• Filing Date: 2019-11-15
  • Form Type: 10-Q/A
  • Description: Quarterly report (Amendment)
v3.19.3
STOCKHOLDERS' (DEFICIT) EQUITY
9 Months Ended
Sep. 30, 2019
Stockholders' Equity Attributable to Parent [Abstract]  
STOCKHOLDERS' (DEFICIT) EQUITY

Common Stock

 

The Company is authorized to issue 30,000,000 shares of common stock, $0.0001 par value. As of September 30, 2019, and December 31, 2018, the issued and outstanding common shares of Rekor were 20,406,489 and 18,767,619, respectively.

 

In January 2018, the Company issued 33,333 shares of Rekor common stock as consideration as part of its acquisition of Secure Education.

 

In April 2018, the Company issued 35,000 shares of Rekor common stock as additional consideration to the 2018 Lender in connection with the 2018 Promissory Note.

 

On November 1, 2018, the Company issued 4,125,000 shares of common stock through an underwritten public offering at a public offering price of $0.80 per share. Net proceeds to the Company was approximately $2,800,000. In addition, the Company granted underwriters a 45-day option to purchase up to 618,750 additional shares of common stock to cover over-allotment, if any. The underwriters did not exercise this option and the options were cancelled. As part of the consideration to the underwriters, the Company issued to the underwriters warrants to purchase an aggregate of 206,250 shares of common stock, exercisable over a period of five years, at an exercise price of $1.00 per share. As of September 30, 2019, the underwriter warrants had an estimated value of approximately $200,000 and became exercisable commencing April 27, 2019 and expire on October 29, 2023.

 

For the nine months ended September 30, 2018, the Company issued 13,998 shares of Rekor common stock related to the exercise of common stock options. There were no stock options exercised for the nine months ended September 30, 2019.

  

On February 15, 2019, the Company entered into Amendment No. 1 to the OpenALPR Purchase Agreement, pursuant to which the Company agreed to issue 600,000 shares of Rekor common stock as partial consideration for the acquisition of the OpenALPR Technology. On March 12, 2019, the Company issued 600,000 shares of Rekor common stock as part of the consideration for the acquisition of the OpenALPR Technology. 

 

For the nine months ended September 30, 2019 and 2018, the Company issued 1,638,870 and 82,331 shares of Rekor common stock, respectively. Out of these, 931,666 shares of Rekor common stock were issued in exchange for cash and cashless exercise of 1,149,806 warrants during 2019, 600,000 shares were issued in connection the acquisition of OpenALPR, 3,638 shares were issued as part of the exercise of warrants related to series A preferred stock and 103,566 shares were issued in connection with the Sales Agreement.

 

At-the-Market Offering

 

On August 14, 2019, the Company entered into the Sales Agreement with B. Riley FBR, Inc. (“B. Riley FBR”) to create an at-the-market equity program under which the Company from time to time may offer and sell shares of its common stock, having an aggregate offering price of up to $15,000,000, through or to B. Riley FBR. Subject to the terms and conditions of the Sales Agreement, B. Riley FBR will use its commercially reasonable efforts to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions. B. Riley FBR will be entitled to a commission equal to 3.0% of the gross proceeds from each sale. The Company incurred issuance costs of approximately $256,000 related to legal, accounting, and other fees in connection with the Sales Agreement. These costs were charged against the gross proceeds of the Sales Agreement and presented as a reduction to additional paid-in capital on the unaudited condensed consolidated balance sheets.

 

Sales of the Company’s common stock under the Sales Agreement are to be issued and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No 333-224423), previously filed with the Securities and Exchange Commission (“SEC”) on April 24, 2018 and declared effective by the SEC on April 30, 2018. In September 2019, based on settlement date, the Company sold 103,566 shares of common stock at a weighted-average selling price of $2.84 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $29,000 after paying $256,000 related to the issuance costs stated above, as well as, 3.0% or $9,000 related to cash commissions provided to B. Riley FBR. As of September 30, 2019, $14,706,000 remained available for sale under the Sales Agreement.

 

Preferred Stock

 

The Company is authorized to issue up to 2,000,000 shares of preferred stock, $0.0001 par value. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of the winding-up of its affairs. The authorized but unissued shares of the preferred stock may be divided into, and issued in, designated series from time to time by one or more resolutions adopted by the Board of Directors of the Company. The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock.

 

Series A Cumulative Convertible Redeemable Preferred Stock

 

Of the 2,000,000 authorized shares of preferred stock, 505,000 shares are designated as $0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”). The holders of Series A Preferred Stock are entitled to quarterly dividends of 7.0% per annum per share. The holders of Series A Preferred Stock have a right to convert each share into common stock at an initial conversion price and a specified conversion price which increases annually based on the passage of time beginning in November 2019. The holders of Series A Preferred Stock also have a put right after 60 months from the issuance date to redeem any or all of the Series A Preferred Stock at a redemption price of $15.00 per share plus any accrued but unpaid dividends. The Company has a call right after 36 months from the issuance date to redeem all of the Series A Preferred Stock at a redemption price which increases annually based on the passage of time beginning in November 2019. The Series A Preferred Stock contains an automatic conversion feature based on a qualified initial public offering in excess of $30,000,000 or a written agreement by at least two-thirds of the holders of Series A Preferred Stock at an initial conversion price and a specified price which increases annually based on the passage of time beginning in November 2016. Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

 

The Company adjusts the value of the Series A Preferred Stock to redemption value at the end of each reporting period. The adjustment to the redemption value was recorded through additional-paid-in-capital of $191,000 and $167,000 for the three months ended September 30, 2019 and 2018, respectively and $554,000 and $483,000 for the nine months ended September 30, 2019 and 2018, respectively.

 

As of September 30, 2019, and December 31, 2018, 502,327 shares of Series A Preferred Stock were issued and outstanding, respectively.

 

The holders of Series A Preferred Stock are entitled to quarterly cash dividends of $0.175 (7% per annum) per share. Dividends accrue quarterly and dividend payments for declared dividends are due within five business days following the end of a quarter. For the nine months ended September 30, 2019 and 2018, the Company paid cash dividends of $0 and $264,000, respectively, to shareholders of record of Series A Preferred Stock. Accrued dividends payable to Series A Preferred Stock shareholders were $440,000 and $176,000 as of September 30, 2019 and December 31, 2018, respectively, and are presented as part of the accounts payables and accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

 

Series B Cumulative Convertible Preferred Stock

 

Of the 2,000,000 authorized shares of preferred stock, 240,861 shares are designated as $0.0001 par value Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). The Series B Preferred Stock has a conversion price of $5.00 per share. Each Series B Preferred Stock has an automatic conversion feature based on the share price of the Company. The holders of Series B Preferred Stock are entitled to quarterly cash dividends of 1.121% (4.484% per annum) per share. Dividends accrue quarterly and dividend payments for declared dividends are due within five business days following the end of a quarter. Accrued dividends payable to Series B Preferred Stock shareholder were $27,000 and $54,000 as of September 30, 2019 and December 31, 2018, respectively and are included in accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

 

Warrants

 

The Company had warrants outstanding that are exercisable into a total of 2,251,232 and 1,214,491 shares of Rekor common stock as of September 30, 2019 and December 31, 2018, respectively.

 

As part of its acquisition of Brekford on August 29, 2017, the Company assumed Brekford’s obligations with respect to the Brekford Warrants. The exercise price for the Brekford Warrants was $7.50 and they expired on March 31, 2020. Effective October 16, 2018, the Company entered into exchange agreements with holders of the Brekford Warrants pursuant to which the Company issued to the holders an aggregate of 96,924 shares of common stock in exchange for the return of the warrants to the Company for cancellation. As of September 30, 2019, and December 31, 2018, no Brekford Warrants were outstanding.

 

As part of a Regulation A Offering in fiscal year 2016 and 2017, the Company issued warrants to the holders of Series A Preferred Stock. The exercise price for these warrants is $1.03 and they are exercisable into a total of 240,015 and 243,655 shares of Rekor common stock as of September 30, 2019 and December 31, 2018, respectively. The warrants expire on November 23, 2023. In August 2019, 7,500 of the outstanding warrants were exercised and converted into 3,638 shares of the Company's common stock.

 

As part of the acquisition of Firestorm on January 24, 2017, the Company issued: warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $2.5744 per share; and warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $3.6083 per share (the “Firestorm Warrants”). The expiration date of the Firestorm Warrants is January 24, 2022. As of September 30, 2019, and December 31, 2018, there were 631,254 Firestorm Warrants outstanding.

 

Pursuant to its acquisition of BC Management on December 31, 2017, the Company issued: warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share; and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “BC Management Warrants”). The expiration date of the BC Management Warrants was December 31, 2022. As of December 31, 2018, there were 66,666 BC Management Warrants outstanding. The BC Management Warrants were surrendered on May 17, 2019, due to the discontinuance of operations of BC Management, and as of September 30, 2019 there were no BC Management Warrants outstanding.

 

Pursuant to its acquisition of Secure Education on January 1, 2018, the Company issued: warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share; and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “Secure Education Warrants”). The expiration date of the Secure Education Warrants is January 1, 2023. As of September 30, 2019, and December 31, 2018, there were 66,666 Secure Education Warrants outstanding.

 

On November 1, 2018, in connection with an underwritten public offering of its common stock, the Company issued to the underwriters warrants to purchase 206,250 shares of its common stock, exercisable over a period of five years, at an exercise price of $1.00 per share. These warrants have a value of approximately $200,000 and are exercisable commencing April 27, 2019 and expire on October 29, 2023. During the nine months ended September 30, 2019, 186,681 warrants were exercised in cash and cashless transactions resulting in the issuance of 148,279 shares of common stock. As of September 30, 2019, and December 31, 2018, 16,437 and 206,250 warrants related to the 2018 underwritten public offering remain outstanding, respectively.

 

On March 12, 2019, in connection with the 2019 Promissory Notes, the Company issued warrants to purchase 2,500,000 shares of its common stock, which are immediately exercisable at an exercise price of $0.74 per share, to certain individuals and entities (see Note 7). Of the 2,500,000 warrants, 625,000 were issued as partial consideration for its acquisition of the OpenALPR Technology (see Note 4). During the nine months ended September 30, 2019, 963,125 warrants were exercised in cashless transactions resulting in the issuance of 783,387 shares of common stock. As of September 30, 2019, 1,536,875 warrants related to the 2019 Promissory Notes remain outstanding.