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Item 9A. Controls and Procedures

2024-03-25 compared with 2023-03-29 · 53 added, 402 removed, 102 unchanged (82% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Based on management’s review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at December 31, 2022. 

Management ’

s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

An evaluation was carried out under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Based on management’s review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at December 31, 2023.

Management ’ s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S.

GAAP and includes those policies and procedures that:

(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

(ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations;

(ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP and that our receipts and expenditures are being made only in accordance with authorizations;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Under the supervision and with the participation with our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control—Integrated Framework (2013)”

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based upon this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2023.

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. 

Attestation Report of Registered Public Accounting Firm

6 unchanged sentences

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth our directors and executive officers.

Executive Officer

Chief Executive Officer and Executive Chairman of the Board

David Desharnais

President and Chief Operating Officer (January 2022)

Chief Financial Officer

Lead Director

Richard Nathan, Ph.

Berman, Chief Executive Officer and Director

Robert Berman has served as our Chief Executive Officer and a member of our Board of Directors since March 2016 and was appointed Executive Chairman of the Board of Directors in connection with the retirement of Mr.

James McCarthy from the Board on July 23, 2020.

Since January 2000, Mr.

Berman has served as the General Partner of Avon Road Partners, L.P., a limited partnership investing in real estate and the broadcast media industry.

From 2006 through March 2015, Mr.

Berman held the office of Chairman and Chief Executive Officer at Cinium Financial Services Corporation, a privately-held specialty finance company, and its predecessor, Upper Hudson Holdings, LLC.

Prior to Cinium, Mr.

Berman was Chief Executive Officer of Empire Resorts, Inc., a NASDAQ-listed gaming company, from 2002-2005.

Director Qualifications

Berman has extensive experience in the private equity and public company markets.

We believe his strong understanding of the financial markets and the M&A process, and his previous senior executive roles with public companies make him a qualified member of our Board of Directors and to serve as our Chief Executive Officer and Executive Chairman.

Richard Nathan, PhD, Director

Richard Nathan, Ph.D., has served on our Board of Directors since March 2016.

From April 2016 until his retirement in February 2018, Dr.

Nathan served as our Chief Operating Officer.

Prior to that, Dr.

Nathan was the Chief Executive Officer of AOC Key Solutions, where he worked for over 17 years.

Nathan has over 45 years of corporate management, program management and business and proposal development experience and experience managing service and technical contracts for federal departments and agencies and state governments.

Nathan holds a BS in Chemistry from the Massachusetts Institute of Technology and a PhD in Chemistry from the Polytechnic Institute of Brooklyn.

Director Qualifications

Nathan has a strong technical background and extensive experience in the government contracting area.

We believe this expertise, when combined with his entrepreneurial background having built strong operating companies, makes him a qualified member of our Board of Directors and the committees on which he participates.

Glenn Goord, Director

Glenn Goord has served on our Board of Directors since March 2016.

From 1996 until his retirement in 2006, Mr.

Goord served as Commissioner of the New York State Department of Correctional Services (“NYSDCS”), where he oversaw the state prison system.

Goord received the Carl Robison Award, the highest honor bestowed by the Middle Atlantic States Correctional Association, in 1997.

In 1998 he received the Charles Evans Hughes Award for public service from the Albany based Capital Area Chapter for the American Society for Public Administration (ASPA).

In 2002, ASPA awarded Mr.

Goord its highest honor, the Governor Alfred E.

Smith Award, for his direction of the NYSDCA’s efforts to aid New York City following the September 11, 2001 terrorist attack.

Goord holds a BA in Psychology from Fairleigh Dickinson University.

Director Qualifications

Goord has a strong background in government operations and procurement.

His insights into how government operates is a key skill for board decision making on Rekor strategy in certain industry segments.

We believe his management and operational experience makes him a qualified member of our Board of Directors and the committees on which he participates.

de Bary, Lead Director

de Bary has served on our Board of Directors since January 2017 and as Lead Director since November 2017.

As an attorney, financial advisor and investment banker, Mr.

de Bary has had extensive experience with financial markets, governmental operations and private businesses.

From 1996 to 2015, he was a managing director at Marquette de Bary Co., Inc., a New York based broker-dealer, where he served as a financial advisor for state and local government agencies, public and private corporations and non-profit organizations, as well as general counsel.

He previously served as a director of Empire Resorts, Inc.

NYNY) from 1996 to 2010, where he served as chairman of its audit committee as well as, at various times throughout his tenure as a director, a member of the governance and compensation committees and various special committees.

de Bary has also served as Chairman of the Board of Ethics of the Town of Greenwich, Connecticut since 2008.

de Bary is a member of the American Bar Association, the New York State Bar Association and the Association of the Bar of the City of New York.

de Bary holds a JD, an MBA and an A.B.

from Columbia University.

Director Qualifications

de Bary has a diverse background that includes experience as a lawyer, investment banker, corporate officer and member of several boards of directors, including those of public companies.

We believe these experiences, combined with his skills and knowledge related to public market decision-making and audit committee roles and responsibilities, makes him qualified member of our Board of Directors and the committees on which he participates.

Hanlon, Director

David Hanlon has served on our Board of Directors since November 2018.

Hanlon is a founding principal of Executive Hospitality Partners, a strategic and asset management firm.

Since 2008, he has served as Chief Executive Officer of Hanlon Investments which provides project development consulting services to casinos, hotels and resorts.

Hanlon has served as a member of Cornell University’s Industry Advisory Board, as well as on the Board of Directors of the Cornell Football Association and was elected to be a lifetime member of the Cornell University Administrative Advisory Board.

He was also an advisor to the Wharton Entrepreneurial Program.

Hanlon holds a B.S.

in Hotel Administration from Cornell, an MBA in Finance and an M.S.

in Accounting from the Wharton School at the University of Pennsylvania and graduated from the Advanced Management Program at the Harvard Business School.

Director Qualifications

Hanlon has extensive leadership and executive management experience and experience serving on public company boards of directors.

We believe his skills and experience make him a qualified member of our Board of Directors and the committees on which he participates.

Croxton, Director

Croxton is Managing Director of Rice, Voelker, LLC and has more than 30 years’

experience in investment and commercial banking.

During his career, Mr.

Croxton has been involved in financing and advisory transactions totaling more than $35 billion for a variety of public and private corporations.

He has previously served on the Board of Directors of Peninsula Gaming, LLC, and has held leadership roles with responsibilities related to investment, corporate, and international banking.

Croxton earned a B.S.

in Finance from Louisiana State University, and a Master of International Management from the American Graduate School of International Management (now Thunderbird School of Global Management), and holds FINRA Series 7, 24, 63, and 79 licenses.

Director Qualifications

Croxton has in-depth knowledge of the capital markets, as well as extensive background in financing and advisory of public corporations.

We believe his skills and experiences make him a qualified member of our Board of Directors and the committees on which he participates.

Executive Officers

Berman, Chief Executive Officer and Executive Chairman of the Board 

The biography for Robert A.

Berman is set forth above in the section entitled “Directors.”

David Desharnais, President

On January 3, 2022, we publicly announced the appointment of David Desharnais as our President.

Desharnais has over two decades of experience leading growth strategies for technology driven businesses from start-ups to multinational corporations and across multiple industries.

Desharnais most recently served as Executive Vice President, Chief Digital Product Officer and as a member of the board of directors for IDEMIA, where he was responsible for global strategy and teams across product management, engineering and application development, customer delivery and integration, cybersecurity, data and analytics, strategic alliances and digital labs.

Prior to IDEMIA, Mr.

Desharnais was an executive at Amazon, where he served as the General Manager of Worldwide Industries for Amazon Web Services (AWS).

Prior to Amazon, Mr.

Desharnais was an executive at American Express, where he served as Senior Vice President and General Manager for Digital and Commercial Platforms and Global Commercial Payments.

Desharnais graduated summa cum laude with a Bachelor of Science in electrical engineering technology from University of Calgary, and received a Master of Business Administration in strategy, finance, and marketing from the University of Washington, Michael G.

Foster School of Business.

Eyal Hen, Chief Financial Officer

Hen has served as our Chief Financial Officer since May of 2019.

He has more than 18 years’

experience as a global finance and business management executive in corporate environments, most recently with VAYA Pharma Inc.

and Ormat Technologies, Inc.

His expertise working as a finance executive in the public markets, where he oversaw financial reporting, compliance initiatives, investor communications, and financing, is instrumental as the Company continues its growth.

Hen holds a BA in Economics and Accounting from Ben Gurion University (Israel) and an MBA from the University of Phoenix.

Independence of Directors

Our Board is currently comprised of six members, five of whom are independent directors.

As of December 31, 2022, Robert A.

Berman is not an independent director. 

The Board, upon recommendation of the Governance Committee, unanimously determined that each of our five non-employee directors is “independent,”

as such term is defined in the Nasdaq Stock Market Rules (“Stock Market Rules”).

The definition of “independent director”

included in the Stock Market Rules includes a series of objective tests, such as that the director is not an employee of the Company, has not engaged in various types of specified business dealings with the Company, and does not have an affiliation with an organization that has had specified business dealings with the Company.

Consistent with the Company’s Corporate Governance Principles, the Board’s determination of independence is made in accordance with the Stock Market Rules, as the Board has not adopted supplemental independence standards.

As required by the Stock Market Rules, the Board also has made a subjective determination with respect to each director that such director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), even if the director otherwise satisfies the objective independence tests included in the definition of an “independent director”

included in the Stock Market Rules.

In determining that each individual who served as a member of the Board is independent, the Board considered that, in the ordinary course of business, transactions may occur between the Company and entities with which some of our directors are affiliated.

The Board unanimously determined that the relationships discussed in Item 13 below were not material.

No unusual discounts or terms were extended. 

There are no family relationships among any of our directors or executive officers.

Committees of the Board

Our Board has four standing committees:

Audit, Compensation, Governance and Nominations.

Each of the committees is solely comprised of and chaired by independent directors, each of whom the Board has affirmatively determined is independent pursuant to the Stock Market Rules.

Each of the committees operates pursuant to its charter.

The committee Charters are reviewed annually by the Governance Committee.

If appropriate, and in consultation with the chairs of the other committees, the Corporate Governance Committee proposes revisions to the charters.

The responsibilities of each committee are described in more detail below.

The charters for the four committees are available on the Company’s website at 

www.rekor.ai  by following the link to “Investors”

and then to “Corporate Governance.”

The Chair and members of each standing committee are summarized in the table below:

Audit Committee

Compensation Committee

Governance Committee

Nominations Committee

de Bary - (Independent)

Richard Nathan - (Independent)

Glenn Goord- (Independent)

David Hanlon - (Independent)

Croxton - (Independent)

Audit Committee

We have an Audit Committee comprised of directors who are “independent”

within the meaning of Nasdaq Rule 5605(b)(1).

The Audit Committee assists our Board in overseeing the financial reporting process and maintaining the integrity of our financial statements, and of our financial reporting processes and systems of internal audit controls, and our compliance with legal and regulatory requirements.

The Audit Committee is responsible for reviewing the qualifications, independence and performance of our independent registered public accounting firm and reviews our internal controls, financial management practices and investment functions and compliance with financial legal and regulatory requirements.

The Audit Committee is also responsible for performing risk and risk management assessments as well as preparing any report of the Audit Committee that may be required by the proxy rules of the SEC to be included in the Corporation’s annual proxy statement.

Our Board has identified and appointed Paul de Bary as its “audit committee financial expert,”

as defined by the SEC in Item 407 of Regulation S-K.

de Bary serves as the Chair of the Audit Committee, and is joined on the committee by Mr.

Croxton, and Mr.

Compensation Committee

We have a Compensation Committee comprised of members who are “Non-Employee Directors”

within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “outside directors”

within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

They are also “independent”

directors within the meaning of NASDAQ Rule 5605(b)(1).

The Compensation Committee is responsible for overseeing the establishment and maintenance of our overall compensation and incentive programs to discharge the Board’s responsibilities relating to compensation of our executive officers and directors, including establishing criteria for evaluating performance and setting appropriate levels of compensation, and to produce an annual report on executive compensation for inclusion in the Corporation’s proxy statement in accordance with the rules and regulations of the SEC.

The Compensation Committee advises and makes recommendations to our Board on all matters concerning director compensation.

Goord serves as Chair of the Compensation Committee and is joined by Mr.

Governance Committee

Our Board has a Governance Committee that (1) reviews and recommends improvements to our governance guidelines and corporate policies;

(2) monitors compliance with our Code of Conduct;

(3) evaluates and makes recommendations concerning changes in the charters of the various Committees of the Board of Directors, and (4) such other matters as may be required to ensure compliance with applicable federal and state laws or the requirements of any exchange on which the Company maintains a listing for its securities.

The committee is required to be comprised of entirely “independent”

directors within the meaning of NASDAQ Rule 5605(b)(1).

Nathan currently serves as the Chair of the Governance Committee and is joined on the committee by Mr.

Goord and Mr.

Nominations Committee

Our Nominations Committee that ensures proper performance of people and practices of the Company by (1) recommending new members of the Board;

(2) training new members of the Board;

(3) reviewing the performance of the Board and its various committees and making recommendations intended to improve that performance, (4) evaluating and making recommendations to the Governance Committee as to changes in the charters of the various committees of the Board, (5) evaluating the performance of the Chief Executive Officer, (6) overseeing the development and implementation of succession planning for senior management positions;

and (7) identifying and recommending candidates for membership of the Board committees.

Hanlon currently serves as the Chair of the Nominations Committee and is joined on the committee by Mr.

Goord and Mr.

Compensation of Rekor Directors

The following table provides the total compensation for each person who served as a non-employee member of our Board of Directors during fiscal year 2022, including all compensation awarded to, earned by or paid to each person who served as a non-employee director for some portion or all of fiscal year 2022: 

Fees earned or paid in cash

Restricted stock awards

($) (1)(2)(3)

Richard Nathan, Ph.

The amount shown reflects the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification 718.

Amount represents the fair value of the issuances of 45,832 restricted stock units issued on January 20, 2022.

Shares will vest on March 15, 2023, for all directors who have remained independent directors as of the end of the calendar year in which the grant was made. 

Beginning in 2021, the number of RSU’s that will be granted to the independent directors as a group each January will be determined by taking one third of one percent of the preceding November’s average daily market capitalization as reported by NASDAQ, divided by the closing share price on the day preceding the grant.

The number of shares granted to each independent director will be determined by dividing the total number of units so determined by the number of independent directors as of the date of the grant.

For the year ended December 31, 2022 our non-employee directors are compensated for their services as follows:

Board Meeting Fee

Committee Meeting Fee

Audit Committee Chair

Compensation Committee Chair

Governance Committee Chair

Nominations Committee Chair

Special Committee

Lead Director

(1) Payments are made on a quarterly basis.

Directors who are officers or employees of Rekor or its subsidiaries do not receive any compensation for service on our Board, but employee directors will be reimbursed for expenses incurred in attending meetings of our Board or any committees thereof. 

Code of Conduct

We have adopted a Code of Conduct, which serves as our Code of Ethics, which applies to all of our employees, including our Chief Executive Officer and our Chief Financial Officer.

Our Code of Conduct is available on our website at 

www.rekor.ai.

 If we amend or grant a waiver of one or more of the provisions of our Code of Conduct, we intend to satisfy the requirements under Item 5.05 of Item 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Conduct that apply to our Principal Executive and Principal Financial Officer by posting the required information on our website at the above address.

Our website is not part of this Annual Report on Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers, and shareholders who own more than 10% of the Company’s stock to file forms with the SEC to report their ownership of the Company’s stock and any changes in ownership.

The Company assists its directors and executives by identifying reportable transactions of which it is aware and preparing and filing the forms on their behalf.

All persons required to file forms with the SEC must also send copies of the forms to the Company.

We have reviewed all forms provided to us.

Based on that review and written information given to us by our executive officers and directors, we believe that all Section 16(a) filings during the past fiscal year were filed on a timely basis. 

Executive Officers and Directors

The information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with our 2023 annual meeting of stockholders, or the Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2023, under the captions "Information about the Board of Directors and Committees," "Election of Directors" and "Executive Officers" and is incorporated in this report by reference.

Code of Ethics

We have adopted a Code of Conduct, which serves as our Code of Ethics, which applies to all of our employees, including our executive officers.

Our Code of Conduct is available on our website at www.rekor.ai.

Our website is not part of this Proxy Statement.

EXECUTIVE COMPENSATION

This section discusses material components of our 2022 compensation program for our named executive officers identified in the 2022 Summary Compensation Table below.

2022 Summary Compensation Table

Name/Capacities in which compensation was received

Equity incentive awards

All other compensation (3)

Robert Berman

Chief Executive Officer

Chief Financial Officer

David Desharnais

President Chief Operating Officer

In 2021, we increased Mr.

Berman’s base salary from $495,000 to $695,000 per year effective April 1, 2021.

Amount represents the fair value of the issuance of 53,220 restricted stock units to Mr.

Berman on March 17, 2021.

Amount represents 401(k) matching and health insurance contributions.

In 2021, we increased Mr.

Hen’s base salary from $375,000 to $405,000 per year effective January 3, 2021.

Additionally, in 2021, we increased Mr.

Hen's base salary from $405,000 to $445,000 per year effective December 20, 2021. 

Amount represents the fair value of the issuance of 40,000 restricted stock units to Mr.

Hen on March 15, 2022.

Amount represents the fair value of the issuance of 10,000 restricted stock units to Mr.

Hen on March 17, 2021.

Desharnais has served as the Company's President since January 17, 2022 and Chief Operating Officer since September 30, 2022. 

Amount represents a bonus that was guaranteed to Mr.

Desharnais as part of his employment agreement date December 10, 2021. 

Amount represents the fair value of the issuance of 375,000 restricted stock units to Mr.

Desharnais on January 17, 2022.

Narrative Disclosure to Summary Compensation Table

The primary components of our compensation program for named executive officers include salary, cash incentive compensation and equity incentive awards.

We pay our executive officers a base salary as the fixed component of our compensation program for named executive officers.

Equity Incentive Awards

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

The purpose of the 2017 Plan is to promote the interests of Rekor (including its subsidiaries and affiliates, if any) and its stockholders by using equity interests in Rekor to attract, retain and motivate its management, nonemployee directors and other eligible persons and to encourage and reward their contributions to our performance and profitability.

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

The 2017 Plan reserved 3,000,000 shares of our common stock for future grants from time to time under awards administered by our Board of Directors. In 2021, the Company filed a registration statement on Form S-8 solely to register an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan.

This increase was approved by the Company’s Board of Directors on May 7, 2021, and by the Company’s stockholders on September 14, 2021 at the Company’s annual meeting.

Rekor has also designed the 2017 Plan to include a number of provisions that Rekor’s management believes promote best practices by reinforcing the alignment of equity compensation arrangements for non-employee directors, officers, employees, consultants and stockholders' interests.

These provisions include, but are not limited to, the following:

No Discounted Awards .

Awards that have an exercise price cannot be granted with an exercise price less than the fair market value on the grant date.

No Repricing Without Stockholder Approval .

Rekor cannot, without stockholder approval, reduce the exercise price of an award (except for adjustments in connection with a Rekor recapitalization), and at any time when the exercise price of an award is above the market value of Rekor common stock, Rekor cannot, without stockholder approval, cancel and re-grant or exchange such award for cash, other awards or a new award at a lower (or no) exercise price.

No Evergreen Provision .

There is no evergreen feature under which the shares of common stock authorized for issuance under the 2017 Plan can be automatically replenished.

No Automatic Grants .

The 2017 Plan does not provide for “reload”

or other automatic grants to recipients.

No Transferability.

Awards generally may not be transferred, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, unless approved by the Administrator.

No Tax Gross-Ups.

The 2017 Plan does not provide for any tax gross-ups.

No Liberal Change-in-Control Definition.

The change-in-control definition contained in the 2017 Plan is not a “liberal”

definition that would be activated on mere stockholder approval of a transaction.

“Double-trigger ”

Change in Control Vesting.

If awards granted under the 2017 Plan are assumed by a successor in connection with a change in control of Rekor, such awards will not automatically vest and payout solely as a result of the change in control, unless otherwise expressly set forth in an award agreement.

No Dividends on Unearned Performance Awards . The 2017 Plan prohibits the current payment of dividends or dividend equivalent rights on unearned performance-based awards.

Limitation on Amendments.

 No amendments to the 2017 Plan may be made without stockholder approval if any such amendment would materially increase the number of shares reserved or the per-participant award limitations under the 2017 Plan, diminish the prohibitions on repricing stock options or stock appreciation rights, or otherwise constitute a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of the principal exchange on which Rekor’s shares are traded.

Awards based on the satisfaction of financial metrics that are subsequently reversed, due to a financial statement restatement or reclassification, are subject to forfeiture.

When making an award under the 2017 Plan, the Administrator may designate the award as “qualified performance-based compensation,”

which means that performance criteria must be satisfied in order for an employee to be paid the award.

Qualified performance-based compensation may be made in the form of restricted common stock, restricted stock units, common stock options, performance shares, performance units or other stock equivalents.

The 2017 Plan includes the performance criteria the Administrator has adopted, subject to stockholder approval, for a “qualified performance-based compensation”

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awards held by our named executive officers at December 31, 2022.

Option Awards (3)

Restricted Stock Awards(3)

Number of Securities Underlying Unexercised Option - Exercisable

Number of Securities Underlying Unexercised Options - Unexercisable

Option Exercise Price

Option Expiration Date

Number of Shares that Have Not Vested

Market Value of Shares of Stock that Have not Vested (2)

Robert Berman

Chief Executive Officer

Chief Financial Officer

David Desharnais

President Chief Operating Officer

The options and awards vest in equal annual installments over three years.

Represents the market value of the restricted stock award or restricted stock unit based on the closing price of our common stock of $1.20 per share on December 31, 2022.

All of the options and restricted stock unit awards listed in the table were granted under our 2017 Equity Award Plan.

Employment Agreements and Potential Payments Upon Termination or Change in Control

We entered into written employment offer letters with each of our Named Executive Officers in connection with their initial employment with us.

Some of these employment offer letters were superseded and replaced in their entirety by amended and restated employment agreements which were entered into and effective as of May 2019.

Potential Payments Upon Termination or Change in Control 

In the event of a “Change of Control”, as defined in the Employment Agreement, whether during the initial term or thereafter, we shall have the right to terminate the Named Executive Officers Employment Agreement.

The Named Officer Executive is eligible to receive two times his base salary then in effect if his employment with the Company is terminated within 120 days of a change in control.

The Named Executive Officers also agreed as consideration for entering into the Employment Agreements, that for the period during his employment and for twelve months thereafter, (i) he will not compete with the Company in the “Geographic Area”, as defined in the Employment Agreement, and (ii) he will not solicit any of our existing employees, suppliers or customers.

Securities authorized for issuance under equity compensation plans

The following table provides information about our equity compensation plans as of December 31, 2022.

Equity Compensation Plan Information

Number of securities to be issued upon exercise of outstanding options and restricted stock units

Weighted-average exercise price of outstanding options and restricted stock units

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders

The information required by this item will be set forth in the Proxy Statement under the captions "Executive Compensation," "Pay Versus Performance" and "Compensation of Rekor Directors" and is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 24, 2023, information concerning the beneficial ownership of our common stock by, each person or group of persons known to beneficially own more than 5% of the outstanding shares of our common stock, each person who is our executive officer or director, and all such executive officers and directors as a group.

Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC.

Under these rules, beneficial ownership generally includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of March 24, 2023, through the exercise of any option, warrant, conversion privilege or similar right.

In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of outstanding options and warrants that are exercisable within 60 days of March 24, 2023, are considered to be outstanding.

These shares, however, are not considered outstanding when computing the percentage ownership of any other person.

To our knowledge, except as indicated in the footnotes to the following table, all beneficial owners named in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

The percentage of ownership is based on 55,020,612 shares of common stock outstanding as of March 24, 2023.

Shares Beneficially Owned

Name and address of beneficial owner (1)

Number of Shares beneficially owned (2)

Percent of class

Directors and Named Executive Officers

Richard Nathan

Steven Croxton

David Desharnais

All directors and named executive officers as a group (11 persons)

5% or Greater Shareholders

Arctis Global, LLC

Goldman Sachs Group Inc

BlackRock, Inc.

* Less than 1%

 Unless otherwise indicated, the address of those listed is c/o Rekor Systems, Inc., 6721 Columbia Gateway Drive, Suite 400, Columbia, MD 21046.

Unless otherwise indicated, all shares are owned directly by the beneficial owner.

Based on 55,020,612 shares of our common stock issued and outstanding as of the March 24, 2023.

Berman may be deemed to be the beneficial owner of 4,265,323 shares of Rekor Systems, Inc.

common stock, or 6.5% of the class of securities, consisting of options to purchase 100,000 shares of our common stock exercisable within 60 days of March 24, 2023, warrants to purchase up to 1,000,000 shares of common stock that are exercisable within 60 days of March 24, 2023, 1,000,219 shares of our common stock, and, as the general partner and manager of Avon Road Partners, L.P., he may be deemed to share with Avon Road (and not with any third-party) the power to vote or direct the vote of and to dispose or direct the disposition of the 2,165,104 shares of Rekor Systems, Inc.

common stock beneficially owned by Avon Road based on the Schedule 13D/A Amendment No.

7 filed with the SEC by Avon Road and Mr.

Berman on November 19, 2021.

Consists of 1,680,271 shares of our common stock and an Unit Warrant to purchase 4,849 shares of our common stock exercisable within 60 days of March 24, 2023.

Consists of options to purchase 108,499 shares of our common stock exercisable within 60 days of March 24, 2023, and 84,502 shares of our common stock.

Consists of options to purchase 70,999 shares of our common stock exercisable within 60 days of March 24, 2023, and 160,502 shares of our common stock.

Consists of options to purchase 70,999 shares of our common stock exercisable within 60 days of March 24, 2023, and 64,502 shares of our common stock.

Consists of options to purchase 48,499 shares of our common stock exercisable within 60 days of March 24, 2023, and 64,502 shares of our common stock.

Consists of options to purchase 50,000 shares of our common stock exercisable within 60 days of March 24, 2023, and 68,638 shares of our common stock.

Consists of 84,516 shares of our common stock.

Based on the Schedule 13G/A Amendment No.1 filed with the Securities and Exchange Commission on February 14, 2023, reporting beneficial ownership of 6,089,591 shares of Rekor Systems, Inc.

common stock, reporting beneficial ownership of 10.51%.

In addition the shares filed with Schedule 13 G/A Amendment No.1, as part of the Securities Purchase Agreement this beneficial owner received warrants to purchase up to 3,250,000 shares of common stock that are exercisable within 60 days of March 24, 2023.

The address of the reporting person is 07 Calle Del Parque, 7th Floor, San Juan, Puerto Rico, 00912-3242.

Based on the Schedule 13G/A Amendment 1 filed with the Securities and Exchange Commission on February 8, 2023, reporting indirect ownership of 2,767,852 shares of Rekor Systems, Inc.

common stock, representing a beneficial ownership of 5.1%.

The address of the reporting person is 200 West Street, New York, New York 10282.

Based on the Schedule 13G filed with the Securities and Exchange Commission on May 9, 2022, reporting indirect ownership of 2,236,436 shares of Rekor Systems, Inc.

common stock, representing a beneficial ownership of 5.0%.

The address of the reporting person is 55 East 52nd Street New York, NY 10055.

ITEM 13 . 

The information required by this item will be set forth in the Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Governance Committee has responsibility for reviewing and, if appropriate, for approving any related party transactions that would be required to be disclosed pursuant to applicable SEC rules.

Described below are any transactions since January 1, 2021 through December 31, 2022 and any currently proposed or subsequent transactions to which the Company was a party in which:

The amounts involved exceeded or will exceed the lower of either $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years;

A director, executive officer, holder of more than 5% of the outstanding capital stock of the Company, or any member of such person’s immediate family had or will have a direct or indirect material interest.

Review and Approval, or Ratification of Transactions with Related Parties

Prior to adoption of the Company’s Code of Conduct in August 2017, we had no formal, written policy or procedure for the review and approval of related-party transactions.

The Code of Conduct requires all Company personnel to seek review of and obtain approval or ratification of any Company transaction which involves them or certain family members or businesses they have economic interests in.

The Charter of our Governance Committee also requires that any transaction with a related person that must be reported under applicable rules of the SEC must be reviewed and either approved, disapproved or ratified by our Governance Committee.

In February 2020, to further implement these requirements, the Board of Directors adopted a Conflict of Interest and Related Parties Transaction Policy upon the recommendation of the Governance Committee.

In the case of all directors and senior officers, this policy requires review and approval of such transactions to be obtained from the Governance Committee.

Each of the transactions described below was approved by the Board of Directors after review and recommendation by the Governance Committee, which consists entirely of officers and directors without any personal, business or family interest in the transactions described:

2022 Promissory Notes 

On December 20, 2022, the Company entered into a Promissory Note Agreement (the “2022 Notes”) with (i) Robert A.

Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 10.3% holder of Common Stock of the Company based on its Schedule 13G filed with the Securities and Exchange Commission on May 20, 2022 (the “2022 Lenders”), pursuant to which the 2022 Lenders loaned $1,000,000 to the Company. The Company has determined that it has a material relationship with the 2022 Lenders.

The 2022 Notes have a maturity date of March 20, 2023, at which time all remaining outstanding principal and accrued but unpaid interest will be due, however, the aggregate unpaid principal amount under 2022 Notes shall be exchangeable for an equal principal amount of secured notes to be issued by the 2022 Lenders pursuant to that certain term sheet dated December 20, 2022 (the “Secured Notes Transaction”) together with any accrued and unpaid interest on this 2022 Notes, in which case the 2022 Notes shall be cancelled with no further force and effect as of the effective date of the Secured Notes Transaction. The 2022 Notes bear an interest rate of 12% per annum.

The information required by this item will be set forth in the Proxy Statement under the captions "Certain Relationships and Related Transactions and Director Independence" and is incorporated herein by reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees for services performed by Marcum LLP ("Marcum") and Friedman LLP ("Friedman"), prior to the acquisition of certain assets of Friedman by Marcum effective September 1, 2022, for the years ended December 31, 2022 and 2021 were:

Year ended December 31,

(Dollars in thousands)

The Company was notified that certain assets of Friedman, the Company’s independent registered public accounting firm, were acquired by Marcum effective September 1, 2022.

On September 13, 2022, the Audit Committee of the Board approved the dismissal of Friedman and the engagement of Marcum to serve as the independent registered public accounting firm of the Company.

As of September 1, 2022, the services previously provided by Friedman are provided by Marcum.

Approximately $219,000 of the total fees for audit services during the year ended December 31, 2022 were for services provided by Marcum.

The Audit Committee reviews and pre-approves both audit and all permissible non-audit services provided by our independent registered public accounting firm.

The Audit Committee has considered whether the provision of services, other than services rendered in connection with the audit of our annual financial statements, is compatible with maintaining Marcum’s independence.  

Audit Fees for 2022 and 2021 include fees associated with the audits of the annual financial statements and the quarterly reviews of the unaudited interim financial statements included in the Company’s Annual and Quarterly Reports on Form 10-K and 10-Q, respectively. 

The information required by this item will be set forth in the Proxy Statement under the caption "Ratification of the Appointment of Independent Registered Public Accounting Firm" and is incorporated herein by reference.

EXHIBITS, FINANCIAL STATEMENTS SCHEDULES

(a)   

(1) List Financial Statements

(a) (1) List Financial Statements

See Index to Financial Statements in Part II, Item 8 of this annual report.

(2) List of Financial Statements Schedules

All applicable schedule information is included in our Financial Statements in Part II, Item 8 of this annual report. 

(b) Exhibits Index.

We hereby file, as exhibits to this Annual Report, those exhibits listed on the Exhibit Index immediately following the signature page hereto.

Incorporated  

Incorporated by Reference

Exhibit Number

Exhibit  

Exhibit Description

FurnishedHerewith

4 unchanged sentences

as filed with the Secretary of State of Delaware on April 30, 2019

Second Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Rekor Systems, Inc., dated March 18, 2020 

Amended and Restated Bylaws of Rekor Systems, Inc.

17 unchanged sentences

Form of Placement Agent Common Stock Purchase Warrant (March 2023)

2017 Equity Award Plan of Novume Solutions, Inc. (as amended and restated as of September 14, 2021)

Form of Common Stock Purchase Warrant (July 2023)

Form Series A Prime Revenue Sharing Notes

Indenture (Series A Prime Revenue Sharing Notes)

First Supplemental Indenture (Series A Prime Revenue Sharing Notes)

Second Supplemental Indenture (Series A Prime Revenue Sharing Notes)

2017 Equity Award Plan of Novume Solutions, Inc.

(as amended and restated as of September 14, 2021)

Assignment and Assumption Agreement, dated as of October 1, 2017, by and between KeyStone Solutions LLC and Novume Solutions, Inc.

5 unchanged sentences

Employment Agreement with Robert Berman effective May 15, 2019

Employment Agreement with David Desharnais dated as of December 10, 2021

Employment Agreement with David Desharnais dated as of December 10, 2021

Form of Rekor Systems, Inc.

1 unchanged sentence

First Amendment to Note Purchase Agreement, dated March 26, 2020, by and among the Company, the Purchasers from time to time party thereto and the Agent.

3/26/20 

Limited Waiver, dated as of March 26, 2020, by and among the Company and the undersigned Purchasers. 

3/26/20 

Limited Waiver, dated as of March 26, 2020, by and among the Company and the undersigned Purchasers.

Share Purchase Agreement, dated August 6, 2021, by and among Rekor Systems Inc., Waycare Technologies Ltd., the sellers named therein, and Shareholder Representative Services LLC, solely in its capacity as representative of the sellers.

1 unchanged sentence

Form of Securities Purchase Agreement (March 2023)

Form of Inducement Offer to Exercise Common Stock Purchase Warrants

Form of Subscription Agreement (Series A Prime Revenue Sharing Notes)

Interest Purchase Agreement, dated January 2, 2024, by and Among Rekor Systems, Inc., All Traffic Data Services, LLC and All Traffic Holdings

Underwriting Agreement, dated as of February 7, 2024, by and between Rekor Systems, Inc.

and William Blair & Company, L.L.C., as representative of the several underwriters named therein

Subsidiaries of Rekor Systems, Inc.

Consent of Marcum LLP., Independent Registered Public Accounting Firm

Consent of Friedman LLP., Independent Registered Public Accounting Firm

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

2 unchanged sentences

Section 1350 Certification of Chief Financial Officer

Clawback Policy

Inline XBRL Instance Document

25 unchanged sentences

March 25, 2024

/s/ Richard Nathan

Richard Nathan

March 29, 2023

/s/ Glenn Goord

6 unchanged sentences

March 25, 2024

/s/ Sanjay Sarma

March 25, 2024

/s/ Tim Davenport

Tim Davenport

March 25, 2024

/s/ Drew Meyers

March 25, 2024

/s/ Anne Townsend

Anne Townsend

March 25, 2024

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

What changed 10-K

Item 9A. Controls and Procedures