LEGAL PROCEEDINGS
−Removed: 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.
1 unchanged sentence
1:19-cv-07767-VEC.
−Removed: On January 30, 2020, we filed a Second Amended Complaint (the “Complaint”).
−Removed: The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.
−Removed: 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’
−Removed: alleged deletion of company email records.
−Removed: The Complaint requests equitable rescission of the acquisition transaction and monetary damages.
The Firestorm Principals answered together with counterclaims on February 28, 2020.
−Removed: 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.
−Removed: Thereafter the Company filed its response and affirmative defenses to the Counterclaims on April 22, 2020.
−Removed: On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which we opposed.
−Removed: In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.
−Removed: With respect to the Firestorm Principals’
−Removed: motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety.
−Removed: In that same order, the Court granted in part and denied in part the Firestorm Principals’
−Removed: fee advance motion.
−Removed: 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’
−Removed: 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. 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.
−Removed: 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.
−Removed: 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 to one defendant on our conversion, and trespass to chattels claims because Rekor represented it was prepared to dismiss those claims.
−Removed: 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.
−Removed: In April 2022, The Company filed a notice of motion seeking partial summary judgement on several of the of the Company’s claims and the Firestorm Principals’
−Removed: counterclaims, which the Firestorm Principals opposed.
−Removed: On July 29 th , 2022, the Court issued an opinion and order, which granted the motion in part and denied it in part.
−Removed: The order dismissed the Firestorm Principal’s counterclaim against the Company for libel.
−Removed: The order also dismissed the Company’s claim for breach of fiduciary duty against one  defendant on the ground that he was not employed by the Company, but by a subsidiary of the Company that is not a party to the case.
−Removed: The court also denied summary judgement to the Company as to the breach of fiduciary duty claim against the other defendants and as to the trespass to chattels and conversion claims as to all defendants, on the ground that issues of fact remain contested.
−Removed: On the same ground, the court also denied summary judgement to the Company as to a breach of contract claim  by one defendant relating to an alleged change in employment status.
−Removed: 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.
−Removed: The defendants in the suits moved to dismiss the amended complaint.
−Removed: At this stage of these litigations, the suits against two of the directors have been dismissed and one has been permitted to proceed.
−Removed: On September 28, 2021, the Delaware court issued an order denying the defendant’s motion to dismiss.
−Removed: On October 21, 2021, the defendants filed a motion for reconsideration of the Delaware court’s dismissal order;
−Removed: which 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.
−Removed: The defamation claim in Virginia will now be challenged on substantive grounds.
−Removed: In July 2022, the Firestorm Principals obtained new counsel. 
−Removed: On July 21, 2022, the Firestorm Principals’
−Removed: new counsel requested an adjournment of the October 17, 2022 trial date and related pre-trial deadlines, which the Company did not oppose. 
−Removed: On July 22, 2022, the Court granted the request and rescheduled trial to begin on February 13, 2023.
−Removed: At this stage of these litigations, we are unable to render an opinion regarding the likelihood of a favorable outcome.
−Removed: We intend to continue vigorously litigating its claims against the Firestorm Principals and believe that the Firestorm Principals’
−Removed: remaining counterclaims and suits against Rekor directors and officers are without merit.
−Removed: On September 18, 2020, Fordham Financial Management, Inc.
−Removed: (“Fordham”) commenced a lawsuit against the Company in the Supreme Court for the State of New York, New York County.
−Removed: Fordham alleged that the Company offended an underwriting agreement with Fordham and brought claims for breach of contract.
−Removed: 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.
−Removed: 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’
−Removed: The Company chose not to appeal the decision and satisfied the judgement.
−Removed: In exchange for a payment of $1,320,000 by the Company, the plaintiff agreed to a full and complete discharge of the plaintiff’s claim. This amount was recorded in other (expense) income on the Company's unaudited condensed consolidated statements of operations. 
−Removed: 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.
+Added: 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. 
+Added: On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.
+Added: 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.
+Added: As a result of the settlement agreement, the Company recorded a reduction to notes payable, the related accrued interest and other assets and liabilities already presented as discontinued operations.
+Added: The Company also cancelled warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.
+Added: The settlement also results in there being no litigation pending against the Company at this time.
+Added: 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.
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.
−Removed: 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.
−Removed: 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.
+Added: With respect to such lawsuits, claims and proceedings the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated.
+Added: It is the Company’s opinion that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.
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