What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 439 added, 216 removed, 851 unchanged (43% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

March 31, 2024

(Dollars in thousands, except share and per share amounts)

June 30, 2024

December 31, 2023

2 unchanged sentences

$ 3,089 $ 15,385

Restricted cash and cash equivalents

Restricted cash

Accounts receivable, net

23 unchanged sentences

Contract liabilities

Liability for ATD Holdback Shares

Other current liabilities

20 unchanged sentences

Stockholders' equity

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 March 31, 2024 and December 31, 2023, respectively.

No preferred stock was issued or outstanding as of March 31, 2024 or December 31, 2023, respectively.

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, 2024 and December 31, 2023, respectively.

No preferred stock was issued or outstanding as of June 30, 2024 or December 31, 2023, respectively.

Common stock, $ 0.0001 par value;

300,000,000 shares;

85,479,571 shares as of March 31, 2024 and 69,273,334 as of December 31, 2023;

85,324,918 shares as of March 31, 2024 and 69,176,826 as of December 31, 2023.

Treasury stock, 154,653 and 96,508 shares as of March 31, 2024 and December 31, 2023, respectively.

86,371,359 shares as of June 30, 2024 and 69,273,334 as of December 31, 2023;

86,216,706 shares as of June 30, 2024 and 69,176,826 as of December 31, 2023.

Treasury stock, 154,653 and 96,508 shares as of June 30, 2024 and December 31, 2023, respectively.

( 702 ) ( 522 )

11 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share amounts)

Three Months Ended March 31,

(Dollars in thousands, except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

$ 12,427 $ 8,563 $ 22,205 $ 14,748

Cost of revenue, excluding depreciation and amortization

5,776 4,131 11,061 6,999

Operating expenses:

General and administrative expenses

7,370 5,873 15,032 13,078

Selling and marketing expenses

2,021 2,053 4,435 3,943

Research and development expenses

4,991 4,783 9,992 9,740

Depreciation and amortization

2,344 2,003 4,676 3,954

Total operating expenses

16,726 14,712 34,135 30,715

Loss from operations

( 10,075 ) ( 10,280 ) ( 22,991 ) ( 22,966 )

Other income (expense):

(Loss) gain on extinguishment of debt

- - ( 4,693 ) 527

Interest expense, net

( 544 ) ( 908 ) ( 1,598 ) ( 1,668 )

Gain on remeasurement of ATD Holdback Shares

79 75 128 312

Total other income (expense)

280 ( 833 ) ( 5,418 ) ( 829 )

$ ( 9,795 ) $ ( 11,113 ) $ ( 28,409 ) $ ( 23,795 )

Loss per common share

$ ( 0.12 ) $ ( 0.18 ) $ ( 0.35 ) $ ( 0.41 )

Weighted average shares outstanding

Basic and diluted

84,932,611 61,816,279 81,929,347 58,353,534

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

9 unchanged sentences

Total Stockholders' Equity

Balance as of March 31, 2024

84,660,589 $ 8 154,653 $ ( 702 ) $ 270,864 $ ( 217,297 ) $ 52,873

Stock-based compensation

- - - - 1,115 - 1,115

Issuance upon exercise of stock options

3,500 - - - 3 - 3

Issuance upon vesting of restricted stock units

152,617 - - - - - -

Issuance upon exercise of 2023 Warrants

1,400,000 1 - - 1,959 - 1,960

- - - - - ( 9,795 ) ( 9,795 )

Balance as of June 30, 2024

86,216,706 $ 9 154,653 $ ( 702 ) $ 273,941 $ ( 227,092 ) $ 46,156

Balance as of March 31, 2023

61,030,637 $ 6 91,491 $ ( 506 ) $ 218,157 $ ( 165,680 ) 51,977

Stock-based compensation

- - - - 1,044 - 1,044

Issuance upon exercise of stock options

18,000 - - - 16 - 16

Issuance upon vesting of restricted stock units

130,721 - - - - - -

Issuance of common stock upon exercise of pre-funded warrants

772,853 - - - 1 - 1

- - - - - ( 11,113 ) ( 11,113 )

Balance as of June 30, 2023

61,952,211 $ 6 91,491 $ ( 506 ) $ 219,218 $ ( 176,793 ) $ 41,925

Balance as of January 1, 2024

69,176,826 $ 7 96,508 $ ( 522 ) $ 232,568 $ ( 198,683 ) $ 33,370

Stock-based compensation

- - - - 2,282 - 2,282

Issuance upon exercise of stock options

3,500 - - - 3 - 3

Issuance upon vesting of restricted stock units

612,390 - - - - - -

Shares withheld upon vesting of restricted stock units

( 58,145 ) - 58,145 ( 180 ) - - ( 180 )

Shares issued as part of the ATD Acquisition

2,832,135 - - - 8,893 - 8,893

Retirement of the 2023 Promissory Notes

750,000 - - - 1,875 - 1,875

2024 Public Offering

Balance as of March 31, 2024

11,500,000 1 - - 26,361 - 26,362

Issuance upon exercise of 2023 Warrants

1,400,000 1 - - 1,959 - 1,960

- - - - - ( 28,409 ) ( 28,409 )

Balance as of June 30, 2024

86,216,706 $ 9 154,653 $ ( 702 ) $ 273,941 $ ( 227,092 ) $ 46,156

Balance as of January 1, 2023

54,405,080 $ 5 41,522 $ ( 417 ) $ 202,747 $ ( 152,998 ) $ 49,337

Stock-based compensation

- - - - 2,156 - 2,156

Issuance upon exercise of stock options

36,333 - - - 31 - 31

Issuance upon vesting of restricted stock units

687,914 - - - - - -

Fair value allocated to warrants with 2023 Promissory Notes

- - - - 5,125 - 5,125

Shares withheld upon vesting of restricted stock units

( 49,969 ) - 49,969 ( 89 ) - - ( 89 )

Issuance of common stock and warrants

Balance as of March 31, 2023

6,100,000 1 - - 9,158 - 9,159

Issuance of common stock upon exercise of pre-funded warrants

772,853 - - - 1 - 1

- - - - - ( 23,795 ) ( 23,795 )

Balance as of June 30, 2023

61,952,211 $ 6 91,491 $ ( 506 ) $ 219,218 $ ( 176,793 ) $ 41,925

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

3 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

$ ( 28,409 ) $ ( 23,795 )

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

Bad debt expense

Amortization of right-of-use lease asset

Amortization of right-of-use financing lease asset

Non-cash operating lease expense

2 unchanged sentences

Amortization of intangible assets

Loss due to the remeasurement of the STS Contingent Consideration

Impairment of SAFE Agreement

Loss due to the remeasurement of the STS Earnout and Contingent Consideration

Gain on remeasurement of ATD Holdback Shares

Loss on the sale of property and equipment

Loss (gain) on extinguishment of debt

4,693 ( 527 )

Changes in operating assets and liabilities:

Accounts receivable

( 1,191 ) ( 2,508 )

302 ( 1,064 )

Other current assets

1 unchanged sentence

Contract liabilities

Operating lease liability

( 111 ) 1,074

Lease liability

( 540 ) ( 718 )

Net cash used in operating activities - continuing operations

Net cash provided by operating activities - discontinued operations

( 17,926 ) ( 19,200 )

Net cash used in operating activities - discontinued operations

Net cash used in operating activities

( 17,926 ) ( 19,649 )

Cash Flows from Investing Activities:

Capital expenditures

( 512 ) ( 490 )

Proceeds from the sale of property and equipment

Cash paid for ATD acquisition, net

Net cash used in investing activities

( 9,707 ) ( 476 )

Cash Flows from Financing Activities:

Proceeds from the public offering

Repayment of 2023 Promissory Notes

Net proceeds 2022 Promissory Notes - related party, exchanged for 2023 Promissory Notes - related party

2 unchanged sentences

Net proceeds 2023 Registered Direct Offering

Net proceeds from the exercise of the pre-funded warrants

Proceeds from notes receivable

Net proceeds from exercise of options

Payments related to financing leases

Net proceeds from exercise of warrants

Repayments of loans payable

( 37 ) ( 54 )

Payments for financing leases

( 441 ) ( 277 )

Repurchases of common stock

( 180 ) ( 89 )

Repayment of 2023 Promissory Notes

Net cash provided by financing activities

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

Net increase in cash, cash equivalents and restricted cash and cash equivalents - discontinued operations

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

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

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

15,337 20,441

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

( 12,296 ) 765

Net decrease in cash, cash equivalents and restricted cash - discontinued operations

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

( 12,296 ) 316

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

$ 3,417 $ 2,784

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents at end of period - continuing operations

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

Cash and cash equivalents at end of period - discontinued operations

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

Cash and cash equivalents at end of period

$ 3,089 $ 2,438

Restricted cash at end of period

Cash, cash equivalents and restricted cash at end of period

$ 3,417 $ 2,784

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

9 unchanged sentences

("STS") and All Traffic Data Services, LLC ("ATD") (collectively, the “Company”).

The Company serves the roadway intelligence sector, developing product and services intended to revolutionize public safety, urban mobility, and transportation management on a global scale.

The Company serves the roadway intelligence sector, developing products and services to be used in advancing public safety, urban mobility, and transportation management.

The Company's vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities.

The Company works towards this vision by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

The Company works towards this vision by collecting, connecting, and organizing mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

On January 2, 2024 , the Company completed the acquisition of ATD by acquiring 100 % of the issued and outstanding capital stock of ATD, which is now a wholly-owned subsidiary of the Company.

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 March 31, 2024 , 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 months ended March 31, 2024 and 2023 .

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

The results for the three months ended March 31, 2024 , are not necessarily indicative of the results to be expected for the year ending December 31, 2024 .

The results for the three and six months ended June 30, 2024 , are not necessarily indicative of the results to be expected for the year ending December 31, 2024 .

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, 2023 .

The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S.

Dollar amounts, except per share data, in the notes to these unaudited condensed consolidated financial statements are rounded to the closest $1,000.

Dollar amounts, except per share data, in the notes to these unaudited condensed consolidated financial statements are rounded to the nearest $1,000.

Correction of Previously Issued (Unaudited) Interim Financial Statements

While undergoing a review of its unaudited condensed consolidated interim financial statements, the Company determined it had incorrectly classified the ATD Holdback Shares issued in connection with the acquisition of ATD as equity classified instead of liability classified.

This impacted previously reported amounts for goodwill, current liabilities and additional paid in capital, among other line items in the unaudited condensed consolidated interim financial statements as of and for the three months ended March 31, 2024.

In accordance with Staff Accounting Bulletin (“SAB”) No.

99, “Materiality,” and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the adjustment detailed above, and determined the related impact did not materially misstate its unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2024.

Although the Company concluded that the misstatement was not material to its unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2024, the Company has determined it is appropriate to adjust its unaudited condensed consolidated financial statements as of March 31, 2024 on a prospective basis to provide appropriate context to stakeholders within comparative financial statements.

The impact on the statement of operations will be displayed on the Company’s unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2024.

The following tables set forth the effects of the error corrections on affected items within the Company’s previously reported interim unaudited condensed consolidated balance sheet and statement of shareholders' equity as of the periods indicated had the adjustments been made in the corresponding quarter (dollars in thousands):

March 31, 2024

Changes in Condensed Consolidated Balance Sheet

As reported Adjusted As corrected

Long-term assets

$ 24,161 $ ( 452 ) $ 23,709

107,150 ( 452 ) 106,698

Current liabilities

Liability for ATD Holdback Shares

- 1,634 1,634

Total liabilities

52,191 1,634 53,825

Stockholders' equity

Additional paid-in capital

272,950 ( 2,086 ) 270,864

Total stockholders’ equity

$ 54,959 $ ( 2,086 ) $ 52,873

Changes in Condensed Consolidated Statement of Shareholders' Equity

Shares of common stock outstanding

85,324,918 ( 664,329 ) 84,660,589

The following tables set forth the effects of the error corrections on affected items within the Company’s previously reported interim condensed statements of operations for the periods indicated had the adjustments been made in the corresponding quarters (dollars in thousands, except share amounts):

Three Months Ended March 31, 2024

Changes in Condensed Consolidated Statements of Operations

As reported Adjusted As corrected

Loss per common share

$ ( 0.23 ) $ ( 0.01 ) $ ( 0.24 )

Weighted average shares outstanding basic and diluted

79,558,346 ( 664,329 ) 78,894,017

Use of Estimates

12 unchanged sentences

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 three months ended March 31, 2024 , the Company had working capital of $ 5,241,000 and a net loss of $ 18,614,000 .

Our cash decreased by $ 3,446,000 for the three months ended March 31, 2024 primarily due to the cash paid to acquire ATD and redeem the 2023 Promissory Notes and the net loss of $ 18,614,000 , partially offset by external financing activity.

As of and for the six months ended June 30, 2024 , the Company had a working capital deficit of $ 3,375,000 and a net loss of $ 28,409,000 .

Our cash decreased by $ 12,296,000 for the six months ended June 30, 2024 primarily due to the cash paid to acquire ATD and redeem the 2023 Promissory Notes and the net loss of $ 28,409,000 , partially offset by external financing activity.

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 consolidated financial statements.

1 unchanged sentence

The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

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

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

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

5 unchanged sentences

The Company will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock.

As of March 31, 2024 , the Company did not identify any events that would cause it to assess goodwill for impairment.

As of June 30, 2024 , the Company did not identify any events that would cause it to assess goodwill for impairment.

Business Combination

8 unchanged sentences

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of March 31, 2024 and December 31, 2023 , because of the relatively short-term maturity of these financial instruments.

The carrying amount reported for long-term debt and long-term receivables approximates fair value as of March 31, 2024 and December 31, 2023 , given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.

The carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of June 30, 2024 and December 31, 2023 because of the relatively short-term maturity of these financial instruments.

The carrying amount reported for long-term debt and long-term receivables approximates fair value as of June 30, 2024 and December 31, 2023 , given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.

The determination of fair value is based upon the fair value framework established by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820” ).

7 unchanged sentences

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

or other inputs that are observable or can be corroborated by

observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements.

Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities

within the fair value hierarchy.

The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 3 inputs.

The Company considers its contingent consideration to be Level 3 investments and that the fair value approximates the carrying value.

There were no changes in levels during the year ended March 31, 2024 .

The Company does not have any Level 1 or Level 2 assets or liabilities.

The Company considers its contingent consideration and ATD Holdback Shares to be Level 3 investments as the fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 fair value measurement.

There were no changes in levels during the period ended June 30, 2024 .

The following is a rollforward of the company’s contingent consideration and ATD Holdback Share liabilities:

STS Contingent Consideration

Balance as of January 1, 2024

Loss (gain) due to change in fair value

Balance as of June 30, 2024

ATD Holdback Shares

Acquisition of ATD January 2, 2024

Loss (gain) due to change in fair value

Balance as of June 30, 2024

The following are the inputs in company’s ATD Holdback Share as of January 2, 2024 and June 30, 2024:

January 2, 2024

June 30, 2024

Closing stock price

$ 3.14 $ 1.55

Discount for marketability

$ ( 0.68 ) $ ( 0.21 )

Revenue Recognition

9 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Recurring revenue

1 unchanged sentence

Product and service revenue

6,143 2,791 10,959 4,772

Total revenue

18 unchanged sentences

eCommerce revenue is defined by the Company as revenue obtained through direct sales on the Company’s eCommerce platform.

The Company’s eCommerce revenue generally includes subscriptions to the Company’s vehicle recognition software which can be purchased online and activated through a digital key.

The Company’s eCommerce revenue generally includes subscriptions to the Company’s vehicle recognition software that can be purchased online and activated through a digital key.

The Company's contracts with eCommerce customers are generally for a term of one month with automatic renewal each month.

9 unchanged sentences

Product and service revenue is defined as the Company’s implementation revenue, perpetual license sales, hardware sales, engineering services and contactless compliance revenue.

Implementation revenue is recognized when the Company provides implementation or construction services to its customers.

These services involve a fee for the implementation services and are typically associated with the sale of the Company’s data collection services, software and hardware.

Implementation revenue is recognized when the Company provides installation, construction and other implementation services to its customers.

These services involve a fee and are typically associated with the sale of the Company’s data collection services, software and hardware.

The Company’s implementation revenue is recognized over time as the implementation is completed.

14 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Urban Mobility

1 unchanged sentence

Transportation Management

723 881 1,387 1,611

Public Safety

3,565 4,108 7,064 6,808

Total revenue

3 unchanged sentences

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 application fully automates the aggregation of Federal Highway Administration (“FHWA”) 13 -bin vehicle classification, speed, and volume data.

This 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.

12 unchanged sentences

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 March 31, 2024 , the unsatisfied portion of the remaining performance obligation was approximately $ 22,912,000 .

As of June 30, 2024 , the unsatisfied portion of the remaining performance obligation was approximately $ 21,023,000 .

The Company expects to recognize approximately $ 15,578,000 of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized within the next five years thereafter.

3 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 $ 1,367,000 and $ 946,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 , respectively.

Unbilled accounts receivables of $ 1,530,000 and $ 946,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 , respectively.

Contract liabilities

1 unchanged sentence

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 three months ended March 31, 2024 were not materially impacted by any other factors.

During the three months ended March 31, 2024 , $ 1,449,000 of the contract liabilities balance as of December 31, 2023 was recognized as revenue.

The services due for contract liabilities described above are shown below as of March 31, 2024 (dollars in thousands):

Changes in the contract balances during the six months ended June 30, 2024 were not materially impacted by any other factors.

During the six months ended June 30, 2024 , $ 2,565,000 of the contract liabilities balance as of December 31, 2023 was recognized as revenue.

The services due for contract liabilities described above are shown below as of June 30, 2024 (dollars in thousands):

2024, remaining

1 unchanged sentence

The Company considers all highly liquid debt instruments to be cash equivalents.

Cash subject to contractual restrictions and not readily available for use is classified as restricted cash and cash equivalents.

Cash subject to contractual restrictions and not readily available for use is classified as restricted cash.

The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions.

Restricted cash and cash equivalents for these client jurisdictions as of March 31, 2024 and December 31, 2023 were $ 386,000 and $ 328,000 , respectively, and correspond to equal amounts of related liabilities.

Restricted cash and cash equivalents for these client jurisdictions as of June 30, 2024 and December 31, 2023 were $ 328,000 and $ 328,000 , respectively, and correspond to equal amounts of related liabilities.

Concentrations of Credit Risk

1 unchanged sentence

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

As of March 31, 2024 and December 31, 2023 , the Company had deposits from operations totaling $ 12,267,000 and $ 15,713,000 , respectively, in multiple U.S.

As of June 30, 2024 and December 31, 2023 , the Company had deposits from operations totaling $ 3,417,000 and $ 15,713,000 , respectively, in multiple U.S.

financial institutions and one Israeli financial institution.

Customer A accounted for 13 % of the unaudited condensed consolidated revenue for the three months ended March 31, 2023.

No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three months ended March 31, 2024 and 2023 , respectively.

As of March 31, 2024 , no single customer accounted for more than 10% of the Company's unaudited condensed consolidated accounts receivable balance.

As of December 31, 2023 , Customer A and Customer B accounted for 22 % and 13 % of the unaudited condensed consolidated accounts receivable balance, no other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of December 31, 2023 .

No single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three and six months ended June 30, 2024 and 2023 , respectively, except that Customer A accounted for 12 % of the unaudited condensed consolidated revenue for the six months ended June 30, 2023.

As of June 30, 2024 , no single customer accounted for more than 10% of the Company's unaudited condensed consolidated accounts receivable balance.

As of December 31, 2023 , Customer A and Customer B accounted for 22 % and 13 %, respectively, of the unaudited condensed consolidated accounts receivable balance.

No other single customer accounted for more than 10% of the Company’s unaudited condensed consolidated accounts receivable balance as of December 31, 2023 .

Accounts Payable, Accrued and Other Current Liabilities

As of March 31, 2024 and December 31, 2023 , amounts owed to related parties of $ 210,000 and $ 253,000 were presented as part of accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets.

As of June 30, 2024 and December 31, 2023 , amounts owed to related parties of $ 189,000 and $ 253,000 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):

March 31, 2024

June 30, 2024

December 31, 2023

23 unchanged sentences

Under the terms of the ATD Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”).

The acquisition meets the criteria to be accounted for as a business in accordance with ASC 805, Business Combinations (“ASC 805” ).

The acquisition met the criteria to be accounted for as a business in accordance with ASC 805, Business Combinations (“ASC 805” ).

This method requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.

1 unchanged sentence

The purchase price comprised approximately $ 10,048,000 in cash, which included closing adjustments and 3,496,464 unregistered shares of the Company’s common stock (the “Stock Consideration”), based on a volume weighted average trading price of the Company’s common stock over a thirty consecutive trading day period prior to the date of the ATD Purchase Agreement, which was $ 2.86 .

662,329 of the 3,496,464 shares of the Stock Consideration will be issued and delivered to the Seller on the twelve -month anniversary of the Closing Date, subject to cutback for working capital adjustments and/or indemnification claims favoring the Company, if any.

2,832,135 of the Stock Consideration was issued at closing, while the other 664,329 shares of the Stock Consideration will be issued and delivered to the Seller on the twelve -month anniversary of the Closing Date (the "ATD Holdback Shares"), subject to cutback for working capital adjustments and/or indemnification claims favoring the Company, if any.

Subsequent to this transaction these shares have been registered on a Form S- 3.

See NOTE 8 – STOCKHOLDERS ’ EQUITY for additional information.

As the total number of ATD Holdback Shares to be issued to the Seller is not fixed, the ATD Holdback Shares were deemed to be liability classified and are measured at fair value each reporting period.

The ATD Holdback Shares will be issued to the Seller on the twelve -month anniversary of the Closing Date, subject to cutback from indemnification claims favoring the Company, if any.

As a result of the transaction, ATD became a wholly-owned subsidiary of the Company and ATD’s key employees have agreed to continue employment with the Company or one of its affiliates.

The Company incurred $ 548,000 in legal and professional fees related to the acquisition which were expensed as incurred and recognized in general and administrative expenses in the unaudited condensed consolidated statement of operations.

In accordance with the acquisition method of accounting for a business combination, the purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the Closing Date.

Since the acquisition of ATD occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2024.

The table below shows the breakdown related to the preliminary purchase price allocation for the acquisition (dollars in thousands):

Consideration

Liability classified holdback shares ( 664,329 shares measured at fair value as of the Closing Date)

Common stock issued ( 2,832,135 shares at closing price of $ 3.14 per share)

16 unchanged sentences

Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of ATD and the Series A Prime Revenue Sharing Notes as if they were consummated as of January 1, 2023.

The following unaudited pro forma combined financial information gives effect to the acquisition of ATD and the Series A Prime Revenue Sharing Notes interest expense, as if they were consummated as of January 1, 2023.

A portion of the proceeds from the Series A Prime Revenue Sharing Notes was used to fund the acquisition of ATD and therefore the Company has included the impact of the issuance of the debt in its pro forma financial information.

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 and the issuance of the Series A Prime Revenue Sharing Notes been completed as of January 1, 2023 ( 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except per share data)

(Dollars in thousands except for per share data)

Total revenue

6 unchanged sentences

NOTE 3 – SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the three months ended March 31, 2024 and 2023 were as follows (dollars in thousands):

Three Months Ended March 31,

Supplemental disclosures of cash flow information for the six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):

Six Months Ended June 30,

Cash paid for interest

$ 1,408 $ 709

Cash paid for taxes

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

Decrease in accounts payable and accrued expenses related to purchases of inventory

( 42 ) ( 698 )

Increase (decrease) in accounts payable and accrued expenses related to purchases of inventory

Decrease in deposits related to property and equipment received

5 unchanged sentences

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

Fair market value of ATD Holdback Shares

2023 Promissory Note redemption premium settled in shares of the Company’s common stock

New Leases under ASC-842:

Right-of-use assets obtained in exchange for new operating lease liabilities

Right-of-use assets obtained in exchange for new finance lease liabilities

1 unchanged sentence

ATD Acquisition

The purchase price has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

As part of the Company's preliminary purchase price allocation for the acquisition, the Company recognized $ 3,568,000 in goodwill, $ 11,900,000 in customer relationships, assigned a 15 -year useful life, and $ 200,000 of marketing related intangible assets related to the ATD tradename, assigned an five -year useful life.

The purchase price for the ATD acquisition has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

Since the acquisition occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2024.

As part of the Company's preliminary purchase price allocation for the acquisition, the Company recognized $ 3,720,000 in goodwill, $ 11,900,000 in customer relationships, assigned a 15 -year useful life, and $ 200,000 of marketing related intangible assets related to the ATD tradename, assigned a five -year useful life.

Intangible Assets Subject to Amortization

The following provides a breakdown of identifiable intangible assets, net as of March 31, 2024 and December 31, 2023 (dollars in thousands):

March 31, 2024

The following provides a breakdown of identifiable intangible assets, net as of June 30, 2024 and December 31, 2023 (dollars in thousands):

June 30, 2024

December 31, 2023

11 unchanged sentences

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

Amortization expense for the three months ended March 31, 2024 and 2023 was $ 1,172,000 and $ 1,041,000 , respectively and is presented as part of depreciation and amortization in the unaudited condensed consolidated statements of operations.

Amortization expense for the three months ended June 30, 2024 and 2023 was $ 1,171,000 and $ 1,032,000 , respectively, and for the six months ended June 30, 2024 and 2023 was $ 2,343,000 and $ 2,073,000 , 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 evaluate its intangible assets for impairment.

As of March 31, 2024 , 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):

As of June 30, 2024 , 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):

2024, remaining

1 unchanged sentence

On June 17, 2022, pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $ 2,000,000 of notes payable in the form of two unsecured, subordinated promissory notes, each in the principal amount of $ 1,000,000 and bearing an interest rate of 3.0 % per annum, payable quarterly.

The notes mature on June 14, 2024 and June 17, 2025, respectively.

As of March 31, 2024 and December 31, 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.

Interest expense related to these notes was $ 14,000 and $ 14,000 for the three months ended March 31, 2024 and 2023, respectively.

The notes currently mature on September 30, 2024 and June 17, 2025, respectively.

In June 2024, the Company and noteholders amended the $ 1,000,000 , June 2024 maturity payment of the subordinated promissory notes to September 30, 2024.

As of June 30, 2024, the aggregate balance of these notes payable was $ 2,000,000 which was included in notes payable current portion in the unaudited condensed consolidated balance sheets.

2023 Promissory Notes

4 unchanged sentences

The noteholders elected to accept $ 1,875,000 of the Redemption Payment in the form of 750,000 unregistered shares of the Company’s common stock, par value $ 0.0001 per share, having a value of $ 2.50 per share, with the remainder of the Redemption Payment to be paid in cash.

Subsequent to this transaction these shares have been registered on a Form S- 3.

See NOTE 8 – STOCKHOLDERS ’ EQUITY for additional information.

As a result of the Redemption Payment, the Company recognized a loss on extinguishment of debt of $ 4,693,000 , which included $ 1,875,000 related to the early termination payment and $ 2,818,000 related to unamortized issuance costs.

The 2023 Promissory Notes were a senior secured obligation of the Company and ranked senior to all indebtedness of the Company, subject to certain exceptions, had a maturity date of July 18, 2025 ( the “Maturity Date”), and bore an interest rate of 12 % per annum.

No 2023 Promissory Notes remain outstanding.

Series A Prime Revenue Sharing Notes

3 unchanged sentences

Debt issuance costs paid in connection with the Series A Prime Revenue Sharing Notes were $ 670,000 and are being amortized as interest expense using a straight-line method over the term of the Series A Prime Revenue Sharing Notes.

The Company has a material relationship with Arctis, which invested $ 5,000,000 in connection with the $ 15,000,000 initial closing of the Series A Prime Revenue Sharing Notes.

Interest will be paid based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers in five states, each of which has been rated at or above AAA/AA+/Aal for their respective unsecured general obligation debt by nationally recognized credit rating agencies.

The Company has a material relationship with Arctis Global, LLC, which invested $ 5,000,000 in connection with the $ 15,000,000 initial closing of the Series A Prime Revenue Sharing Notes.

Interest will be paid based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers in five states, each of which has been rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies.

The Company entered into a base Indenture for the Series A Prime Revenue Sharing Notes as of December 15, 2023 with Argent Institutional Trust Company, as trustee.

2 unchanged sentences

As part of the terms of the Series A Prime Revenue Sharing Notes the Company is required to maintain an interest reserve related to not less than three times the next monthly interest payment.

Additionally, there is a sinking fund requirement which states if the three year value of eligible contracts is less than 170 % of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes.

In the event that the sinking fund requirement is triggered, to meet the sinking fund requirement the Company would be required to maintain a cash balance sufficient to amortize the principal amount due on the Series A Prime Revenue Sharing Notes in equal monthly installments by the respective due dates of such series.

The amount related to the interest reserve was $ 500,000 as of March 31, 2024 and is held by a third party and is presented as part of deposits on the consolidated balance sheets.

The Company is not in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes and the sinking fund has not been triggered as of March 31, 2024.

The Company may prepay the Series A Prime Revenue Sharing Notes at any time up until December 15, 2026 by paying a premium ranging from 103 % to 106%.

Additionally, there is a sinking fund requirement which takes effect if the three year value of eligible contracts is less than 170 % of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes.

If the sinking fund requirement takes effect, the Company is required to maintain a cash balance sufficient to amortize the principal amount due on all series of Prime Revenue Sharing Notes outstanding under the Indenture in equal monthly installments by the respective due dates of each such series.

The amount related to the interest reserve was $ 500,000 as of June 30, 2024 and is held by a third party and is presented as part of deposits on the consolidated balance sheets.

The Company is not in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes and the sinking fund requirement has not been triggered as of June 30, 2024.

The Company may prepay the Series A Prime Revenue Sharing Notes at any time after December 15, 2024 until December 15, 2026 by paying a premium ranging from 103 % to 106%.

Thereafter, the Series A Prime Revenue Sharing Notes may be prepaid by the Company at par value.

provided, however, that the Series A Prime Revenue Sharing Notes may not be redeemed prior to December 15, 2024.

Repayment of the Series A Prime Revenue Sharing Notes consisting of all principal, plus any unpaid accrued interest, may also be accelerated by the noteholder upon a change in control or event of default.

For the three months ended March 31, 2024, the Company recognized $ 496,000 in interest expense related to the Series A Prime Revenue Sharing Notes.

Repayment of the Series A Prime Revenue Sharing Notes at par, plus any unpaid accrued interest, may also be accelerated by the noteholder upon a change in control or event of default.

For the three and six months ended June 30, 2024, the Company recognized $ 497,000 and $ 993,000 in interest expense, respectively, related to the Series A Prime Revenue Sharing Notes.

Interest Expense

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Contractual interest expense

$ 559 $ 403 $ 1,357 $ 731

Amortization of debt issuance costs

56 516 455 960

Total interest expense

interest income

615 919 1,812 1,691

interest income

Total interest expense, net

1 unchanged sentence

Schedule of Principal Amounts Due of Debt

The principal amounts due for long-term notes payable are shown below as of March 31, 2024 (dollars in thousands):

The principal amounts due for long-term notes payable are shown below as of June 30, 2024 (dollars in thousands):

2024, remaining

2 unchanged sentences

NOTE 6 – INCOME TAXES

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 March 31, 2024 .

The Company maintains a full valuation allowance against its net deferred taxes, outside of the deferred tax liability related to the indefinite lived intangibles, through June 30, 2024 .

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 March 31, 2024 .

Federal, state or foreign income tax audits were in process as of June 30, 2024 .

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.

2 unchanged sentences

If it is determined in future periods that portions of the Company’s net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly.

For the three months ended March 31, 2024 and 2023, the Company did not record any interest or penalties related to unrecognized tax benefits.

For the three and six months ended June 30, 2024 and 2023, 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 2019 through 2023 tax years remain subject to examination by the Internal Revenue Service.

As of March 31, 2024 and December 31, 2023 , our evaluation revealed no uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements.

For the three months ended March 31, 2024 and 2023, the Company did not record any expense or benefit related to income tax.

As of June 30, 2024 and December 31, 2023 , our evaluation revealed no uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements.

For the three and six months ended June 30, 2024 and 2023, the Company did not record any expense or benefit related to income tax.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

6 unchanged sentences

That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company may enter into during the specified tail period with investors introduced to the Company by HCW during the term of the letter, as well as a right of first refusal ("ROFR"), to act as the Company's exclusive underwriter or placement agent on any subsequent financing transactions utilizing an underwriter or placement agent occurring within twelve months from the consummation of a transaction pursuant to the engagement letter.

In July 2023, the Company entered into an agreement with one of its stockholders in connection with the exercise of warrants held by the stockholder, which the Company refers to as the July Warrant Exercise Transaction.

Subsequent to the July Warrant Exercise Transaction, the Company received a letter from HCW claiming entitlement to certain “tail” fees and warrant consideration stemming from the agreement with the Company's stockholder.

In July 2023, the Company entered into an agreement with one of its warrant holders in connection with the exercise of warrants, which the Company refers to as the July Warrant Exercise Transaction.

The Company believed then, and believes now, that this claim is without merit.

11 unchanged sentences

Rekor seeks to recover damages from HCW and Armistice.

The Company believes these claims are without merit.

The Company believes HCW's claims are without merit.

The Company intends to vigorously defend itself in this lawsuit.

11 unchanged sentences

NOTE 8 – STOCKHOLDERS ’ EQUITY

Authorized Common Stock

On April 22, 2024, following approval by the Company's stockholders, the Company amended its charter to increase the number of authorized shares of common stock from 100,000,000 to 300,000,000 .

The number of authorized shares of the Company’s preferred stock was not affected by this amendment and remained unchanged at 2,000,000 shares.

ATD Acquisition

In connection with the acquisition as described in NOTE 2 – ACQUISITION , the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration.

Additionally, 664,329 shares will be issued and delivered to the Seller on the twelve -month anniversary of the Closing Date, subject to cutback for working capital adjustments and/or indemnification claims favoring the Company, if any.

The ATD Holdback Shares were deemed to be liability based and are measured at fair value each reporting period.

The shares issued and issuable in connection with the ATD Acquisition have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on June 17, 2024.

2024 Public Offering

2 unchanged sentences

The exercise closed on February 13, 2024.

The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, was $ 2,388,000 , or approximately $ 26,362,000 in aggregate for the 2024 Public Offering including the exercise of the Underwriters’ Option.

The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and offering expenses payable by the Company of $ 2,388,000 was approximately $ 26,362,000 in aggregate for the 2024 Public Offering including the exercise of the Underwriters’ Option.

Redemption of 2023 Promissory Notes

On March 4, 2024, the Company elected to prepay the outstanding 2023 Promissory Notes.

The 2023 Promissory Notes were redeemed at the redemption price of 115 % of the $ 12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $ 14,375,000 , plus accrued and unpaid interest to the redemption date of approximately $ 263,000 (the “Redemption Payment”).

As a result of the Redemption Payment, the Company recognized a loss on extinguishment of debt of $ 4,693,000 , which included 1,875,000 related to the early termination payment and $ 2,818,000 related to unamortized issuance costs.

The shares of common stock issued in connection with the Redemption payment have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on July 30, 2024.

2023 Registered Direct Offering

14 unchanged sentences

2023 Letter Agreement

On July 25, 2023, the Company entered into a letter agreement (the “2023 Letter Agreement”) with the purchaser of 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.

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

In consideration 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”).

8 unchanged sentences

The 2023 Warrants were valued at $ 5,125,000 , based on the relative fair value basis, compared to the total proceeds received.

A summary of the warrant activity for the Company for the period ended March 31, 2024 is as follows:

On June 20, 2024, the Company entered into various Warrant Exercise Agreements (the “Agreements”) with certain holders of the 2023 Warrants (each an “Exercising Holder” and collectively, the “Exercising Holders”), pursuant to which the Company reduced the strike price of the 2023 Warrants from $ 2.00 per warrant to $ 1.40 per warrant to induce their exercise.

In June 2024, all but one of the Exercising Holders subsequently exercised 1,400,000 warrants for common stock in exchange for $ 1,960,000 .

In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $ 3,185,000 .

In consideration for the Company’s agreement to reduce the exercise price, the Exercising Holders agreed to a concomitant reduction in the number of shares into which the 2023 Warrants are exercisable, from 5,250,000 to 3,675,000 .

This modification resulted in a decrease in the overall fair value of the equity classified warrants and since no incremental value was given to the Exercising Holders, nothing was recorded in the consolidated financial statements related to the modification.

The shares issued in connection with the Warrant Exercise Agreements have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on July 30, 2024.

A summary of the warrant activity for the Company for the period ended June 30, 2024 is as follows:

2023 Promissory Notes (1)

3 unchanged sentences

6,250,000 481,100 2,850,000 9,581,100

Issued warrants

Exercised warrants

Outstanding warrants as of March 31, 2024

( 1,400,000 ) - - ( 1,400,000 )

Weighted average strike price of outstanding warrants as of March 31, 2024

Cancelled warrants

( 1,575,000 ) - - ( 1,575,000 )

Intrinsic value of outstanding warrants as of March 31, 2024

Outstanding warrants as of June 30, 2024

3,275,000 481,100 2,850,000 6,606,100

Weighted average strike price of outstanding warrants as of June 30, 2024

$ 1.58 $ 1.82 $ 3.25 $ 2.32

Intrinsic value of outstanding warrants as of June 30, 2024

$ - $ - $ - $ -

Shares of common stock issued for warrant exercises during the six months ended June 30, 2024

1,400,000 - - 1,400,000

On January 18, 2023, in connection with the 2023 Promissory Notes, the Company issued warrants to the investors to purchase 6,250,000 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 2.00 per share.

These warrants were exercisable commencing January 18, 2023 and expire on January 18, 2028.

As part of the Warrant Exercise Agreements, explained in detail above, the Exercising Holders reduced the number of warrants held by 1,575,000 .

On March 23, 2023, in connection with the 2023 Registered Direct Offering the Company issued warrants to the placement agent to purchase up to 481,100 shares of common stock.

15 unchanged sentences

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

A summary of stock option activity under the Company’s 2017 Plan for the period ended March 31, 2024 is as follows:

For the three and six months ended June 30, 2024 and 2023 there was no stock compensation expense related to stock options.

A summary of stock option activity under the Company’s 2017 Plan for the period ended June 30, 2024 is as follows:

Number of Shares Subject to Option

4 unchanged sentences

688,841 $ 1.20 3.70 $ 1,478,000

Outstanding balance as of March 31, 2024

( 3,500 ) 0.80

Exercisable as of March 31, 2024

( 3,880 ) 3.81

As of March 31, 2024 , there was $ 0 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan.

Outstanding balance as of June 30, 2024

681,461 $ 1.19 3.19 $ 298,000

Exercisable as of June 30, 2024

681,461 $ 1.19 3.19 $ 298,000

As of June 30, 2024 , 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 March 31, 2024 and 2023 was $ 1,167,000 and $ 1,112,000 , 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 three months ended March 31, 2024 is as follows:

Stock compensation expense related to Restricted Stock Units ("RSUs") for the three months ended June 30, 2024 and 2023 was $ 1,115,000 and $ 1,044,000 , respectively, and for the six months ended June 30, 2024 and 2023 was $ 2,282,000 and $ 2,156,000 , 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, 2024 is as follows:

Number of Shares

6 unchanged sentences

( 105,762 ) 2.88 1.77

Outstanding balance as of March 31, 2024

Outstanding balance as of June 30, 2024

1,676,005 $ 3.50 1.40

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

As of March 31, 2024 , there was $ 4,124,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.65 years.

As of June 30, 2024 , there was $ 3,209,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.40 years.

NOTE 10 – LOSS PER SHARE

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except per share data)

Basic and diluted loss per share

7 unchanged sentences

9,627,895 16,200,612 9,627,895 16,200,612

As the Company had a net loss for the three months ended March 31, 2024 , the following 11,946,345 potentially dilutive securities were excluded from diluted loss per share:

As the Company had a net loss for the three and six months ended June 30, 2024 , the following 9,627,895 potentially dilutive securities were excluded from diluted loss per share:

6,606,100 for outstanding warrants, 681,461 related to outstanding options, 664,329 related to the ATD Holdback Shares and 1,676,005 related to outstanding RSUs.

As the Company had a net loss for the three and six months ended June 30, 2023 , the following 16,200,612 potentially dilutive securities were excluded from diluted loss per share:

13,649,454 for outstanding warrants, 793,674 related to outstanding options and 1,757,484 related to outstanding RSUs.

As the Company had a net loss for the three months ended March 31, 2023 , the following 16,375,816 potentially dilutive securities were excluded from diluted loss per share:

14,422,307 for outstanding warrants, less the 772,853 pre-funded warrants, 828,134 related to outstanding options and 1,898,228 related to outstanding RSUs.

NOTE 11 – SUBSEQUENT EVENTS

Authorized Common Stock

On April 22, 2024, the Company increased the number of authorized shares of common stock from 100,000,000 to 300,000,000 .

The number of authorized shares of the Company’s preferred stock was not affected by this amendment and remained unchanged at 2,000,000 shares.

Global Public Safety

On July 1, 2024, the Company sold its remaining 19.9 % ownership of Global Public Safety, LLC ("GPS") to LB&B Associates Inc for $ 1,500,000 , which was paid in two cash installments of $ 750,000 at closing and $ 750,000 on August 1, 2024.

2023 Warrants

In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $ 3,185,000 .

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

11 unchanged sentences

significant risks, uncertainties and other considerations discussed in this report;

operating risks, including supply chain, equipment or system failures, cyber and other malicious attacks, local conflicts and other events that could affect the amounts and timing of revenues and expenses;

operating risks, including supply chain, equipment or system failures, cyber and other malicious attacks, wars and local conflicts and other events that could affect our operations and the amounts and timing of revenues and expenses;

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

15 unchanged sentences

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, 2023 (the “2023 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 working to revolutionize public safety, urban mobility, and transportation management using AI-powered solutions designed to meet the distinct demands of each market we serve.

We work hand-in-hand with our customers to deliver mission-critical traffic and engineering services that assist them in achieving their goals.

Our vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities.

We work towards this by collecting, connecting, and organizing mobility data, and making it accessible and useful to our customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

To achieve these goals, we have developed a robust, interconnected hardware infrastructure and advanced, purpose-built software platforms.

These powerful tools, enriched by a diverse range of data and state-of-the-art AI, can produce a level of roadway intelligence that we believe is unmatched.

Our solutions empower clients to efficiently manage and optimize the complex interactions of vehicles in motion, ensuring smooth operations within and around public safety, urban mobility, and transportation systems.

Our operations are conducted primarily by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc., or ("Rekor Recognition"), Waycare Technologies Inc.

and Waycare Technologies Ltd.

(collectively, "Waycare"), Southern Traffic Services, Inc., or (“STS”), and All Traffic Data Solutions, LLC or ("ATD").

Rekor was founded in 2017 and first entered the roadway intelligence business in 2019, with the acquisition of a company pioneering the development of computer vision software for roadway data collection and analysis.

The software analyzes images and provides contemporaneous data about vehicles moving on the roadway, such as direction, speed, color, make, model license plate and other characteristics.

The software uses a form of generative artificial intelligence, or AI, that employs neural networks to filter and identify patterns within the images and is continuously updated through machine learning that expands its capabilities and allows it to adapt to changes in the vehicle pool and other elements of the roadway environment.

Rekor has continued the development of this software and has also developed a proprietary supporting operating system, which we identify as Rekor One TM .

This system addresses privacy concerns and facilitates the analysis and distribution of relevant data to multiple users through edge processing and other techniques.

Using Rekor One TM , we can collect, aggregate and analyze roadway data in combination with data from other sources.

This analysis provides insights that are distributed to a variety of customers through our own proprietary platforms, as well as through those provided by others.

While our primary customers are located in North America, products and services we provide are currently used in over 90 countries around the world.

Our primary customers include national, state and municipal public agencies, as well as large commercial users in North America who employ our products and services for traffic studies, transportation management, public safety, perimeter security and tolling, as well as parking system operations.

Our ultimate vision is to become the premier provider of roadway intelligence and data-driven mobility insights in the world.

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

and Waycare Technology Inc., or Waycare, Southern Traffic Services, Inc., or STS, and All Traffic Data, LLC, or ATD.

We integrated Waycare into our operations as part of a collaborative process of developing Rekor Command TM , a platform used by traffic management centers.

In addition to award winning incident management tools, Waycare brought us a valuable network of established third party data sources such as weather forecasts, transit schedules, event information and other data that provide insights through predictive analytics to our traffic management customers.

The acquisition of STS in 2022 allowed us to join forces with one of the leading data suppliers to state level Departments of Transportation, or DOTs, in the United States.

Throughout its history, STS has pioneered an increasingly popular “pay for data” model of conducting traffic studies for DOTs.

Using our Rekor Discover TM platform, STS has been able to dramatically improve the quality, scope, efficiency and reliability of the data it supplies to DOTs.

As more fully described under “ Traffic Data Collection ”, STS currently has contracts with several states, with a strong footprint in the Southeastern United States.

We are currently engaged in discussions, including conducting proof of concept demonstrations, with additional states and municipalities to provide similar services.

On January 2, 2024, we acquired ATD, which collaborates closely with numerous traffic engineering firms, metropolitan planning organizations, municipalities, and state DOTs, in locations where Rekor previously lacked a sales presence.

ATD is actively involved in data collection across a wide-ranging geographic area, encompassing states like California, Colorado, Arizona, Nebraska, Nevada, Oregon, and Washington.

This addition expands the coverage of our urban mobility operations across the country’s western region and further strengthens our position in the Southeast, providing ready access to experienced urban mobility personnel and operational facilities to support the expansion of our Internet of Things, or IoT, network.

A New Operating System for Roadways

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

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

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

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

Over 65% of the 4.2 million miles of US roadways are rated in poor condition, which impacts the safety of drivers and passengers.

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

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

We believe there is a significant need for the innovative products and services we have developed.

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

According to a 2021 infrastructure report from the American Society of Civil Engineers, or ASCE, U.S.

infrastructure has been graded a C minus, indicating that there is significant and urgent need for improvement.

Over 43% of the 4.3 million miles of U.S.

roadways were rated in poor condition, which impacts the safety of drivers and passengers.

The issue of congestion is also a serious concern, and was estimated to cost U.S.

citizens $120 billion per year in economic and productivity losses.

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

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

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

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

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

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

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

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

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

Further, more than 43,000 people lose their lives each year while using the nation’s transportation network of streets, roads and highways, which represents a failure in public safety and policy.

On February 2, 2023, the U.S.

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

To address urgent transportation issues and ensure the competitiveness of the U.S.

economy, an unprecedented amount of funding has been made available from the federal government through the 2021 Infrastructure Investment and Jobs Act, or IIJA, 2022 Inflation Reduction Act, and the 2022 CHIPS and Science Act to create digitally-enabled transportation infrastructure that will provide public goods and new economic value.

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

Rather than completely rebuilding existing infrastructure, we expect the focus to be on using the power of funding and policymaking to leverage off previous investments by promoting new technology layers and facilitating access to digital infrastructure systems throughout the country.

We expect the deployment of sophisticated roadway intelligence systems to be a significant part of both planning for and implementing the infrastructure improvements necessary to meet these challenges.

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

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

We are working to make mobility data more accessible and useful for all responsible users, empowering our customers to make informed decisions and drive meaningful progress towards a better future.

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

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

Roadway Intelligence

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.

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 various software platforms and applications.

Since the inception of our efforts, we have been dedicated to becoming a leader in roadway intelligence by collecting, connecting and organizing global mobility data.

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

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

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

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

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

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

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

At Rekor, we are forging a future where the mobility internet is not just connected, but interactive, delivering real-time roadway intelligence to revolutionize traffic management, public safety, maintenance, emergency services, and planning agencies, as well as supporting connected and autonomous vehicles.

Our enduring mission is to innovate and perfect a unique, AI-driven, and edge-based IoT network.

This network is designed to be pivotal in this transformation, working in harmony with key partners in the transportation and public safety ecosystem to deliver the most comprehensive insights impacting safety, health, and sustainability for roadways, communities, and citizens.

Our commitment is to continue to focus our investments, merging physical and digital infrastructure to lay the groundwork for a new, advanced operating system for roadways.

As we move forward, Rekor is positioned to play an indispensable and impactful role, supporting private and public agencies as they design and construct digital infrastructure operating system of the future.

We are dedicated to fulfilling the critical demand for real-time and predictive roadway intelligence, ensuring that our solutions are not just innovative but also instrumental in shaping the future of public safety, urban mobility, and transportation management.

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

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

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

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

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

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

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

Roadway Intelligence Powered by Rekor

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 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.

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.

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

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

It is through this engine, fueled by rich data and purpose-built to be a single source of truth to address diverse use cases, that we deliver a range of solutions that cater to public safety, urban mobility, transportation management and commercial markets.

This engine facilitates the efficient collection, analysis and distribution of vast amounts of data, unlocking real-time and predictive operational insights.

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 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 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 micro-mobility 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.

Our 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, or FHWA, mandated vehicle classification, counts, and speed collection and reporting, analytics for bicycle, pedestrians and other micro-mobility modes, patterns and hot spots for greenhouse gas emissions, high-definition video management and traffic surveillance, law enforcement and intelligence-based policing, citation management, contactless compliance and enforcement.

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

8 unchanged sentences

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.

As vehicles increasingly move towards 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.

19 unchanged sentences

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

For example, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states are considering authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road.

For example, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states have considered authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road.

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

77 unchanged sentences

Other Income (Expense)

Other income (expense) consists primarily of legal settlements, legal judgements, interest income and expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, interest income earned on cash and cash equivalents and note receivables.

Other income (expense) consists primarily of legal settlements, legal judgements, interest income and expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, gain or losses on the change in fair value of our liabilities, and interest income earned on cash and cash equivalents and note receivables.

Income Tax Provision

17 unchanged sentences

Our historical operating results in dollars are presented below.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

10 unchanged sentences

Interest expense, net

Gain on remeasurement of ATD Holdback Shares

Total other income (expense)

Comparison of the Three Months Ended March 31, 2024 and the Three Months Ended March 31, 2023

Comparison of the Three and Six Months Ended June 30, 2024 and the Three and Six Months Ended June 30, 2023

Total Revenue

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

The increase in revenue for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was primarily attributable to our acquisition of ATD in January 2024.

During the three months ended March 31, 2024, revenue attributable to ATD was $2,364,000.

The increase in revenue for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, was primarily attributable to our acquisition of ATD in January 2024.

During the three and six months ended June 30, 2024, revenue attributable to ATD was $3,341,000 and $5,705,000, respectively.

The remainder of the increase in revenue for the six months ended June 30, 2024 was related to portable and short-term traffic services.

Cost of Revenue, Excluding Depreciation and Amortization

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

Cost of revenue, excluding depreciation and amortization

For the three months ended March 31, 2024, 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.

Additionally, $829,000 of the increase was related to our acquisition of ATD.

For the three and six months ended June 30, 2024, 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.

Additionally, during the three and six months ended June 30, 2024, $970,000 and $1,799,000 of the increase was related to our acquisition of ATD.

Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

6 unchanged sentences

General and Administrative Expenses

The increase in general and administrative expenses of $461,000 was primarily due to:

For the six months ended June 30, 2024, the increase in general and administrative expenses was primarily due to:

a $1,524,000 increase in general and administrative expenses as a result of the acquisition of ATD.

a $149,000 increase in software expense related to hosting of data.

a $206,000 increase in expenses related to our directors, mainly as a result the addition of two new members to our Board of Directors.

2 unchanged sentences

a $350,000 decrease in professional services related to our operations excluding ATD.

For the three months ended June 30, 2024, the increase in general and administrative expenses was primarily due to:

a $708,000 increase in general and administrative expenses as a result of the acquisition of ATD.

a $252,000 increase in payroll and payroll related expenses related to our operations excluding ATD.

a $106,000 increase in expenses related to our directors, mainly as a result the addition of two new members to our Board of Directors.

a $95,000 increase in professional services related to our operations excluding ATD.

Selling and Marketing Expenses

The increase in selling and marketing expenses of $524,000 was primarily due to:

a $377,000 increase in payroll and payroll related costs, primarily to support our sales strategy.

a $163,000 increase in advertising expense, of which approximately $91,000 was related to our acquisition of ATD.

For the six months ended June 30, 2024, the increase in selling and marketing expenses was primarily due to a $343,000 increase in advertising expense, of which approximately $164,000 was related to our acquisition of ATD.

For the three months ended June 30, 2024, selling and marketing expenses remained fairly consistent period over period due to an increase in expenses related to ATD which were offset by a decrease to payroll and payroll related costs.

Research and Development Expense

Research and development expenses during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, remained consistent period over period.

Research and development expenses during the three and six months ended June 30, 2024 , compared to the three and six months ended June 30, 2023, remained consistent period over period.

Depreciation and Amortization

1 unchanged sentence

Other Income (Expense)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

2 unchanged sentences

Interest expense, net

Gain on remeasurement of ATD Holdback Shares

Total other income (expense)

Interest expense increased period over period due to the issuance of the Series A Prime Revenue Sharing Notes.

For the three and six months ended June 30, 2024, interest expense decreased period over period due to the early redemption of the 2023 Promissory Notes.

(Loss) gain on extinguishment of debt is a result of early redemption of the 2023 Promissory Notes.

As part of the redemption, we recorded a Redemption Payment of $1,875,000 which we settled through the issuance of common stock and accelerated debt issuance costs of $2,818,000.

Other income for the three and six months ended June 30, 2024, increased as a result of the remeasurement of the ATD Holdback Shares.

Non-GAAP Measures

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Depreciation and amortization

9 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands, except percentages)

Cost of revenue, excluding depreciation and amortization

1 unchanged sentence

Adjusted Gross Margin

Adjusted Gross Margin for the three months ended March 31, 2024 decreased compared to the three months ended March 31, 2023.

During the three months ended March 31, 2024, the Company had a lower mix of software sales which typically carry a higher Adjusted Gross Margin.

Adjusted Gross Margin for the three months ended June 30, 2024 increased compared to the three months ended June 30, 2023, while the Adjusted Gross Margin for the six months ended June 30, 2024 decreased compared to the six months ended June 30, 2023.

The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work.

Typically our software sales carry a higher Adjusted Gross Margin.

Key Performance Indicators

6 unchanged sentences

The following table sets forth our recurring revenue for the periods included (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Recurring revenue

As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform.

We expect to continue to focus on long-term contracts with recurring revenue as part of our business model, which is intended to cause recurring revenue growth in future periods to continue to increase.

However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate.

Total Contract Value

There are certain assumptions that we make when determining the total contract value of an agreement, such as the success rate of renewal periods, cancellations and usage estimates.

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

Three Months Ended March 31,

Total Contract Value

The decrease in total contract value is primarily related to large statewide contracts that closed in the first quarter of 2023.

These multi-year contracts are still in effect in 2024.

In addition, there may be an increase in one time sales as a result of initial installations related to the development of recurring revenue.

Performance Obligations

As of March 31, 2024, we had approximately $22,912,000 of contracts that were closed prior to March 31, 2024 but have a contractual period beyond March 31, 2024.

As of June 30, 2024, we had approximately $21,023,000 of contracts that were closed prior to June 30, 2024 but have a contractual period beyond June 30, 2024.

This represents a decrease of $5,367,000 or 20% compared to $26,390,000 of performance obligations as of December 31, 2023.

4 unchanged sentences

Lease Obligations

As of March 31, 2024, we had material leased building space at the following locations in the U.S.

As of June 30, 2024, we had material leased building space at the following locations in the U.S.

Columbia, Maryland – The corporate headquarters

4 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities

1 unchanged sentence

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 three months ended March 31, 2024 had a decrease of $1,604,000, which was primarily attributable to the timeliness of collections related to our accounts receivable balance.

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

Net cash used in operating activities for the six months ended June 30, 2024 had a decrease of $1,274,000, which was primarily attributable to the timeliness of collections related to our accounts receivable balance.

The increase in net cash used in investing activities of $9,231,000 was primarily due to the net cash outflow of $9,222,000 related to the acquisition of ATD.

Net cash provided by financing activities for the three months ended March 31, 2024 decreased by $7,073,000 from the prior three month period ended March 31, 2023.

During the three months ended March 31, 2024, as part of our 2024 Public Offering, we received net proceeds of $26,362,000, these proceeds were partially offset by the repayment of our 2023 Promissory Notes.

During the three months ended March 31, 2023, as part of the 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,159,000, respectively.

For the three months ended March 31, 2024 and 2023, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity.

As of March 31, 2024, we had cash and cash equivalents of $12,267,000 and working capital of $5,241,000, as compared to cash and cash equivalents of $15,713,000 and working capital of $8,100,000 as of December 31, 2023.

Net cash provided by financing activities for the six months ended June 30, 2024 decreased by $5,104,000 from the prior six month period ended June 30, 2023.

During the six months ended June 30, 2024, as part of our 2024 Public Offering, we received net proceeds of $26,362,000, these proceeds were partially offset by the repayment of our 2023 Promissory Notes.

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

For the three and six months ended June 30, 2024 and 2023, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity.

As of June 30, 2024, we had cash and cash equivalents and restricted cash of $3,417,000 and a working capital deficit of $3,375,000, as compared to cash and cash equivalents and restricted cash of $15,713,000 and working capital of $8,100,000 as of December 31, 2023.

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 consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.

3 unchanged sentences

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 three months ended March 31, 2024, we had working capital of $5,241,000 and a loss of $18,614,000.

Our cash decreased by $3,446,000 for the three months ended March 31, 2024 primarily due to the cash paid to acquire ATD and redeem the 2023 Promissory Notes and the net loss of $18,614,000, partially offset by external financing activity.

As of and for the six months ended June 30, 2024, we had working capital deficit of $3,375,000 and a net loss of $28,409,000.

Our cash decreased by $12,296,000 for the six months ended June 30, 2024 primarily due to the cash paid to acquire ATD and redeem the 2023 Promissory Notes and the net loss of $28,409,000, partially offset by external financing activity.

7 unchanged sentences

The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, was $2,388,000, or approximately $26,362,000 in aggregate for the 2024 Public Offering including the exercise of the Underwriters’ Option.

As of March 31, 2024, we did not have any material commitments for capital expenditures.

As of June 30, 2024, we did not have any material commitments for capital expenditures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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