekor Edge Flex ™

Rekor Edge Flex is a non-intrusive, portable data collection system that captures and transforms high-speed roadway data into holistic traffic insights.

Edge Flex captures up to 12 lanes of traffic and employs AI-powered video processing to analyze it on site using the embedded EPU.

Vehicle category classification, vehicle counts, and speed reports are made available in web-based dashboards or exported in multiple file formats that meet TMG standards.

Competitive Strengths

Our patented technology has been featured by prominent outlets and has enabled us to further develop our global, expanding footprint.

Our award-winning proprietary technology and customer service has allowed us to win competitive bids against legacy incumbents.

To date, we have not seen a peer that can provide the breadth, depth, and sophistication that we can on a single integrated platform that can serve multiple missions and agencies.

We will continue working hard to capitalize on our first mover advantage and will continue to invest in the company competitiveness and key differentiators.

In the traffic management, public safety, and commercial markets, we believe we have, and can further develop a range of competitive strengths:

Solutions, Not Just Data.

Many industry customers are being challenged by a massive amount of data coming from a wide range of sources.

A typical department of transportation may see multiple gigabytes of data per day coming from their existing infrastructure while there are multiple terabytes and petabytes of data available from connected vehicles and other third-party sources.

With massively increasing volumes of data, many agencies are unable to cope with the velocity, volume, and quality of incoming data, let alone leverage the data and transform it into real, actionable solutions that are built into their daily workflow.

We are bridging the industry gap that exists between data and actionable solutions by turning data into information, and information into knowledge and insights through our proprietary technology, solutions, and platform.

A Single Source.

 As customers look to source technology solutions from organizations, they are met with a fragmented industry and a broad list of organizations providing only patchwork of disconnected products to meet their varying needs, all of which require separate sourcing through separate vendors.

The fact that we are infrastructure and data agnostic and can leverage the same core Rekor One intelligence platform to serve multiple missions and agencies allows us to be a single source provider to meet the needs of the traffic management, public safety, and commercial markets.

Whether it is license plate or vehicle recognition, analytics, incident management, smart IoT and IP devices at the Edge, or any other of the wide range of solutions we provide, customers can come to a single source that delivers a platform of solutions for them to access.

Our unparalleled, patented technology has been prominently featured by renowned outlets and has driven our global expansion.

We have repeatedly earned trust and business over established incumbents in highly competitive bidding processes, owing to our award-winning proprietary technology and exceptional customer service.

We provide a unique breadth, depth, and sophistication that our integrated platform delivers to multiple missions and agencies.

We maintain our first-mover advantage by tirelessly investing in our competitive strengths and key differentiators.

In the transportation management, public safety, urban mobility, and commercial markets, we possess and continue to cultivate a variety of competitive strengths that set us apart:

Solution-driven Approach :

Our customers are often overwhelmed with an immense amount of data from a wide range of sources.

We bridge the gap between data and actionable solutions by converting data into information, knowledge, and insights through our proprietary technology and platform, enabling customers to make informed decisions.

Single Source Provider :

Unlike other organizations that provide only disconnected products, we deliver an integrated platform of solutions to meet the needs of transportation management, public safety, and commercial markets.

As we are infrastructure and data agnostic, we can serve as a single source provider to customers for any of their requirements.

One Device Multiple Missions :

Our advanced IOT devices are powerful performer that support multiple value-added AI-based data collection and analytic services on the same unit simultaneously, thereby providing extreme value, extensibility, and ability for customers to future-proof their investments well into the future as needed.

Cross-Agency Functionality :

 The Rekor One intelligence platform supports multiple missions with the same, unified operating system.

Rekor One provides government agencies with a comprehensive infrastructure intelligence system that provides actionable solutions so that agencies can make real decisions with real-time information.

Governments can leverage their existing IP cameras and transform them into a safe and smart multi-dimensional intelligent roadway network.

By building our platform directly into agency workflow, customers can use our solutions as a force multiplier, getting more value and addressing growing concerns across the industry around safety, equity, and sustainability.

Industry Leading Privacy & Security.

 We use industry leading security technologies and standards to protect all captured and connected data from unauthorized access or use.

We leverage end-to-end encryption and proprietary data filters as additional protective measures.

Data that we capture is only used to feed our services and solutions.

We do not share any PII.

Customers can access their data 24/7 until it is purged and have the flexibility to manage their data retention periods based on their needs and local regulation.

Our platform also uses AWS GovCloud hosting for secure data handling which is also stored in secure databases where only authorized system admins have access.

Additionally, PII is stripped from data using our proprietary algorithm that is completely irreversible.  

Higher Accuracy and Capture for Vehicle Recognitions.

 Most vehicle recognition systems currently in place are accurate only within specified parameters of vehicle speed, viewing angles and lighting conditions.

Many also only capture vehicle license plate information with limited or no vehicle recognition information.

Our AI software achieves superior accuracy rates under broader parameters of vehicle speed, camera viewing angles and lighting conditions, even capturing plates and vehicle traits through windows.

Additionally, we can not only determine the make, model, body type and color of a vehicle, in addition to the number and resident jurisdiction of a license plate, but we are also capturing unique vehicle signatures such as rust, damage, roof racks, and other traits that can be used to further investigation efficacy.

This significantly enhances the value of our products and services as compared to systems that provide more limited recognition data and/or lower accuracy rates.

Our platform supports multiple missions with the same, unified operating system.

By integrating our platform directly into agency workflows, we empower our customers to address the growing concerns around safety, equity, and sustainability effectively.

Industry-leading Privacy and Security :

We use the most advanced security technologies and standards to safeguard all captured and connected data from unauthorized access or use.

Our platform also employs proprietary algorithms to strip PII from data, protecting the privacy of our customers and their data.

Enhanced Accuracy and Capture for Vehicle Recognition :

Our AI software achieves superior accuracy rates under broader parameters of vehicle speed, camera viewing angles, and lighting conditions, capturing vehicle traits, rust, damage, and other unique signatures that can be used to aid investigations

Technology leading Vehicle Classification, Count, and Speed:

 Our AI software achieves superior accuracy and performance rates across all 13 classes and deep classification of vehicles for DOT studies in line with the latest FHWA guidelines.

Intelligence-Based Policing :

 Our ability to capture comprehensive data can allow us to detect patterns and analytics around vehicles of interest for law enforcement.

70% of all crime involves a vehicle, and vehicle analytics is a core differentiator for us.

As we build and extend our vehicle analytics capabilities, intelligence-based policing is a real deliverable that we can provide to law enforcement, fulfilling a need that has been unmet for years.

Our comprehensive data capture allows us to detect patterns and analytics around vehicles of interest for law enforcement, significantly enhancing the value of our products and services.

Functionality with any IP Cameras :

 The optical character recognition-based systems marketed by our competitors in the public safety and vehicle recognition market often require customized cameras.

Our AI software supports images and vehicle recognition captured by almost any digital camera that provides images that can be sent over the internet.

This allows us to be completely infrastructure agnostic, and to deliver products and solutions using relatively inexpensive, consumer-grade, mass-market components that are readily available, significantly smaller, lighter, and less expensive than products currently being used.

This allows us to scale quickly across geographies and to enhance the 3rd party data that we ingest, filling gaps and getting a full view of the roadway.

Edge Processing . Our hardware delivers low latency alerting via defined edge processing happening at the edge of the network.

This is very valuable to enable applications where real-time processing of data is required, and where speed and scale without the need for expensive infrastructure such as fiber is required.               

Our AI software supports images and vehicle recognition captured by almost any digital camera, providing a flexible, infrastructure-agnostic solution that is easily scalable across geographies.

Edge Processing :

Our hardware delivers low-latency alerting via defined edge processing at the edge of the network, enabling real-time data processing and scale without the need for expensive infrastructure such as fiber.

We are dedicated to continuously enhancing our competitive advantages and differentiators, driving innovation in the transportation management, public safety, and commercial markets.

Customer Segments and Markets

We provide our technology and solutions to customers in 80 countries around the world.

Many of the markets we serve currently rely on legacy, outdated physical infrastructure, or are in the early stages of technology adoption, and present strong growth opportunities.

Current customers include cities, states, municipalities, departments of transportation, transit agencies, law enforcement agencies, highway authorities, parking system operators, private security companies, and wholesale and retail operations supporting logistics, quick service restaurants and customer loyalty programs.

We have entered into pilots, proof of concept, and full-scale deployment agreements with multiple cities throughout the Americas.

We will continue to sell perpetual licenses and hardware when a business opportunity arises, but our core business model is focused on SaaS offerings and services with recurring annual revenues.

Our eCommerce site and our recently launched iOS and Android apps allow us to serve smaller organizations and individuals at scale using a low-touch, self-service recurring revenue model.

We believe that the market for our solutions and services is very large, with a total addressable market in the intelligent infrastructure segment that has been estimated to grow to $148 billion by 2026.

Within this total addressable market, there are a wide range of market segments that we look to address, including:

intelligent transportation systems;

smart mobility, traffic analytics, incident detection and location systems;

traffic management, parking management and enforcement;

safe and smart cities and roadways;

vehicle regulatory compliance programs;

government, military, corporate, community and personal security;

commercial real-estate;

wholesale and large retail logistics and customer loyalty programs;

as well as public safety.

The vertical-specific solutions powered by our Rekor One intelligence platform have only been offered since 2020.

As they continue to gain adoption by both government agencies and commercial entities, we believe that our competitive position will continue to accelerate.

Our technology and solutions are transforming the transportation infrastructure landscape, empowering customers in 80 countries around the world.

With many markets currently relying on outdated physical infrastructure, or in the early stages of technology adoption, we see immense potential for growth.

Our diverse customer base includes cities, states, municipalities, law enforcement agencies, and more, and our success is evidenced by our multiple pilots, proof of concept, and full-scale deployment agreements throughout the Americas.

While we will continue to pursue opportunities to sell perpetual licenses and hardware, our primary focus is on providing cutting-edge SaaS offerings and services with recurring annual revenues.

Our eCommerce site and mobile apps allow us to serve individuals and smaller organizations at scale using a self-service recurring revenue model.

With an estimated total addressable intelligent infrastructure market of $148 billion by 2026, we expect the market for our solutions and services to be extraordinary. We are dedicated to addressing a wide range of market segments, including intelligent transportation systems, smart mobility, traffic analytics, incident detection and location systems, traffic and parking management, smart cities, vehicle regulatory compliance programs, and more.

Since the launch of our Rekor One roadway intelligence Engine in 2020, our market-specific solutions have gained widespread adoption, both in the government and commercial sectors.

We are confident in our competitive position and look forward to continued growth and success as we lead the way in intelligent infrastructure.

Business Drivers and Growth Strategies

We believe that the intelligent infrastructure industry is today at the epicenter of converging forces that will drive changes in the way government agencies and businesses operate.

With rising safety concerns on the roadway and an increasing consensus about the need to improve aging infrastructure, we have seen a desire for agencies to adopt new technologies and, better manage an influx of massive amounts of data that is difficult to transform into solutions.

An example of this is the significant increase in government funding now committed to expand and digitize transportation infrastructure in the United States.

There is also a specific focus on deploying solutions that are scalable, efficient, equitable and sustainable.

Rapid urbanization, increased globalization, and increased awareness about the human impact on the planet are all driving factors for intelligent transportation and infrastructure.

We believe that our growth will be impacted by increased appreciation of the improvements in security, public safety and business intelligence that can be provided by our products and services.

As better and more timely information is made available about the conditions on the roadway and within the boundaries of a city or municipality, more stakeholders will want to make use of this information for different purposes.

This includes a growing appreciation of the benefits that smart cities and smart highways can provide.

A core strength for us is that we use AI to extract information about the movements of vehicles and other objects on the roadway to enhance safety, increase operational efficiencies, reduce congestion and improve the environment.

We believe this can play an important role in enabling intelligent roadways and smart cities.

Organizations, including original equipment manufacturers (“OEMs”) in the transportation industry are beginning to focus on how to leverage connected vehicle data with AI to improve safety.

As we continue to build partnerships and further enhance our solutions with data, we will begin to not only ingest information but also help facilitate the delivery of information back to citizens in real-time.

We plan to continue to pursue the growth of our Rekor One™

platform across relevant systems to provide infrastructure information to different state municipalities.

The development of the Rekor One platform to share information among multiple agencies to support a variety of community safety, intelligent roadway and revenue generation activities has been a conscious part of our “land and expand”

growth strategy.

As an organization, we are focused on scaling our resources to support substantial growth within the industry through the expansion of customers, products, services, and partnerships.

Our land and expand strategy not only involves expanding the services and solutions we provide to existing customers, but also facilitating cooperation between our existing customers and new customers that can be part of an expanded network of information.

As we work to develop our sales and marketing capabilities, we expect our efforts concerning products and services to be concentrated principally on subscription-based solutions, with hardware sales used primarily as a driver for such subscriptions. 

We may also use a portion of our cash on hand and common stock for acquisitions or strategic investments in complementary businesses, products, services, or technologies, including companies that might benefit from the use of our technology.

However, we do not have agreements or commitments to enter into any such acquisitions or investments at this time.

We are looking to be a leader in the industry through organic growth and accelerate our growth and expand our capabilities through strategic partnerships, mergers and acquisitions.

Our current strategy focuses on providing actionable solutions to several markets within the intelligent infrastructure industry.

There are a wide range of competitors who provide products and services across parts of our product portfolio as well as within the industry.

We categorize our competitors into four types, data creators, data aggregators, insights platforms, and smart city technology providers.

Data creators are companies who are creating and collecting data from the field (i.e.

via sensors, cameras, vehicles, or other hardware).

Data aggregators are data providers with the ability to consolidate and ingest multiple comprehensive datasets and sell these to their customers.

Insights platforms competitors are technology providers that ingest multiple sources of data and provide a comprehensive, integrated analytics platform that delivers insights.

Smart city competitors are companies providing technology solution suites (which may or may not include their offerings) to implement and support “Smart City” functionality.

We also have competitors solely focused on Automatic License Plate Recognition ("ALPR") and vehicle recognition technology in security and public safety applications.

Data-focused competitors who are compiling and selling data in some cases also act as a data source partner for us.

Additionally, we face competition in certain automated safety solutions from other vendors in the areas of red-light, tolling, uninsured vehicle photo enforcement and speed photo enforcement.

In some cases, the continued success of our go-to-market strategy will depend on our ability to develop an appreciation for the value of new or significantly different offerings than are currently available to the market. 

In others, our products and services will need to 

either appeal to or outperform established industry participants. 

Where established markets for our products and services exist, they are characterized by long established relationships.

To participate in these markets, we will need to play a role in evolving industry standards and work to gain recognition of the price and performance characteristics of our products.

Many of our potential partners and 

competitors are in a position to be more competitive through aggressive pricing of currently established products, and may compete by seeking to imitate the Company’s products or even infringe on its intellectual property.

Principal competitive factors important to the Company include design innovation, product and service features (including security and privacy features), relative price and performance, product and service quality and reliability and service and support.

Where we are not able to partner with established participants, we will need to further develop our marketing and distribution capabilities and our corporate reputation in the market segments we compete in.

The Company faces substantial competition in the transportation and public safety markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software, and service offerings with large customer bases.

In addition, many of the Company’s competitors in these markets have a larger installed base of active devices.

Most of our competitors only compete in a subset of the market, focusing on their hardware, or leveraging third-party data for a solution.

We believe we can differentiate ourselves from our competition using our ability to provide solutions across a wide range of use-cases by (1) more efficiently collecting reliable data from existing infrastructure, (2) aggregating that data with third-party data, (3) processing the data using superior analytical tools, and (4) distributing datasets and actionable insights tailored to the individual needs of multiple agencies through a single platform.

We can deliver solutions that meet customer needs across the value chain by using and upgrading existing infrastructure, combining data from the infrastructure with third party data and providing valuable real time, historical and predictive insights drawn from the data to multiple consumers.

Our products and services have demonstrated the ability to provide significant improvements in public safety and transportation management and we anticipate that this will drive our growth.

The transportation infrastructure market is in the process of transformative change due to a convergence of political, economic, societal, and technological forces.

These include rising safety concerns, rapid urbanization and a heightened awareness of the impact human mobility has on the planet.

Both governments and businesses are seeking out new technologies and better ways to manage public safety, urban mobility and transportation management challenges.

As a result, there has been a significant increase in government funding available to digitize transportation infrastructure in the United States and other countries with a focus on deploying proven near-term solutions that are scalable, efficient, equitable and sustainable.

We believe the technologies that we have developed and are continuing to develop have positioned us to take advantage of these market forces.

Our use of AI to extract information about the movements of vehicles and other objects on the roadway has proven to be a core strength, allowing us to capture comprehensive and detailed roadway data with superior accuracy and speed.

The modular design of our Rekor One intelligence platform, in tandem with our proprietary edge processing and filtering technologies, have positioned us to emerge as a leader in facilitating the emerging industry of interactive roadway intelligence.

Our mission is to gather the most accurate and detailed data that can be obtained from the roadway in real time and facilitate the aggregation and analysis of that data with other sources, so that  insights drawn from that aggregation and analysis can be delivered securely and efficiently to the persons who can make the best use of it.

Automotive OEMs and government agencies in the transportation industry are starting to focus on how to leverage connected vehicle data with AI to improve safety.

We are building deep partnerships and enhancing our solutions with data to facilitate the delivery of real-time information to citizens.

With Rekor Command™

for transportation management, we are at the forefront of developing predictive analytics that deliver insights based on the analysis of aggregated data from a variety of sources. These sources include real time information drawn from roadway sensors and connected vehicles, off roadway sources such as weather and event data, as well as daily, seasonal and historical trend data.

The enhanced information we provide on roadway conditions is valuable to a wide range of stakeholders.

During the past three years, we have initiated the delivery of products and services to a wide range of governmental and business customers.

These customers are diverse, ranging from large government entities to small entrepreneurs, and the uses they make of our technology are varied.

We have used these customer relationships as an opportunity to assess the full potential of the technologies we have been developing and to learn by doing as well as imagining.

When the capital markets were strong, we pursued this strategy aggressively and independently.

In the transportation management and public safety areas, where we are furthest along with the delivery of revenue producing products and services, we expect to continue to employ a "land and expand" growth strategy.

This focuses on scaling our resources to supporting growth within these industry segments through expansion of the products and services delivered to existing customers, as well as recruitment of new customers who become familiar with our products and services.

By expanding our services and solutions to existing customers while also facilitating cooperation between our existing and new customers we expect to continually expand our information network.

As we develop our sales and marketing capabilities, we are concentrating primarily on subscription-based solutions, with hardware sales used primarily to drive these subscriptions.

We continue to explore opportunities for acquisitions or strategic investments in complementary businesses, products, services, or technologies, including those that might benefit most from the use of our technology.

These strategic partnerships, mergers, and acquisitions will be attractive to us when they allow us to accelerate our growth or expand our capability to continue leading the roadway intelligence industry.

Our strategy is to disrupt the transportation infrastructure industry by offering cutting-edge, data-driven solutions that provide unparalleled roadway intelligence, surpassing our competitors.

The competition in roadway intelligence takes various forms - some solely focused on Automatic License Plate Recognition ("ALPR") and vehicle recognition technology, while others specialize in data creation, aggregation, insights platforms, or smart city technologies.

Additionally, there are a variety of vendors supporting the classification, counting, and speed of vehicles according to Federal Highway Administration guidelines.

To lead in this highly competitive industry, we must innovate and deliver new, groundbreaking products and services that set us apart from the competition.

Our ability to efficiently collect massive amounts of data from existing infrastructure, combine it with third-party data sets, and process and transform this data into actionable insights using advanced AI and data analytical tools gives us a competitive edge.

We also excel by providing tailored datasets and integrated solutions and workflows to multiple agencies through a single platform, allowing us to meet the unique needs of various markets. 

Our unique approach allows us to collect vehicle classification, counts and speed across all FHWA13 classes.

We also provide deeper classification for both traditional vehicles, connected vehicles, hybrid-electric vehicles, and can report on the interactions of these modes of transport with non-motorized roadway users –

including bicycles and pedestrians.

In the transportation management sector, these data collection and analysis abilities differentiate our results from others in the market. 

In addition, we have the ability to accomplish this data collection without intruding on the roadway, which presents a leapfrog opportunity for us to gain and accelerate market segment share because of the serious concerns that our customers have for human safety.

We believe that we can sustain our success in the roadway intelligence market because we have developed groundbreaking, innovative offerings that surpass the high standards set by established industry leaders.

To penetrate these established markets, we must challenge the status quo, drive the evolution of industry standards, and deliver superior price and performance characteristics.

Although we were an early leader in the successful application of AI to vehicle recognition and continue to see significant potential for innovative applications of AI in the roadway intelligence area, we do not see the use of AI itself as a proprietary advantage.

Rather our early start in using AI and machine learning to develop vehicle recognition and roadway data analysis algorithms for a diverse customer base has allowed us to maintain a lead over others who have had access to the same non-proprietary AI and machine learning techniques but have not used it as early or as widely as we have.

As we increase our footprint in the industry, we preserve this advantage.

However, the roadway is constantly changing with the introduction of new models and types of vehicles, as well as other modifications, such as plate designs.

In order to minimize potential threats from others seeking to match our performance or undercut our prices, we must remain committed to delivering differentiated, unique solutions that provide greater value and benefits to our customers.

Where we have developed proprietary technologies, such as our unique edge processing and privacy filter technologies, we will take decisive action to protect our innovations and intellectual property rights.

However, it will be through our unyielding pursuit of innovation and quality that we will establish ourselves as a leader in the industry.

To maintain our competitive edge, we are required to prioritize key factors such as design innovation, security and privacy features, product quality and reliability, and exceptional service and support.

We face intense competition in the transportation and public safety markets, pitted against rival companies with significant technical, marketing, distribution, and resource advantages, as well as established hardware, software, and service offerings.

Furthermore, several competitors possess a larger installed base of active devices, making the competition even more fierce.

By providing a comprehensive set of solutions across a wide range of use cases, however, we feel that we can stand apart from most of our competitors, who only operate in a narrow segment of the market.

We are concentrating on providing data resources that are more reliable, efficient and readily available.

This includes upgrading existing infrastructure to efficiently collect reliable data, aggregating that data with third-party data, processing the data with superior analytical tools, and delivering datasets and actionable insights tailored to the specific needs of multiple agencies through a single platform.

Throughout the development of our products and platforms, we have paid particular attention to network and data processing efficiency to allow results to be distributed more effectively through existing communications networks.

By facilitating a variety of modular upgrades to existing infrastructure, combining data from various sources, and providing valuable real-time, historical, and predictive insights, Rekor can continue to deliver solutions that meet the needs of customers across the value chain.

Marketing and Sales

We offer our products, solutions, and services in various markets. 

Our primary route to market is direct to the end-user via a high-touch consultative sales process. 

We have strategic alliances and national level partnerships that help us extend our reach and bundle our technology into purpose-built solutions for various market segments. 

Our rapidly expanding direct sales force is organized into groups aligned to the Intelligent Traffic Systems (“ITS”) chapters.

As we engage further with the DOT and municipalities, we will continue to keep a very focused effort on the law enforcement communities. 

Our market-leading solutions continue to provide significant value to those communities, and we will continue to extend that value into an intelligence-based policing framework.

Because our technology gives us the ability to understand vehicle characteristics and behaviors above and beyond simple license plate capture, we can support new methods of intelligent policing and regulatory compliance. 

In 2022, we also plan to extend our reach into smaller communities through a concentrated inside sales effort and will continue to service the medium-large police departments through our direct sales representatives.

As our primary market is state and local government, the majority of our sales efforts end up in a request for proposal process. 

In 2022, we will be significantly expanding our proposal team to capture and submit more proposals in total as well as expanding our ability to submit concurrently.

Through our eCommerce platform, we allow businesses and individuals to conveniently purchase a full range of our high-value vehicle recognition solutions with just a credit card and a click.

The eCommerce platform enables self-service sign-up and a range of subscription options while also acting as a funnel directly to sales support if customers need more information.

In 2022, we plan to launch our first hardware device for sale directly through the eCommerce platform.

This device is our Edge Pro camera system that has our ALPR software already preloaded and enables customers to activate AI-based vehicle recognition services through a subscription online or by telephone.

We plan to launch the product onto the website and ship it to customers globally with the option to add enhancements for solar power and various pole configurations.

We offer product and services in multiple markets, using direct sales, an eCommerce platform and extensive partnerships and alliances.

Our direct sales force is organized into groups aligned to the Intelligent Traffic Systems (“ITS”) chapters and other targeted market segments, with a primary focus on direct-to-end-user sales through a high-touch consultative process.

In addition, we have established partnerships and strategic alliances that allow us to bundle our technology into purpose-built solutions for various national and global market segments.

As we continue to increase our roadway intelligence engagement with national, state and municipal DOTs, we remain focused on law enforcement communities –

both directly and indirectly through strategic partners and resellers/integrators.

Our market-leading solutions provide significant value to DOTs for traffic management, planning and operations, and to municipal planning organizations for urban mobility. 

In addition to these agencies, our solutions also enable law enforcement, intelligence-based policing, corporate campus security, and regulatory compliance for public security.

Our technology enables us to understand vehicle characteristics and behaviors beyond simple license plate capture, and digital vehicle signatures –

extending into traffic analytics, sustainability metrics, and weigh-in-motion studies for motorized as well as non-motorized movements, such as bicycles and pedestrians. 

In 2023, we will be working to extend our reach into smaller communities as we continue to serve medium-large DOT and law enforcement departments with our direct sales representatives.

Given that our primary market is state and local governments in the United States, the majority of our sales efforts involve a request for proposal process and/or grant application process.

In 2023, we will continue to capture and submit proposals and apply for grants, while also seeking opportunities to submit concurrently with strategic partners.

Our eCommerce platform offers businesses and individuals around the world a convenient way to purchase our high-value vehicle recognition solutions with just a credit card and a click.

The platform allows for self-service sign-up and a range of subscription options while also funneling customers directly to our sales support team if they need more information.

We recently launched our Edge Pro camera system, our first hardware device for sale directly through the eCommerce platform.

With our ALPR software preloaded, customers can activate AI-based vehicle recognition services through a subscription online or by telephone.

The device is shipped globally, with optional enhancements for solar power and various pole configurations.

Research and Development

Because the industries in which we compete are characterized by rapid technological advances, our ability to compete successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products, services and technologies to the marketplace.

We continue to develop new technologies to enhance existing products and services, and to expand the range of its offerings through research and development, licensing of intellectual property and acquisition of third-party businesses and technology.

We must also keep pace with our customers’

technical developments, satisfy industry standards and meet our customers’

increasingly demanding performance, productivity, quality and predictability requirements.

Therefore, we expect to continue substantial investments in research and development.

The highly competitive industries where we compete are defined by swift technological advancements.

As such, our success is reliant upon a consistent and timely release of innovative products, new rich data services, and advanced technologies to the market.

To ensure our competitive edge, we are constantly developing cutting-edge technologies to enhance our existing offerings, expanding our range of solutions through rigorous research and development, as well as developing new AI models and algorithms, licensing intellectual property, and acquiring third-party datasets and technology.

We are committed to staying abreast of our customers' technological developments, adhering to industry standards, and meeting their increasingly stringent demands for performance, productivity, quality, and predictability.

As a result, we will continue to make significant investments in research and development and data and analytics as we strive to maintain our position as a leader in our field.

Proprietary Technology and Intellectual Property

We currently hold a collection of intellectual property rights relating to certain aspects of our hardware devices, accessories, software, and services.

This includes patents, copyrights, trademarks, service marks, trade dress and other forms of intellectual property rights in the U.S.

and foreign countries.

Although we believe the ownership of such intellectual property rights is an important factor in our business and that its success does depend in part on such ownership, we rely primarily on the innovative skills, technical competence and marketing abilities of our personnel.

We regularly file patent applications to protect innovations arising from its research, development and design, and is currently pursuing multiple patent applications. 

Our innovative hardware devices, accessories, software, and services are protected by a collection of patents, copyrights, trademarks, service marks, trade dress, and other forms of intellectual property rights both in the United States and foreign countries.

While we recognize the importance of owning these intellectual property rights and believe they contribute to our success, we know that the know-how of our skilled personnel and their technical competence and marketing abilities are the foundation of our Company's achievements.

To ensure our continued success, we prioritize the filing of patent applications to safeguard the innovations that arise from our research, development, and design efforts, and we are currently pursuing multiple patent applications.

With our commitment to intellectual property rights and our talented personnel, we are well-positioned to lead the market in delivering cutting-edge solutions and services.

On June 17, 2022, we completed the STS Acquisition.

On August 18, 2021, we completed the Waycare Technology Acquisition.

Additional information concerning the Waycare Technology Acquisition is provided in this Annual Report on Form 10-K under ITEM 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

Additional information concerning the STS and Waycare Technology Acquisition is provided in this Annual Report on Form 10-K under ITEM 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

Human Capital Management

Our employees represent the best and brightest in our industry and the talent we select to be a part of our team defines our culture and success.

We look for our employees to represent the best and brightest in our industry and the talent we select to be a part of our team defines our culture and success.

Our global workforce is highly educated, technical and specialized, with a substantial majority of employees working in technical roles.

As of March 31, 2022, we had 250  employees, of which 249 were full-time and one wa s considered part-time.

As o f March 29, 2023, we had 268 employees, of which 267 were full-time and one was considered part-time.

We consider our employee relations to be good.

To date, we have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel.

We generate revenues from licensing and subscriptions to our products and services.

Therefore, we do not currently anticipate a significant seasonality impact on our revenues.

We derive revenues substantially from the sale of software, hardware and related services. Therefore, we do not currently anticipate a significant seasonality impact on our revenues.

Should our penetration of tolling and other markets involving per recognition fees expand, we would expect to become more subject to seasonal traffic patterns.

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W e cannot assure that we will be profitable in the future or that our financial performance will sustain a sufficient level to completely support operations.

Our ability to become profitable in future periods could be impacted by government activity and regulation, economic instability and other items that are not in our control, and the continuing effects of the COVID-19 pandemic.

Our ability to become profitable in future periods could be impacted by government activity and regulation, economic instability and other items that are not in our control.

A significant portion of our expenses are fixed in advance.

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In addition, we have experienced and expect to continue to experience significant expenses related to acquisitions and the development of new products and services.

Our strategic transition to a technology-based company focused on vehicle recognition systems will require us to generate sufficient new revenues from the vehicle recognition market to support our business plan while continuing to operate as a public company.

Our strategic transition to a technology-based company focused on roadway intelligence will require us to generate sufficient new revenues from the roadway intelligence market to support our business plan while continuing to operate as a public company.

As a result, we may continue to experience operating losses and net losses in the future, which would make it difficult to fund operations and achieve our business plan and could cause the market price of our common stock to decline.

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If we are unable to enter into agreements with third-party data providers or successfully maintain them, our growth may be adversely impacted.

We rely, in part, on access the third-party data and access to existing camera networks to grow our business.

We rely, in part, on access to third-party data and access to existing camera networks to grow our business.

The majority of the third-party data agreements allow us to access connected vehicle data, existing camera networks or other data services, thereby increasing the data points used in our solutions.

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Despite our past experience, opportunities to grow our business through third-party data may not be available to us in the future.

The market for our Rekor One platform is new and unproven, and may decline or experience limited growth and is dependent in part on our ability to attract new customers to adopt our platform and use our services.

The market for our Rekor One platform is new and unproven, may decline or experience limited growth and is dependent in part on our ability to attract new customers to adopt our platform and use our services.

The market for an ecosystem that connects government agencies, service providers and, ultimately, drivers is relatively new and some aspects of it are unproven, therefore, it is subject to several risks and uncertainties.

We believe that our future success will significantly depend in large part on the growth, if any, of this market.

The use of advanced vehicle recognition systems and marketplace data to obtain data on vehicles, drivers and the environment is still relatively new and consumers may not recognize the need for, or benefits of, our platform and solutions.

The use of advanced vehicle recognition systems and marketplace data to obtain data on vehicles, drivers and the environment is still relatively new and potential customers may not recognize the need for, or benefits of, our platform and solutions.

Moreover, if they do not recognize the need for and benefits of our platform and solutions, they may decide to adopt alternative services to satisfy some portion of their business needs.

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Our internal investments and go-to-market strategy may place downward pressure on our operating margins.

To increase our revenue growth, we continue to invest in our business, including investments into new markets as part of our go-to-market strategy and investment in continuous innovation and product development to expand the suite of solutions we provide to our customers.

Our operating margins may experience downward pressure in the short term as a result of these investments.

To increase our revenue growth, we continue to invest in our business, including investments into new markets and in innovation and product development to expand the suite of solutions we provide to our customers.

Our operating margins experience downward pressure in the short term as a result of these investments.

Furthermore, our investments may not produce the expected results.

If we are unable to successfully execute our go-to-market strategy, we may experience decreases in our revenues and operating margins.

We have not been a leading provider of public safety products and services in the past and do not have the level of established contacts and existing business relationships that some of our competitors have.

Although it is growing, our presence in the public safety, transportation and parking markets has been limited.

We have not been a leading provider of traffic management and public safety products and services in the past and do not have the level of established contacts and existing business relationships that some of our competitors have.

Although it is growing, our presence in the transportation and public safety markets has been limited.

As a result of this, although we believe our products and services have significant competitive advantages, we may encounter difficulties in establishing widespread market acceptance of our products in various markets and regions.

Early successes in penetrating these markets and regions may not be able to be sustained once our ability to compete with our more established competitors comes to their attention.

They may seek to develop more competitive products before their existing contracts expire, reduce prices, use to advantage their past association as a trusted provider and their superior financial and marketing resources and use other stratagems to this competitive advantage, which could significantly impact our ability to continue to grow.

They may seek to develop more competitive products before their existing contracts expire, reduce prices, use to advantage their past association as a trusted provider and their superior financial and marketing resources and use other stratagems to competitive advantage, which could significantly impact our ability to continue to grow.

We will need to raise additional capital in the future, which may not be available on acceptable terms, or at all.

We have experienced fluctuations in earnings and cash flows from operations from year to year.

To support business growth, or if our business declines, we may need to raise additional capital to support operations, pursue acquisitions or expand our operations.

To support business growth, or if our business declines, we expect to need to raise additional capital to support operations, pursue acquisitions or expand our operations.

Such additional capital may be raised through bank borrowings, or other debt or equity financings.

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infrastructure and systems.

If our capital requirements are materially different from those currently planned, we may need additional capital sooner than anticipated.

If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, and such securities may have rights, preferences and privileges senior to our common stock.

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If we experience declining or flat revenues and fail to manage such declines effectively, we may be unable to execute our business plans and may experience future weaknesses in operating results.

To achieve future growth, we will need to continue to add additional qualified personnel and invest in additional research and development and sales and marketing activities, which could lead to increases in our expenses and future declines in operating results.

To achieve future growth, we will need to continue to employ qualified personnel and invest in additional research and development and sales and marketing activities, which could limit our ability to reduce expenses or lead to increases in our expenses and result in future declines in operating results.

In addition, our future expansion is expected to place a significant strain on our managerial, administrative, operational, financial and other resources.

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We may not be able to respond to rapid technological changes in time to address the needs of our customers, which could have a material adverse effect on our sales and profitability.

The cloud-based services and AI-based product markets in which many of our products and services compete are characterized by rapid technological change, the frequent introduction of new products and services and evolving industry standards.

The cloud-based services and AI-based product markets in which many of our products and services compete are characterized by rapid technological change, frequent introduction of new products and services and evolving industry standards.

Our ability to remain competitive will depend in large part on our ability to continue to enhance our existing products and services and develop new service offerings that keep pace with these markets’

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A downturn of the U.S.

or global economy could result in our customers using fewer products and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

or global economy or in our ability to provide customers with a sustained level of support could result in our customers using fewer products and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

Because demand for our solutions and services are sensitive to changes in the level of economic activity, our business may suffer during economic downturns.

During periods of weak economic growth or economic contraction, the demand for outsourced services could decline.

When demand drops, our operating profit could be impacted unfavorably as we experience a deleveraging of our selling and administrative expense base because expenses may not decline as quickly as revenues.

In periods of decline, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our business.

In addition, market forces may restrict our ability to sustain funding for our sales and support efforts.

When the level of demand for our products and services drops, our operating profit could be impacted unfavorably because expenses may not decline as quickly as revenues.

In these periods, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our business.

Additionally, during economic downturns, government agencies and companies may slow the rate at which they pay their vendors, or they may become unable to pay their obligations.

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federal and state income tax purposes.

As of December 31, 2021, we had gross federal and state net operating loss carryforwards, or NOLs, of approximately $51,838,000 and $43,570,000, respectively.

As of December 31, 2022, we had gross federal and state net operating loss carryforwards, or NOLs, of approximately $114,742,000 and $106,866,000 , respectively.

A lack of future taxable income could adversely affect our ability to use these NOLs.

In addition, future changes in our stock ownership, including through acquisitions, could result in ownership changes under Section 382 of the Internal Revenue Code and may result in a limitation on the amount of NOL carryforwards that could be used annually to offset future taxable income and taxes payable.

Our NOLs at December 31, 2021 may also be impaired under similar provisions of state law and may expire unused or underused, which would prevent us from using our NOL carryforwards to offset future taxable income.

Our NOLs at December 31, 2022 may also be impaired under similar provisions of state law and may expire unused or underused, which would prevent us from using our NOL carryforwards to offset future taxable income.

Assertions by a third party that our services and solutions infringe its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or result in settlements or licensing arrangements that could affect our short-term or long-term profitability.

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Sales of a substantial number of shares of our common stock may cause the price of our common stock to decline.

As of March 31, 2022, we have a total o f 44,949,939 shar es of common stock outstanding and 694 ,876 wa rrants.

Based on shares outstanding as of March 31, 2022, 5,564,807 shares of common stock, or 12.4%, are beneficially owned by our officers, directors and their affiliated entities, and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

In addition,  2,322,166 shar es of our common stock that are subject to outstanding options, restricted stock units and warrants as of March 31, 2022, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, and Rules 144 and 701 under the Securities Act.

As of March 24, 2023 , we have a total of 55,020,612 shar es of common stock outstanding .

Based on shares outstanding as of March 24, 2023, 6,821,752 shares of common stock, or 12.4%, a re beneficially owned by our officers, directors and their affiliated entities, and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

In addition , 8,951,543 shares of our common stock that are subject to outstanding options, restricted stock units and warrants as of March 24, 2023, wil l become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, and Rules 144 and 701 under the Securities Act.

We cannot predict what effect, if any, sales of our shares in the public market or the availability of shares for sale will have on the market price of our common stock.

However, future sales of substantial amounts of our common stock in the public market, including shares issued on exercise of outstanding options, or the perception that such sales may occur, could adversely affect the market price of our common stock.

We also expect that significant additional capital may be needed in the future to continue our planned operations.

On February 24, 2022, we entered into an At Market Issuance Sales Agreement (the "2022 Sales Agreement") with B.

Riley Securities, Inc., as sales agent, to create an at the market equity program, or ATM program, under which we, from time to time, may offer and sell shares of common stock having an aggregate offering price of up to $50,000,000.

As of March 31, 2022 the Company issued 728,452 shares of its common stock in exchange for net cash of $3,303,000 under the 2022 Sales Agreement.

These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

Investors may experience future dilution as a result of future equity offerings.

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Not applicable.

Our principal executive offices are located at 6721 Columbia Gateway Drive, Suite 400, Columbia, Maryland 21046.

Our principal executive offices are located at 6721 Columbia Gateway Drive, Suite 400, Columbia, Maryland 21046 and 55a Yigal Alon Street, Tel-Aviv, Israel .

We do not own any real property.

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1:19-cv-07767-VEC.

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

The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.

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

alleged deletion of company email records.

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

The Firestorm Principals answered together with counterclaims on February 28, 2020.

Thereafter, on March 30, we moved to dismiss certain counterclaims against certain directors and officers named as counterclaim-defendants, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties.

Thereafter the Company filed its response and affirmative defenses to the Counterclaims on April 22, 2020.

On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which we opposed.

In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.

With respect to the Firestorm Principals’

motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety.

In that same order, the Court granted in part and denied in part the Firestorm Principals’

fee advance motion.

On April 27, 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of the Company’s claims and the Firestorm Principals’

counterclaims, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, opposed.

On March 14, 2022, the Court issued an opinion and order which denied summary judgment to the Firestorm Principals on the Company's main fraudulent omission claim, the conversion and trespass to chattels claims as to Defendants Loughlin and Rhulen and the breach of fiduciary duty claim as to Defendant Loughlin.

The Court also denied summary judgment to the Firestorm Principals on their breach of warrants, anticipatory breach of warrants, and anticipatory breach of promissory notes counterclaims and the breach of contract counterclaim asserted by Defendant Satterfield.

The Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims.

The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $25,500 amount at issue could not be set off by or recouped from our damages in the case.

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

The defendants in the suits moved to dismiss these complaints.

At this stage of these litigations, suits against two of the directors have been dismissed.

On September 28, 2021, the Court issued an order denying the motion to dismiss one of the actions in Delaware. On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s dismissal order;

that reconsideration motion was denied on February 28, 2022. On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds.

The defamation claim will now be challenged on substantive grounds.

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

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

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

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

On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.

Pursuant to the terms of the settlement agreement, the parties have mutually released and discharged all existing and potential actions, causes of action, suits, proceedings, debts, dues, contracts, damages or claims against each other, including certain claims for officer indemnification of the Firestorm Principals. In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $175,000, and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.

As a result of the settlement agreement, the Company expects to record a reduction to notes payable, the related accrued interest and other assets and liabilities already presented as discontinued operations.

The Company will also cancel warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.

The settlement also results in there being no litigation pending against the Company at this time.

On January 31, 2020, our wholly-owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc.

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

Fordham alleges that we breached an underwriting agreement with Fordham.

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

fees and expenses, and seeks damages.

The Complaint was served to us on September 25, 2020.

We issued a motion to dismiss counterclaims on June 23, 2021.

The Court granted Fordham’s motion to dismiss our counterclaims on October 23, 2021. On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims.

Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.

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

However, we maintain that Fordham’s claims have no merit.

To that end we intend to vigorously litigate this action.

In June 2021, a putative shareholder class action lawsuit (captioned Miller v.

Rekor Systems, Inc.

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

and certain of its officers.

It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to our automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and sought damages on behalf of shareowners who acquired our stock between April 12, 2019 and May 25, 2021.

The court appointed a lead plaintiff.

In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice.

This matter was voluntarily dismissed without prejudice. 

In addition, from time to time, we may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.

Fordham alleged that we breached an underwriting agreement and brought claims for breach of contract, a declaratory judgment, and attorneys’

fees and expenses, seeking damages.

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, net on the Company’s consolidated statements of operations. 

From time to time, we may be named as a party to various lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.

These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.

With respect to such lawsuits, claims and proceedings we accrue reserves when a loss is probable, and the amount of such loss can be reasonably estimated.

It is our opinion that the outcome of these proceedings, individually and collectively, will not be material to our consolidated financial statements as a whole.

When it is our opinion that the outcome of these proceedings, individually and collectively, will not be material to our consolidated financial statements as a whole we do not provide detailed descriptions of such matters in our financial statements.

MINE SAFETY DISCLOSURES

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Our common stock is listed on the Nasdaq Capital Market under the symbol “REKR”.

March 31, 2022, there were 73 registered holders of record of our common stock, excluding stockholders for whom shares are held in “nominee”

As of March 29, 2023, there were 63 registered holders of record of our common stock, excluding stockholders for whom shares are held in “nominee”

or “street name.”

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Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant.

Recent Sale of Unregistered Securities

Automatic Conversion of Series A Cumulative Convertible Redeemable Preferred Stock and Series B Cumulative Convertible Redeemable Preferred Stock Following Registered Public Offering

Recent Sales of Unregistered Securities

Registered Public Offering followed by Automatic Conversion of Series A Cumulative Convertible Redeemable Preferred Stock and Series B Cumulative Convertible Redeemable Preferred Stock

On February 9, 2021, we issued and sold 6,126,936 shares of our common stock, which includes 799,166 shares of common stock sold pursuant to the exercise of an overallotment option (the "2021 Public Offering").

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333-26067), and subsequently declared effective by the SEC on November 10, 2021, allowing for the registered resale of 2,186,931 shares of common stock received as consideration by Waycare’s former stockholders.

STS Acquisition

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2022, as part of the purchase price the Company issued to the sellers of STS 798,666 unregistered shares of the Company’s common stock, valued at $2,000,000.

The stock consideration paid to the sellers was issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D, as promulgated thereunder.

Senior Notes with Warrants

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2023, the Company entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $15,000,000 in aggregate principal amount of senior secured promissory notes, and (ii) warrants to purchase up to an aggregate of 7,500,000 shares of common stock of the Company. 

In connection with the initial closing on January 18, 2023, the Company issued $12,500,000 in aggregate principal amount of notes and warrants to purchase 6,250,000 shares of Common Stock, resulting in proceeds to the Company of $12,500,000 before reimbursement of expenses.

Use of Proceeds

We have generated losses since our inception and have relied on cash on hand, external bank lines of credit, short-term borrowing arrangements, issuance of debt, the sale of a note, sale of our non-core subsidiaries, and the sale of common stock to provide cash for operations.

We attribute losses to financing and acquisition costs, public company corporate overhead, lower than expected revenue, and lower gross profit of some of our subsidiaries.

Our proceeds have been primarily used for research and development and sales and marketing expenses related to new product development and our strategic shift to develop and promote capabilities of our technology offerings.

We have generated losses since our inception and have relied on cash on hand, external bank lines of credit, short-term borrowing arrangements, issuance of debt, the sale of a note, sale of our non-core subsidiaries, and the sale of common stock to provide cash for operations.

We attribute losses to financing costs, public company corporate overhead, lower than expected revenue, and lower gross profit of some of our subsidiaries.

Our cash proceeds have been primarily used for the acquisitions described above, research and development, legal, financing costs, acquisition costs and sales and marketing expenses related to new product development and our strategic shift to develop and promote the capabilities of our technology offerings.

MANAGEMENT ’

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The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report and the historical financial statements of Rekor Systems, Inc., and the related notes thereto.

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

Our products are used in over 80 countries as we deliver mission-critical intelligent infrastructure solutions and services for government agencies and commercial clients in the world. 

The information provided in this discussion and analysis of Rekor’s financial condition and results of operations covers the years ended December 31, 2021 and 2020.

In 2021, we completed the acquisition of 100% of the issued and outstanding capital stock of Waycare Technologies, Ltd. During 2020 we sold our fully-owned subsidiaries AOC Key Solutions Inc.

(“AOC Key Solutions”) and Global Technical Services Inc.

(“TeamGlobal”).

As a result of the dispositions, we determined in 2020 that all the remaining operations that comprised our Professional Services Segment met the criteria to be considered discontinued and they are no longer presented as continuing operations.

Our financial results are impacted principally by the demand by clients for our products and services, the degree to which full-time staff can be kept occupied in revenue-generating activities and the success of our sales team in generating client engagements.

Unexpected changes in the demand for our products and services can result in significant variations in revenues, and present a challenge to optimal hiring, staffing and use of consultants.

The volume of work performed can vary from period to period.

Rekor is leading the charge to become the premier provider of roadway intelligence and data-driven mobility insights on a global scale.

Our commitment to delivering mission-critical solutions for roadway intelligence is driven by our vision of creating smarter, safer, and more sustainable streets for all communities.

To achieve this vision, we strive to collect, connect, and organize the world’s mobility data, harnessing its full potential to provide the most essential, real-time, and predictive actionable mobility insights.

With our innovative approach and relentless pursuit of excellence, we are working to make mobility data universally accessible and, empowering our customers to make informed decisions and drive meaningful progress towards a better future. 

The information provided in this discussion and analysis of Rekor’s financial condition and results of operations covers the years ended December 31, 2022 and 2021.

In 2022, we divested our Automated Traffic Safety Enforcement ("ATSE") business, a non-core business unit.

As a result of the divestiture, we determined that ATSE met the criteria to be considered discontinued and it is no longer presented with continuing operations. Additionally, in 2022, we completed the acquisition of 100% of the issued and outstanding capital stock of Southern Traffic Services, Inc.

("STS") and in 2021, we completed the acquisition of 100% of the issued and outstanding capital stock of Waycare Technologies, Ltd.

These acquisitions are included in the presentation of our operations.

Acquisitions and Dispositions

On April 2, 2020, we sold AOC Key Solutions for an aggregate purchase price of $4,000,000, consisting of $3,400,000 in cash and a subordinated promissory note in the amount of $600,000.

On June 29, 2020, we sold TeamGlobal for an aggregate purchase price of $4,000,000, consisting of $2,300,000 in cash and a secured promissory note in the amount of $1,700,000.

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

(“Waycare”) for an aggregate purchase price of $60,171,000, consisting of  $39,884,000 in cash and $20,287,000 of stock consideration.

(“Waycare”) for an aggregate purchase price of $60,171,000, consisting of $39,884,000 in cash and $20,287,000 of stock consideration.

On June 17, 2022 ,  we completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS.

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. 

On December 6, 2022, we divested our ATSE business, a non-core business unit, for approximate ly $3,390,000.

Opportunities, Trends and Uncertainties

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Growing Smart City Market  – According to a United Nations report, about two-thirds of the world population will live in urban areas by 2050.

Our cities are getting larger, with longer commutes, bigger roads and the resulting impact on the environment and the quality of life.

The world’s cities are getting larger, with longer commutes and the resulting impact on the environment and the quality of life.

This trend requires forward-thinking officials to manage assets and resources more efficiently.

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We believe our data-driven, artificial intelligence-aided solutions provide useful tools that can effectively tackle the challenges cities and communities are facing today and will face over the coming decades.

AI for Infrastructure – We believe that the application of AI to the analysis of conditions on roadways and other infrastructure can significantly affect the safety and efficiency of vehicular travel in the future.

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AI for Infrastructure  – We believe that the application of AI to the analysis of conditions on roadways and other transportation infrastructure can significantly affect the safety and efficiency of travel in the future.

As vehicles move towards full automation, there is a need for real-time data and actionable insights around traffic flow, identification of anomalous and unsafe movements – e.g.

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Marketers and drive-thru retailers with loyalty programs can also benefit from rapid, lower cost identification of existing and potential customers in streamlining and accelerating local vehicular flow as well as data about the vehicles on the roadway.

● 

Connected Vehicle Data  – Today’s new vehicles are equipped with dozens of sensors, collecting information about internal systems, external hazards, and driving behaviors.

This data is an untapped resource for cities and transportation agencies alike.

This data is a resource that transportation and other agencies are beginning to find valuable uses for.

Notably, the data from these vehicles represent a virtual network that is independent of the infrastructure which is maintained and operated by the public agencies.

Connected vehicle sensors provide important information related to hazardous conditions, speed variations, intersection performance, and more.

This data can help agencies and cities gain more visibility on their roads, supplementing data from existing infrastructure and providing untapped transportation information from rural areas that are not served by ITS infrastructure.

Connected vehicle sensors can provide important information related to hazardous conditions, speed variations, intersection performance, and more.

This data can help agencies and municipalities gain more visibility about conditions on their roads, supplementing data from existing infrastructure and allowing transportation information from rural areas that are not served by ITS infrastructure to be integrated into the overall analysis.

 ●

New and Expanded Uses for Vehicle Recognition Systems  – We believe that reductions in the cost of vehicle recognition products and services will significantly broaden the market for these systems.

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These include smaller municipalities, homeowners’ associations, and organizations finding new applications such as innovative customer loyalty programs.

We have seen and responded to an increase in the number of smaller jurisdictions and municipalities that are testing vehicle recognition systems or that issued requests for proposals to install a network of vehicle recognition sensors.

We have seen and responded to an increase in the number of smaller jurisdictions that are testing vehicle recognition systems or that issued requests for proposals to install a network of vehicle recognition sensors.

We also expect the availability of faster, higher-accuracy, lower-cost systems to dramatically increase the ability of crowded urban areas to manage traffic congestion and implement smart city programs.

Adaptability of the Market  – We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy, affordability and ability to capture additional vehicle data will allow them to compete effectively with existing providers.

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Adaptability of the Market  – We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy, affordability and ability to capture additional vehicle data will allow them to compete effectively with existing providers.

Based on published benchmarks, our software currently outperforms competitors.

However, large users of existing technology, such as toll road operators, have long-term contracts with service providers that have made considerable investments in their existing technologies and may not consider the improvements in accuracy or reductions in cost sufficient to justify abandoning their current systems in the near future.

In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop their own or secure advanced vehicle recognition systems from others who are also working to develop them.

In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop their own systems or secure advanced systems from others who are also working to develop them.

As a result, our success in establishing a major position in these markets will depend on being able to effectively communicate our presence, develop strong customer relationships, and maintain leadership in providing the capabilities that customers want.

As with any large market, this will require considerable effort and resources.

 ●

Expansion of Automated Enforcement of Motor Vehicle Laws  – We expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial.

We believe that future legislation will increasingly allow for automated enforcement of regulations such as motor vehicle insurance requirements.

We believe that future legislation will increasingly allow for automated enforcement of regulations such as motor vehicle insurance and registration requirements.

Communities are currently searching for better means of achieving compliance with minor vehicle offenses, such as lapsed registrations, and safety issues such as motorists who fail to stop for school buses.

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To the extent that legislative implementation is required, a deliberative and necessarily time-consuming process is involved.

However, as states expand auto enforcement, the market for our products and services should broaden in the public safety market.

However, as states expand auto-enforcement, the market for these products and services should broaden in the public safety market.

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Graphic Processing Unit ( “

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As GPU manufacturers increase production volume, we hope to benefit from the reduced cost to manufacture the hardware included in our products or available to others using our services.

Edge Processing  – Demand for actionable roadway information continues to grow in parallel with camera resolutions.

Over the last several decades, cameras have evolved and unlocked new capabilities with each advancement.

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Edge Processing  – Demand for actionable roadway information continues to grow in parallel with sensor improvements, such as increasingly sophisticated internal software and optical and other hardware adapted to the use of this software.

Over the last several decades, sensors have evolved and unlocked new capabilities with each advancement.

Further, cellular networks have been optimized for downloading data rather than uploading data.

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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.

Edge processing allows us to scale a network dramatically without the bandwidth, cost, latency and dependability limitations that are experienced by other networks where raw video needs to be streamed to the cloud for processing.

 ●

Accelerated Business Development and Marketing  – Our ability to compete in a large, competitive and rapidly evolving industry will require us to achieve and maintain a visible leadership position.

As a result, we have accelerated our business development marketing and eCommerce activities to increase awareness and market adoption of our new technology and products within the market.

We anticipate that an increased presence in the market, the continued development of strategic partnerships and other economies of scale will significantly reduce the level of costs necessary to support sales of our products and services.

As a result, we have made significant investments in our business development marketing and eCommerce activities to increase awareness and market adoption of our products and services within key markets.

We anticipate that a sustained presence in the market, the continued development of strategic partnerships and other economies of scale will reduce the level of costs necessary to support sales of our products and services.

However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain.

COVID 19  

-  The spread of a novel strain of COVID-19 around the world since the first quarter of 2020 has caused significant volatility in U.S.

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Resurgent COVID 19  - The spread of a novel strain of COVID-19 around the world since the first quarter of 2020 has caused significant volatility in U.S.

and international markets.

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and international economies.

As such, we are unable to determine the full impact on our operations.

However, we have also seen a positive impact of COVID-19 on the technology sector, in which we are competing.

As such, we are unable to determine the full impact on our operations should the global pandemic resurface in 2023.

The pandemic has accelerated the adoption of new technologies by businesses.

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Funding for digital initiatives has increased, creating opportunities for innovative solution providers such as Rekor.

Pressure on Government Budgets  – COVID-19 has caused significant strain on government budgets.

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Pressure on Government Budgets –

COVID-19 has caused significant strain on government budgets.

With less money to spend and more need for resources, government agencies need affordable, effective, and scalable solutions for revenue recovery and discovery.

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In addition, states adopting contactless compliance programs may be able to garner significant net cash contributions to their annual budgets while reducing the number of non-compliant vehicles on their roadways.

 ●

Infrastructure Investment and Jobs Act ( “

IIJA ”

) -  The IIJA , signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems.

We believe that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for intelligent infrastructure that will benefit from this legislation. We have identified opportunities to access federal funding streams, and we are working to implement a program that capitalizes on this unprecedented U.S.

federal investment in public safety, homeland security, and transportation infrastructure and ensures that our customers are positioned to capture as much of this extraordinary government spending as possible. Beyond the many recurring federal grant programs that could support customer purc hases, and the $350 billion in American Rescue Plan Act allocations that public agencies are receiving now, we are particularly excited about the prospect of engaging in the following new funding streams that are contained in the IIJA.

●         $200 million annually for a “Safe Streets and Roads for All” program that would make competitive grants for state projects that significantly reduce or eliminate transportation-related fatalities.

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

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

) and the Bipartisan Infrastructure Law ( “

)  - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems.

We believe that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for roadway intelligence that will benefit from this legislation.

We have identified opportunities to access federal funding streams, and we are working to implement a program that capitalizes on this unprecedented U.S.

Beyond the many recurring federal grant programs that could support customer purchases, and the $350 billion in American Rescue Plan Act allocations that public agencies are receiving now, we are particularly excited about the prospect of benefitting from the following new grant sources that are contained in the IIJA:

$200 million annually for a “Safe Streets and Roads for All” program that would make competitive grants for state projects that significantly reduce or eliminate transportation-related fatalities.  $150 million for the current administration to establish a grant program to modernize state data collection systems $500 million for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety.

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Recent Acquisitions -  Over the past two years, Rekor has acquired two subsidiaries as part of its plans to advance its appeal to national and local transportation agencies.

In the first of these acquisitions, we acquired an award winning leader in the development of predictive analytics for traffic management using a combination of internally generated an third party data sources.

This acquisition was designed to assure transportation agencies that we were developing the most advanced data analysis systems to support their missions in safety and efficiency.

In the second acquisition, we acquired one of the leading existing providers of traffic data services in the United States.

Uniquely, this Company had innovated a change in the service model from providing, servicing and maintaining agency resources to a data services model where overlapping entities could benefit from our modular approach to data collection and dissemination.

Each of these acquisitions has led to increased visibility for the Company among national and state level DOTs in the United States, Mexico and Israel.

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Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy.

If Rekor is unable to successfully implement and execute its plans, there could be a material and adverse effect on the Company’s business, results of operations, and financial condition.

 ●

Inability to Achieve Profitability  - Rekor continues to grow its business, its operating expenses and capital expenditures have increased and it has not yet achieved the level of sustaining profitability.

As a result, if the Company is unable to generate additional revenue or achieve planned efficiencies in operations, or if its revenue declines significantly, Rekor may not be able to achieve profitability in the future, which would materially and adversely affect the Company’s business.

 ●

Inability to Retain Qualified Personnel – Rekor’s success depends on the continued efforts and abilities of the senior management team and key engineering and marketing specialists.

Although Rekor has employment agreements with these employees, they may not choose to remain employed by Rekor.

Should one or more key personnel leave the Company or join a competitor, the Company’s business, operating results, and financial condition can be adversely affected.

 ●

Inability to Compete Effectively  - Competition and technology advancements by others may erode the Company’s business and result in inability to capture new business and revenue.

Each business line faces significant competitive pressures within the markets in which they operate.

While Rekor continues to work to develop and strengthen its competitive advantages, many factors such as market and technology changes may erode or prevent this.

If the Company is unable to successfully maintain its competitive advantage, the Company’s business, operating results, and financial condition can be adversely affected.

 ●

Cyber Security Risks - Rekor relies on information technology in all aspects of its business.

A significant disruption or failure in the information technology systems could result in services interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, and other operational difficulties.

This could result in the loss of assets and critical information and expose the Company to remediation costs and reputational damage.

Although Rekor takes reasonable steps intended to mitigate these risks, a significant disruption or cyber intrusion could lead to misappropriation of assets or data corruption and could adversely affect the Company’s results of operations, financial condition, and liquidity.

 ●

Intellectual Property Claims  - Third parties that have been issued patents or have filed for patent applications similar to those used by the Company’s operating subsidiaries may result in intellectual property claims against the Company.

Rekor cannot determine with certainty whether existing third-party patents or the issuance of any future third party patents would require any of its operating subsidiaries to alter their respective technologies, obtain licenses or cease certain activities.

Should the Company be unable to defend against such claims, the Company’s business, operating results, and financial condition can be adversely affected.

Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

Components of Operating Results

We derive revenues substantially from the sale of software, hardware and related services.

Software sales include subscriptions for the use of our software as a service (“SaaS”) and software licenses.

SaaS revenues are treated as recurring revenue and provided both through negotiated agreements with larger governmental and commercial customers and through subscriptions from smaller customers.

License sales are typically term agreements, including agreements for perpetual licenses, that may include maintenance obligations for software updates that keep up with changes in vehicle models and license plate designs.

Hardware is sold through direct sales or subscriptions and is typically sold with a software subscription or license arrangement.

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

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

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

In addition, we engage in pilot programs with governmental and commercial entities that include extension or renewal features that may result 

in recurring revenues and/or additional point in time revenues at the completion of the pilot program.

The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing offerings.

These offerings typically, include a mixture of data collection, software, hardware, implementation, engineering services, customer support and maintenance services.

Revenue is recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.

Costs of revenues, excluding depreciation and amortization

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Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

However, we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term.

However, our general and administrative expenses have decreased as a percentage of our revenue and, to the extent we continue to be successful in generating increased revenue, we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term.

Sales and Marketing

Sales and marketing expenses consist of personnel costs, marketing programs, travel and entertainment associated with sales and marketing personnel, expenses for conferences and trade shows.

We intend to make significant investments in our sales and marketing expenses to grow revenue, further penetrate the market and expand our customer base.

We will require significant investments in our sales and marketing expenses to continue the rate of growth in our revenues, further penetrate existing markets and expand our customer base into new markets.

Research and Development

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Our research and development expenses support our efforts to continue to add capabilities to and improve the value of our existing products and services, as well as develop new products and services.

We expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our AI solutions.

However, we expect our research and development expenses to decrease as a percentage of our revenue over the long term, although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. 

Our research and development expenses increased in 2022 as we focused on a significant expansion of the capabilities of our Rekor suite of products and may continue to fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

However, to the extent we continue to be successful in generating increased revenue, we expect our research and development expenses to decrease as a percentage of our revenue over the long term. 

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of right-of-use assets, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.

Other Income (Expense)

Other income (expense) consists primarily of interest expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, and interest income earned on cash and cash equivalents, short-term investments and note receivables.

Income Tax Provision

Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business.

Other income (expense) consists primarily of legal settles, legal judgements, interest expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, interest income earned on cash and cash equivalents, short-term investments and note receivables.

Income Tax Benefit

Income tax benefit consists primarily of the tax impact related to the step-up in the basis of tangible and intangible assets related to our acquisitions and income taxes in certain domestic jurisdictions in which we conduct business.

We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits.

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Research and development expenses

Goodwill impairment

Depreciation and amortization

Total operating expenses

Loss from operations

Loss from continuing operations

Other income (expense):

Gain (loss) on extinguishment of debt

Interest expense

Interest expense, net

Other expense, net

Gain on the sale of business

Other income (expense), net

Total other income (expense)

Gain on extinguishment of debt

Total other income

Loss before income taxes

Income tax benefit (provision)

Income tax benefit

Equity in loss of investee

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(Dollars in thousands)

The increase in revenue for the year ended December 31, 2021, compared to the year ended December 31, 2020, was a result of additional products and programs we offered, and increases in our direct sales of existing products and programs.

In 2021, we initiated services for Oklahoma’s UVED Program which has generated revenue of $1,282,000 during the year ended December 31, 2021.

During the year ended December 31, 2021, $925,000 of revenue was attributed to Waycare.

We also saw an increase, during the year ended December 31, 2021, in hardware sales and sales of perpetual software licenses to larger customers.

Revenue relating to the delivery of the hardware and perpetual licenses was recognized as point in time revenue, while revenue relating to the software subscriptions and future maintenance services will be recognized as recurring revenue over the remaining life of the sales or licensing agreements.

The increase in revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily a result of our recent acquisition of STS and its existing customer base.

During the year ended December 31, 2022, revenue attributable to our STS acquisition was $7,692,000.

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.

Our revenue with the discontinued operations of our ATSE business were $22,280,000 for the year ended December 31, 2022, as compared to $14,294,000 for the year ended December 31, 2021.

Cost of Revenue, Excluding Depreciation and Amortization

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Cost of revenue, excluding depreciation and amortization

For the year ended December 31, 2021, cost of revenue, excluding depreciation and amortization increased compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs that were incurred to support our increase in revenue.

For the year ended December 31, 2022, cost of revenue, excluding depreciation and amortization increased 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 go-to-market strategy and increase of revenue.

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 the year.

Operating Expenses  

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Research and development expenses

Goodwill impairment

Depreciation and amortization

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General and Administrative Expenses

The increase general and administrative expenses of $12,677,000 for the year ended December 31, 2021 compared to the year ended December 31, 2020, was primarily due to a $6,065,000 increase in personnel costs related to an increase in headcount, including a $2,309,000 increase in stock-based compensation.

Additionally, we saw increase in professional fees of $4,290,000, including $2,025,000 related to one-time fees associated with merger and acquisition transactions.

The increase in general and administrative expenses during the year ended December 31, 2022, compared to the year ended December 31, 2021, were primarily due to a $3,894,000 increase in personnel costs related to an increase in headcount, and increase of $1,326,000 of rent expense primarily related to our leased space in Columbia, Maryland and Tel Aviv, Israel.

These increases in expenses were partially offset by a $2,180,000 decrease in our professional services expenses which primarily related to merger and acquisition activities that took place in 2021. 

Selling and Marketing Expenses

The increase of $2,334,000 in selling and marketing expenses during the year is attributable mainly to increased marketing efforts to promote our products and services including digital marketing and other sales efforts.

In connection with these efforts, there was an increase in staffing to support the Company’s growth plan which led to a $1,170,000 increase in personnel costs, including a $168,000 increase in stock-based compensation.

Additionally, for the year ended December 31, 2021, we saw an increase in advertising expenses of $474,000.

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

In connection with these efforts, for the year ended December 31, 2022, there was an increase in staffing to support our growth plan which led to a $4,223,000 increase in personnel costs, including a $1,215,000 increase in stock-based compensation, compared to the year ended December 31, 2021.

Research and Development Expense

The increase in research and development expenses of $5,107,000 during the year was primarily attributable to the development of new products and additional software capabilities, mainly as a result of an increase in headcount and hours associated with research and development activities.

In the current year, there was an increase in staffing to support the Company’s new products which led to a $4,777,000 increase in personnel costs, including a $595,000 increase in stock-based compensation.

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

For the year ended December 31, 2022, there was an increase in staffing to support the Company’s new products which led to a $8,227,000 increase in personnel costs, including a $1,498,000 increase in stock-based compensation, compared to the year ended December 31, 2021.

Additionally, there was an increase in sub-contractor labor associated with the development of new products and software of $1,062,000 during the year ended December 31, 2022 compared to the year ended December 31, 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

The increase in depreciation and amortization during the year is attributable primarily to increased technology-based intangible assets that were acquired as part of our acquisition of Waycare.

The increase in depreciation and amortization during the year is attributable primarily to increased technology-based intangible assets that were acquired as part of our acquisition of Waycare and the customer relationships and the trade name that was acquired as part of our acquisition of STS.

Operating Expenses Excluding Goodwill Impairment, Depreciation and Amortization

In the third quarter of 2022, we started to see a reduction in our operating expenses as a result of streamlining activities and business processes.

During the fourth quarter we saw the full impact of these activities which resulted in a reduction of $2,842,000 of operating expenses across our general and administrative, sales and marketing and research and development expenses, during the fourth quarter of 2022 compared to the third quarter of 2022.

Other Income (Expense)

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Other income (expense):

Gain (loss) on extinguishment of debt

Interest expense

Interest expense, net

Other expense, net

Gain on the sale of business

Other income (expense), net

Total other income (expense)

The decrease in interest expense for the year ended December 31, 2021  compared to the year ended December 31, 2020 is due to the staged retirement of the 2019 Promissory notes in 2020.

The gain on the extinguishment of debt for the year ended December 31, 2021 , was related to the forgiveness of the PPP loans.

For the year ended December 31, 2020, we incurred a loss on extinguishment of debt related to fees associated with the early extinguishment of the principal balance of our 2019 Promissory Notes. 

In connection with the sale of AOC Key Solutions and TeamGlobal, we recognized a gain on the sale of the business of $3,631,000 during the year ended December 31, 2020. 

Income Tax Expense

The income tax benefit for the year ended December 31, 2021 , was $3,819,000 , which is due primarily to the step-up in the basis of intangible assets related to the Waycare acquisition, as compared to tax expense of $23,000  for the year ended December 31, 2020 .

We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2021 .

Gain on extinguishment of debt

Total other income

The increase is other expense in the current year was related to legal judgements and settlements that happened during the year ended December 31, 2022.

For additional details regarding our legal settlements please s ee Item 3 of Part I, “Legal Proceedings”. 

In connection with the sale of ATSE, we recognized a gain on the sale of the business of $2,643,000 during the year ended December 31, 2022. 

The gain on the extinguishment of debt for the year ended December 31, 2021 , was related to the forgiveness of PPP loans. 

Income Tax Benefit

The income tax benefit for the year ended December 31, 2022 , was $987,000 , which is due primarily to the step-up in the basis of tangible and intangible assets related to the STS acquisition, as compared to tax benefit of $3,819,000  for the year ended December 31, 2021 , which is due primarily to the step-up in the basis of intangible assets related to the Waycare acquisition. We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2022 .

Non-GAAP Measures

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We calculate EBITDA as net loss before interest, taxes, depreciation and amortization.

We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs and (vii) other unusual or non-recurring items.

We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) one-time consulting fees, (vii) legal judgements and settlements, (viii) gains or losses on the remeasurement of earnouts or contingent considerations, and (ix) other unusual or non-recurring items.

EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the U.S.

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Net loss from continuing operations

Income tax (benefit) provision

Interest expense

Income tax benefit

Interest expense, net

Depreciation and amortization

(Gain) loss on extinguishment of debt

Gain on extinguishment of debt

Share-based compensation

Gain on sale of business

Gain on the sale of ATSE

Gain due to the remeasurement of the STS Earnout and Contingent Consideration, net

Goodwill impairment

Loss due to change in value of equity investments

Merger and acquisition transaction costs

Legal judgements and settlements

One-time consulting fees

Adjusted EBITDA

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We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue.

We expect Adjusted Gross Margin to continue to improve over time to the extent that we can gain efficiencies through the adoption of our technology and successfully cross-selling and upselling our current and future offerings.

We expect Adjusted Gross Margin to improve over time to the extent that we can gain efficiencies through the broader adoption of our technology and successfully cross-selling and upselling our current and future offerings.

However, our ability to improve Adjusted Gross Margin overtime is not guaranteed and could be impacted by the factors affecting our performance.

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Adjusted Gross Margin

Adjusted Gross Margin, for the year ended December 31, 2021 decreased to 56.4% from 61.9% for the year ended December 31, 2020.

The fluctuation in Adjusted Gross Margin was driven primarily by our mix of software and hardware sales.

Software sales carry a higher margin than hardware sales as there are fewer costs associated with software sales. However, hardware sales are typically associated with performance obligations that will provide higher margin recurring revenue in the future. Additionally, as part of our planned go-to-market strategy, we offer our customers short-term pilot programs which range from three to six months.

Adjusted Gross Margin, for the year ended December 31, 2022 decreased to 45.3% from 60.7% for the year ended December 31, 2021. As part of an effort to more quickly expand our market reach, we offered certain customers short-term pilot programs in 2022 which have ranged from three to six months.

Our pilot programs generally have lower margins due to the 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 the year.

Key Performance Indicators

We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Since much of our revenue from hardware sales is associated with future recurring revenues from subscriptions and maintenance fees, we expect the percentage of our revenue that is associated with point-in-time hardware sales to gradually decline in relation to recurring revenues.

Recurring Revenue

As more fully described in the discussion of Revenue Recognition below, we derive recurring revenue from long-term contracts with customers that provide for periodic payments over time and short-term contracts that are automatically invoiced on a monthly basis and renewed upon payment.

The growth of our recurring revenue provides some insights into our future operating results and cash flow from operations.

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Recurring revenue

We continue to focus on long-term contracts with recurring revenue as part of our business model.

This model emphasizes the importance of securing geographic coverage in connection with one customer solution so that additional products and services can be provided more efficiently through the same network infrastructure.

We expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through the Rekor One™

As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™

Total Contract Value

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$8,936,000 of contracts won for the year ended December 31, 2021.

This growth represents a 

$2,323,000 or 35%  growth, period over period.

This represents growth of 

$13,026,000 or 146% , period over period.

Performance Obligations

While a portion of the total contract value won in a particular period represents point-in-time revenue or recurring revenue earned during the period, the remainder represents future performance obligations that can provide insights into the growth of our revenues. As of December 31, 2021, we had appro ximately $22,587,000 of performance obligations with respect to contracts that were closed prior to 

While a portion of the total contract value won in a particular period represents point-in-time revenue or recurring revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues. As of December 31, 2022, we had appro ximately $21,412,000 of performance obligations with respect to contracts that were closed prior to 

December 31, 2022 but have a contractual period beyond December 31, 2022 .

This represents growth of $5,882,000 or 35% compared to $16,705,000 of performance obligations as of December 31, 2020.

This represents growth of $6,636,000 or 45% compared to $14,776,000 of performance obligations as of December 31, 2021.

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

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Lease Obligations

December 31, 2021 , we leased building space at the following locations in the U.S.:

December 31, 2022 , we had significant leased building space at the following locations:

Columbia, Maryland –

The corporate headquarters

Linthicum, Maryland

Orlando, Florida 

Tel Aviv, Israel

Los Angeles, California 

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

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Net cash used in operating activities - continuing operations

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

Net cash used in investing activities - continuing operations

Net cash provided by financing activities - continuing operations

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

Net cash used in operating activities –

continuing operations for the year ended December 31, 2021, had a net decrease of $6,853,000, which was attributable to the increase in the loss from continuing operations of $12,815,000.

This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increase d by 

$3,113,000  to  $3,909,000 for the year ended December 31, 2021, compared to $796,000 for the year ended December 31, 2020.

Additionally, for the year ended December 31, 2021, there was a non-cash adjustment of $3,819,000 related to an income tax benefit that was primarily due to the step up in basis of the identified definite-lived intangible asset related to technology acquired as part of the acquisition of Waycare.

This increase is due to the number of shares that were issued as well as the increase in our stock price.

Additionally, for the year ended December 31, 2020, there was a $3,631,000 gain on the sale of AOC Key Solutions and TeamGlobal.

The gain on the sale is shown as a decrease in cash flow from operations and an increase in cash flow from investing activities to reflect the nature of the transactions.

The net increase in net cash used in investing activities –

continuing operations of $51,955,000 was primarily due to the net cash outlay in relation to the acquisition of Waycare of $39,770,000 and the $1,250,000 SAFE investment in Roker.

Additionally, during the year ended December 31, 2021, the Company's capital expenditures increased by $5,235,000 compared to the prior period.

The increase in capital expenditures, period over period, was related to supporting the Company's go-to-market strategy. During the year ended December 31, 2020, the cash provided by investing activities from continuing operations was primarily due to the cash proceeds of the sale of AOC Key Solutions and TeamGlobal.

Net cash provided by financing activities –

continuing operations for the year ended December 31, 2021, increased $45,545,000 from the prior year ended December 31, 2020.

In the current year, 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 year ended December 31, 2021 and 2020 , we funded our operations primarily through cash from operating activities from our subsidiaries, issuance of debt, the sale of our subsidiaries and the sale of equity.

As of December 31, 2021 , we had unrestricted cash and cash equivalents from continuing operations of $25,796,000  and working capital of $16,989,000, as compared to unrestricted cash and cash equivalents of $20,595,000  and working capital of $18,324,000 as of December 31, 2020 . 

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 consolidated financial statements in this Annual Report on Form 10-K, indicate the Company’s ability to continue operations as a going concern for that one-year period.

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

Net cash used in operating activities for the year ended December 31, 2022, had a net increase of $21,177,000, which was attributable to the increase in the loss from continuing operations of $56,058,000.

This amount was partially offset by an increase in share-based compensation expense, a non-cash adjustment, which increased $2,707,000 to $6,616,000 for the year ended December 31, 2022 compared to $3,909,000 for the year ended December 31, 2021.

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

Additionally, for the year ended December 31, 2022 we recognized an impairment related to our goodwill of $34,835,000. 

The net decrease in net cash used in investing activities of $39,054,000 was primarily due to a decrease in the outflow of funds related to merger and acquisition activities.

During the year ended December 31, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS. During the year ended December 31, 2021, the Company had net cash outflows of $39,770,000 related to the acquisition of Waycare. 

Net cash provided by financing activities for the year ended December 31, 2022 decreased by $47,124,000 from the prior year ended December 31, 2021.

During the year ended December 31, 2022, as part of our 2022 Sales Agreement, we received net proceeds after deducting the underwriting discounts and commissions and offering expenses payable by us, of $22,754,000. In the prior comparable 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 year ended December 31, 2022 and 2021 , we funded our operations primarily through cash from the sale of equity, operating activities from our subsidiaries, the sale of our subsidiaries and the issuance of debt. 

As of December 31, 2022 , we had unrestricted cash and cash equivalents from continuing operations of $1,924,000  and working capital deficit of $6,010,000, as compared to unrestricted cash and cash equivalents of $25,796,000  and working capital of $16,911,000 as of December 31, 2021 . 

As more fully described in the discussion of Going Concern, Liquidity and Management's Plan below, 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 the audited financial statements.

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

Balance Sheet Arrangements, Contractual Obligations and Commitments

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020, which have been prepared in accordance with U.S.

Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021, which have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.

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Revenue Recognition

The Company derives its revenues primarily from Software as a Service (“SaaS”), subscriptions, customer support services, contactless compliance solutions, implementation services, perpetual license sales and the sale of hardware in connection with its software solutions.

The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing offerings.

These offerings typically, include a mixture of data collection, software, hardware, implementation, engineering services, customer support and maintenance services.

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These SaaS solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such, we recognize revenue for these arrangements ratably over the term of the contractual agreement.

The Company also currently receives recurring revenues under contracts entered into using a subscription model for bundled hardware and software over a period.

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

The Company also currently receives recurring revenues under contracts entered into using a subscription model for data collection services and bundled hardware and software over a period. Payments for these services and subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement.

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

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Product and service revenue

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

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

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

In the first quarter of 2021, the Company launched a new service offering for the State of Oklahoma to support its Uninsured Vehicle Enforcement Diversion (“UVED”) Program.

Rekor provides hardware, software and services to identify uninsured motor vehicles, notify owners of non-compliance and assist them in obtaining the required insurance as an alternative to traditional enforcement methods.

Revenue is recognized monthly based on the number of citations collected by the relevant jurisdiction.

Implementation revenue is recognized when the Company provides pilot programs to customers.

Pilot programs may involve a one-time fee for a defined period in which the customer can use the Company’s software in connection with a previously installed camera network or connected vehicle data.

At the end of the pilot program, the customer can convert from a pilot program to a subscription model which has a typical term between one and five years.

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

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

Implementation revenue is recognized when the Company provides implementation or construction services to its customers.

These services, involve a fee for the implementations services and are typically associated with the sale of the Company’s data collection services, software and hardware.

The Company’s implementation revenue is recognized over time as the implementation is completed.

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

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Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when the customer has access to the software, which normally occurs once software activation keys have been made available to the customer.

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

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

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

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

The revenue related to the installation component is recognized at various stages of completion.

Accounts Receivable

Accounts receivable are customer obligations due under normal trade terms.

We perform continuing credit evaluations of our clients’

financial condition, and we generally do not require collateral.

Management reviews accounts receivable to determine if any receivables will potentially be uncollectible.

Factors considered in the determination include, among other factors, the number of days an invoice is past due, client historical trends, available credit rating information, other financial data and the overall economic environment.

Collection agencies may also be used if management so determines.

We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible.

We also record as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and our assessment of the general financial conditions affecting its customer base.

If actual collection experience changes, revisions to the allowance may be required.

After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. 

The revenue related to the installation component is recognized over time as the implementation is completed.

Contactless compliance solutions revenues reflect arrangements to provide hardware systems that identify uninsured motor vehicles, notify owners of non-compliance through a diversion citation, and assist them in obtaining the required insurance as an alternative to traditional enforcement methods.

Revenue is recognized monthly based on the number of diversion citations collected by the relevant jurisdiction.

The Company also generates revenue through its engineering services.

These services are provided at the request of its customers and the revenue related to these services is recognized over time as the services are completed.

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

Goodwill is not amortized but rather subject to a periodic impairment testing on an annual basis.

The Company will assess goodwill for impairment annually on October 1st of each year, or more often if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value.

During the years ended December 31, 2021 and 2020, we had not recognized any impairment to goodwill. 

Business Combination

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It is our accounting policy to account for Accounting Standards Codification (“ASC”) 740-10-25-related penalties and interest as a component of the income tax provision in the consolidated statements of operations.

As of December 31, 2021 , and 2020 , our evaluation revealed no uncertain tax positions that would have a material impact on the consolidated financial statements.

The 2018 through 2020 tax years remain subject to examination by the IRS, as of December 31, 2021 . 

Liquidity and Management ’

As of December 31, 2022 , and 2021 , our evaluation revealed no uncertain tax positions that would have a material impact on the consolidated financial statements. 

Going Concern, Liquidity and Management ’

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

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

The Company attributes losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the year ended December 31, 2021, the Company had a net loss from continuing operati ons of  

$26,777,000  and working capital of  

$16,989,000 .

The Company's net cash position was increased b y $5,592,000  fo r the year ended December 31, 2021 primarily due to the net proceeds of $70,125,000 from the completion of the 2021 Public Offering .

This amount was offset by the net cash outlay of $39,770,000  in connection with the acquisition of Waycare .

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 year ended December 31, 2022, the Company had a net loss from continuing operati ons of 

$83,454,000  and a working capital deficit of 

The Company's net cash position was decreased b y $24,133,000  fo r the year ended December 31, 2022 primarily due to the loss from continuing operations of $83,454,000 .

The loss from continuing operations 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 $22,754,000 from the 2022 Sales Agreement (see NOTE 14 - 

STOCKHOLDERS ’ 

EQUITY  for details on the 2022 Sales Agreement).

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to continue the growth of its technology business, (ii) the continued performance of its contractors, subcontractors and vendors, (iii) its ability to maintain and build good relationships with its lenders and financial intermediaries, (iv) its ability to maintain timely collections from existing customers, and (v) the stability of the world economy and global financial markets.

To the extent that events outside of the Company's control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, its ability to continue to secure and implement new business, raise capital, and otherwise, depending on the severity of such impact, materially adversely affect its operating results. 

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. On February 24, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B.

Riley Securities, Inc.

(the “Agent”) to create an at the market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50,000,000 through or to the Agent. 

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

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to continue the growth of its technology business, (ii) the continued performance of its contractors, subcontractors and vendors, (iii) its ability to maintain and build good relationships with its lenders and financial intermediaries, (iv) its ability to maintain timely collections from existing customers, and (v) the stabilization of the world economy and global financial markets.

The Company is currently in the process of restructuring its operations to focus on supporting its existing customer base and continuing to develop the growth opportunities that present the highest immediate value.

The Company will continue to evaluate the most sensible external financing options in order to sustain its operations. If additional financing is not available, the Company may be required to further reduce or defer expenses and cash outlays.

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 the audited financial statements.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months from the issuance of the Annual Report on Form 10-K.

New Accounting Pronouncements

7 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm  (PCAOB ID:

Reports of Independent Registered Public Accounting Firms  (Marcum LLP, PCAOB ID 688 ;

Friedman LLP, PCAOB ID 711 ) 

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

1 unchanged sentence

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Rekor Systems, Inc.

To the Shareholders and Board of Directors of

Rekor Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Rekor Systems, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’

equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Rekor Systems, Inc.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations, stockholders’

equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph –

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated  financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of standalone selling prices of revenue performance obligations

As discussed in Note 1 to the financial statements, the Company recognized revenue of $14.3 million for the year ended December 31, 2021.

The Company allocates value to each distinct performance obligation on a relative standalone selling price basis.

The Company determines standalone selling price based on pricing objectives, taking into consideration market conditions and other factors, including the geographic locations of customers, negotiated discounts from price lists and selling method.

We identified the evaluation of standalone selling prices for the Company’s products and services as a critical audit matter.

Subjective auditor judgment was involved in evaluating the Company’s assumptions regarding market conditions and pricing practices, including historical sales data and discounts from list price, where there was no direct observable data available.

The following are primary procedures we performed to address this critical audit matter.

We evaluated the Company’s estimated standalone selling prices, including their compliance with the Company’s accounting policy, by assessing available, relevant external information and comparing the estimated standalone selling prices to internal historical disaggregated sales data, including discounts from list price.

We selected certain customer agreements and read contract source documents to assess the relevance and reliability of the historical sales data used by the Company to estimate standalone selling prices, and tested the mathematical accuracy of the median or average discount from list price for the products and services.

As described in Note 1 to the financial statements, the Company has adequate cash on hand which will provide sufficient liquidity to finance the operating activities of the Company for twelve months from the issuance of these financial statements.

We determined that the Company’s ability to continue as a going concern is a critical audit matter due to management’s significant judgments and assumptions used in estimating future cash flows.

To address this critical audit matter, we reviewed forecasted information, assessed reasonableness of the forecasted operating results and uses and sources of cash used in management’s assessment.

This testing included inquiries with management, comparison of prior period forecasts to actual results, assessment of available financing, consideration of positive and negative evidence impacting management’s forecasts, market and industry factors.

Accounting for Acquisition of Waycare Technologies, Ltd.

During 2021, the Company completed its acquisition of Waycare Technologies, Ltd.

(“Waycare”) for total consideration of $60.2 million, as disclosed in Note 2 to the financial statements.

The acquisition is accounted for as a business combination and the Company preliminarily allocated approximately $17.0 million of the purchase price to the acquired technology related intangible assets.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Acquisition of Southern Traffic Systems, Inc.

During 2022, the Company completed its acquisition of Southern Traffic Systems, Inc.

(“STS”) for total consideration of $12.8 million, as disclosed in Note 2 to the financial statements.

The acquisition is accounted for as a business combination and the Company allocated approximately $3.4 million and $0.7 million of the purchase price to the customer relationship and tradename related intangible assets, respectively.

The determination of fair value requires significant judgment by management and third-party valuation specialists to develop significant estimates and assumptions used in cash flow models.

2 unchanged sentences

The primary procedures we performed to address this critical audit matter included evaluating the Company's valuation model, the method and significant assumptions used, and testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We performed a sensitivity analysis to determine the impact to the valuation from changes to forecasted revenue growth rates.

We involved personnel with specialized knowledge and skill to assist in evaluating the reasonableness of the valuation methodology and certain significant assumptions.

/s/ Marcum LLP

We have served as the Company’s auditor since 2019 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022)

East Hanover, NJ

March 29, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Rekor Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Rekor Systems, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, stockholders’

equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Friedman LLP

We have served as the Company’s auditor since 2019.

We served as the Company’s auditor from 2019 through 2022.

East Hanover, New Jersey

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30,682  

24,120  

Long-term assets

Property and equipment, net

16,733  

Right-of-use lease assets, net

20,593  

53,451  

Intangible assets, net

21,299  

Investments in unconsolidated companies

21,262  

Note receivable, long-term

SAFE investment

Long-term assets of discontinued operations, net

Total long-term assets

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Notes payable, current portion

Loan payable, current portion

Notes payable, related party

Loans payable, current portion

Lease liability, short-term

4 unchanged sentences

15,444  

13,821  

Long-term liabilities

Notes payable, long-term

Loan payable, long-term

Loans payable, long-term

Lease liability, long-term

14,237  

10,027  

Contract liabilities, long-term

Deferred tax liability, long-term

Deferred tax liability

Other long-term liabilities

Long term liabilities of discontinued operations

1 unchanged sentence

19,059  

10,971  

Total liabilities

34,503  

Series A Cumulative Convertible Redeemable Preferred stock, $ 0.0001 par value;

505,000 shares authorized at December 31, 2021 and December 31, 2020;

issued and outstanding;

0 and 502,327 shares issued and outstanding at December 31, 2021 and December 31, 2020

24,792  

Commitments and contingencies

5 unchanged sentences

Preferred stock, $ 0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of December 31, 2022 and December 31, 2021, respectively.

Series B Cumulative Convertible Preferred stock, 0.0001 par value;

240,861 shares authorized at December 31, 2021 and December 31, 2020;

issued and outstanding;

0 and 240,861 shares issued and outstanding at December 31, 2021 and December 31, 2020

Treasury stock, 19,361 and 0 shares as of December 31, 2021 and December 31, 2020, respectively

No preferred stock was issued or outstanding as of December 31, 2022 or 2021, respectively.

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

( 417 )  

19 unchanged sentences

Cost of revenue, excluding depreciation and amortization

10,890  

Operating expenses:

4 unchanged sentences

Research and development expenses

18,616  

Goodwill impairment

34,835  

Depreciation and amortization

2 unchanged sentences

38,860  

Loss from operations

Loss from continuing operations

( 85,784 )  

Other income (expense):

Gain (loss) on extinguishment of debt

Interest expense

Interest expense, net

( 21 )  

Gain on the sale of business

Other income (expense), net

Other expense, net

( 1,279 )  

Total other income (expense)

Loss before income taxes

Gain on the sale of business

Gain on extinguishment of debt

Total other income

Loss before income taxes and equity method investments

( 84,441 )  

Income tax benefit (provision)

Income tax benefit

Equity in loss of investee

( 150 )  

Net loss from continuing operations

( 83,454 )  

Net loss from discontinued operations

Net income from discontinued operations

$ ( 83,115 )  

1 unchanged sentence

( 1.68 )  

Loss per common share discontinued operations - basic and diluted

( 0.00 )  

Earnings per common share discontinued operations - basic and diluted

Loss per common share - basic and diluted

8 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’

EQUITY (DEFICIT)

(Dollars in thousands, except share data)

7 unchanged sentences

Total Stockholders ’

Equity (Deficit)

Balance as of December 31, 2020

3 unchanged sentences

$ ( 43,050 )  

Stock-based compensation

Issuance of common stock pursuant to Exchange Agreement

$ 25,191  

17,325  

Stock-based compensation

Exercise of cashless warrants in exchange for common stock

2 unchanged sentences

54,235  

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

Exercise of warrants related to series A preferred stock

99,793  

Public underwriting

6,126,939  

70,124  

Exercise of warrants related to series A preferred stock

70,125  

Issuance upon exercise of stock options

Shares issued as part of the Waycare Acquisition

2,784,474  

Preferred stock dividends

20,287  

Accretion of Series A preferred stock

20,287  

Conversion of series A preferred stock

899,174  

Balance as of December 31, 2020

Conversion of series B preferred stock

517,611  

( 240,861 )  

Issuance upon exercise of stock options

208,919  

Issuance upon vesting of restricted stock units

239,920  

Shares withheld upon vesting of restricted stock units

( 19,361 )  

Stock-based compensation

19,361  

Exercise of cashless warrants in exchange for common stock

( 319 )  

Exercise of warrants in exchange for common stock

Preferred stock dividends

( 51 )  

Exercise of warrants related to series A preferred stock

Accretion of Series A preferred stock

( 101 )  

Public underwriting

( 26,782 )  

Balance as of December 31, 2021

43,987,896  

19,361  

Shares issued as part of the Waycare Acquisition

$ ( 319 )  

1 unchanged sentence

$ ( 69,883 )  

Conversion of series A preferred stock

$ 101,087  

Conversion of series B preferred stock

Stock-based compensation

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

9,019,062  

22,753  

22,754  

Issuance upon exercise of stock options

5 unchanged sentences

22,161  

Preferred stock dividends

( 98 )  

Accretion of Series A preferred stock

Shares issued as part of the STS Acquisition

798,666  

16 unchanged sentences

$ ( 83,454 )  

Net loss from discontinued operations

Net income from discontinued operations

( 83,115 )  

2 unchanged sentences

Amortization of right-of-use lease asset

(Benefit) provision for deferred taxes

Benefit for deferred taxes

( 987 )  

2 unchanged sentences

Amortization of intangible assets

Loss due to change in value of equity investments

(Gain) loss on extinguishment of debt

Goodwill impairment

34,835  

Gain on the sale of AOC Key Solutions

Gain on the sale of TeamGlobal

Gain on the sale of ATSE

( 2,643 )  

Gain due to the remeasurement of the STS Earnout and Contingent Consideration, net

( 883 )  

Loss due to change in value of equity investments

Gain on extinguishment of debt

Changes in operating assets and liabilities:

2 unchanged sentences

( 292 )  

Other long-term assets

( 127 )  

Accounts payable, accrued expenses and other current liabilities

( 2,229 )  

Contract liabilities

Lease liability

( 23 )  

Net cash used in operating activities - continuing operations

( 40,070 )  

Net cash used in operating activities - discontinued operations

Net cash provided by operating activities - discontinued operations

Net cash used in operating activities

2 unchanged sentences

Cash paid for Waycare acquisition, net

( 39,770 )  

SAFE Investment

2 unchanged sentences

( 2,990 )  

Proceeds from the sale of AOC Key Solutions

Proceeds from the sale of TeamGlobal

Down payment on capital expenditures

( 1,181 )  

Cash paid for STS acquisition, net

( 6,389 )  

Cash proceeds from the sale of ATSE

Investment in unconsolidated company

Net cash used in investing activities - continuing operations

( 8,264 )  

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

Net cash used in investing activities - discontinued operations

( 125 )  

Net cash used in investing activities

( 8,389 )  

Cash Flows from Financing Activities:

1 unchanged sentence

70,125  

Proceeds from the PPP loans

Proceeds from related party notes

Payment of notes payable

( 28 )  

Proceeds from notes receivable

Payment of stock issuance costs associated with the Note Exchange transaction

Repayments of notes payable

Net proceeds from the exercise of options

1 unchanged sentence

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

Repayments of loans payable

( 79 )  

Net proceeds from the at-the-market agreement

2 unchanged sentences

( 98 )  

Payment of debt modification costs

Net cash provided by financing activities - continuing operations

70,992  

25,447  

Net cash provided by financing activities - discontinued operations

Net cash provided by financing activities

1 unchanged sentence

70,992  

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

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

( 24,466 )  

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

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

Net increase 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

( 24,133 )  

1 unchanged sentence

26,601  

21,009  

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

17 unchanged sentences

Rekor Systems, Inc.

(“Rekor”) (formerly Novume Solutions, Inc.) was formed in February 2017. 

The consolidated financial statements include the accounts of Rekor, the parent company, and its wholly-owned subsidiaries Rekor Recognition Systems, Inc., OpenALPR Software Solutions, LLC and Waycare Technologies Ltd.

(collectively, the “Company”).

(“Rekor”) was formed in February 2017. 

The consolidated financial statements include the accounts of Rekor, the parent company, and its wholly-owned subsidiaries Rekor Recognition Systems, Inc., Southern Traffic Services, Inc.

("STS") and Waycare Technologies Ltd.

("Waycare") (collectively, the “Company”).

The Company is a global leader in intelligent infrastructure focused on addressing the world’s most critical challenges across transportation management, public safety, and key commercial markets.

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

On December 6, 2022, the Company divested its Automated Traffic Safety and Enforcement ("ATSE") business, a non-core business unit. As of December 31, 2022, the Company determined that the ATSE business unit met the criteria to be presented as discontinued operations.

June 17, 2022 ,  the Company completed the acquisition of 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 consolidated statement of operations for the year ended December 31, 2022.

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

1 unchanged sentence

Since the acquisition of Waycare occurred on August 18, 2021, the results of operations for Waycare from the date of acquisition have been included in the Company’s consolidated statement of operations for the year ended December 31, 2022.

In March 2019, the Company acquired substantially all the assets of OpenALPR Technology, Inc.

This acquisition (the “OpenALPR Technology Acquisition”) transferred vehicle recognition software and associated licenses and proprietary rights to OpenALPR Software Solutions, LLC (“OpenALPR”), a wholly-owned subsidiary of Rekor Recognition. Concurrently, the Company reorganized and retooled its product development, business development and administrative resources to better serve the Company’s direction

Previously, the Company provided professional services and staffing solutions to the government contracting and the aerospace and aviation industries through the Company’s Professional Services Segment.

The Professional Services Segment included the Company’s wholly-owned subsidiaries AOC Key Solutions Inc.

(“AOC Key Solutions”), Global Technical Services, Inc.

(“GTS”

or “TeamGlobal”), Firestorm Solutions, LLC (Firestorm Solutions”) and Firestorm Franchising, LLC (“Firestorm Franchising”

and, together with Firestorm Solutions, “Firestorm”).

As part of the development of a new line of products for the public safety and security markets, the Company determined that its resources were best concentrated on vehicle recognition products and services and completed dispositions in our Professional Services Segment. On April 2, 2020, the Company sold AOC Key Solutions.

As of June 29, 2020, the Company sold Team Global and determined that all the remaining operations that comprised its Professional Services Segment met the criteria to be presented as discontinued.

Basis of Consolidation

2 unchanged sentences

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires the extensive use of management’s estimates.

Management uses estimates and assumptions in preparing consolidated financial statements.

Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to the collectability of accounts receivable, the fair value of intangible assets, the allocation of intangible assets, the fair value of debt and equity instruments, income taxes and determination of standalone selling prices in contracts with customers that contain multiple performance obligations.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.

Actual results may differ from those estimates under different assumptions or conditions.

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires the extensive use of management’s estimates. Management uses estimates and assumptions in preparing consolidated financial statements.

Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to the collectability of accounts receivable, the fair value of intangible assets, the fair value of debt and equity instruments, income taxes and determination of standalone selling prices in contracts with customers that contain multiple performance obligations.

not  apparent from other sources.

Actual results 

differ from those estimates under different assumptions or conditions.

Reclassifications

Certain amounts in the prior year's consolidated 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 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.

Amortization related to the Company's right-of-use assets is presented as part of general and administrative expenses on the consolidated statements of operations, whereas in prior periods these amounts were presented as part of depreciation and amortization on the consolidated statements of operations.

Additionally, as of December 

31, 2022,  the Company began to present interest income and interest expense as a net amount on the consolidated statements of operations, whereas in prior periods, interest income was presented as part of other expense, net on the consolidated statements of operations.

Amounts as of 

December 31, 2021, and for the year ended December 31, 2020, 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 consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.

December 31, 2021, 

and for the year ended 

December 31, 2021, 

have been reclassified to conform to the current year’s presentation.

Going Concern 

one year from the date the 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, if necessary, 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 public offerings of its common stock to support cashflow 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 year ended December 31, 2021 , the Company had a net loss from continuing operati ons of  

$ 26,777,000  and working capital of  

December 31, 2022 , the Company had a net loss from continuing operati

 and a working capital deficit of 

The Company's net cash position was decreased b y $ 24,133,000  fo r the year ended December 31, 2022  primarily due to the loss from continuing operations of 

$83,454,000 .

The Company's net cash position increased b y $ 5,592,000  fo r the year ended December 31, 2021 primarily due to the net proceeds of $ 70,125,000 from the completion of the 2021 Public Offering (see NOTE 14  - STOCKHOLDERS ’

EQUITY for details on the 2021 Public Offering).

This amount was offset by operating losses and the net cash outlay of $ 39,770,000  in connection with the acquisition of Waycare (see NOTE 2 –

ACQUISITIONS for details on the Waycare acquisition).

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 consolidated financial statements in this Annual Report on Form 10 -K, indicate the Company’s ability to continue operations as a going concern for that one -year period.

The loss from continuing operations 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 $ 22,754,000  from the 2022 Sales Agreement (see NOTE 14  - 

STOCKHOLDERS ’ 

EQUITY  for details on the 2022 Sales Agreement).

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to continue the growth of its technology business, (ii) the continued performance of its contractors, subcontractors and vendors, (iii) its ability to maintain and build good relationships with its lenders and financial intermediaries, (iv) its ability to maintain timely collections from existing customers, and (v) the stability of the world economy and global financial markets.

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

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

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

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to continue the growth of its technology business, (ii) the continued performance of its contractors, subcontractors and vendors, (iii) its ability to maintain and build good relationships with its lenders and financial intermediaries, (iv) its ability to maintain timely collections from existing customers, and (v) the stabilization of the world economy and global financial markets.

The Company will continue to evaluate the most sensible external financing options in order to sustain its operations. If additional financing is not available, the Company may be required to further reduce or defer expenses and cash outlays.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months from the issuance of the Annual Report on Form 10 -K.

Dollar amounts, except per share data, in the notes to these consolidated financial statements are rounded to the closest $1,000.

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Transactions and balances originally denominated in U.S.

dollars are presented at their original amounts.

Balances in non-U.S.

dollar currencies are translated into U.S.

dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.

dollars are presented at their original amounts. For non-U.S.

dollar transactions and other items in the financial statements, the following exchange rates are used:

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historical exchange rates.

Currency transaction gains and losses are presented in other income, net on the audited consolidated statement of operations. The accumulated currency translation adjustments for the year ended December 31, 2021 and 2020 were immaterial.

Currency transaction gains and losses are presented in other expense, net on the audited consolidated statement of operations. The currency transaction gain for the year ended December 31, 2022 

and 2021  was $ 306,000 and $ 22,000 , respectively.

Concentration of Risk

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

As of December 31, 2021 , and 2020 , the Company had deposits from continuing operations totalin g $ 26,600,000  and 

$ 21,007,000 , respective ly, in three  U.S.

As of December 31, 2022 , and 2021 , the Company had deposits, including restricted cash, totalin g $ 2,468,000  

and $ 26,601,000 , respective ly, in multiple 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. 

Company A and Company B accounted for 17 % and 11 %, respectively, of the Company’s total revenues for the year ended December 31, 2021 .

Company D accounted for 16 % of the Company’s total revenues for the year ended December 31, 2020 .

As of December 31, 2021 , accounts receivable from Company C accounted for 13 %, of the consolidated accounts receivable balance.

As of December 31, 2020 , Company A and Company B accounted for 16 % and 30 %, respectively, of the consolidated accounts receivable balance.

No other single customer accounted for more than 10% of the Company’s consolidated revenue for the year ended December 31, 2021 and 2020 or consolidated accounts receivable balance as of December 31, 2021 and 2020 .

For the year ended December 31, 2022, the Company did not have a concentration related to its customer base.

For the year ended December 31, 2021, the Company had a concentration of revenue and accounts receivable from continuing operations related to its customer base. 

For the year ended December 31, 2022  

no single customer accounted for more than 10% of the Company's total revenues. 

Company A and Company B accounted for 17 % and 11 %, respectiv ely of the Company’s total revenues for the year ended December 31, 2021 .

As of December 31, 2022  

no single customer accounted for more than 10%  of the Company's consolidated accounts receivable balance.

As of December 31, 2021 , Company C account ed for 13 % of the conso lidated accounts receivable balance.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments, including U.S.

Treasury Bills purchased with a maturity of three months or less, to be cash equivalents.

The Company considers all highly liquid debt instruments to be cash equivalents.

Cash subject to contractual restrictions and not readily available for use is classified as restricted cash and cash equivalents.

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

Restricted cash and cash equivalents for these client jurisdictions as of December 31, 2021 and 2020 were $ 804,000  and $ 412,000 , respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Restricted cash and cash equivalents for these client jurisdictions as of December 31, 2022 and 2021 were $ 254,000  and $ 390,000 , respectively, and correspond to equal amounts of related liabilities.

Accounts Receivable and Allowance for Doubtful Accounts

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Note Receivables

In connection with the sale of AOC Key Solutions in April 2020, the Company received a $ 600,000 , 

five -year promissory note due March 2025, that carried an interest rate of 8 %.

Based on the general market conditions and the credit quality of the buyer at the time of the sale, the Company determined that the fixed interest rate approximated the current market rates.

During the fiscal year 2020, the full principal balance of the $ 600,000 note associated with the sale of AOC Key Solutions was paid in full.

In connection with the sale of TeamGlobal in June 2020, the Company received a $ 1,700,000 , 

In connection with the sale of its former TeamGlobal subsidiaries in June 2020, the Company received a $ 1,700,000 , 

five and a half year promissory note due December 2025, that carries an interest rate of 4 % and is secured by a first priority security interest in the shares of TeamGlobal.

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Based on the general market conditions, the security interest held by the Company and the credit quality of the buyer at the time of the sale, the Company determined that the fixed interest rate approximates the current market rates.

Interest income recognized for the year ended December 31, 2021 and 2020  wa s $ 62,000  and 

$ 54,000 , respectively, and is included as part of other income on the consolidated statement of operations. 

Interest income recognized for the year ended December 31, 2022 and 2021  wa s $ 51,000  and $ 62,000 , respectively, and is included as part of interest expense, net on the consolidated statement of operations .

Inventory principally consists of parts and finished goods held temporarily until installed for service.

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The cost is determined by the first -in, first -out (“FIFO”) method.

Accounts Payable, Accrued 

and Other Current Liabilities

As of December 31, 2022 and 2021, amounts owed to related parties of $ 253,000 and $ 102,000 were presented as part of accounts payable and accrued expenses on the consolidated balance sheets.

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

December 31, 2022

December 31, 2021

Payroll and payroll related

$ 2,483  

$ 1,615  

Right of offset to restricted cash

$ 2,772  

$ 2,432  

Property and Equipment

Property and equipment are stated at cost or fair value at acquisition date for assets obtained through business combinations, less accumulated depreciation.

Depreciation expense is classified within the corresponding operating expense categories on the consolidated statements of operations.

Depreciation expense is presented as part of depreciation and amortization on the consolidated statements of operations.

Depreciation is recorded on a straight-line basis over the following estimated lives:

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Shorter of asset life or lease term

Camera systems

Roadway monitoring systems

Repairs and maintenance are expensed as incurred.

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If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows.

As of December 31, 2021 and 

2020, the Company did not recognize an impairment loss on its property and equipment.

As of December 31, 

2022 and 2021 , the Company did not recognize an impairment loss on its property and equipment.

Deposits consist of cash payments made by the Company related to security deposits for leased assets and deposits on property and equipment which the Company has not yet received.

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Research and development costs to develop software to be sold, leased or marketed are expensed as incurred up to the point of technological feasibility for the related software product.

Capitalized internally developed software costs, net, not yet placed in service were $ 0 and $ 216,000 as of December 31, 2021 and 2020 , respectively.

For the year ended December 31, 2021 and 2020 , the Company placed in service $ 216,000 and $ 730,000 , respectively, of capitalized development costs related to software to be sold, leased or marketed.

There were 

no  capitalized internally developed software costs 

not yet placed in service as of December 31, 2022 and 2021 , respectively. 

Software developed for internal use, with no substantive plans to market such software at the time of development, are capitalized during the application phase and included in intangible assets, net in the consolidated balance sheets.

Costs incurred during the preliminary planning and evaluation and post implementation stages of the project are expensed as incurred. Costs incurred during the application development stage of the project are capitalized.

For the years ended December 31, 2021 and 2020 , the Company capitalized $ 4,000 and $ 162,000 , respectively, of development costs related to internal use software.

For the years ended December 31, 2022 and 2021 , the Company capitaliz ed $ 0  and $ 4,000 , respectively, of development costs related to internal use software.

Intangible Assets

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Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise.

Amortization expense related to intangible assets is presented as part of depreciation and amortization on the consolidated statements of operations.

The Company accounts for its leases in accordance with Accounting Standard Codification (“ASC”) Topic 842,  Leases ("ASC 842" ). The standard provides several optional practical expedients for use in transition.

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Equity Method Investments

Investments in the common stock of entities other than the Company’s consolidated subsidiaries are accounted for under the equity method in accordance with the FASB ASC 323, Investments –

Investments in the common stock of entities other than the Company’s consolidated subsidiaries are accounted for under the equity method in accordance with ASC 323, Investments –

Equity Method and Joint Ventures .

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During the years ended December 31, 2021 and 2020 , we had not recognized any impairment to 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 

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 .

As of December 31, 2022, the Company did not identify any events that would cause it to assess goodwill for further impairment. 

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

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

The income-based approach largely relied on inputs that were 

not  observable to active markets, which would be deemed “Level 

 fair value measurements, as defined in the Fair Value of Financial Instruments 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.

During the year ended December 31, 2021, the Company did 

not recognize any impairment to goodwill.

Revenue Recognition

The Company derives its revenues primarily from the sale of software, hardware and related services, including customer support and implementation services and management services in connection with our traffic safety solutions.

The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing offerings.

These offerings typically, include a mixture of data collection, software, hardware, implementation, engineering services, customer support and maintenance services.

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$ 11,575  

For the year ended December 31, 2021 , except for the United States and Canada, total revenue in any single country was less than 

For the year ended December 31, 2022 , except for the United States, total revenue in any single country was less than 

10%  of consolidated revenue.

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The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales.

Recurring revenues are generated through the Company’s SaaS model, where the Company provides customers with the right to access the Company’s software solutions for a fee.

Recurring revenues are generated through the Company’s Software-as-a-Service ("SaaS") model, where the Company provides customers with the right to access the Company’s software solutions for a fee.

These services are made available to the customer continuously throughout the contractual period.

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The Company's contracts with customers are generally for a term of one to five years.

The payment for SaaS solutions may be received either at the inception of the arrangement or over the term of the arrangement.

The payments for SaaS solutions may be received either at the inception of the arrangement or over the term of the arrangement.

The Company also currently receives recurring revenues under contracts entered into using a subscription model for bundled hardware and software over a period.

The Company also currently receives recurring revenues under contracts entered into using a subscription model for data collection services and bundled hardware and software over a period.

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

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Product and service revenue

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

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

In the first quarter of 2021, the Company launched a new service offering for the State of Oklahoma to support its Uninsured Vehicle Enforcement Diversion (“UVED”) Program.

Revenue is recognized monthly based on the number of citations collected by the relevant jurisdiction.

Implementation revenue is recognized when the Company provides pilot programs to customers.

Pilot programs may involve a one -time fee for a defined period in which the customer can use the Company’s software in connection with a previously installed camera network or connected vehicle data.

At the end of the pilot program, the customer can convert from a pilot program to a subscription model which has a typical term between one and five years.

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

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

Implementation revenue is recognized when the Company provides implementation or construction services to its customers.

These services, involve a fee for the implementations services and are typically associated with the sale of the Company’s data collection services, software and hardware.

The Company’s implementation revenue is recognized over time as the implementation is completed.

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

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

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

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

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

The revenue related to the installation component is recognized at various stages of completion.

The revenue related to the installation component is recognized over time as the implementation is completed.

Revenue is recognized monthly based on the number of diversion citations collected by the relevant jurisdiction.

The Company also generates revenue through its engineering services.

These services are provided at the request of its customers and the revenue related to these services is recognized over time as the service is completed.

Revenue by Customer Type

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

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

Year ended December 31,

Government customers

Urban mobility

$ 7,692  

Traffic management

Licensing and other revenue

10,650  

Commercial customers

Total revenue

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$ 11,575  

Urban mobility  

Urban mobility revenue consists of revenue derived from the Company's roadway data aggregation activities.

These activities include the use of software applications that are part of the Rekor Discover™

platform, the primary application being Rekor’s count, class & speed application.

The application fully automates the aggregation of Federal Highway Administration (“FHWA”) 13 -bin vehicle classification, speed, and volume data. Revenues associated with the deployment of other traffic sensors, traffic studies, or construction associated with traffic data collection are also part of data aggregation revenue, which is generated through both recurring pay-for-data contracts and hardware sales with a recurring software maintenance component.

The Company initiated these activities in June of 2022.

Traffic management  

Traffic management revenue is associated with the Rekor Command™

platform and the associated applications underneath the platform.

These provide traffic operations and traffic management centers with support through actionable, real-time incident reports integrated into a cross-agency communication and response system.

Revenue is generated through contracts that include an upfront as well as recurring component.

Licensing and other revenue

Licensing and other revenue consists of licensing of the Rekor Scout™

platform, licensing of Rekor CarCheck™

API, licensing of Rekor’s vehicle recognition software, as well as systems deployed for security, contactless compliance and public safety.

Revenue is generated through recurring and perpetual license sales as well as one -time hardware sales.

Performance obligations

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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 December 31, 2021  the Company had approximately $ 22,587,000 of remaining performance obligations not yet satisfied or partially satisfied.

The Company expects to recognize approximately 41 % of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

As of December 31, 2020, the Company had approximately  $ 16,705,000 of performance obligations not yet satisfied or partially satisfied.

As of December 31, 2022  the Company had approximately $ 21,412,000  of remaining performance obligations not yet satisfied or partially satisfied related to continuing operations.

The Company expects to recognize approximately 45 % 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. 

Contract liabilities

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

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

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

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All contract liabilities as of December 31, 2022 and December 31, 2021 , were attributable to continuing operations.

During the year ended December 31, 2021 , $ 1,111,000 of the contract liabilities balance as of December 31, 2020 , was recognized as revenue.

The contract liabilities as of December 31, 2021, are expected to be recognized as revenue during the years ended December 31, ( dollars in thousands):

During the year ended December 31, 2022 , $ 2,372,000  o f the contract liabilities balance as of December 31, 2021 , was recognized as revenue.

The contract liabilities as of December 31, 2022, are expected to be recognized as revenue during the following years ended December 31, ( dollars in thousands):

$ 3,044  

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The Company expenses all non-direct response advertising costs as incurred.

Advertising costs for the years ended December 31, 2021 and 2020 were $ 695,000 and $ 221,000 , respectively, and are included in sales and marketing expenses in the consolidated statement of operations.

Income tax expense consists of U.S.

Advertising costs for the years ended December 31, 2022 and 2021 we re $ 588,000 and $ 695,000 , respectively, and are included in selling and marketing expenses in the consolidated statement of operations.

Income tax benefit consists of U.S.

federal and state income taxes.

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As of December 31, 2022 , and 2021 , the Company’s evaluation revealed no uncertain tax positions that would have a material impact on the financial statements.

The 2018  through 2020  tax years remain subject to examination by the IRS, as of December 31, 2021 . 

Equity-Based Compensation

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The use of the Black-Scholes option-pricing model requires the use of subjective assumptions, including the fair value and projected volatility of the underlying common stock and the expected term of the award.

During the year ended D ecember 31, 2021, the Company did not issue any stock options.

The fair value of each option granted in 2020  was estimated as of the date of the grant using the Black-Scholes option pricing model with the following assumptions during the year ended December 31, 2020:

Risk-free interest rate

Expected term (in years)

Dividend yield

Estimated annual forfeiture rate at the time of grant

Risk-Free Interest Rate –

The yield on actively traded non-inflation indexed U.S.

Treasury notes with the same maturity as the expected term of the underlying grants was used as the average risk-free interest rate.

Expected Term  –

The expected term of options granted was determined based on management’s expectations of the options granted which are expected to remain outstanding.

Expected Volatility  –

Because the Company’s common stock has only been publicly traded since 

2017, there is not a substantive share price history to calculate volatility and, as such, the Company has elected to compute its expected volatility based on the average volatilities of similar entities, as well as, considering its volatility since becoming public.

Dividend Yield  –

The Black-Scholes option pricing model requires an expected dividend yield as an input.

The Company has not issued common stock dividends in the past nor does the Company expect to issue common stock dividends in the future.

Forfeiture Rate  –

We account for forfeitures as they occur.

Series A Cumulative Convertible Redeemable Preferred Stock

The Company’s Series A Preferred Stock had certain embedded features including;

a Company put right to convert each share into common stock at an initial conversion price and a specified price which increased annually based on the passage of time beginning in November 2019, the Series A Preferred Stockholder put right after 60 months from the issuance date to redeem any or all of the Series A Preferred Stock at a redemption price of $ 15 per share plus any accrued but unpaid dividends, the Company call right after 36 months from the issuance date to redeem all of the Series A Preferred Stock at a redemption price which increased annually based on the passage of time beginning in November 2019, and the Series A Preferred Stock automatic conversion feature based on a qualified initial public offering in excess of $ 30,000,000 or a written agreement by at least two thirds of the Series A Preferred Stockholders at an initial conversion price and a specified price which increased annually based on the passage of time beginning in November 2016. 

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 shares of the Company’s common stock.

The Company determined that the shares of Preferred Stock should be classified as mezzanine equity since they were contingently redeemable.

The Company determined that it was probable that the Series A Preferred Stock would become redeemable, thus the Company recognized changes in the redemption value immediately as they occur at the end of each reporting period as if it were also the redemption date for the interest and adjusted the carrying amount of the Series A Preferred Stock to the redemption value. Changes in the redemption value were recognized in additional paid-in capital in the consolidated balance sheets.

Fair Value of Financial Instruments

The carrying amounts reported in the 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 December 31, 2021 and December 31, 2020 , because of the relatively short-term maturity of these financial instruments.

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

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

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The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 3 inputs.

The Company considers its note receivable and Simple Agreement for Future Equity (“SAFE”) investment to be Level 3 investments and that the fair value approximates the carrying value.

The Company considers its note receivable, contingent consideration, earnout and Simple Agreement for Future Equity (“SAFE”) investment to be Level 3 investments and that the fair value approximates the carrying value.

There were no changes in levels during the year ended December 31, 2022 .

Loss per Share

Earnings (Loss) per Share

Basic loss per share, or EPS, is computed using the weighted average number of common shares outstanding during the period.

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New Accounting Pronouncements

New Accounting Pronouncements Effective in the Year Ended December 31, 2021

In January 2020, the FASB issued ASU 2020 - 01, Investments-Equity Securities (Topic 321 ), Investments-Equity Method and Joint Ventures (Topic 323 ), and Derivatives and Hedging (Topic 815 ) (“ASU 2020 - 01”

The new standard clarifies the interaction of accounting for the transition into and out of the equity method.

The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments.

ASU 2020 - 01 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The Company adopted this guidance in the first quarter of 2021.

The adoption of ASU 2020 - 01 did not have a material impact on the Company’s consolidated financial statements or notes.

In December 2019, the FASB issued ASU 2019 - 12, Income Taxes (Topic 740 ) :

Simplifying the Accounting for Income Taxes (“ASU 2019 - 12”

ASU 2019 - 12 eliminated previously allowed exceptions and clarified existing guidance in the accounting for income taxes, including in the areas of franchise taxes, the tax basis of goodwill and interim period effects of changes in tax laws.

The Company adopted this guidance in the first quarter of 2021.

The adoption of ASU 2019 - 12 did not have a material impact on the Company’s consolidated financial statements or notes.

New Accounting Pronouncements Effective in Future Periods

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BUSINESS ACQUISITIONS

STS Acquisition

June 17, 2022, 

the Company completed its acquisition of STS by acquiring 

100 % of the issued and outstanding capital stock of STS.

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 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 as the contract being extended.

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 consolidated balance sheets and is remeasured on a quarterly basis.

In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Contingent Consideration at the time of acquisition and determined the fair value to be $ 1,298,000 .

For the year ended December 31, 2022 the Company recognized $ 118,000 in expense related to the remeasurement of the STS Contingent Consideration which 

is presented with general and administrative expenses on the consolidated statement of operations .

The Company was to pay the STS Earnout payment, up to $ 2,000,000 , within 60 days of December 31, 2022 

based on the STS EBITDA for the 

twelve  month period ended 

December 31, 2022. 

In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Earnout at the time of acquisition and determined the fair value to be $ 1,001,000 .

As of December 31, 2022, it was determined that the STS Earnout was not achieved and thus the Company recognized a gain related to the remeasurement of the STS Earnout of $ 1,001,000 .

The gain related to the remeasurement of the STS Earnout is presented with general and administrative expenses on the consolidated statement of operations .

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

Since the acquisition of STS occurred on June 

17, 2022, the results of operations for STS from the date of acquisition have been included in the Company’s consolidated statement of operations for the year ended December 31, 2022.

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

$ 6,500  

Common stock issued

Earnout consideration

Contingent consideration

Note consideration

Total consideration

$ 12,799  

Cash and cash equivalents

Accounts receivable

Other current assets

Customer relationships

Property and equipment

Right-of-use assets

Total assets acquired

$ 13,335  

Accounts payable and accrued expenses

Contract liabilities

Other current and non-current liabilities

Lease liability

Deferred tax liability

Total liabilities assumed

$ 2,513  

Fair value of identifiable net assets acquired

$ 10,822  

$ 1,977  

The customer relationships and tradename acquired by the Company as part of the acquisition has an estimated useful life of 15 and five  years, respectively, and are presented as part of intangible assets, net on the consolidated balance sheets.

Waycare Technologies Acquisition

3 unchanged sentences

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

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

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

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

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

$ 39,884  

16 unchanged sentences

Total liabilities assumed

$ 4,663  

Fair value of identifiable net assets acquired

2 unchanged sentences

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

During the year ended December 31, 20 21,  

$ 925,000  of reven ue was attributed to Waycare, which was reported in the consolidated statement of operations.

Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of Waycare as if it was consummated as of January 1, 2020.

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, 2020 ( the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

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

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

Year ended December 31,

10 unchanged sentences

43,722,650  

NOTE 3  - INVESTMENTS

NOTE 3  

Investments in Unconsolidated Companies

2 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 December 

31, 2021 and December 31, 2020 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 December 31, 2022 and 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 year ended December 31, 2021, the Company recognized a loss in its unconsolidated investments of $ 150,000 . 

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

During the year ended December 31, 2021, the Company recognized a loss in its unconsolidated investments of $ 150,000 . As of December 31, 2022 and 2021  the investment in Roker had a value of $ 0 .

There were no distributions or earnings received from either investment in the year ended December 31, 2022 and 2021 .

Roker Simple Agreement for Future Equity ("SAFE")

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

In October 2021, the Company invested an additional $ 250,000 in the Roker SAFE.

2021, in exchange for $ 1,250,000 the Company entered into a SAFE with Roker (the “Roker SAFE”).

In 2022, the Company invested an additional $ 755,000 in the Roker SAFE.

The Roker SAFE allows the Company to participate in future equity financings of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”).

2 unchanged sentences

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

For the year ended December 31, 2021, the Company did not identify any factors indicative of impairment. 

NOTE 4 –

For the year ended December 31, 2022 and 2021 , the Company did not identify any factors indicative of impairment. 

NOTE 4  

DISCONTINUED OPERATIONS

During the first quarter of 2020, in connection with the Company’s plan to concentrate on its Technology segment, the Company determined that all of the historical Professional Services segment should be classified as discontinued operations.

As part of this plan TeamGlobal, AOC Key Solutions and Firestorm were classified as discontinued operations and presented as part of discontinued operations.

AOC Key Solutions Sale

On April 2, 2020, the Company entered into a Stock Purchase Agreement (the “AOC Key Solutions Purchase Agreement”) by and among the Company, AOC Key Solutions, and PurpleReign, LLC, a Virginia limited liability company owned by the members of AOC Key Solutions management (the “AOC Key Solutions Buyer”), by which the Company agreed to sell AOC Key Solutions, to the AOC Key Solutions Buyer.

The AOC Key Solutions Buyer agreed to purchase all of the outstanding equity interests of AOC Key Solutions for a purchase price of $ 4,000,000 , comprising (i) $ 3,400,000 in cash, and (ii) a subordinated promissory note (the “Subordinated Note”) in the initial principal amount of $ 600,000 .

As of December 31, 2020, the AOC Key Solutions Subordinated Note had been paid in full by the AOC Key Solutions Buyer.

The table below shows the breakdown related to the AOC Key Solutions Purchase Agreement (dollars in thousands):

Total assets sold

$ 4,549  

Total liabilities assumed

Net assets sold

Consideration paid (see below)

Gain on sale of AOC Key Solutions

$ 2,619  

Cash consideration

$ 3,400  

Note receivable

Total AOC Key Solution Purchase Agreement consideration

$ 4,000  

TeamGlobal Sale

On June 29, 2020, the Company entered into a Stock Purchase Agreement (the “TeamGlobal Purchase Agreement”) by and among the Company, TeamGlobal, and Talent Teams LLC, a Texas limited liability company owned by the members of TeamGlobal’s management (the “TeamGlobal Buyer”), pursuant to which the Company agreed to sell TeamGlobal to the TeamGlobal Buyer.

Subject to the terms and conditions of the TeamGlobal Purchase Agreement, the TeamGlobal Buyer agreed to purchase all of the outstanding equity interests of TeamGlobal for a purchase price of $ 4,000,000 , comprising (i) an aggregate of $ 2,300,000 in cash, and (ii) a secured promissory note (the “Secured Note”) in the initial principal amount of $ 1,700,000 , with such Secured Note secured by a Pledge and Security Agreement with respect to all the outstanding shares of TeamGlobal being acquired by the TeamGlobal Buyer.

The table below shows the breakdown related to the TeamGlobal Purchase Agreement (dollars in thousands):

ATSE Sale  

On December 8, 2022, the Company sold its ATSE business, a non-core component, for approximately $ 3,390,000 .

The buyer agreed to certain assets and liabilities of the ATSE component for a purchase price of $ 3,390,000 , comprising (i) $ 3,390,000  in cash of which includes $ 339,000 that was held in escrow as of December 31, 2022.

As of December 31, 2022, the amount held in escrow of $ 339,000 was presented as part of other current assets on the consolidated balance sheets. 

The table below shows the breakdown related to the sale of ATSE (dollars in thousands):

Total assets sold

$ 9,996  

Total liabilities assumed

Net assets sold

Consideration paid (see below)

Gain on sale of TeamGlobal

$ 1,012  

Cash consideration

Closing costs

Cash received

$ 3,051  

Note receivable

Total TeamGlobal Purchase Agreement consideration

Cash held in escrow

Total consideration

Gain on sale of ATSE

$ 2,643  

The dispositions of AOC Key Solutions and TeamGlobal are the result of the Company’s strategic decision to concentrate resources on the development of its Technology Segment and will result in material changes in the Company’s operations and financial results.

As a consequence, the Company is reporting the operating results and cash flows of TeamGlobal, AOC Key Solutions and Firestorm as discontinued operations, including for all prior periods reflected in the consolidated financial statements and these notes.

The disposition of ATSE is the result of the Company’s strategic decision to prioritize its core data services business and will result in material changes in the Company’s operations and financial results.

As a consequence, the Company is reporting the operating results and cash flows of ATSE as discontinued operations, including for all prior periods reflected in the consolidated financial statements and these notes.

Results of Discontinued Operations

Pursuant to ASC Topic 205 - 20, Presentation of Financial Statements - Discontinued Operations , the results of operations from TeamGlobal, AOC Key Solutions and Firestorm for the years ended December 31, 2021 and 2020 have been classified as discontinued operations and presented as part of loss from discontinued operations in the accompanying consolidated statements of operations presented herein.

The assets and liabilities also have been classified as discontinued operations under the line captions of current and long term assets discontinued operations and current and long term liabilities discontinued operations in the accompanying consolidated balance sheets as of December 31, 2021 and December 31, 2020 .

Pursuant to ASC Topic 205 - 20, Presentation of Financial Statements - Discontinued Operations , the results of operations from ATSE for the years ended December 31, 2022 and 2021 have been classified as discontinued operations and presented as part of net income from discontinued operations in the accompanying consolidated statements of operations presented herein.

The assets and liabilities also have been classified as discontinued operations under the line captions of current and long term assets, net of discontinued operations and current and long term liabilities of discontinued operations in the accompanying consolidated balance sheets as of December 31, 2022 and December 31, 2021 .

The assets and liabilities classified as discontinued operations in the Company's consolidated financial statements as of December 31, 2022 and December 31, 2021 are shown below (dollars in thousands): 

1 unchanged sentence

December 31, 2021

Current assets

Cash and cash equivalents

Total assets of discontinued operations

Restricted cash and cash equivalents

Accounts receivable, net

Total current assets

Long-term assets

Property and equipment, net

Right-of-use lease assets, net

Intangible assets, net

Total long-term assets, net

$ 1,030  

$ 1,031  

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Accounts payable and accrued expenses

Lease liability, short-term

Total current liabilities of discontinued operations

Other current liabilities

Total current liabilities

Long-Term Liabilities

Lease liability, long-term

Total liabilities of discontinued operations

Total liabilities

The major components of the discontinued operations, net of tax, are presented in the consolidated statements of operations below (dollars in thousands):

Year ended December 31,

AOC Key Solutions

$ 2,360  

1 unchanged sentence

$ 2,719  

Cost of revenue

$ 2,719  

Cost of revenue, excluding depreciation and amortization

Operating expenses:

General and administrative expenses

Selling and marketing expenses

Operating expenses

Income (loss) income from operations

( 100 )  

Other income (expense):

Interest expense

( 167 )  

( 74 )  

Total other expense

( 162 )  

( 73 )  

Income (loss) from discontinued operations

( 262 )  

Income tax provision from discontinued operations

Net income (loss) from discontinued operations

Depreciation and amortization

Total operating expenses

Net (loss) income from discontinued operations

$ ( 1 )  

5 unchanged sentences

Cash paid for interest

$ 1,211  

Cash paid for taxes

Non-cash investing and financing activities

Purchase of vehicles by issuing loan payable

Note received as part of TeamGlobal Sale

Paid-in-kind interest transferred from accrued interest to the principal balance of the 2019 Promissory Notes

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

(Decrease) increase in accounts payable and accrued expenses related to purchases of property and equipment

( 528 )  

Increase in accounts payable and accrued expenses related to purchases of inventory

Non-cash investing activities:

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

20,287  

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

Series A Cumulative Convertible Redeemable Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock

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

Contingent Consideration in connection with the acquisition of STS

Earnout Consideration in connection with the acquisition of STS

Note Consideration in connection with the acquisition of STS

Deferred tax liabilities resulting from purchase accounting adjustments in connection with business combination

Seller financed portions of property and equipment acquired

( 460 )  

Non-cash financing activities:

Loans issued for property and equipment

Series A Cumulative Convertible Redeemable Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock

Series A Cumulative Convertible Redeemable Preferred stock included in temporary equity, settled in common stock

( 6,770 )  

Series B Cumulative Convertible Preferred stock dividends included in accounts payable and accrued expenses, settled in common stock

( 179 )  

Non-cash Note Exchange transaction

Exchange of accrued interest and stock issuance costs

Debt extinguishment costs

Exchange of the net principal balance of the 2019 Promissory Notes

Issuance of common stock

17,325  

Cash impact of Note Exchange transaction

New Leases under ASC-842

6 unchanged sentences

Parts and cameras

$ 1,154  

Finished goods

2 unchanged sentences

$ 1,176  

NOTE 7  - PROPERTY AND EQUIPMENT, NET

NOTE 7  

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following (dollars in thousands):

1 unchanged sentence

$ 1,959  

$ 1,715  

Office equipment

Camera systems

Roadway monitoring systems placed in service

Leasehold improvements

Camera systems not yet placed in service

Roadway monitoring systems not yet placed in service

$ 20,069  

6 unchanged sentences

Depreciation and amortization related to property and equipment, net for the years ended December 31, 2022 and 2021 was $ 2,359,000  and $ 626,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

During the year ended December 31, 2022, the Company disposed of $ 17,000 of fully depreciated assets. 

Information about the Company’s total assets in different geographic regions is as follows (dollars in thousands):  

9 unchanged sentences

The Company has operating leases for office facilities in various locations throughout the United States and Israel.

The Company’s leases have remaining terms of one to 11 years.

The Company’s leases have remaining terms of one to ten  years.

Certain of the Company’s leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term.

1 unchanged sentence

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $ 858,000  and $ 260,000  for the year ended December 31, 2022 and 2021 , respectively.

Operating lease expense from continuing operations for the year ended December 31, 2021 and 2020 was $ 640,000  and $ 263,000 , respectively, and is part of general and administrative expenses in the accompanying consolidated statement of operations.

In the third quarter of 2021, the Company entered into a lease agreement for its new headquarters.

Operating lease expense from continuing operations for the year ended December 31, 2022 and 2021 was $ 2,040,000  and $ 621,000 , respectively, and is part of general and administrative expenses in the consolidated statement of operations.

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

As part of the lease agreement, there were $ 919,000  in tenant improvement allowances provided to the Company which was used to update the structure of the leased space and furnish the leased space.

Supplemental balance sheet information related to leases as of December 31, 2022 was as follows (dollars in thousands): 

Operating lease right-of-use lease assets from continuing operations

Operating lease right-of-use lease asset

$ 9,662  

4 unchanged sentences

$ 15,306  

Weighted average remaining lease term - operating leases from continuing operations

Weighted average remaining lease term - operating leases

Weighted average discount rate - operating leases

Maturities of operating lease liabilities for continuing operations at December 31, 2022 were as follows (dollars in thousands):

$ 2,385  

11,240  

Total lease payments

3 unchanged sentences

$ 15,306  

NOTE 9 – 

NOTE 9  

– 

INTANGIBLE ASSETS

In connection with the acquisition of Waycare, the Company recognized $ 47,115,000  of go odwill.

There have been no other changes from December 31, 2020 in the carrying amount of goodwill for the year ended 

December 31, 2021 . 

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

December 31, 2020

Waycare Acquisition

December 31, 2021

STS Acquisition

December 31, 2022

$ 6,336  

$ 47,115  

$ 53,451  

$ 1,977  

$ ( 34,835 )  

$ 20,593  

Intangible Assets Subject to Amortization

2 unchanged sentences

December 31, 2021

December 31, 2022

Intangible assets subject to amortization from continuing operations

1 unchanged sentence

$ ( 34 )  

$ 3,400  

$ ( 147 )  

$ 3,581  

Marketing related

( 62 )  

( 113 )  

Technology based

2 unchanged sentences

20,304  

( 3,455 )  

16,849  

Internally capitalized software

( 411 )  

( 348 )  

Intangible assets subject to amortization from continuing operations

3 unchanged sentences

$ 21,262  

The following provides a breakdown of identifiable intangible assets as of December 31, 2021 (dollars in thousands):

$ 4,100  

$ ( 4,063 )  

$ 21,299  

The following provides a breakdown of identifiable intangible assets as of December 31, 2022  and 2021 (dollars in thousands):

Customer relationships

$ 3,861  

Marketing related

Technology based

Internally Capitalized Software

Identifiable intangible assets

24,107  

$ 26,347  

Accumulated amortization

( 133 )  

Internally capitalized software

30,231  

26,131  

accumulated amortization

( 8,932 )  

3 unchanged sentences

These intangible assets are being amortized on a straight-line basis over their weighted average remaining estimated useful life of 6.6  years.

Amortization expense attributable to continuing operations for the year ended December 31, 2021 and 2020 was $ 2,533,000  and $ 1,368,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

Am ortization expense attributable to continuing operations for the year ended December 31, 2022 and 2021 was $ 4,063,000  and $ 2,462,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

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

4 unchanged sentences

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

The principal amount of one of the notes payable is $ 500,000 payable at an interest rate of 2 % and the remaining three notes are evenly divided over the remaining $ 500,000 and payable at an interest rate of 7 %.

The principal amount of one of the notes payable is $ 500,000 and provides for an interest rate of 2 % and the remaining three notes are evenly divided over the remaining $ 500,000 and provide for an interest rate of 7 %.

The notes matured on January 25, 2022.

The aggregate balance of these notes payable was $ 998,000 and $ 980,000 , net of unamortized interest, as of December 31, 2021 and December 31, 2020 , respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $ 2,000 and $ 20,000 , respectively. The Company is not paying current interest on these notes and did 

not pay the principal due in January 2022 as the Company has requested rescission in connection with the Firestorm acquisition and is currently in litigation with the sellers (see NOTE 13 - COMMITMENTS AND CONTINGENCIES ).

The aggregate balance of these notes payable was $ 1,000,000 and $ 998,000 , net of unamortized interest, as of December 31, 2022 and December 31, 2021 , respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $ 0 and $ 2,000 , respectively. The Company has 

not paid the current interest on these notes since 2019 and did 

not pay the principal due in January 2022.

The Company has requested rescission in connection with the Firestorm acquisition and is currently in litigation with the sellers. On March 22, 2023, the Company entered into a settlement agreement related to a portion of the Firestorm debt (see NOTE 13 - COMMITMENTS AND CONTINGENCIES ).

Paycheck Protection Program Loan

5 unchanged sentences

Monthly principal and interest payments were deferred for six months after the date of disbursement.

In October 2021, the Company was informed the Loans forgiveness was processed by the Small Business Administration (“SBA”) and the Company’s Loans have been fully forgiven.

In October 2021, the Company was informed the Loans forgiveness was processed by the Small Business Administration (“SBA”) and the Company’s Loans had been fully forgiven.

The Loans are now considered paid in full by SBA.

The Company recognized a gain on the extinguishment of debt of $ 886,000  for the year ended December 31, 2021 related to the principal and accrued interest forgiveness. 

2019 Promissory Notes

On March 12, 2019, the Company entered into a note purchase agreement pursuant to which investors, including OpenALPR Technology, Inc.

(the “2019 Lenders”) loaned $ 20,000,000 to the Company (the “2019 Promissory Notes”) and the Company issued to the 2019 Lenders warrants to purchase 2,500,000 shares of Rekor common stock (the “March 2019 Warrants”).

The loan bore interest at 16 % per annum, of which at least 10.0 % per annum was required to be paid in cash.

Any remaining interest accrued to be paid at maturity or earlier upon redemption.

The notes also required a $ 1,000,000 exit fee due at maturity, or a premium if paid before the maturity date, and compliance with affirmative, negative and financial covenants, including a fixed charge coverage ratio and minimum liquidity and maximum capital expenditures covenants.

Transaction costs included $ 403,000 for a work fee payable over 10 months, $ 290,000 in legal fees and a $ 200,000 closing fee.

As of December 31, 2020, the Company had settled the full amount of the 2019 Promissory Notes.

The loan was secured by a security interest in substantially all of the assets of Rekor.

The March 2019 Warrants are exercisable over a period of five years, at an exercise price of $ 0.74 per share, and were valued at $ 706,000 , at the time of issuance.

The warrants became exercisable commencing March 12, 2019 and expire on March 12, 2024.

The 2019 Promissory Notes had an effective interest rate of 24.87%.

As of the first anniversary date of the commencement of the 2019 Promissory Notes $ 1,283,000 of the paid-in kind ("PIK") interest had not been paid in cash by the Company and per the purchase agreement was added to the principal balance of the 2019 Promissory Notes in March 2020.

2019 Promissory Note Amendments

On March 26, 2020, the Company entered into the First Amendment to the Note Purchase Agreement which effectively extended the maturity date of the 2019 Promissory Notes from March 11, 2021 to June 12, 2021.

The Company incurred $ 100,000 in transaction costs related to the First Amendment to the Note Purchase Agreement, these costs were financing costs and deferred over the remaining life of the loan.

On April 2, 2020, following the sale of AOC Key Solutions, the Company transferred $ 2,200,000 to the holders of the 2019 Promissory Notes.

$ 2,000,000 of the funds were used as a prepayment of principal while the other $ 200,000 was paid as a premium percentage as the portion of the 2019 Promissory Notes were paid prior to the maturity date.

The premium percentage paid in connection with this transaction is presented as part of debt extinguishment costs in the accompanying consolidated statement of operations.

2019 Promissory Note Retirement

On June 30, 2020, the Company entered into Exchange Agreements with certain 2019 Lenders of the Company’s 2019 Promissory Notes.

Subject to the terms and conditions set forth in the Exchange Agreements, approximately $ 17,398,000 was redeemed in exchange for 4,349,497 shares of the Company’s common stock, at a rate of $ 4 per share, which was the closing price of the common stock on the date of the Exchange Agreements.

On July 15, 2020, the Company completed the Note Exchange.

At the time of the Exchange Agreement, the net amount of long-term debt redeemed for common stock was $14,688,000.

This included the existing principal balance subject to conversion, the portion of the exit fee associated with the notes subject to conversion, offset by the portion of unamortized issuance costs associated with the notes subject to conversion.

There was also $ 226,000 related to the PIK interest associated with the notes subject to conversion that was exchanged as part of the Exchange Agreements.

The difference between the market value of the shares issued and the net carrying amount of the obligations above of $ 2,484,000 was recorded as part of debt extinguishments costs in the accompanying consolidated statements of operations.

Following the Note Exchange, approximately $ 4,398,000 aggregate principal amount of the 2019 Promissory Notes remained outstanding, plus an additional $ 216,000 related to the exit fee.

The Company incurred stock issuance costs of approximately $ 73,000 related to legal, accounting, and other fees in connection with the Exchange Agreements.

These costs are presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

On September 16, 2020, the Company issued a cash payment of $ 5,284,000 to complete the retirement of the remaining aggregate principal balance of the 2019 Promissory Notes.

As a result of this optional prepayment, the 2019 Promissory Notes have been fully redeemed pursuant to their terms, and as a result, the Company has no further obligations under the Note Purchase Agreement, as amended.

The warrants previously issued pursuant to the Note Purchase Agreement remain outstanding pursuant to their terms.

The Company recognized a gain on the extinguishment of debt of $ 886,000  for the year ended December 31, 2021 related to the principal and accrued interest forgiveness. This gain is presented as part of gain on extinguishment of debt in the accompanying consolidated statement of operations for the years ended December 31, 

STS Notes  

June 17, 2022, 

pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $ 2,000,000  of notes payable in the form of 

two  unsecured, subordinated promissory notes, each in the principal amount of $ 1,000,000  and bearing an interest rate of 

3.0 % per annum, payable quarterly. 

The notes mature on 

June 14, 2024 

June 17, 

2025,  respectively.

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

December 31, 2022  and is included in notes payable long-term, in the consolidated balance sheets.

Loans Payable

As part of its operations the Company enters loans related to purchases of its vehicles.

These loans have maturities between 2023 and 2028 and carry interest rates ranging from 0 % to 

These loans primarily have equal monthly payments over the life of the respective loan.

The loans are presented as part of loans payable, current portion and loans payable long-term on the consolidated balance sheet. 

2022 Promissory Notes 

On December 20, 2022, the Company entered into a Promissory Note Agreement (the “2022 Notes”) with (i) Robert A.

Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 10.3 % holder of Common Stock of the Company based on its Schedule 13G filed with the Securities and Exchange Commission on May 20, 2022 ( the “2022 Lenders”), pursuant to which the 2022 Lenders loaned $ 1,000,000 to the Company. The 2022 Lenders were determined to be related parties. 

The 2022 Notes had a maturity date of March 20, 2023, at which time all remaining outstanding principal and accrued but unpaid interest was due.

The aggregate unpaid principal amount under 2022 Notes was exchangeable for an equal principal amount of secured notes to be issued to the 2022 Lenders pursuant to that certain term sheet dated December 20, 2022 ( the “Secured Notes Transaction”) together with any accrued and unpaid interest on the 2022 Notes. The 2022  Notes bore an interest rate of 12 % per annum.

On January 18, 2023, the Company executed a Securities Purchase Agreement, which triggered the 2022 Notes to be exchanged for equal principal amounts of notes issued in the Secured Notes Transaction.

As a result, the 

2022 Notes were cancelled with no further force and effect as of the effective date of the Secured Notes Transaction.

See NOTE 

17  –

SUBSEQUENT EVENTS for additional information on the Securities Purchase Agreement.

Interest Expense

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

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

Year ended December 31,

Contractual interest

$ 1,846  

Amortization of debt issuance costs

Total interest expense

contractual interest income

( 51 )  

Debt Extinguishment Costs

For the year ended December 31, 2021, gain on the extinguishment of debt of $ 886,000 related to the forgiveness of the PPP Loans.

For the year ended December 31, 2020, the Company recognized the following debt extinguishment costs:

$ 200,000 related to an early cash payment in April 2020 related to the 2019 Promissory Notes, $ 2,484,000 related to the Exchange Agreements completed in July 2020 and $ 684,000 related to an early cash payment in September 2020 to retire the remaining balance of the 2019 Promissory Notes, these costs were offset by the forgiveness of loans in the amount of $ 87,000 in the third quarter of 2020.

These gains and costs are presented as part of gain (loss) on extinguishment of debt in the accompanying consolidated statement of operations, for the years ended December 31, 2021 and 

Total interest expense, net

Schedule of Principal Amounts Due on Debt

1 unchanged sentence

$ 4,455  

Less unamortized interest

Total notes payable

$ 1,072  

Notes payable, current portion

Loan payable, current portion

Loan payable, long-term

Total notes payable

$ 1,072  

NOTE 11  

8 unchanged sentences

( 987 )  

(Benefit) provision for income taxes

Benefit for income taxes

$ ( 987 )  

8 unchanged sentences

Lease liabilities

Research and development

Total gross deferred tax assets

5 unchanged sentences

$ 4,922  

$ 5,308  

Deferred tax liabilities:

3 unchanged sentences

( 3,976 )  

( 103 )  

Total gross deferred tax liabilities

2 unchanged sentences

$ ( 52 )  

The difference between the income tax provision computed at the U.S.

The difference between the income tax benefit computed at the U.S.

Federal statutory rate and the effective tax rate is as follows for the years ended December 31, 2022 and 2021 :

7 unchanged sentences

( 0.6 )%  

( 0.9 )%  

( 2.7 )%  

Valuation allowance

1 unchanged sentence

Effective tax rate

12.5 %  

The Company files income tax returns in the United States and various state and foreign jurisdictions.

1 unchanged sentence

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

After considering all available facts, the Company fully reserved for its net deferred tax assets, outside of the deferred tax liability related to the indefinite-lived intangible, because the Company believes that it is not more likely than not that their benefits will be realized in future periods.

After considering all available facts, the Company fully reserved for its net deferred tax assets, outside of the deferred tax liability related to the goodwill, because the Company believes that it is not more likely than not that their benefits will be realized in future periods.

The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit.

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

As of December 31, 2021 , the Company had gross federal and state net operating loss carryforwards of $ 51,838,000 and $ 43,570,000 , respectively.

As of December 31, 2021 , Rekor had net federal and state net operating loss (“NOL”) carryforwards of $ 10,886,000 and $ 2,901,000 , respectively.

These NOLs are scheduled to begin to expire in 2035  and $ 13,787,000 are grandfathered under the Tax Cuts and Jobs Act;

As of December 31, 2022 , the Company had gross federal and state net operating loss carryforwards of 

$ 114,742,000  and $ 106,866,000 , respectively.

The gross NOLs generated in the years ended December 31, 2022 and 2021 of $ 54,495,000  and $ 19,026,000 , respectively, will be carried forward indefinitely and are subject to the annual 80 percent limitation.

As of December 31, 2022 , Rekor had net federal and state net operating loss (“NOL”) carryforwards of $ 24,096,000  and $ 5,306,000 , respectively.

The net federal and state NOLs of $ 24,096,000  and $ 5,306,000 , respectively, are scheduled to begin to expire in 2034  and are grandfathered under the Tax Cuts and Jobs Act;

thus, these NOLs are not subject to the 80 percent limitation.

NOLs generated in the years ended December 31, 2021 and 2020 of $ 19,026,000 and $ 14,726,000 , respectively, will be carried forward indefinitely and are subject to the annual 80 percent limitation.

As of December 31, 2021 , Rekor had gross federal and state net operating loss carryforwards of $ 51,838,000 and $ 43,570,000 , respectively.

As of December 31, 2020 , Rekor had net federal and state net operating loss carryforwards of $ 7,096,000 and $ 2,632,000 , respectively.

As of December 31, 2021 , Rekor had net federal and state net operating loss carryforwards of $ 10,886,000  and $ 2,901,000 , respectively.

The federal and state net operating loss and credit carryforwards may be subject to significant limitations under Sections 382 and 383 of the Internal Revenue Code ("Code") and similar provisions of state law.

These Code sections limit the federal net operating loss and credit carryforwards that may be used in any year in the event of an “ownership change”.

A Section 382 “ownership change”

generally occurs if one or more shareholders or groups of shareholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three -year period.

The Company may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes”.

If so, the Company may lose some or all of the tax benefits of its NOLs and tax credits.

The extent of such limitations for prior years, if any, has not been determined.

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

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

The 2018  through 2020  tax years remain subject to examination by the IRS.

As a result of the acquisition of Waycare, the Company recognized a $ 16,897,000  identified definite-lived intangible asset related to technology for which the Company received no tax basis due to the stock acquisition.

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

As a result of the acquisition of STS in 2022, the Company recognized identified definite-lived tangible and intangible asset related to customer relationships, trade names, property and equipment for which the Company received no tax basis due to the stock acquisition.

As a result, the Company recorded a deferred tax liability of  

$ 1,001,000  which 

increased the Company's goodwill related to the Waycare acquisition.

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 $ 3,833,000  was offset by $ 14,000 of tax expense for the year ended December 31, 2021.

For the year ended December 31, 2020, the Company recognized $ 23,000 in tax expense. 

The tax benefit of 

$ 1,001,000  was offset by $ 14,000 of deferred tax expense for the year ended December 31, 2022.  

As a result of the acquisition of Waycare in 2021, the Company recognized identified definite-lived intangible asset related to technology for which the Company received no tax basis due to the stock acquisition.

As a result, the Company recorded a deferred tax liability of  

$ 3,833,000  which increased the Company's goodwill related to the Waycare 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 $ 3,833,000  was offset by $ 14,000 of deferred tax expense for the year ended December 31, 2021.  

NOTE 12 –

9 unchanged sentences

The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s consolidated balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies.

The amount of contributions recorded from continuing operations by the Company under these plans during the years ended December 31, 2021 and 2020 were $ 616,000 a nd $ 228,000 , respectively.

The amount of contributions recorded from continuing operations by the Company under these plans during the years ended December 31, 2022 and 2021 we re $ 1,338,000 an d $ 616,000 , respectively.

NOTE 13 –

COMMITMENTS AND CONTINGENCIES

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

Rekor Systems, Inc.

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 who were founders of two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc.

Suzanne Loughlin, et al., Case no.

1:19 -cv- 07767 -VEC.

On January 30, 2020, the Company filed a Second Amended Complaint (the “Complaint’) alleging that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.

alleged deletion of company email records.

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

The Firestorm Principals answered together with counterclaims on February 28, 2020.

Thereafter, on March 30, the Company moved to dismiss the counterclaims against certain directors and officers named as counterclaim-defendants, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties.

Thereafter the Company filed its response and affirmative defenses to the Counterclaims on April 22, 2020.

On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which the Company opposed.

In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.

With respect to the Firestorm Principals’

motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety.

In that same order, the Court granted in part and denied in part the Firestorm Principals’

fee advance motion.

In April 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of the Company’s claims and the Firestorm Principals’

counterclaims, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed its opposition to the partial summary judgment motion on June 21, 2021.

The Firestorm Principals filed their reply in support of their partial summary judgment motion on July 9, 2021. 

In March 2022,the  Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims.

The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $ 25,500 amount at issue could not be set off by or recouped from our damages in this case.

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

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

At this stage of these litigations, the suits against two of the directors have been dismissed and one has been permitted to proceed.

On September 28, 2021, the Court issued an order denying the motion to dismiss.

On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s dismissal order;

that reconsideration motion was denied on February 28, 2022. 

On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds.

The defamation claim will now be challenged on substantive grounds.

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

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

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

On January 31, 2020, the Company’s wholly-owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc.

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

On June 14, 2020, PCS filed its operative answer to the Complaint.

On June 21, 2020, PCS filed a motion to join the Company and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counterclaims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships.

On July 13, 2020, OpenALPR filed an opposition to the motion for joinder.

On November 23, 2020, the court denied PCS’s Motion for Joinder with prejudice.

On August 30, 2021, OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on August 31, 2021.

The Company considers this matter closed. 

On September 18, 2020, Fordham Financial Management, Inc.

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. 

On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.

Pursuant to the terms of the settlement agreement, the parties have mutually released and discharged all existing and potential actions, causes of action, suits, proceedings, debts, dues, contracts, damages or claims against each other, including certain claims for officer indemnification of the Firestorm Principals. In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $ 175,000 , and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.

The Company will also cancel warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.

The settlement also results in there being no litigation pending against the Company at this time.

September 18, 2020, 

Fordham Financial Management, Inc.

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

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

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

fees and expenses, and seeks damages.

The Complaint was served on the Company on September 25, 2020.

The Company issued a motion to dismiss counterclaims on June 23, 2021.

The Court granted Fordham’s motion to dismiss Rekor’s counterclaims on October 23, 2021. 

On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims in the future.

Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.

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

However, the Company maintains that Fordham’s claims have no merit.

To that end it intends to vigorously litigate this action.

In June 2021, a putative shareholder class action lawsuit (captioned Miller v.

Rekor Systems, Inc.

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

and certain of its officers.

It alleges violations of Sections 10 (b) and 20 (a) and Rule 10b - 5 of the Securities Exchange Act of 1934 related to Rekor’s automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and seeks damages on behalf of shareowners who acquired Rekor stock between April 12, 2019 and May 25, 2021.

In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss the class action lawsuit without prejudice. This matter was voluntarily dismissed without prejudice.

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

October 

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 

2019,  plus pre-judgment interest accruing at 

9 % per annum since 

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. 

The Company will accrue for potential and known litigation losses when information related to a loss is probable and that the amount of the loss can be reasonably estimated.

For the year ended December 31, 2022 and 2021 the company recorded expenses of $ 1,608,000  and $ 136,000 , respectively, related to litigation settlements, judgements and estimated losses.

These amounts are presented as part of other expense, net on the consolidated statement of operations for the year ended December 31, 2022 and 2021.

In addition, from time to time, the Company may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.

21 unchanged sentences

At-the-Market Offering

In 2019, the Company entered into a sales agreement (the "2019 Sales Agreement") with B.

Riley FBR, Inc.

Riley FBR”) to create an at-the-market equity program under which the Company from time to time offered and sold shares of its common stock, having an aggregate offering price of up to $ 15,000,000 , through or to B.

Subject to the terms and conditions of the 2019 Sales Agreement, B.

Riley FBR would use its commercially reasonable efforts to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions.

Riley FBR was entitled to a commission equal to 3.0 % of the gross proceeds from each sale. In 2020, the Company filed Amendment No.

1 to the 2019 Sales Agreement to increase the size of the market equity program under which the Company from time to time offered and sold shares of its common stock, from an aggregate offering price of up to $ 15,000,000 to an amended maximum aggregate offering price of up to $ 40,000,000 through or to B.

The Company incurred issuance costs of approximately $ 25,000 related to legal fees in connection with the amendment to the 2019 Sales Agreement. These costs were charged against the gross proceeds of the 2019 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

For the year ended December 31, 2020, based on the settlement date, the Company sold 5,216,562 shares of common stock at a weighted-average selling price of $ 5.92 per share in accordance with the 2019 Sales Agreement.

Net cash provided for the year ended December 31, 2020 

from the 2019 Sales Agreement was $ 29,930,000 after paying 3.0 % or $ 926,000 related to cash commissions provided to B.

On September 21, 2020, the Company elected to voluntarily terminate its 2019 Sales Agreement with B.

Riley FBR pursuant to the terms of the 2019 Sales Agreement. 

Under the S- 3 registration filed in September 2021, on 

February 

2022,  the Company entered into an At-the-Market Issuance Sales Agreement (the 

“2022  Sales Agreement”) with B.

Riley Securities, Inc.

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

offer and sell shares of its common stock, par value 

$0.0001  per share, having an aggregate offering price of up to $ 50,000,000  (the “Shares”) through or to the Agent.

The Agent is entitled to a commission equal to 

3.0 % of the gross proceeds from each sale.

The Company incurred issuance costs of approximately $ 174,000  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 consolidated balance sheets.

For the year ended December 31, 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 $ 22,754,000  after paying $ 174,000  related to the issuance cost, as well as 

3.0 % or $ 709,000  related to cash commissions provided to the Agent.

In December of 2022 the Company terminated the 2022 Sales Agreement. 

STS Acquisition

In connection with the acquisition as described in NOTE 2 –

ACQUISITIONS , the Company issued 

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

Preferred Stock

10 unchanged sentences

$ 0  and 

$ 865,000  for the year ended December 31, 2021 and 2020, respectively.

$ 101,000  for the year ended December 31, 2022 

and 2021, respectively.

6 unchanged sentences

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 December 31, 2020 and December 31, 2021 is as follows:

A summary of the warrant activity for the Company for the period ended December 31, 2022  and 

December 31, 2021 is as follows:

Series A Preferred Stock Warrants (1)

9 unchanged sentences

913,345  

2,506,695  

Exercised warrants

2 unchanged sentences

( 1,381 )  

( 1,593,350 )

Outstanding warrants December 31, 2020

( 68,750 )  

Outstanding warrants December 31, 2021

41,996  

8 unchanged sentences

$ 3.02  

$ 2.77  

Intrinsic value of outstanding warrants as of December 31, 2021

4 unchanged sentences

$ 2,441,000  

Shares of common stock issued for warrant exercises during the year ended December 31, 2021

99,793  

Shares of common stock issued during the year ended December 31, 2020

51,110  

6 unchanged sentences

692,311  

913,345  

Exercised warrants

( 99,793 )  

( 51,110 )  

( 1,381 )  

( 68,750 )  

Outstanding warrants December 31, 2022

13 unchanged sentences

$ 8,000  

$ 19,000  

$ 2,441,000  

Shares of common stock issued during the year ended December 31, 2021

99,793  

51,110  

64,766  

216,949  

Shares of common stock issued for warrant exercises during the year ended December 31, 2022

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

2 unchanged sentences

As part of the acquisition of Firestorm on January 24, 2017, the Company issued warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 2.5744 per share, and warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 3.6083 per share (the “Firestorm Warrants”).

The expiration date of the Firestorm Warrants is January 24, 2022.

The Company has rejected requests from the holders of the Firestorm Warrants to exercise them pending resolution of pending litig ation (see NOTE - 13  COMMITMENTS AND CONTINGENCIES )

The expiration date of the Firestorm Warrants was 

January 24, 2022.

The Company has rejected requests from the holders of the Firestorm Warrants to exercise them pending resolution of pending litig ation. 

On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.

In connection with the settlement agreement, the Firestorm Warrants were cancelled. 

(see NOTE - 13  COMMITMENTS AND CONTINGENCIES )

Pursuant to the Company’s acquisition of Secure Education Consultants on January 1, 2018, the Company issued warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 5.44 per share, and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 6.53 per share (the “Secure Education Warrants”).

16 unchanged sentences

The vesting period is generally three years with a contractual term of ten years.

Stock compensation expense related to stock options for the years ended December 31, 2021 and 2020 was $ 116,000 and $ 313,000 , respectively, and is presented as part of general and administrative expenses in the accompanying consolidated statements of operations.

Stock compensation expense related to stock options for the years ended December 31, 2022 and 2021 was $ 43,000  and $ 116,000 , respectively, and is presented as part of general and administrative expenses in the accompanying consolidated statements of operations.

A summary of stock option activity under the Company’s 2017 Plan for the years ended December 31, 2022 and 2021 is as follows:

10 unchanged sentences

( 48,499 )  

( 44,896 )  

Outstanding balance at December 31, 2021

13 unchanged sentences

$ 172,000  

( 1 ) All shares granted in the current year were forfeited in the current year.

There were no options granted in the year ended December 31, 2021.

The weighted average grant date fair value of options granted for the years ended December 31, 

2020, was $ 3.18 .

The intrinsic value of the stock options granted during the year ended December 31, 

2020, was $ 75,000 .

The total fair value of shares that became vested after grant during the years ended December 31, 2021 and 2020 was $12 1,000 and $ 316,000 , respectively.

As of December 31, 2021 , there was $ 48,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over a weighted average peri od of 0.5  years.

There were no options granted in the year ended December 31, 2022 and 2021.

 The total fair value of shares that became vested after grant during the years ended December 31, 2022 and 2021 was $1 13,000 and $12 1,000 , respectively.

As of December 31, 2022 , there was no unrecognized stock compensation expense related to stock options granted under the 2017 Plan .

Restricted Stock Units

Stock compensation expense related to RSU’s for the years ended December 31, 2021 and 2020  was $ 3,793,000  and $ 483,000 , respectively, and was presented as part of operating expenses in the accompanying consolidated statements of operations.

Stock compensation expense related to RSU’s for the years ended December 31, 2022 and 2021  

was $ 6,573,000  a nd $ 3,793,000 , respectively, and was presented as part of operating expenses in the accompanying consolidated statements of operations.

A summary of RSU activity under the Company’s 2017 Plan for years ended December 31, 2022 and 2021 is as follows:

5 unchanged sentences

$ 4.45  

1,217,071  

( 239,920 )  

( 109,256 )  

Outstanding balance at December 31, 2021

7 unchanged sentences

$ 5.58  

The grant date fair value is based on the estimated fair value of the Company’s common stock on the date of grant.

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

As of December 31, 2022 , there was $ 7,357,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.81  

7 unchanged sentences

preferred stock accretion

( 101 )  

preferred stock dividends

( 51 )  

Net loss attributable to shareholders from continuing operations

1 unchanged sentence

Net loss from discontinued operations

Net loss attributable to shareholders

Net loss attributable to common shareholders

$ ( 83,115 )  

4 unchanged sentences

$ ( 1.68 )  

Basic and diluted loss per share from discontinued operations

( 0.00 )  

Basic and diluted earnings per share from discontinued operations

Basic and diluted loss per share

3 unchanged sentences

3,052,526  

As the Company had a net loss for the year ended December 31, 2021 , the following 3,052,526  potentially dilutive securities were excluded from diluted loss per share:

692,311  for outstanding warrants, 

1,012,336  related to outstanding options and 1,347,879  related to outstanding RSUs.

As the Company had a net loss for the year ended December 31, 2020 , the following 4,051,601 potentially dilutive securities were excluded from diluted loss per share:

925,845 for outstanding warrants, 887,461 related to the Series A Preferred Stock, 515,057 related to the Series B Preferred Stock, 1,243,254 related to outstanding options and 479,984 related to outstanding RSUs.

As the Company had a net loss for the year ended December 31, 2022 , the following 

3,494,951 potentially dilutive securities were excluded from diluted loss per share: 

692,311 for outstanding warrants, 

862,380 related to outstanding options and 

1,940,260 related to outstanding RSUs.

As the Company had a net loss for the year ended December 31, 2021 , the following 

3,052,526 potentially dilutive securities were excluded from diluted loss per share: 

692,311 for outstanding warrants, 1,012,336 related to outstanding options and 1,347,879  related to outstanding RSUs.

NOTE 17 –

SUBSEQUENT EVENTS

At-the-Market Issuance Sales Agreement

On February 

24, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B.

Riley Securities, Inc.

(the “Agent”) to create an at the market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $ 0.0001 per share, having an aggregate offering price of up to $ 50,000,000 (the “Shares”) through or to the Agent.

As of March 31, 2022 the Company issued 728,452  shares of its common stock in exchange for net cash of $ 3,303,000 under the 2022 Sales Agreement. 

In March 

2022, the Company invested an additional $ 150,000 in the Roker SAFE. 

Securities Purchase Agreement 

On January 18, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “2023 Investors”), pursuant to which the Company agreed to issue and sell to the 2023 Investors in a private placement transaction (the “Private Placement”) (i) up to $ 15,000,000 in aggregate principal amount of senior secured promissory notes (the “2023 Notes”), and (ii) warrants (the “2023 Warrants”) to purchase, for an exercise price of $ 2.00 per share, up to an aggregate of 7,500,000 shares of common stock of the Company, par value $ 0.0001 per share ("Common Stock"). 

In connection with the initial closing on January 18, 2023, the Company issued $ 12,500,000 in aggregate principal amount of 2023 Notes and 2023 Warrants to purchase 6,250,000 shares of Common Stock, resulting in proceeds to the Company of $ 12,500,000 before reimbursement of expenses.

The Securities Purchase Agreement triggered the 2022 Notes to be exchanged for equal principal amounts of the 2023 Notes which are included in the proceeds of $ 12,500,000 .

The 2023 Notes are a senior secured obligation of the Company and rank senior to all indebtedness of the Company, subject to certain exceptions.

The 2023 Notes have a maturity date of July 18, 2025 ( the “Maturity Date”), at which time all remaining outstanding principal and accrued but unpaid interest will be due.

The 2023 Notes bear an interest rate of 12 % per annum, and the Company will be required to pay interest quarterly during each calendar year through and including the Maturity Date.

At any time, the Company may prepay all, or any portion of, the 2023 Notes by redemption at a price equal to (i) 120 % of the then-outstanding principal amount under the 2023 Notes plus any accrued interest thereon, if redeemed on or prior to the first anniversary of issuance, (ii) 115 % of the then-outstanding principal amount under the 2023 Notes plus any accrued interest thereon, if redeemed after the first anniversary of issuance and on or prior to the second anniversary of issuance, or (iii) 110 % of the then-outstanding principal amount under the 2023 Notes plus any accrued interest thereon, if redeemed after the second anniversary of issuance and prior to the Maturity Date (the “Early Redemption Schedule”).

The Investors will also have the option of requiring the Company to redeem the 2023 Notes in accordance with the Early Redemption Schedule if the Company undergoes a fundamental change.

The Securities Purchase Agreement contains customary representations and warranties of the Company and the 2023 Investors.

The Company has a material relationship with two of the Investors, (i) Robert A.

Berman and Arctis invested $ 2,000,000 and $ 6,500,000 , respectively, in connection with the $ 12,500,000 initial closing of the Private Placement.

Berman has an option, upon request of the Company made within six months of the initial closing, to invest up to an additional $ 2,500,000 million in a subsequent closing, or series of closings, on the same terms.

In aggregate, such subsequent closings may result in the issuance of senior secured notes in the original principal amount of up to $ 2,500,000 and warrants to purchase up to 1,250,000 shares of Common Stock. These lenders were determined to be related parties. 

The Securities Purchase Agreement further provides Arctis with the right to designate a director to be seated on the Company’s board of directors (the “Board”) for a term expiring at the Company’s 2023 annual meeting of stockholders, at which meeting such director shall be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders.

Arctis has a right to a Board designee for so long as it holds the Notes, and such right may not be sold or transferred to any party not affiliated with Arctis.

As of the filing date of this Annual Report on Form 10 -K, Arctis has not exercised its right to designate a director to the Company’s Board. 

The 2023 Notes impose certain customary affirmative and negative covenants upon the Company, as well as covenants that restrict the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, and restrict the declaration of any dividends or other distributions, subject to specified exceptions.

If an event of default under the Note occurs, the Investors can elect to redeem the Notes for cash in accordance with the Early Redemption Schedule, plus default interest, which accrues at a rate per annum equal to 14 % from the date of an event of default.

The 2023 Warrants issued in connection with the initial closing have an exercise price of $ 2.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, are immediately exercisable, have a term of five years from the date of issuance and are exercisable on a cash or cashless basis at the election of the holder.

Firestorm Settlement

On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.

Pursuant to the terms of the settlement agreement, the parties have mutually released and discharged all existing and potential actions, causes of action, suits, proceedings, debts, dues, contracts, damages or claims against each other, including certain claims for officer indemnification of the Firestorm Principals. In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $ 175,000 , and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and were giving up their rights to exercise the warrants issued in connection with the same.

The Company will also cancel warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.

The settlement also results in there being no litigation pending against the Company at this time.

Securities Purchase Agreement

On March 

23, 2023, the Company entered into a securities purchase agreement with a single institutional investor that provided for the sale and issuance by the Company in a registered direct offering of an aggregate of:

(i) 6,100,000 shares of the Company’s common stock, (ii) pre-funded warrants exercisable for up to an aggregate of 772,853 shares of common stock, and (iii) warrants to purchase up to 6,872,853 shares of common stock.

The offering price per share of common stock and associated warrant was $ 1.455 and the offering price per pre-funded warrant and associated warrant was $ 1.454 .

Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.001 per share and will expire when exercised in full.

The warrants to purchase common stock became exercisable immediately upon issuance, will expire five years following the issuance date and have an exercise price of $ 1.60 per share.

The Company received gross proceeds from the Registered Direct Offering of approximately $ 10,000,000 .

The Offering closed on March 

The Company entered into an engagement letter with H.C.

Wainwright & Co., LLC to serve as exclusive placement agent, on a reasonable best-efforts basis, in connection with the offering.

The Company paid the placement agent an aggregate cash fee equal to 7.5% of the gross proceeds of the offering.

The Company also paid the placement agent $ 75,000 for non-accountable expenses and $ 16,000  for clearing fees.

Additionally, the Company issued designees of the placement agent, as compensation, warrants to purchase up to 481,100 shares of common stock, equal to 7.0% of the aggregate number of shares of common stock and pre-funded warrants placed in the offering.

The warrants issued to the placement agent have a term of five ( 5 ) years and an exercise price of $ 1.8188 per share of common stock.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data