What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-14 · 316 added, 319 removed, 1162 unchanged (35% of the section changed)

4 unchanged sentences

(Dollars in thousands, except share amounts)

June 30, 2023

September 30, 2023

December 31, 2022

66 unchanged sentences

100,000,000 shares;

62,043,702 , shares as of June 30, 2023 and 54,446,602 as of December 31, 2022;

61,952,211 shares as of June 30, 2023 and 54,405,080 as of December 31, 2022.

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 June 30, 2023 and December 31, 2022, respectively.

No preferred stock was issued or outstanding as of June 30, 2023 or December 31, 2022, respectively.

Treasury stock, 91,491 and 41,522 shares as of June 30, 2023 and December 31, 2022, respectively.

69,233,969 , shares as of September 30, 2023 and 54,446,602 as of December 31, 2022;

69,137,461 shares as of September 30, 2023 and 54,405,080 as of December 31, 2022.

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 September 30, 2023 and December 31, 2022, respectively.

No preferred stock was issued or outstanding as of September 30, 2023 or December 31, 2022, respectively.

Treasury stock, 96,508 and 41,522 shares as of September 30, 2023 and December 31, 2022, respectively.

( 522 )  

15 unchanged sentences

(Dollars in thousands, except share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

$ 9,119  

3 unchanged sentences

Cost of revenue, excluding depreciation and amortization

11,319  

Operating expenses:

4 unchanged sentences

Research and development expenses

14,011  

13,772  

Depreciation and amortization

Goodwill impairment

34,835  

Total operating expenses

13 unchanged sentences

( 2,576 )  

Other income (expense)

( 1,379 )  

Total other income (expense)

1 unchanged sentence

( 1,400 )  

( 1,591 )  

Loss before income taxes

2 unchanged sentences

( 34,361 )  

Income tax benefit (provision)

Income tax benefit

Net loss from continuing operations

32 unchanged sentences

Total Stockholders' Equity

Balance as of March 31, 2023

Balance as of June 30, 2023

61,952,211  

9 unchanged sentences

183,389  

Issuance of common stock upon exercise of pre-funded warrants

Shares withheld upon vesting of restricted stock units

( 5,017 )  

( 16 )  

Balance as of June 30, 2023

Issuance upon exercise of Series A warrants

31,525  

Issuance upon exercise of 2023 Registered Direct Offering Warrants

6,872,853  

2 unchanged sentences

( 10,566 )  

Balance as of September 30, 2023

69,137,461  

Balance as of March 31, 2022

96,508  

3 unchanged sentences

$ 43,579  

Balance as of June 30, 2022

52,621,305  

Stock-based compensation

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

( 41,522 )  

1 unchanged sentence

$ 197,512  

$ ( 97,751 )  

99,349  

Stock-based compensation

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

1,420,261  

Issuance upon exercise of stock options

1 unchanged sentence

241,045  

Shares issued as part of the STS Acquisition

( 48,034 )  

( 15,267 )  

Balance as of June 30, 2022

Balance as of September 30, 2022

54,288,611  

21 unchanged sentences

( 105 )  

Issuance of common stock and warrants

Issuance upon exercise of Series A warrants

31,525  

1 unchanged sentence

772,853  

Net proceeds from 2023 Registered Direct Offering

6,100,000  

Balance as of June 30, 2023

Issuance upon exercise of 2023 Registered Direct Offering Warrants

6,872,853  

2 unchanged sentences

( 34,361 )  

Balance as of September 30, 2023

69,137,461  

96,508  

$ ( 522 )  

$ 231,453  

$ ( 187,359 )  

$ 43,579  

Balance as of January 1, 2022

20 unchanged sentences

( 75,902 )  

Balance as of June 30, 2022

Balance as of September 30, 2022

54,288,611  

9 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

7 unchanged sentences

Non-cash operating lease expense

Benefit for deferred taxes

Share-based compensation

Amortization of debt discount

Goodwill impairment

34,835  

Amortization of intangible assets

1 unchanged sentence

Loss due to the remeasurement of the STS Contingent Consideration

Loss on the sale of property and equipment

Gain on the sale of property and equipment

( 23 )  

Gain on extinguishment of debt

20 unchanged sentences

( 944 )  

Proceeds from the Roker SAFE

Proceeds from the sale of property and equipment

Cash paid for STS acquisition, net

Net cash used in investing activities - continuing operations

( 476 )  

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

Net cash used in investing activities - discontinued operations

Net cash used in investing activities

( 476 )  

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities:

3 unchanged sentences

Net proceeds 2023 Registered Direct Offering

Net proceeds from the exercise of the warrants associated with 2023 Registered Direct Offering

10,996  

Net proceeds from the exercise of the pre-funded warrants

Proceeds from notes receivable

Net proceeds from exercise of options

Net proceeds from exercise of warrants associated with series A preferred stock

Repayments of loans payable

33 unchanged sentences

GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company provides products and services for the collection, distribution and analysis of transportation data and is a global leader in the development and implementation of advanced roadway intelligence 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.

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. Amounts for th

three and six months ended June 30, 2022

, h ave been reclassified to conform to the current year’s presentation.

June 17, 2022

,  the Company completed the acquisition of Southern Traffic Services, Inc.

With a suite of real-time intelligence platforms driven by deep access to data, AI-powered software, years of machine learning 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.

June 17, 2022 ,  the Company completed the acquisition of Southern Traffic Services, Inc.

("STS") by acquiring 

100 % of the issued and outstanding capital stock of STS, which is now a wholly-owned subsidiary of the Company.

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. Amounts for the 

three and nine months ended September 30, 2022

ave been reclassified to conform to the current year’s presentation.

These unaudited condensed consolidated interim financial statements of Rekor Systems, Inc.

3 unchanged sentences

GAAP for annual financial statements.

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of June 30, 2023 , the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’

equity and unaudited condensed consolidated statements of cash flows for the three and six months ended June 30, 2023 and 2022 .

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 2023 , the unaudited condensed consolidated results of operations, unaudited condensed consolidated statements of shareholders’

equity and unaudited condensed consolidated statements of cash flows for the three and nine months ended September 30, 2023 and 2022 .

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

The results for the three and six months ended June 30, 2023 , are not necessarily indicative of the results to be expected for the year ending December 31, 2023 .

The results for the three and nine months ended September 30, 2023 , are not necessarily indicative of the results to be expected for the year ending December 31, 2023 .

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022 .

11 unchanged sentences

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

Amortization related to the Company's right-of-use assets is presented as part of general and administrative expenses on the unaudited condensed consolidated statements of operations, whereas in prior periods these amounts were presented as part of depreciation and amortization on the unaudited condensed consolidated statements of operations.

Amortization related to the Company's right-of-use operating assets is presented as part of general and administrative expenses on the unaudited condensed consolidated statements of operations, whereas in prior periods these amounts were presented as part of depreciation and amortization on the unaudited condensed 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 unaudited condensed consolidated statements of operations, whereas in prior periods, interest income was presented as part of other expense, net on the unaudited condensed consolidated statements of operations.

Amounts for the three and six months ended June 30, 2022 , have been reclassified to conform to the current period’s presentation.

Amounts for the three and nine months ended September 30, 2022 , have been reclassified to conform to the current period’s presentation.

Liquidity and Going Concern

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

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

Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these unaudited condensed consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.

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

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

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

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

As of and for the six months ended June 30, 2023 , the Company had a working capital deficit from continuing operations of $ 1,692,000  and a loss from continuing operations of $ 23,795,000 .

Our cash increased by $ 316,000  for the six months ended June 30, 2023 primarily due to external financing which was offset by the loss from continuing operations of $ 23,795,000 . 

As described in NOTE 13 - 

SUBSEQUENT EVENTS , the Company received aggregate gross proceeds of approximately $ 10,997,000  as a result of a warrant exercise on July 25, 2023.

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

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

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

As of and for the nine months ended September 30, 2023 , the Company had working capital from continuing operations of $ 3,579,000  and a loss from continuing operations of $ 34,361,000 .

Our c ash increased by $ 4,891,000  for the nine months ended September 30, 2023 primarily due to external financing which was offset by the loss from continuing operations of $ 34,361,000 . 

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 its current level of operations for the next twelve months following the issuance of these unaudited condensed financial statements.

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

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

The Company is currently in the process of reviewing external financing options in order to sustain its operations. If additional financing is not available, the Company also has contingency plans to continue to reduce or defer expenses and cash outlays should operations weaken in the look-forward period.

The Company is currently in the process of reviewing and exploring external financing options in order to sustain its operations. If additional financing is not available, the Company also has contingency plans to continue to reduce or defer expenses and cash outlays in the look-forward period.

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

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

As of June 30, 2023 , the Company did not identify any events that would cause it to assess goodwill for impairment.

Revenue Recognition

9 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Recurring revenue

57 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Urban mobility

1 unchanged sentence

$ 3,504  

$ 10,742  

$ 2,077  

Traffic management

Licensing and other revenue

10,848  

Total revenue

5 unchanged sentences

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™

These activities can 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 Company initiated this platform in June of 2022 and is in the process of deploying it for its existing customers as well as initiating deployments for new customers.

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 traffic data collection activities in June of 2022.

Traffic management  

10 unchanged sentences

The Company contracts with customers in a variety of ways, including contracts that obligate the Company to provide services over time.

Some contracts include performance obligations for several distinct services.

Some contracts include several distinct services.

For contracts that have multiple distinct performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors.

1 unchanged sentence

When the Company recognizes revenue due to the sale of hardware or perpetual software licenses, the impact on the overall unsatisfied performance obligations is relatively small as the Company satisfies most of its performance obligations at the point in time that the control of the hardware or software has transferred to the customer.

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

As of June 30, 2023 , the Company had approximately 

$ 31,774,000  of remaining performance obligations not yet satisfied or partially satisfied.

The Company expects to recognize approximately 69 %  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.

Where performance obligations for the remaining term of 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 September 30, 2023 , the unsatisfied portion of the remaining performance obligation was approximately $ 30,203,000 .

The Company expects to recognize approximately 73%  of this amount as revenue over the succeeding twelve months, and the remaind er is expected to be recognized within the next five years thereafter.

Unbilled accounts receivable

2 unchanged sentences

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

Unbilled accounts receivables of $ 1,381,000  and $ 935,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 , respectively.

Unbilled accounts receivables of $ 1,971,000  and $ 935,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 , respectively.

Contract liabilities

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

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

Changes in the contract asset and liability balances during the six months ended June 30, 2023 were not materially impacted by any other factors.

Contract liabilities as of June 30, 2023 and December 31, 2022 were $ 5,123,000  and $ 4,049,000 , respectively.

During the six months ended June 30, 2023 , $ 2,092,000 of the contract liabilities balance as of December 31, 2022 was recognized as revenue.

The services due for contract liabilities described above are shown below as of June 30, 2023 (dollars in thousands):

This revenue and the corresponding decrease in liabilities is recognized on a contract-by-contract basis at the end of each reporting period and reflected on the unaudited condensed consolidated balance sheet for such period.

Changes in the contract balances during the nine months ended September 30, 2023 were not materially impacted by any other factors.

Contract liabilities as of September 30, 2023 and December 31, 2022 were $ 6,020,000  and $ 4,049,000 , res pectively.

During the nine months ended September 30, 2023 , $ 2,778,000 of t he contract liabilities balance as of December 31, 2022 was recognized as revenue.

The services due for contract liabilities described above are shown below as of September 30, 2023 (dollars in thousands):

2023, remaining

3 unchanged sentences

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 clients. R estricted cash and cash equivalents for these clients as of June 30, 2023 and December 31, 2022 were $ 346,000  and $ 254,000 , respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain clients. Restricted cash and cash equivalents for these clients as of September 30, 2023 and December 31, 2022 were $ 325,000  and $ 254,000 , respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

Concentrations of Credit Risk

1 unchanged sentence

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

As of June 30, 2023  and December 31, 2022, the Company had deposits from continuing operations totaling $ 2,784,000  and $ 2,178,000 , respectively, in multiple U.S.

As of September 30, 2023  and December 31, 2022, the Company had deposits from continuing operations totaling $ 7,359,000  and $ 2,178,000 , respectively, in multiple U.S.

financial institutions and one Israeli financial institution.

Customer A accounted for 

12 % of the unaudited condensed consolidated revenue for the six months ended 

June 30, 2023 . 

Customer A accounted for 13 % and 12 % of the unaudited condensed consolidated revenue for the three and nine  months ended 

September 30, 2023  and 13 % of the unaudited condensed consolidated revenue for the three months ended September 30, 2022, respectively. Customer B accounted for 10 % of the unaudited condensed consolidated revenue for the three months ended 

September 30, 2023 .

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

three and six months ended June 30, 2023 and 2022 , respectively. 

As of June 30, 2023 , Customer B accounted for 

three and nine months ended September 30, 2023 and 2022 , respectively. 

As of September 30, 2023 , Customer C accounted for 

13 % of the unaudited condensed consolidated accounts receivable balance.

2 unchanged sentences

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

June 30, 2023 and 

September 30, 2023 and 

December 31, 2022 .

1 unchanged sentence

and Other Current Liabilities

As of June 30, 2023  and December 31, 2022, the Company owed $ 348,000  and $ 253,000 to its board members, which the Company considers to be related parties, these were presented as part of accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets. 

As of September 30, 2023  and December 31, 2022, the Company owed $ 125,000  and $ 253,000 to its board members, which the Company considers to be related parties, these were presented as part of accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets. 

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

June 30, 2023

September 30, 2023

December 31, 2022

5 unchanged sentences

$ 2,772  

Significant Accounting Policies

New Accounting Pronouncements Effective in the Current Period

18 unchanged sentences

Since the acquisition of STS occurred on June 

17, 2022, the results of operations for STS from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2023 .

As part of the Company's purchase price allocation for the acquisition, the Company recognized 

7 unchanged sentences

The STS Contingent Consideration shall be payable within 

30  days of the effectiveness of the extension of the Georgia Department of Transportation Contract. STS Contingent Consideration is presented as part of other non-current liabilities on the unaudited condensed consolidated balance sheets and remeasu red 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 three and six months ended June 30, 2023 , the Company recognized $ 46,000 and $ 91,000 , respectively, in expe nse related to the remeasurement of the STS Contingent Consideration which is presented with general and administrative expenses on the unaudited condensed consolidated statement of operations. 

For the three and nine months ended September 30, 2023 , the Company recognized $ 48,000 and $ 139,000 , respectively, in expense related to the remeasurement of the STS Contingent Consideration which is presented with general and administrative expenses on the unaudited condensed 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 

7 unchanged sentences

This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022 ( the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except per share data)

23 unchanged sentences

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

As of June 30, 2023 and December 31, 2022 the investment in Global Public Safety had a value of $ 0 .

As of September 30, 2023 and December 31, 2022 the investment in Global Public Safety had a value of $ 0 .

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

In June 2020, the Company announced a joint venture in which the Company acquired a 50 % equity interest in a newly formed entity, Roker Inc.

1 unchanged sentence

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

This investment is accounted for under the equity method.

 As of June 30, 2023 and December 31, 2022 the investment in Roker had a value of $ 0 .

Subsequent to the quarter end the Company entered into an agreement to sell substantially all of the assets of Roker.

(see NOTE 13  - SUBSEQUENT EVENTS  for more details).

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

This investment is accounted for under the equity method. As of September 30, 2023 and December 31, 2022 the investment in Roker had a value of $ 0 .

In April 2021, the Company entered into a SAFE with Roker (the “Roker SAFE”).

From 2021 through 2022 the Company made multiple investments totaling $ 2,005,000  in the Roker SAFE. The Roker SAFE allows the Company to participate in future equity financing of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”).

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

The Company’s investment in the Roker SAFE is recorded on the cost method of accounting and included under SAFE investment on the unaudited condensed consolidated balance sheets and is shown as long-term, as it is not readily convertible into cash.

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

Subsequent to the quarter end substantially all of the assets of Roker were sold which initiated a triggering event related to the Company's SAFE agreements.

(see NOTE 13  - SUBSEQUENT EVENTS  for more details).

During the 

three and six months ended June 30, 2023 , the Company recognized an impairment of $ 101,000 related to the SAFE that is presented as part of general and administrative expenses in the unaudited condensed consolidated statements of operations. 

From 2021 through 2022 the Company made multiple investments totaling $ 2,005,000  in the Roker SAFE. The Roker SAFE allowed the Company to participate in future equity financing of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”).

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

The Company’s investment in the Roker SAFE was recorded on the cost method of accounting. 

During the second quarter of 2023,  the Company recognized an impairment of $ 101,000  related to the SAFE that is presented as part of general and administrative expenses in the unaudited condensed consolidated statements of operations. 

During the third quarter of 2023, the Company entered into an agreement to sell substantially all of the assets of Roker,  which initiated a triggering event related to the Company's SAFE agreements .

As result of the triggering event the Company received cash proceeds of $ 1,904,000 of which includes $ 423,000  that was held in escrow as of September 

 As of 

September 30, 2023, 

the amount held in escrow of $ 423,000  was presented as part of other current assets, net and deposits on the unaudited condensed consolidated balance sheets.

NOTE 4  

1 unchanged sentence

Supplemental disclosures of cash flow information for the 

six months ended June 30, 2023 and 2022 were as follows (dollars in thousands):

Six Months Ended June 30,

nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

Nine Months Ended September 30,

Cash paid for interest

$ 1,099  

Cash paid for taxes

3 unchanged sentences

( 335 )  

Increase in inventory related to the transfer of property and equipment

( 517 )  

Decrease in deposits related to property and equipment received

4 unchanged sentences

Note Consideration in connection with the acquisition of STS

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

Loans issued for property and equipment

8 unchanged sentences

Recognition of operating lease - lease liability

$ ( 343 )  

NOTE 5  

4 unchanged sentences

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

The following table is a summary of the components of net lease cost for the period ended June 30 ( dollars in thousands ):

Three Months Ended June,

Six Months Ended June,

The following table i s a summary of the components of net lease cost for the period ended September 30, 2023 and 2022 (dollars in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Finance lease cost

4 unchanged sentences

$ 1,761  

$ 1,524  

For the 

three and six months ended June 30, 2023 , the Company had $ 249,000 in cash payments related to its financing leases prior to the lease commencement date. 

nine months ended September 30, 2023 , the Company had $ 446,000 in cash payments related to its financing leases prior to the lease commencement date. 

Supplemental balance sheet information related to leases as of 

June 30, 2023 was as follows (dollars in thousands):

Year ending June 30, 2023

September 30, 2023  and 2022 was as follows (dollars in thousands):

Year ending September 30,

Weighted-average remaining lease term (years)

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Financing leases

Maturities of operating and financing lease liabilities for continuing operations at  

September 30, 2023  were as follows (dollars in thousands):

Operating Leases

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11,038  

11,094  

Total lease payments

3 unchanged sentences

$ 14,538  

$ 1,584  

NOTE 6  

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The following provides a breakdown of identifiable intangible assets, net as of 

June 30, 2023  and  

September 30, 2023  and  

December 31, 2022 (dollars in thousands):

June 30, 2023

September 30, 2023

December 31, 2022

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

Amortization expense 

for the 

three  months ended  

June 30, 2023  and 

2022  was $ 1,032,000  and $ 973,000 , respectively, and 

for the six months ended June 30, 2023 and 2022 was 

Amortization expense for the 

three  months ended 

September  

30, 2023  and 

2022  was $ 1,018,000  and $ 1,045,000 , resp ectively, and for the nine months ended September 30, 2023 and 2022 was 

$ 3,091,000  and $ 3,001,000 , respectively and is presented as part of depreciation and amortization in the unaudited condensed consolidated statements of operations.

During the current period there have been no events that would cause the Company to reevaluate its intangible assets.  

As of June 30, 2023 , the estimated impact from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

During the current period there have been no events that would cause the Company to evaluate its intangible assets for impairment.  

As of September 30, 2023 , the estimated impact from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

2023, remaining

$ 18,208  

$ 19,226  

NOTE 7  

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December 31, 2022 

and is included in notes payable long-term, in the consolidated balance sheets. As of June 30, 2023, the aggregate balance of these notes payable was $ 2,000,000 of which $ 1,000,000 was included in notes payable current portion and $ 1,000,000 was included in notes payable long-term, respectively, in the unaudited condensed consolidated balance sheets.

and is included in notes payable long-term, in the consolidated balance sheets. As of 

September 30, 2023 , t he aggregate balance of these notes payable was $ 2,000,000 of which $ 1,000,000 was included in notes payable current portion and $ 1,000,000 was included in notes payable long-term, respectively, in the unaudited condensed consolidated balance sheets.

2022 Promissory Notes  

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These lenders were determined to be related parties.

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 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.  

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 2023 Promissory Notes, and such right may not be sold or transferred to any party not affiliated with Arctis. As a result of this right, the Nominations Committee of the Company’s Board of Directors has nominated a director designated by Arctis to stand for election by the Company’s stockholders at the Company’s 2023 annual meeting of stockholders. 

Berman had the option, upon request of the Company made within six months of the initial closing, to invest up to an additional $ 2,500,000 in a subsequent closing, or series of closings, on the same terms.

In aggregate, such subsequent closings would have resulted 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.

This option was not exercised and has expired as of September 30, 2023.   

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 stockh olders 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 2023 Promissory Notes, and such right may not be sold or transferred to any party not affiliated with Arctis. As a result of this right, on September 14, 2023, a director designated by Arctis was elected by the Company’s stockholders at the Company’s 2023 annual meeting of stockholders. 

The 2023 Promissory Notes impose certain financial 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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Contractual interest expense, net

$ 1,101  

Amortization of debt discount

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Schedule of Principal Amounts Due of Debt

The principal amounts due for long-term notes payable are shown below as of June 30, 2023 (dollars in thousands):

The principal amounts due for long-term notes payable are shown below as of September 30, 2023 (dollars in thousands):

2023, remaining

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

June 30, 2023 .

September 30, 2023 .

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

Federal, state or foreign income tax audits were in process as of June 30, 2023 .

Federal, state or foreign income tax audits were in process as of September 30, 2023 .

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

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For the three and 

six months ended June 30, 2023  and 2022, the Company did not record any interest or penalties related to unrecognized tax benefits.

nine months ended September 30, 2023  and 2022, the Company did not record any interest or penalties related to unrecognized tax benefits.

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

The 2018  through 2021  tax years remain subject to examination by the Internal Revenue Service. 

As of June 30, 2023 and December 31, 2022, our evaluation revealed no uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements. 

The 2019  through 2022  tax years remain subject to examination by the Internal Revenue Service. As of September 30, 2023  and December 31, 2022 , our evaluation revealed no uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements. 

NOTE 9  

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During the second quarter of 2023, 772,853 of the pre-funded warrants were exercised for 772,853 shares of the Company's common stock. 

Subsequent to the period end, the institutional investor connected to the 2023 Registered Direct Offering exercised 6,872,853 of the Registered Direct Warrants into an equal number of shares of the Company's common stock.

See NOTE 13 - SUBSEQUENT EVENTS for details on the transaction.

2023 Letter Agreement

On July 

25, 2023, the Company entered into a letter agreement (the “2023 Letter Agreement”) with the same institutional investor connected to the 2023 Registered Direct Offering, pursuant to which the investor and the Company agreed that the investor would exercise all its Register Direct Warrants for shares of common stock underlying the Registered Direct Warrants at $ 1.60 per share of common stock.

In consideration for exercising the Registered Direct Warrants and in exchange for the imposition of volume and trading restrictions on the 6,872,853 shares of common stock issued to the institutional investor in connection with exercise of the Registered Direct Warrants, the 2023 Letter Agreement provided for the issuance of unregistered warrants to purchase up to an aggregate of 2,850,000 shares of common stock (the “2023 Private Warrants”).

The 2023 Private Warrants will expire on January 

25, 2029  and have an exercise price of $ 3.25 .

The 2023 Private Warrants were valued using the Black-Scholes pricing model at a total of $ 6,757,000  based on a 

five and half year term, volatility of 

115 %, a risk-free of 

4.15 %, and stock price of $ 2.85 .

The fair value of the 2023 Private Warrants were treated as an equity financing cost and recorded as part of the Company’s additional paid-in capital.

This resulted in a net zero impact within the Company’s additional paid-in capital.

2023 Warrants

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For the 

six  months ended 

June 30, 2022, 

the Company sold 

nine  months ended 

September 

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 

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

A summary of the warrant activity for the Company for the period ended June 30, 2023 is as follows:

A summary of the warrant activity for the Company for the period ended September 30, 2023 is as follows:

Series A Preferred Stock Warrants (1)

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2023 Registered Direct Offering (6)

2023 Private Warrants (7)

Active warrants as of January 1, 2023

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2,850,000  

17,226,806  

Exercised warrants

( 31,525 )  

( 7,645,706 )  

( 7,677,231 )

Expired warrants

2 unchanged sentences

( 631,254 )  

Outstanding warrants as of June 30, 2023

Outstanding warrants as of September 30, 2023

10,471  

2 unchanged sentences

2,850,000  

Weighted average strike price of outstanding warrants as of June 30, 2023

9,595,076  

Weighted average strike price of outstanding warrants as of September 30, 2023

$ 1.03  

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$ 1.82  

Intrinsic value of outstanding warrants as of June 30, 2023

$ 3.25  

$ 2.36  

Intrinsic value of outstanding warrants as of September 30, 2023

$ 19,000  

$ 6,000  

$ 5,125,000  

$ 482,000  

$ 5,632,000  

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

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These warrants were exercisable commencing March 27, 2023 and expire on March 27, 2028.

( 7 ) On July 25, 2023, in connection with the 2023 Letter Agreement, the Company issued warrants to purchase 2,850,000 shares of its common stock, exercisable over a period of five and half years, at an exercise price of $ 3.25 per share.

These warrants were exercisable commencing July 25, 2023 and expire on January 25, 2029.

NOTE 11  

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The vesting period is generally three years with a contractual term of ten years.

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

June 30, 2023 

2022 was $ 0  and $ 14,000 , respectively, and for the six months ended June 30, 2023 and 2022  was $ 0  and $ 42,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations. 

A summary of stock option activity under the Company’s 2017 Plan for the period ended June 30, 2023 is as follows:

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

30, 2023  and 

2022 was $ 0  and $ 2,000 , respectively, and for the nine months ended September 30, 2023 and 2022  was $ 0  and $ 43,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations. 

A summary of stock option activity under the Company’s 2017 Plan for the period ended September 30, 2023 is as follows:

Number of Shares Subject to Option

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( 32,373 )  

Outstanding balance as of June 30, 2023

Outstanding balance as of September 30, 2023

691,174  

1 unchanged sentence

$ 1,143,000  

Exercisable as of June 30, 2023

Exercisable as of September 30, 2023

691,174  

1 unchanged sentence

$ 1,143,000  

As of June 30, 2023 , there was $ 0 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan.

As of September 30, 2023 , there was $ 0 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan.

Restricted Stock Units

Stock compensation expense related to RSU’s for the three months ended June 30, 2023 and 2022  was $ 1,044,000 and $ 1,871,000 , respectively, and for the six months ended June 30, 2023 and 2022  was $ 2,156,000  and $ 3,743,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations.

A summary of RSU activity under the Company’s 2017 Plan for the six months ended June 30, 2023 is as follows:

Stock compensation expense related to RSU’s for the three months ended September 30, 2023 and 2022  was $ 1,081,000 and $ 1,626,000 , respectively, and for the nine months ended September 30, 2023 and 2022  was $ 3,237,000  and $ 5,370,000 , respectively, and is presented, based on the awardees operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations.

A summary of RSU activity under the Company’s 2017 Plan for the nine months ended September 30, 2023 is as follows:

Number of Shares

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( 167,266 )  

Outstanding balance as of June 30, 2023

Outstanding balance as of September 30, 2023

1,715,431  

1 unchanged sentence

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

As of June 30, 2023 , there was $ 5,559,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.87  years.

As of September 30, 2023 , there was $ 4,977,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.71 years.

NOTE 12  

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except per share data)

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3,709,051  

As the Company had a net loss for the three and six months ended June 30, 2023 , the following 

As the Company had a net loss for the three and nine months ended September 30, 2023 , the following 

12,001,681 potentially dilutive securities were excluded from diluted loss per share: 

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691,174 related to outstanding options and 1,715,431  related to outstanding RSUs. 

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

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

As the Company had a net loss for the three and nine months ended September 30, 2022 , the following the following 

3,709,051  potentially dilutive securities were excluded from diluted loss per share: 

692,311  for outstanding warrants, 

1 unchanged sentence

2,056,588  related to outstanding RSUs.

NOTE 13  

 SUBSEQUENT EVENTS

Roker Sale 

On July 25, 2023, a buyer acquired substantially all of the assets of Roker.

This was deemed to be a triggering event under the Roker SAFE Agreement. As result of the triggering of the Roker SAFE Agreement, the Company expects to receive substantially of its investment in the Roker SAFE.

Warrant Exercise

On July 

25, 2023, the Company entered into a letter agreement (the “Letter Agreement”) with the holder (the “Exercising Holder”) of the Registered Direct Warrants to purchase for cash an aggregate of 6,872,853 shares of Common Stock, representing all of the shares of Common Stock underlying the Registered Direct Warrants.

Pursuant to the Letter Agreement, the Exercising Holder and the Company agreed that the Exercising Holder would exercise all of its Registered Direct Warrants for shares of Common Stock underlying the Registered Direct Warrants (the “Exercised Shares”) at $ 1.60 per share of Common Stock.

In consideration for exercising the Registered Direct Warrants, the Letter Agreement provides for the issuance of new warrants to purchase up to an aggregate of 2,850,000 shares of Common Stock (the “New Warrants”).

The New Warrants terminate on January 

25, 2029, and are exercisable after issuance only for cash, subject to exception if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement.

The New Warrants have an exercise price of $ 3.25 per share.

The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants are not being registered under the Securities Act of 1933, and are being offered pursuant to the exemption provided in Section 

4 (a)( 2 ) under the Securities Act.

The Exercised Shares are registered for resale on an effective registration statement previously filed by the Company with the SEC.

The Company has received aggregate gross proceeds of $ 10,997,000  from the exercise of the Registered Direct Warrants by the Exercising Holder and issue an aggregate of 6,872,853 shares of Common Stock and New Warrants to purchase an aggregate of up to 2,850,000 shares of Common Stock to the Exercising Holder.

MANAGEMENT ’

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reputational risks affecting customer confidence or willingness to do business with us;

financial market conditions , including the continuation of significant national and global uncertainties that may affect these conditions, a nd the results of financing efforts;

financial market conditions, including the continuation of significant national and global uncertainties that may affect these conditions, and the results of financing efforts;

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

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The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the “Risk Factors”

section of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “

2022 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.

Rekor’s mission is 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 public safety, urban mobility, and transportation management worldwide with our cutting-edge, AI-driven solutions tailored specifically to the unique needs of each.

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 in real-time the most essential, actionable and predictive mobility insights.

section of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.

Rekor is a technology company dedicated to transforming public safety, urban mobility, and transportation management worldwide.

Our AI-driven solutions have been tailored specifically to the unique needs of our customer base in each of these areas.

We are working to collect, connect, and organize the world's mobility data, harnessing its full potential to provide in real-time the most essential, actionable and predictive insights.

Our innovative approach is designed to make roadway mobility data readily accessible and useful, empowering our customers to make informed decisions and drive meaningful progress towards a better future.

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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 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.

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.

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

Today, our comprehensive portfolio of products and services offers multiple cutting-edge Internet of Things ("IoT") devices for roadside data collection, an array of curated and integrated data sets from a network of transportation ecosystem data providers, as well as platforms, applications, and data streams that have been tailored for use by a demanding customer base consisting of federal state and local government agencies and large corporate clients.

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

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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.

As agencies plan for and build the transportation network of the future, Rekor expects to play a critical and 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.

The Rekor One™

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

Our Rekor One™

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

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.

Our platforms facilitate the efficient collection, analysis, and distribution of vast amounts of data, unlocking real-time and predictive operational insights that have previously been unavailable.

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 serve government and commercial customers in the public safety, urban mobility and transportation management areas.

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.

Our Rekor One roadway intelligence engine allows us to deliver a range of solutions that serve government and commercial customers in the public safety, urban mobility and transportation management areas.

Within the Rekor One environment, 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.

Rekor's solutions support diverse use cases, including:

1) traffic reports, including counts showing Federal Highway Administration ("FHWA") mandated vehicle classifications and speed, analytics for bicycle, pedestrians, and other micromobility modes, as well as patterns and hot spots for greenhouse gas emissions, 2) data driven traffic operations and traffic management, real-time incident detection and response, including proactive traffic calming around events, and 3) high-definition ("HD") video traffic surveillance, to assist law enforcement and support intelligence-based policing, including 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.

The Road Ahead

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

The United States government is investing heavily in upgrading and digitizing the nation’s 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 a technology company that provides state-of-the-art AI-driven roadway intelligence solutions to enhance public safety, urban mobility, and transportation management.

We are actively engaged in providing 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 create 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.

We are dedicated to delivering mission-critical solutions that help to create intelligent, secure, and sustainable streets for all communities.

The ultimate objective is for Rekor to be a foundational partner in building a digitally-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.

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Although there are many that we may not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following:

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

New Efficiencies and Expanded Uses for Roadway Intelligence  – The suite of products and services that we have developed makes use of recent technological developments that significantly lower the cost of existing roadway deployments.

These technological developments include the development of improved graphic processing units (“GPU’s”) that feature greater bandwidth and are structured to facilitate parallel processing of larger blocks of data, improvements in cellular technologies that we can take advantage of through more efficient edge processing techniques.

Our systems have also been designed to address developments in cellular communications networks 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.

The reduced cost and additional capabilities realized as a result of these technological developments have also enabled us to deliver products and services that were previously either unavailable or available only at prohibitive cost.

Although our customer base is currently anchored by large government institutions and commercial enterprises,  we currently also serve many users who could not afford the cost, or adapt to the restrictions of, conventional systems.

These include smaller municipalities, homeowners’ associations, and smaller businesses finding new applications for our software and hardware.

AI for Infrastructure  – We have been able to develop applications of AI that improve the analysis of conditions on roadways and significantly affect the safety and efficiency of travel.

As vehicles move towards further automation, we expect there to be a growing need for real-time data and actionable insights around traffic flow, identification of anomalous and unsafe movements – e.g.

wrong way vehicles, stopped vehicles, or/and pedestrians on the roadway.

Businesses 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.

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

This data is a resource that we are using to help transportation and other agencies 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.

Growing Smart City Market 

We 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.

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

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

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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 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.

wrong way vehicles, stopped vehicles, or/and pedestrians on the roadway.

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 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 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.

We currently serve many users who could not afford the cost, or adapt to the restrictions of, conventional vehicle recognition systems.

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 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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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.

Expansion of Contactless Compliance Programs  – 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 and registration requirements.

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

Graphic Processing Unit ( “

) Improvements  – We expect our business to benefit from more powerful and affordable GPU hardware that has recently been developed.

These GPUs are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central processing units (“CPUs”) for algorithms that process large blocks of data, such as those produced by video streams.

GPUs also provide superior memory bandwidth and efficiencies as compared to their CPU counterparts.

The most recent versions of our software have been designed to use the increased GPU speeds to accelerate image recognition.

The GPU market is predicted to grow as a result of a surge in the adoption of the Internet of Things (“IoT”) by the industrial and automotive sectors.

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 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.

As a result, while download speeds have improved significantly due to large investments in cellular infrastructure, this has resulted in relatively small improvements to cellular upload speeds.

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.

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 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.

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.

We have previously 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.

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.

Despite the roll-out of vaccinations, there continues to be significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

and international economies.

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.

According to a McKinsey Global Survey of executives, their companies have accelerated the digitization of their customer and supply-chain interactions and their internal operations by three to four years.

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.

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

With subscription pricing and an intelligent infrastructure platform that accomplishes multiple agency missions, we are uniquely positioned to provide agencies with force-multiplying tools when money and human resources are limited.

Agencies can be better positioned to improve public safety, manage resources more effectively, and make an impact on their citizen's quality of life with limited capital expenditure.

Pressure on Government Budgets –With increasing needs for resources, government agencies need increasingly affordable, effective, and scalable solutions.

With subscription pricing and an intelligent infrastructure approach that accomplishes multiple agency missions, we are uniquely positioned to provide agencies with force-multiplying tools when money and human resources are limited.

Agencies are looking to improve public safety, manage resources more effectively, and make an impact on their citizen's quality of life with limited capital expenditure.

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.

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Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses.

Operating expenses also include depreciation, amortization, and impairment of assets.

Operating expenses also include impairment of assets.

General and Administrative

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Additional expenses include office leases, professional fees, and insurance.

We expect our general and administrative expenses to continue to remain high for the foreseeable future due to the costs associated with our growth and the costs of accounting, compliance, insurance, and investor relations as a public company.

We expect our general and administrative expenses to continue to remain high for the foreseeable future due to the costs associated with our growth and the costs of accounting, compliance, legal, insurance, and investor relations as a public company.

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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Depreciation and amortization

Goodwill impairment

Total operating expenses

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Interest expense, net

Other income (expense)

Total other income (expense)

Net loss from continuing operations

Comparison of the Three and Six Months Ended June 30, 2023 and the Three and Six Months Ended June 30, 2022

Loss before income taxes

Comparison of the Three and Nine Months Ended September 30, 2023 and the Three and Nine Months Ended September 30, 2022

Total Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

The increase in revenue for the three and six months ended June 30, 2023 , compared to the three and six months ended June 30, 2022, was primarily attributable to our acquisition of STS in June 2022.

During the three and six months ended June 30, 2023, revenue attributable to our acquisition of STS was $3,574,000 and $6,327,000, respectively.

The other main driver of revenue growth during the year was attributable to sales of the Company's software which increased for the 

three and six months ended June 30, 2023 , compared to the three and six months ended June 30, 2022, as a result of the Company's go to market strategy and its expanded customer base. 

The increase in revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily attributable to our acquisition of STS in June 2022.

During the nine months ended September 30, 2023, revenue attributable to STS was $10,740,000, compared to $3,990,000 for the nine months ended September 30, 2022.

The other main driver of revenue growth during three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022 was attributable to sales of the Company's software and its contactless compliance program which both increased in revenue. 

Cost of Revenue, Excluding Depreciation and Amortization

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

Cost of revenue, excluding depreciation and amortization

For the three and six months ended June 30, 2023 , 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 increase in revenue.

For the three and nine months ended September 30, 2023, 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 increase in revenue.

Operating Expenses

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Depreciation and amortization

Goodwill impairment

Total operating expenses

General and Administrative Expenses

The decrease in general and administrative expenses during the three months ended June 30, 2023 , compared to the three months ended June 30, 2022 , was primarily due to a $1,505,000 decrease in personnel costs which was primarily related to a decrease in bonus and share-based compensation expense and a $1,513,000 decrease in professional services which was primarily related to fees associated with our acquisition of STS in 2022. 

The decrease in general and administrative expenses during the six months ended June 30, 2023 , compared to the six months ended June 30, 2022 , was primarily due to 

a $2,590,000 decrease in personnel costs which was primarily related to a decrease in bonus and share-based compensation expense. 

The additional expenses related to our acquisition of STS in 2022 were more than offset by an overall decrease in personnel costs during the three and six months ended June 30, 2023.

General and administrative expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, remained consistent period over period.

The decrease in general and administrative expenses during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily due to 

a $3,458,000 decrease in personnel costs which was primarily related to a decrease in payroll and payroll related expenses, as well as share-based compensation expense.

This decrease was partially offset by a $429,000 increase in our insurance expenses. 

Selling and Marketing Expenses

The decrease in selling and marketing expenses during the three months ended June 30, 2023 , compared to the three months ended June 30, 2022 , 

was attributable mainly to personnel costs which was primarily related to a decrease in share-based compensation expense. 

Selling and marketing expenses during the six months ended June 30, 2023 , compared to the six months ended June 30, 2022 , remained consistent period over period. 

The decrease in selling and marketing expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, 

was primarily due to a $645,000 decrease in personnel costs which was primarily related to a decrease in payroll and payroll related expenses.  

The decrease in selling and marketing expenses during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily due to a $551,000 decrease in personnel costs which was primarily related to a decrease in payroll and payroll related expenses.

Additionally, there was a $267,000 decrease in advertising expenses.  

Research and Development Expense

Research and development expenses during the three months ended June 30, 2023, compared to the three months ended June 30, 2022 , remained consistent period over period.

The increase in research and development expenses during the six months ended June 30, 2023 , compared to the six months ended June 30, 2022 , 

was primarily attributable to development expenses as we completed and began production deployment of our count, class and speed application . 

For the six months ended June 30, 2023 , there was an increase in staffing to develop new products which led to a 

$923,000 increase in personnel costs. 

The decrease in research and development expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was primarily due to a $427,000 decrease in personnel costs which was primarily related to a decrease in payroll and payroll related expenses.

Research and development expenses during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, remained consistent period over period.

Goodwill Impairment

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

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

Depreciation and Amortization

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Other Income (Expense)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Interest expense, net

Other income (expense)

Total other income (expense)

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As part of the settlement, we recorded a reduction to notes payable, the related accrued interest and other assets and liabilities which were part of the Firestorm entities. 

Other income (expense) increased in the current period compared to the prior period as a result of a legal settlement. 

Non-GAAP Measures

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss from continuing operations

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Share-based compensation

Goodwill impairment

Gain on extinguishment of debt

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands, except percentages)

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Adjusted Gross Margin

Adjusted Gross Margin for the three and six months ended June 30, 2023 

increased compared to the three and six months ended June 30, 2022 . 

As Company continues to scale and standardize it product offerings it has begun to realize operational efficiencies that have resulted in an improved Adjusted Gross Margin. Additionally, during the  three and six months ended June 30, 2023 , the Company had a higher mix of software sales which typically carry a higher Adjusted Gross Margin. 

Adjusted Gross Margin for the three and nine months ended September 30, 2023 increased compared to the three and nine months ended September 30, 2022. As the Company continues to scale and standardize it product offerings it has begun to realize operational efficiencies that have resulted in an improved Adjusted Gross Margin. Additionally, during the three and nine months ended September 30, 2023, the Company had a higher mix of software sales which typically carry a higher Adjusted Gross Margin. 

Key Performance Indicators

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As part of the ongoing development of our  selling strategy, we have been focusing on sales that employ 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 recurring revenue model and revenue retention rates provide significant visibility into our future operating results and cash flow from operations.

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

The following table sets forth our recurring revenue for the periods included:

Three Months Ended June 30,

Six Months Ended June 30,

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 recurring revenue model and revenue retention rates provide significant visibility into our future operating results and cash flow from operations.

This visibility enables us to better manage and invest in our business. The following table sets forth our recurring revenue for the periods included:

Three Months Ended September 30,

Nine Months Ended September 30,

Recurring revenue

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The following table presents a summary of total contract value (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total Contract Value

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Performance Obligations

As of June 30, 2023 , we had approximately 

$31,774,000 of contracts that were closed prior to June 30, 2023 but have a contractual period beyond June 30, 2023 . This represents an increase of 

$10,362,000  or 

48% compared to 

$21,412,000 of performance obligations as of December 31, 2022. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term.

We currently expect to recognize approximately 

69% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.

As of September 30, 2023, we had approximately $30,203,000 of contracts that were closed prior to September 30, 2023 but have a contractual period beyond September 30, 2023. This represents an increase of $8,791,000 or 41% compared to $21,412,000 of performance obligations as of December 31, 2022. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term.

We currently expect to recognize approximately 73% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.

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

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Lease Obligations

June 30, 2023 , we had material leased building space at the following locations in the U.S.

As of September 30, 2023, we had material leased building space at the following locations in the U.S.

Columbia, Maryland – The corporate headquarters

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Liquidity and Capital Resources

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

Six Months Ended June 30,

The following table sets forth the components of our cash flows from continuing operations for the periods included (dollars in thousands):

Nine Months Ended September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

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

Net cash used in operating activities for the 

six months ended June 30, 2023 had a decrease of $3,893,000 , which was primarily attributable to the decrease of $4,268,000 in the loss from continuing operations. 

The net decrease in net cash used in investing activities of 

$8,877,000 was primarily due to a decrease in the outflow of funds used for capital expenditures.

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

Net cash provided by financing activities for the six months ended June 30, 2023  decreased by 

$45,000 from the prior 

six month period ended June 30, 2022 .

During the six months ended June 30, 2023 , as part of our 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,160,000, respectively.  In the prior comparable quarterly period, through our 2022 Sales Agreement, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $20,408,000.

For the three and six months ended June 30, 2023 and 2022 , we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity.

As of June 30, 2023 , we had cash and cash equivalents from continuing operations of 

$2,784,000 and a working capital deficit of $1,692,000 , as compared to cash and cash equivalents of 

$2,178,000 and a working capital deficit of 

$6,010,000 as of December 31, 2022 .

Net cash used in operating activities for the nine months ended September 30, 2023 had a decrease of $3,708,000, which was primarily attributable to the reductions in expenses from continuing operations. 

The net decrease in net cash used in investing activities of $11,093,000 was primarily due to a decrease in the outflow of funds used for capital expenditures.

Additionally, during the nine months ended September 30, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS.

Net cash provided by financing activities for the nine months ended September 30, 2023 increased by $8,543,000 from the prior nine month period ended September 30, 2022.

During the nine months ended September 30, 2023, as part of our 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,159,000, respectively.

Additionally, in the third quarter of 2023, we received gross proceeds of $10,996,000 related to the exercise of warrants associated to the 2023 Registered Direct Offering. In the prior comparable quarterly period, through our 2022 Sales Agreement, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $22,758,000.

For the three and nine months ended September 30, 2023 and 2022, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity.

As of September 30, 2023, we had cash and cash equivalents from continuing operations of $7,359,000 and working capital of $3,579,000, as compared to cash and cash equivalents of $2,178,000 and a working capital deficit of $6,010,000 as of December 31, 2022.

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

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

As of and for the six months ended June 30, 2023 , we had a working capital deficit from continuing operations of $1,692,000  and a loss from continuing operations of $23,795,000 .

Our cash increased by $316,000  for the six months ended June 30, 2023 primarily due to external financing which was offset by the loss from continuing operations of $23,795,000 . 

As described in NOTE 13 - SUBSEQUENT EVENTS to the financial statements included in Item 1 hereof, the Company received aggregate gross proceeds of approximately $10,997,000 as a result of a warrant exercise on July 25, 2023.

As of and for the nine months ended September 30, 2023, we had working capital from continuing operations of $3,579,000 and a loss from continuing operations of $34,361,000.

Our cash increased by $4,891,000 for the nine months ended September 30, 2023 primarily due to external financing which was offset by the loss from continuing operations of $34,361,000. 

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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.

As of June 30, 2023 , we did not have any material commitments for capital expenditures.

During the third quarter of 2023, the institutional investor connected to the 2023 Registered Direct Offering exercised 6,872,853 of the Registered Direct Warrants into an equal number of shares of the Company's common stock. The Company received gross proceeds from the exercise of the Registered Direct Warrants of approximately $10,996,000.

As of September 30, 2023, we did not have any material commitments for capital expenditures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

What changed 10-Q

Item 1. Financial Statements