• Filing Date: 2019-11-15
  • Form Type: 10-Q/A
  • Description: Quarterly report (Amendment)
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 14, 2019
Document And Entity Information    
Entity Registrant Name Rekor Systems, Inc.  
Entity Central Index Key 0001697851  
Document Type 10-Q/A  
Document Period End Date Sep. 30, 2019  
Amendment Flag true  
Amendment Description For the purpose of filing XBRL.  
Current Fiscal Year End Date --12-31  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   21,033,005
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS    
Cash and cash equivalents $ 1,273 $ 2,069
Restricted cash and cash equivalents 708 609
Accounts receivable, net 4,714 2,976
Inventory 385 73
Other current assets, net 106 167
Current assets held for sale 3,529 2,636
Total current assets 10,715 8,530
Property and equipment, net 1,712 1,291
Right-of-use lease assets, net 761 0
Goodwill 6,336 1,402
Intangible assets, net 7,300 2,627
Deposits and other long-term assets 13 51
Long- term assets held for sale 3,986 4,154
Total assets 30,823 18,055
CURRENT LIABILITIES    
Accounts payable and accrued expenses 5,568 3,437
Short-term borrowings 1,558 566
Notes payable, current portion 0 2,469
Lease liability, short term 296 0
Contract liabilities 720 207
Current liabilities held for sale 2,680 1,895
Total current liabilities 10,822 8,574
Notes payable 20,076 875
Lease liability, long term 673 0
Deferred rent 0 8
Contract liabilities, long term 775 0
Long term liabilities held for sale 179 90
Total liabilities 32,525 9,547
Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value, 505,000 shares authorized and 502,327 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively 5,606 5,052
Commitment and Contingencies
STOCKHOLDERS' (DEFICIT) EQUITY    
Common stock, $0.0001 par value, 30,000,000 shares authorized, 20,406,489 and 18,767,619 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively 2 2
Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of September 30, 2019 and December 31, 2018, respectively
Series B Cumulative Convertible Preferred stock, $0.0001 par value, 240,861 shares authorized, issued and outstanding as of September 30, 2019 and December 31, 2018, respectively 0 0
Additional paid-in capital 16,526 15,518
Accumulated deficit (23,836) (12,064)
Total stockholders' (deficit) equity (7,308) 3,456
Total liabilities and stockholders' (deficit) equity $ 30,823 $ 18,055
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized 2,000,000 2,000,000
Preferred stock, issued 240,861 240,861
Preferred stock, outstanding 240,861 240,861
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized 30,000,000 30,000,000
Common stock, issued 20,406,489 18,767,619
Common stock, outstanding 20,406,489 18,767,619
Series A    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized 505,000 505,000
Preferred stock, issued 502,327 502,327
Preferred stock, outstanding 502,327 502,327
Series B    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized 240,861 240,861
Preferred stock, issued 240,861 240,861
Preferred stock, outstanding 240,861 240,861
v3.19.3
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenue:        
Technology $ 1,536 $ 892 $ 3,962 $ 2,639
Professional Services 3,447 5,015 10,922 12,632
Total revenue 4,983 5,907 14,884 15,271
Cost of revenue:        
Technology 390 405 1,152 1,101
Professional Services 1,842 2,561 5,868 6,433
Total cost of revenue 2,232 2,966 7,020 7,534
Gross profit:        
Technology 1,146 487 2,810 1,538
Professional Services 1,605 2,454 5,054 6,199
Gross profit 2,751 2,941 7,864 7,737
OPERATING EXPENSES:        
General and administrative expenses 3,039 2,954 10,435 9,953
Selling and marketing expenses 1,343 297 2,012 1,095
Research and development expenses 450 5 757 127
Impairment of intangible assets 0 0 1,549 0
Operating expenses 4,832 3,256 14,753 11,175
Loss from operations (2,081) (315) (6,889) (3,438)
Other income (expense):        
Loss on extinguishment of debt (45) 0 (1,158) 0
Interest expense (1,228) (214) (2,832) (412)
Other income (expense) (102) 1 (99) 201
Total other expense (1,375) (213) (4,089) (211)
Loss before income taxes (3,456) (528) (10,978) (3,649)
Income tax provision 0 0 0 0
Net loss from continuing operations (3,456) (528) (10,978) (3,649)
Income (loss) from operations held for sale (160) 47 (415) 52
Income tax provision from operations held for sale (12) (22) (35) (22)
Net income (loss) from operations held for sale (172) 25 (450) 30
Net loss $ (3,628) $ (503) $ (11,428) $ (3,619)
Loss per common share from continuing operations - basic and diluted $ (0.19) $ (0.06) $ (0.61) $ (0.31)
Income (loss) per common share from operations held for sale - basic and diluted (0.01) 0.01 (0.02) .00
Loss per common share - basic and diluted $ (0.20) $ (0.05) $ (0.63) $ (0.31)
Weighted average shares outstanding        
Basic and diluted 19,878,518 14,542,362 19,592,679 14,524,030
v3.19.3
Condensed Consolidated Statements of Changes in Stockholders' (Deficit) Equity - USD ($)
$ in Thousands
Common Stock
Series B
Additional Paid-In Capital
Accumulated Deficit
Total
Beginning balance, shares at Dec. 31, 2017 14,463,364 240,861      
Beginning balance, amount at Dec. 31, 2017 $ 1 $ 0 $ 12,343 $ (5,834) $ 6,510
Adjustment to adopt new accounting guidance revenue recognition       (67) (67)
Beginning balance, shares at January 1, 2018 14,463,364 240,861      
Beginning balance, amounts at January 1, 2018 $ 1 $ 0 12,343 (5,901) 6,443
Stock-based compensation     296   296
Issuance of warrants     123   123
Common stock issued in Secure Education Consultants acquisition, shares 33,333        
Common stock issued in Secure Education Consultants acquisition, amount $ 0   163   163
Issuance related to note payable, shares 35,000        
Issuance related to note payable, amount $ 0   126   126
Issuance upon exercise of stock options, shares 13,998        
Issuance upon exercise of stock options, amount $ 0   23   23
Preferred stock dividends       (345) (345)
Accretion of Series A preferred stock     (483)   (483)
Net loss (3,619) (3,619)
Ending balance, shares at Sep. 30, 2018 14,545,695 240,861      
Ending balance, amount at Sep. 30, 2018 $ 1 $ 0 12,591 (9,865) 2,727
Beginning balance, shares at Jun. 30, 2018 14,535,695 240,861      
Beginning balance, amount at Jun. 30, 2018 $ 1 $ 0 12,655 (9,247) 3,409
Stock-based compensation     87   87
Issuance upon exercise of stock options, shares 10,000        
Issuance upon exercise of stock options, amount $ 0   16   16
Preferred stock dividends       (115) (115)
Accretion of Series A preferred stock     (167)   (167)
Net loss (503) (503)
Ending balance, shares at Sep. 30, 2018 14,545,695 240,861      
Ending balance, amount at Sep. 30, 2018 $ 1 $ 0 12,591 (9,865) 2,727
Beginning balance, shares at Dec. 31, 2018 18,767,619 240,861      
Beginning balance, amount at Dec. 31, 2018 $ 2 $ 0 15,518 (12,064) 3,456
Stock-based compensation     314   314
Issuance of warrants in conjunction with notes payable     706   $ 706
Exercise of cashless warrants in exchange for common stock 828,541       0
Exercise of warrants in exchange for common stock 103,125        
Exercise of warrants in exchange for common stock, amount     103   $ 103
Common stock issued in OpenALPR Technology acquisition, shares 600,000        
Common stock issued in OpenALPR Technology acquisition, amount $ 0   397   397
Issuance of common stock pursuant to at the market offering net, shares 103,566        
Issuance of common stock pursuant to at the market offering net, amount $ 0   38   38
Exercise of warrants related to series A preferred stock, shares 3,638        
Exercise of warrants related to series A preferred stock, amount $ 0   4   4
Preferred stock dividends       (344) (344)
Accretion of Series A preferred stock     (554)   (554)
Net loss (11,428) (11,428)
Ending balance, shares at Sep. 30, 2019 20,406,489 240,861      
Ending balance, amount at Sep. 30, 2019 $ 2 $ 0 16,526 (23,836) (7,308)
Beginning balance, shares at Jun. 30, 2019 19,382,185 240,861      
Beginning balance, amount at Jun. 30, 2019 $ 2 $ 0 16,496 (20,094) (3,596)
Stock-based compensation     76   $ 76
Exercise of cashless warrants in exchange for common stock 813,975       0
Exercise of warrants in exchange for common stock 103,125        
Exercise of warrants in exchange for common stock, amount     103   $ 103
Issuance of common stock pursuant to at the market offering net, shares 103,566        
Issuance of common stock pursuant to at the market offering net, amount $ 0   38   38
Exercise of warrants related to series A preferred stock, shares 3,638        
Exercise of warrants related to series A preferred stock, amount $ 0   4   4
Preferred stock dividends       (114) (114)
Accretion of Series A preferred stock     (191)   (191)
Net loss (3,628) (3,628)
Ending balance, shares at Sep. 30, 2019 20,406,489 240,861      
Ending balance, amount at Sep. 30, 2019 $ 2 $ 0 $ 16,526 $ (23,836) $ (7,308)
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (11,428) $ (3,619)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 295 236
Amortization of right-of-use lease asset 158 0
Share-based compensation 314 296
Amortization of financing costs 768 69
Deferred rent 0 (11)
Change in fair value of derivative liability 0 (77)
Amortization of intangible assets 965 557
Impairment of intangible assets 1,549 0
Loss on extinguishment of debt 1,158 0
Loss on abandonment of lease 70 0
Loss on sale of Secure Education 3 0
Changes in operating assets and liabilities:    
Accounts receivable (2,487) (106)
Inventory (312) 31
Deposits 38 0
Other current assets 74 33
Accounts payable and accrued expenses 1,628 953
Contract liabilities 900 (20)
Lease liability (28) 0
Net cash used in operating activities continuing operations (6,335) (1,658)
Net cash (used in) provided by operating activities, held for sale operations (2,920) 560
Net cash used in operating activities (9,255) (1,098)
CASH FLOWS FROM INVESTING ACTIVITIES    
Proceeds from sale of note receivable 0 1,475
Proceeds from sale of Secure Education 250 0
Capital expenditures (656) (1,007)
Net cash (used in) provided by investing activities, continuing operations (406) 468
Net cash provided by investing activities - held for sale operations 0 51
Net cash (used in) provided by investing activities (406) 519
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from short-term borrowings 2,315 0
Repayments of short-term borrowings (296) (1,025)
Net proceeds from notes payable 3,839 2,000
Net proceeds from exercise of options 0 23
Net proceeds from exercise of warrants 103 0
Net proceeds from exercise of warrants associated to series A preferred stock 4 0
Net proceeds from at-the-market agreement 38 0
Payment of preferred dividends (108) (345)
Net cash provided by financing activities continuing operations 5,895 653
Net cash provided by (used in) financing activities held for sale operations 3,205 (547)
Net cash provided by financing activities 9,100 106
Net decrease in cash, cash equivalents and restricted cash, continuing operations (846) (537)
Net increase in cash, cash equivalents and restricted cash and cash equivalents held for sale operations 285 64
Net decrease in cash, cash equivalents and restricted cash and cash equivalents (561) (473)
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period 2,768 1,957
Cash, cash equivalents and restricted cash and cash equivalents at end of period 2,207 1,484
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents:    
Cash and cash equivalents at end of period 1,273 1,393
Restricted cash and cash equivalents at end of period 708 0
Cash and cash equivalents at end of period held for sale operations 226 91
Cash, cash equivalents and restricted cash and cash equivalents at end of period $ 2,207 $ 1,484
v3.19.3
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated interim financial statements of Rekor Systems, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. 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 consolidated financial position as of September 30, 2019, the consolidated results of operations, consolidated statements of shareholders’ (deficit) equity and consolidated statements of cash flows for the three and nine months ended September 30, 2019 and 2018.

 

The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.

 

These condensed unaudited 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, 2018. The condensed consolidated balance sheet data as of December 31, 2018 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2018 but does not include all disclosures required by U.S. GAAP for annual financial statements.

 

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

 

Certain prior year amounts have been reclassified to conform with the current year presentation. Beginning in the second quarter of 2019, sales and marketing expenses and research and development expenses have been presented separately from general and administrative expenses on the condensed consolidated statements of operations, whereas in prior periods these amounts were included in one caption titled "selling, general and administrative expenses." Amounts for the first quarter of 2019 and for the period ending December 31, 2018, have been reclassified to conform to the current year presentation.

 

Rekor Systems, Inc. (the “Company” or “Rekor”), (formerly Novume Solutions, Inc.) was formed in February 2017 to effectuate the mergers of, and become a holding company for KeyStone Solutions, LLC. (“KeyStone”) and Brekford Traffic Safety, Inc. (“Brekford”). On February 28, 2019, the Company changed the name of its wholly owned subsidiary, Brekford Traffic Safety, Inc. to Rekor Recognition Systems, Inc. (“Rekor Recognition”). On April 26, 2019, the Company changed its name from Novume Solutions, Inc. to Rekor Systems, Inc.

 

In March 2019, Rekor acquired certain assets and certain liabilities of OpenALPR Technology, Inc. (such assets and liabilities being referred to herein as “OpenALPR Technology”) through its subsidiary, OpenALPR Software Solutions, LLC (“OpenALPR”). The financial information in this Quarterly Report only includes OpenALPR in the results of operations beginning as of March 12, 2019 (see Note 4).

 

 During the third quarter of 2019, the Company began to separately report the results of Global Technical Services, Inc. and Global Contract Professionals, Inc, (together “Global”), the Company’s wholly owned subsidiaries, including substantially all of the assets and liabilities comprising Global, as operations held for sale. The Company is reporting the operating results and cash flows of Global as operations held for sale, and thus they have been excluded from continuing operations and segment results for all periods presented. Prior to the third quarter of 2019, the operating results for Global were presented in the Professional Services segment. The assets and liabilities of Global are presented as current and long-term assets and liabilities held for sale in the condensed consolidated balance sheets and its results are presented as income (loss) from operations held for sale in the condensed consolidated statement of operations. See Note 16 for additional information regarding the Company's held for sale operations. should be During the third quarter of 2019, the Company began to separately report the results of Global Technical Services, Inc. and Global Contract Professionals, Inc., (together “Global”), the Company’s wholly owned subsidiaries, including substantially all of the assets and liabilities comprising Global, as operations held for sale. The Company is reporting the operating results and cash flows of Global as operations held for sale, and thus they have been excluded from continuing operations and segment results for all periods presented. Prior to the third quarter of 2019, the operating results for Global were presented in the Professional Services segment. The assets and liabilities of Global are presented as current and long-term assets and liabilities held for sale in the unaudited condensed consolidated balance sheets and its results are presented as income (loss) from operations held for sale in the unaudited condensed consolidated statement of operations. In cases where the carrying value amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Due to the held for sale classification of Global, certain amounts have been reclassified in order to conform to the current period presentation. See Note 16 for additional information regarding the Company's held for sale operations.

 

Use of Estimates

 

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual amounts may differ from these estimates. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, fair value of debt and equity instruments, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.

 

Going Concern Assessment

 

For all annual and interim periods, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions. These assumptions including among other factors, the expected timing and nature of the Company’s programs and projected cash expenditures, its ability to delay or curtail these expenditures or programs and its ability to raise additional capital, if necessary, to the extent management has the proper authority to execute them and considers it probable that those implementations can be achieved within the look-forward period.

 

The Company has generated losses since its inception in August 2017 and has relied on cash on hand, secured borrowing arrangements, the sale of a note, debt financing, and public offering of its common stock, including its on-going At-the-Market Issuance Sales Agreement (the “Sales Agreement”) offering as disclosed below, to support cash flows from operations. As of and for the nine months ended September 30, 2019, the Company had a net loss from continuing operations of $11,428,000 and a working capital deficit of $107,000. The Company's net cash position was decreased by $561,000 for the nine months ended September 30, 2019 due to the net loss from operations, offset by the proceeds of $20,000,000 senior secured notes, of which $5,000,000 was issued as a note payable to the seller, offset by $7,000,000 of cash paid for the acquisition of OpenALPR, and approximately $6,227,000 related to the extinguishment of debt and associated fees related to acquiring new debt (see Note 7).

 

Management believes that based on relevant conditions and events that are known and reasonably knowable, its current forecasts and projections, for one year from the date of the filing of the consolidated financial statements in this Quarterly Report on Form 10-Q, indicate the Company’s ability to continue operations as a going concern for that one-year period. The Company is actively monitoring its operations, cash on hand and working capital. Additionally, As of September 30, 2019, the Company believes it has access to raise up to $14,706,000 through the Sales Agreement (see Note 9). The Company will continue to raise capital through the Sales Agreement to help fund operations. Should access to those funds be unavailable, the Company will need to seek out additional sources of funding. Furthermore, the Company has contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period or additional financing, if needed, is not available.

  

Goodwill and Intangible Assets

 

In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment, if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually, and whenever indicators of impairment exist. The fair value of intangible assets is compared with their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value.

  

During the second quarter of 2019 the Company wrote-off $1,549,000 of intangible assets associated with the Company's wholly owned subsidiaries Firestorm Solutions, LLC and Firestorm Franchising LLC (collectively, “Firestorm”), and BC Management, Inc. (“BC Management”) (see Note 5).

 

 Revenue Recognition

 

The Company derives its revenues substantially from two sources: (1) subscription revenues for software licenses, technology products and services, and (2) and professional services to clients.

 

Revenue is recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. If the consideration promised in the contract includes a variable amount, for example maintenance fees, the Company includes an estimate of the amount it expects to receive for the total transaction price, if it is probable that a significant reversal of cumulative revenue recognized will not occur.

 

The Company determines the amount of revenue to be recognized through application of the following steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when, or as, performance obligations are satisfied

 

 The subscription revenues for software licenses, technology products and services revenues are comprised of fees that provide customers with access to the software licenses and related support and updates during the term of the arrangement. Revenue is generally recognized ratably over the contract term. During the second quarter of 2019, the Company changed its method of selling in the Technology Segment from perpetual software licenses to monthly service subscriptions. This change is expected to impact the Company's revenue in the short term. However, the amount of contract revenue received over the long term impact is expected to be relatively consistent. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions.

 

The Company’s professional services contracts recognize revenue based on a time and materials or fixed fees basis. These revenues are recognized as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts, or ratably over the contact term for fixed price contracts with subscription services.

   

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (included within accounts receivable, net), and contract liabilities (deferred revenue) on the condensed consolidated balance sheet. When billings occur after the work has been performed, 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 receivables of $963,000 and $824,000 were included in accounts receivable, net, in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. Additionally, unbilled receivables of $469,000 and $301,000 were included in current assets held for sale in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.

 

When the Company advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next six months to five years, depending on the subscription or licensing period. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the nine months ended September 30, 2019 were not materially impacted by any other factors. Contract liabilities from the period ended September 30, 2019 and December 31, 2018 were $1,495,000 and $207,000 respectively. All contract liabilities as of September 30, 2019 and December 31, 2018 were attributable to continued operations. During the nine months ended September 30, 2019 all of the contract liabilities balance as of December 31, 2018 was recognized as revenue.

 

The services due for contract liabilities described above are shown below as of September 30, 2019 (dollars in thousands):

 

2019   $ 246  
2020     544  
2021     223  
2022     200  
2023     189  
Thereafter     93  
Total   $ 1,495  

 

Segment Reporting

 

The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Beginning with the first quarter of 2019, the Company changed its operating and reportable segments from one segment to two segments: the Technology Segment and the Professional Services Segment. The two segments reflect the Company’s separate focus on technology products and services versus professional services. (See Note 3)

 

The Technology Segment is responsible for the activities in developing technology and distributing and licensing products and services with vehicle recognition features. In connection with this effort in March 2019, the Company acquired OpenALPR Technology (See Note 4). The Professional Services Segment is responsible for the activities that provide professional services for government contracting market, as well as staffing services for the aerospace and aviation markets.

   

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased with the maturity of three months or less to be cash equivalents.

 

Cash subject to contractual restrictions and not readily available for use is classified as restricted cash and cash equivalents. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash and cash equivalents for these client jurisdictions as of September 30, 2019 and December 31, 2018 were $708,000 and $609,000, respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, restricted cash and cash equivalents, inventory, accounts receivable and accounts payable approximate fair value as of September 30, 2019 and December 31, 2018 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of September 30, 2019 and December 31, 2018 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 Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; 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.

 

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.

 

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 2 and Level 3 inputs.

 

The Company has concluded that its Series A Preferred Stock is a Level 3 financial instrument and that the fair value approximates the carrying value, which includes the accretion of the discounted interest component through September 30, 2019. There were no changes in levels during the three and nine months ended September 30, 2019 and 2018.

 

Concentrations of Credit Risk

 

The Company places its temporary cash investments with higher rated quality financial institutions located in the United States (“U.S.”). As of September 30, 2019 and December 31, 2018, the Company had deposits from continuing operations totaling $1,981,000 and $2,678,000 from continuing operations, respectively, in two and three U.S. financial institutions that were federally insured up to $250,000 per account, respectively.

 

The Company has a market concentration of revenue and accounts receivable, from continuing operations, in its Professional Services Segment related to its customer base.

 

Company A accounted for 21% and 17% of the Company’s total revenues for the nine months ended September 30, 2019 and 2018, respectively, and 17% and 22% of the Company’s total revenue for the three months ended September 30, 2019 and 2018, respectively.

 

Company B accounted for 16% and less than 10% of the Company’s total revenues for the nine months ended September 30, 2019 and 2018, respectively, and 12% and 11% of the Company’s total revenue for the three months ended September 30, 2019 and 2018, respectively.

 

As of September 30, 2019, accounts receivable from Company A totaled $902,000 or 19% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2018, Company A and Company B accounted for $1,043,000, or 35%, and $483,000, or 16%, 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 revenue for the nine months ended September 30, 2019 or unaudited condensed consolidated accounts receivable balance as of September 30, 2019.

v3.19.3
NEW ACCOUNTING PRONOUNCEMENTS
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements effective in the nine months ended September 30, 2019

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. Effective January 1, 2019, the Company adopted ASU 2016-02, as amended, which requires lessees to recognize a right-of-use (“ROU”) lease assets and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. The Company adopted ASU 2016-02 using the optional transition method whereby the Company applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment, which after completing the Company’s implementation analysis, resulted in no adjustment to its January 1, 2019 beginning retained earnings balance. On January 1, 2019, the Company recognized $921,000 of ROU operating lease assets and $951,000 of operating lease liabilities, including noncurrent operating lease liabilities of $728,000, as a result of adopting this standard. The difference between ROU operating lease assets and operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. The new standard provides several optional practical expedients for use in transition. The Company elected to use what the FASB has deemed the “package of practical expedients,” which allows the Company not to reassess the Company’s previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. The ASU also provides several optional practical expedients for the ongoing accounting for leases. The Company has elected the short-term lease recognition exemption for all leases that qualify, meaning that for leases with terms of twelve months or less, the Company will not recognize ROU assets or lease liabilities on the Company’s unaudited condensed consolidated balance sheet. Additionally, the Company has elected to use the practical expedient to not separate lease and non-lease components for leases of real estate, meaning that for these leases, the non-lease components are included in the associated ROU asset and lease liability balances on the Company’s unaudited condensed consolidated balance sheet. The comparative periods have not been restated for the adoption of ASU 2016-02.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. ASU 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted but no earlier than an entity’s adoption date of Topic 606. The Company adopted the provisions of ASU 2018-07 effective January 1, 2019. Adopting ASU 2018-07 had no impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting (“ASU 2017-09”), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. ASU 2017-09 is effective for fiscal year 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. The Company adopted ASU 2017-09 in 2018 and the impact of the adoption was not material to its unaudited condensed consolidated financial statements and related disclosures.

 

New accounting pronouncements not yet effective

 

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. 

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the effect that ASU 2018-13 will have on its consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). To simplify the subsequent measurement of goodwill, ASU 2017-04 requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of October 1, and whenever indicators of impairment exist. The Company is currently evaluating the effect that ASU 2017-04 will have on its financial statements and related disclosures. 

 

The Company does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

v3.19.3
BUSINESS SEGMENTS
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
BUSINESS SEGMENTS

FASB ASC Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Beginning with the first quarter of 2019, the Company changed its operating and reportable segments from one segment to two segments: the Technology Segment and the Professional Services Segment. The two segments reflect the Company’s separate focus on technology products and services versus professional services.

 

The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance.

 

Summarized financial information concerning the Company’s reportable segments is presented below (dollars in thousands):

 

    Technology     Professional Services     Corporate Services     Consolidated  
                         
Three Months Ended September 30, 2019                        
Revenues   $ 1,536     $ 3,447     $ -     $ 4,983  
Gross profit     1,146       1,605       -       2,751  
Income (loss) from operations     (722 )     365       (1,724 )     (2,081 )
Loss from operations held for sale     -       (21 )     -       (21 )
                                 
Three Months Ended September 30, 2018                                
Revenues   $ 892     $ 5,015     $ -     $ 5,907  
Gross profit     487       2,454       -       2,941  
Income (loss) from operations     (83 )     446       (678 )     (315 )
Income from operations held for sale     -       77       -       77  
                                 
Nine Months Ended September 30, 2019                                
Revenues   $ 3,962     $ 10,922     $ -     $ 14,884  
Gross profit     2,810       5,054       -       7,864  
Loss from operations*     (1,312 )     (1,606 )     (3,971 )     (6,889 )
Loss from operations held for sale     -       (177 )     -       (177 )
* Including intangible assets impairment     -       1,549       -       1,549  
                                 
Nine Months Ended September 30, 2018                                
Revenues   $ 2,639     $ 12,632     $ -     $ 15,271  
Gross profit     1,538       6,199       -       7,737  
Loss from operations     (332 )     (48 )     (3,058 )     (3,438 )
Income from operations held for sale     -       148       -       148  

  

v3.19.3
ACQUISITIONS
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
ACQUISITION

Secure Education Consultants Acquisition

 

On January 1, 2018, the Company completed its acquisition of certain assets of Secure Education Consultants through Firestorm. Consideration paid as part of this acquisition included: $100,000 in cash; 33,333 shares of Rekor common stock valued at $163,000; warrants to purchase 33,333 shares of Rekor common stock, exercisable over a period of five years, at an exercise price of $5.44 per share, valued at $66,000; and warrants to purchase 33,333 of Rekor common stock, exercisable over a period of five years, at an exercise price of $6.53 per share, valued at $57,000.

 

The Company has completed its analysis of the purchase price allocation. The Company recorded $386,000 of customer relationships to intangible assets.

 

The table below shows the final breakdown related to the Secure Education acquisition (dollars in thousands):

 

Cash paid   $ 100  
Common stock issued     163  
Warrants issued at $5.44     66  
Warrants issued at $6.53     57  
Total consideration     386  
Less intangible assets and intellectual property     (386 )
Net goodwill recorded   $ -  

 

On June 1, 2019, the Company sold all its interest in Secure Education for consideration of $250,000. As a result of the Secure Education sale, the Company disposed of $249,000 of net intangible assets, $58,000 of accounts receivables, and $54,000 of accounts payables. This resulted in a loss of $3,000 that is presented as part of general and administrative expenses in the accompanying condensed consolidated statement of operations.

 

OpenALPR Acquisition

 

On November 14, 2018, the Company entered into an Asset Purchase Agreement (the “OpenALPR Purchase Agreement”) by and among the Company, OpenALPR Technology, Inc. and Matthew Hill pursuant to which the Company agreed to purchase all of the assets of OpenALPR Technology Inc. and its subsidiaries, except for certain excluded assets, and assumed certain liabilities as provided for in the OpenALPR Purchase Agreement. The Company agreed to pay $15,000,000, subject to certain adjustments, provided that OpenALPR Technology, Inc. could elect to receive up to 1,000,000 shares of the Company’s common stock, par value, $0.0001 per share, in lieu of up to $5,000,000 in cash valued at a price per share of $5.00.

 

On February 15, 2019, the Company entered into Amendment No. 1 to the OpenALPR Purchase Agreement, pursuant to which the parties agreed to amend the Base Purchase Price to $7,000,000, subject to adjustment after closing, issue a promissory note in the amount of $5,000,000, and issue 600,000 shares of Rekor common stock as consideration for the acquisition of OpenALPR Technology’s assets.

 

On March 8, 2019, the Company entered into Amendment No. 2 to the OpenALPR Asset Purchase Agreement which eliminated the working capital adjustment set forth in the OpenALPR Asset Purchase Agreement, as amended, and replaced it with an adjustment for prepaid maintenance contracts.

 

On March 12, 2019, the Company completed the acquisition of the of OpenALPR Technology and assumed certain assets and liabilities (the “OpenALPR Acquisition”). Consideration paid as part of the OpenALPR Acquisition was: $7,000,000 in cash, subject to adjustment after closing; 600,000 shares of Rekor common stock, valued at $397,000; and $5,000,000 of the 2019 Promissory Notes (see Note 7) principal amount, together with an accompanying warrant to purchase 625,000 shares of Rekor common stock, exercisable over a period of five years, at an exercise price of $0.74 per share, valued at $208,000 (see Note 9).

 

The purchase price allocation to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the acquisition of the OpenALPR Technology occurred on March 12, 2019, the results of operations for OpenALPR from the date of acquisition have been included in the Company’s condensed consolidated statement of operations for the three and nine-months ended September 30, 2019.

 

The final purchase price allocation, completed in the second quarter of 2019, resulted in adjustments to intangible assets of approximately $4,934,000, since the Company’s previous estimates as of March 31, 2019, and primarily related to fair value adjustments to technology-based intangible assets. The final purchase price allocation of the acquisition of OpenALPR is as follows: intangible assets of $7,436,000 and goodwill of $4,934,000 along with net assets acquired of $415,000, and contract obligations assumed of $388,000.

 

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

 

Assets acquired   $ 415  
Liabilities acquired     (388 )
Net assets acquired     27  
Less intangible assets     7,436  
Consideration paid (see below)     (12,397 )
Net Goodwill recorded   $ 4,934  
         
Cash consideration   $ 7,000  
Notes payable     5,000  
Common stock consideration     397  
Total acquisition consideration   $ 12,397  

 

Hill Employment Agreement

 

On November 14, 2018, concurrent with the execution of the OpenALPR Purchase Agreement, the Company entered into an employment agreement with Matthew Hill (the “Hill Employment Agreement”) which became effective as of March 12, 2019, the closing date of the OpenALPR Purchase Agreement.

  

Operations of Combined Entities

 

The following unaudited pro forma combined financial information gives effect to the acquisition of Secure Education and OpenALPR Technology as if they were consummated as of January 1, 2018. This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2018 (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 September 30,     Nine Months Ended September 30,  
    2019     2018     2019     2018  
    (Dollars in thousands, except per share data)     (Dollars in thousands, except per share data)  
Revenues from continuing operations   $ 4,983     $ 6,352     $ 15,853     $ 16,472  
Net loss from continuing operations     (3,456 )     (104 )     (10,170 )     (2,817 )
Basic and diluted loss per share   $ (0.19 )   $ (0.03 )   $ (0.56 )   $ (0.24 )
Basic and diluted number of shares     19,878,518       15,142,362       19,761,363       15,124,030  

 

v3.19.3
INTANGIBLE ASSETS
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
INTAGIBLE ASSETS

Goodwill

 

Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2019 were as follows (dollars in thousands):

 

 

Segment

 

Balance as of

December 31,

2018

   

Open ALPR

Acquisition

   

Balance as of

September 30,

2019

 
Goodwill from continuing operations  Technology   $ 1,402     $ 4,934     $ 6,336  
Goodwill from held for sale operations  Professional Services     1,691       -       1,691  
Total goodwill     $ 3,093     $ 4,934     $ 8,027  

 

Intangible Assets Subject to Amortization

 

The following summarizes the change in intangible assets from December 31, 2018 to September 30, 2019 (dollars in thousands):     

 

   

Balance as of

December 31,

2018

    Additions     Amortization     Impairment     Sale of BCM    

Balance as of

September 30,

2019

 
Intangible assets subject to amortization from continuing operations                                    
Customer relationships   $ 2,475     $ 90     $ (363 )   $ (1,549 )   $ (249 )   $ 404  
Marketing related     69       223       (45 )     -       -       247  
Technology based     83       7,123       (557 )     -       -       6,649  
Intangible assets subject to amortization from continuing operations     2,627       7,436       (965 )     (1,549 )     (249 )     7,300  
Intangible assets subject to amortization from held for sale operations     2,208       -       (214 )     -       -       1,994  
Total intangible assets subject to amortization   $ 4,835     $ 7,436     $ (1,179 )   $ (1,549 )   $ (249 )   $ 9,294  

 

The following provides a breakdown of identifiable intangible assets as of September 30, 2019 (dollars in thousands):

 

    Customer Relationships     Marketing Related     Technology Based     Total  
Identifiable intangible assets   $ 461     $ 327     $ 7,207     $ 7,995  
Accumulated amortization     (57 )     (80 )     (558 )     (695 )
Identifiable intangible assets from continuing operations, net     404       247       6,649       7,300  
Identifiable intangible assets from operations held for sale, net     1,685       309       -       1,994  
Identifiable intangible assets, net   $ 2,089     $ 556     $ 6,649     $ 9,294  

 

With the acquisition of OpenALPR Technology, the Company identified technology-based intangible assets of $11,845,000 in its preliminary purchase price allocation. The final purchase price allocation, completed in the second quarter of 2019, resulted in adjustments to intangible assets of approximately $4,934,000, since the Company’s previous estimates as of March 31, 2019, and primarily related to fair value adjustments to technology-based intangible assets. The final purchase price allocation of the acquisition of OpenALPR is as follows: technology-based intangible assets of $7,123,000, marketing-related intangible assets of $223,000, customer-related intangible assets of $90,000 and goodwill of $4,934,000 along with net assets acquired of $27,000.

 

These intangible assets are being amortized on a straight-line basis over their weighted average estimated useful life of 6.7 years. Amortization expense attributable to continuing operations for the three months ended September 30, 2019 and 2018 was $280,000 and $127,000, respectively, and for the nine months ended September 30, 2019 and 2018 was $965,000 and $557,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Amortization expense attributable to operations held for sale for the three months ended September 30, 2019 and 2018 was $72,000, respectively, and for the nine months ended September 30, 2019 and 2018 was $214,000, and is presented as part of income (loss) from operations held for sale in the accompanying unaudited condensed consolidated statements of operations.

 

Firestorm, the Company's wholly owned subsidiary, provided services related to crisis management, crisis communications, emergency response, and business continuity and other emergency, crisis and disaster preparedness initiatives. Its fully owned subsidiary, BC Management was an executive search firm for business continuity, disaster recovery, crisis management and risk management professionals and a provider of business continuity research with annual studies covering compensation assessments, program maturity effectiveness, event impact management reviews, IT resiliency and critical supply analyses. Its other wholly owned subsidiary, Secure Education was comprised of an expert team of highly trained, former U.S. Secret Service Agents and assists clients by designing customized plans, conducting security assessments, delivering training, and responding to critical incidents.

 

On June 1, 2019, the Company completed the sale of Secure Education, which included $249,000 of intangible assets (see Note 4).

 

On June 28, 2019 the Company discontinued the operations of BC Management, resulting in an impairment of $242,000 of intangible assets related to its acquisition in December 2018. The discontinued operation of BC Management does not constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial results.

 

On June 30, 2019, the Company recorded an intangible assets impairment of $1,307,000 of customer relationship intangible assets from the Firestorm acquisition. In the second quarter of 2019, the Company evaluated the performance of all the franchisees of Firestorm Franchising, LLC and notified them of the termination of their agreements on the basis of non-performance. The discontinued operation of Firestorm Franchising, LLC does not constitute a significant strategic shift that will have a material impact on the Company's ongoing operations and financial results.

 

As of September 30, 2019, the estimated annual amortization expense from continuing operations for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

  

2019   $ 287  
2020     1,150  
2021     1,141  
2022     1,117  
2023     1,096  
Thereafter     2,509  
Total   $ 7,300  
v3.19.3
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
9 Months Ended
Sep. 30, 2019
Supplemental Cash Flow Information [Abstract]  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Supplemental disclosures of cash flow information for the nine months ended September 30, 2019 and 2018 were as follows:

 

    For the Nine Months Ended September 30,  
    2019     2018  
    (Dollars in thousands)  
Cash paid for interest - continuing operations   $ 1,544     $ 298  
Cash paid for interest - held for sale operations     220       96  
Cash paid for taxes - held for sale operations     12       -  
Non-cash investing and financing activities                
Property and equipment - continuing operations     39       -  
Accounts payable - continuing operations     (39 )     -  
Property and equipment - held for sale operations     -       32  
Notes payable - held for sale operations     -       (32 )
Proceeds from short-term borrowing arrangement transferred to settle line of credit     312       -  
Repayment of line of credit     (312 )     -  
Business combinations, net of cash                
Current assets     415       -  
Intangible assets     7,436       386  
Goodwill     4,934       -  
Current liabilities     (388 )     -  
Cash paid acquisition of OpenALPR Technology     (7,000 )     -  
Note issued acquisition of OpenALPR Technology     (5,000 )        
Issuance of common stock     (397 )     (163 )
Issuance of common stock warrants     -       (123 )
Sale of Secured Education                
Current assets     (58 )     -  
Intangible assets sold     (250 )     -  
Current liabilities     54       -  
Loss on sale     3       -  
Financing                
Notes payable - continuing operations     21,000          
Debt discount financing costs     (2,599 )     -  
Extinguishment of debt     (1,113 )     -  
Repayment of notes payable and interest expense, net of debt discount     (2,515 )     -  
Investment in OpenALPR Technology     (12,000 )     -  
Issuance of warrants in conjunction with notes payable     706          
Accounts Payable     360       -  
Proceeds from notes payable     3,839          
Common stock issued in connection with note payable     -       126  
Adoption of ASC-842 Lease Accounting:                
Right-of-use lease asset     1,212       -  
Deferred rent     30       -  
Lease liability   $ (1,242 )   $ -  

 

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 is presented as part of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.

   

For the nine months ended September 30, 2019 and 2018, the Company paid cash dividends of $108,000 and $81,000, respectively, to shareholders of record of Series B Preferred Stock. Accrued dividends payable to Series B Preferred Stock shareholders were $27,000 and $54,000 as of September 30, 2019 and December 31, 2018, respectively, and is presented as part of accounts payable and accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

v3.19.3
DEBT
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
DEBT

Short-Term Borrowings

 

On August 9, 2019, Global, entered an agreement with an unrelated third party, LSQ Funding Group, L.C. (“LSQ”), pursuant to which Global sells its accounts receivable to LSQ and LSQ advances Global 90% of the value of the receivable. Global can advance up to $10,000,000 at one time. The term of the agreement is for 12 months and automatically renews for additional 12-month periods. The agreement is presented as secured borrowings, as the accounts receivable are sold with recourse back to Global, meaning that Global bears the risk of non-payment by the account debtor. The funded amount of accounts receivables that LSQ has provided to Global was $1,629,000 as of September 30, 2019 and is presented as part of current liabilities held for sale on the unaudited condensed consolidated balance sheets. To secure its obligations to LSQ, Global has granted a first priority security interest in Global’s accounts receivable and proceeds thereof. As of September 30, 2019, there were approximately $2,515,000 of receivables that are subject to collateral as part of this agreement. The receivables held as collateral are presented in assets held for sale on the unaudited condensed consolidated balance sheets.

 

On August 9, 2019, AOC Key Solutions, Inc. (“AOC”), the Company’s wholly owned subsidiary, also entered into an agreement with LSQ, as an unrelated third party, pursuant to which AOC sells its accounts receivable to LSQ and LSQ advances AOC 90% of the value of the receivable. AOC can advance up to $5,000,000 at one time. The term of the agreement is for 12 months and automatically renews for additional 12-month periods. The agreement is presented as secured borrowings, as the accounts receivable are sold with recourse back to the Company, meaning that AOC bears the risk of non-payment by the account debtor. The funded amount of accounts receivables that LSQ has provided fund to AOC was $1,558,000 as of September 30, 2019 and is presented as part of short-term borrowings on the unaudited condensed consolidated balance sheets. To secure its obligations to LSQ, AOC has granted a first priority security interest in the AOC’s accounts receivable and proceeds thereof. As of September 30, 2019, there were approximately $2,451,000 of receivables that are subject to collateral as part of this agreement. The receivables held as collateral are presented in the accounts receivable, net on the unaudited condensed consolidated balance sheets.

 

During the three and nine months ended September 30, 2019, the Company recorded $33,000, in interest expense, related to the agreement with LSQ. Additionally, during the three and nine months ended September 30, 2019, the Company recorded $80,000 in interest expense from operations held for sale, related to the agreement with LSQ.

 

Global had revolving lines of credit with Wells Fargo Bank National Association (“WFB”) (“Wells Fargo Credit Facilities”). WFB agreed to advance to Global 90% of all eligible accounts with a maximum facility amount of $5,000,000. Interest was payable under the Wells Fargo Credit Facilities at a monthly rate equal to the Three-Month LIBOR, (as such term is defined under the Wells Fargo Credit Facilities), in effect from time to time plus 3%, plus an additional margin of 3%. Payment of the revolving lines of credit was secured by the accounts receivable of Global. The term of the Wells Fargo Credit Facilities was through December 31, 2019, with automatic renewal terms of 12 months. In August 2019, Global entered in a payoff and termination agreement with WFB in which Global paid WFB $1,477,000 to retire all indebtedness and obligation to WFB. As part of payoff of the debt Global recognized $31,000 of costs in excess of the net carrying amount of the outstanding debt, which is presented in the loss on extinguishment of debt on the unaudited condensed consolidated statement of operations. The principal balance as of September 30, 2019 and December 31, 2018 was $0 and $1,095,000, respectively. 

 

In November 2017, AOC, entered into an Account Purchase Agreement and related agreements (the “AOC Wells Agreement”) with WFB. Pursuant to the AOC Wells Agreement, AOC Key Solutions agreed to sell and assign to WFB all of its Accounts (as such term is defined in Article 9 of the Uniform Commercial Code), constituting accounts arising out of sales of Goods (as such term is defined in Article 9 of the Uniform Commercial Code) or rendition of services that WFB deemed to be eligible for borrowing under the AOC Wells Agreement. WFB agreed to advance to AOC Key Solutions 90% of all eligible accounts with a maximum facility amount of $3,000,000. Interest was payable under the AOC Wells Agreement at a monthly rate equal to the Daily One Month LIBOR, (as such term was defined under the AOC Wells Agreement), in effect from time to time plus 5%. The AOC Wells Agreement also provided for a deficit interest rate equal to the then applicable interest rate plus 50% and a default interest rate equal to the then applicable interest rate or deficit interest rate, plus 50%. The initial term of the AOC Wells Agreement ran through December 31, 2018 (the “Initial Term”), with automatic renewal terms of 12 months (the “Renewal Term”), commencing on the first day after the last day of the Initial Term. The current term of the AOC Wells Agreement ran through December 31, 2019. AOC Key Solutions was able to terminate the AOC Wells Agreement upon at least 60 days’ prior written notice, but no more than 120 days’ written notice, prior to and effective as of the last day of the Initial Term or the Renewal Term, as the case may be. In August 2019, AOC entered in a payoff and termination agreement with WFB in which AOC paid WFB $341,000 to retire all indebtedness and obligation to WFB. As part of payoff of the debt AOC recognized $45,000 of costs in excess of the net carrying amount of the outstanding debt, which is presented in the loss on extinguishment of debt on the unaudited condensed consolidated statement of operations. The principal balance as of September 30, 2019 and December 31, 2018 was $0 and $566,000, respectively.

 

Long-Term Debt

 

On March 16, 2016, the Company entered into a Subordinated Note and Warrant Purchase Agreement (the “Avon Road Note Purchase Agreement”) pursuant to which $500,000 in subordinated debt (the "Avon Road Note") was issued by the Company to Avon Road Partners, L.P. (“Avon Road”), an affiliate of Robert Berman, the Company’s President and CEO and a member of the Company’s Board of Directors. The Avon Road Subordinated Note Warrants had an expiration date of March 16, 2019. The warrants associated to this agreement were exercised in 2017.

 

On March 12, 2019, the $500,000 balance due on the Avon Road Note was retired in its entirety in exchange for an equivalent principal amount of the 2019 Promissory Notes (see below).

 

On January 25, 2017, pursuant to the terms of its acquisition of Firestorm, the Company issued $1,000,000 in the aggregate form of four unsecured, subordinated promissory notes with interest payable over five years. The principal amount of one of the notes payable is $500,000 payable at an interest rate of 2% and the remaining three notes are evenly divided over the remaining $500,000 and payable at an interest rate of 7%. The notes mature on January 25, 2022. The balance of these notes payable was $956,000 and $938,000, net of unamortized interest, as of September 30, 2019 and December 31, 2018, respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $44,000 and $62,000, respectively.

 

On April 3, 2018, the Company entered into a transaction pursuant to which an institutional investor (the “2018 Lender”) loaned $2,000,000 to the Company (the “2018 Promissory Note”). The loan was originally due and payable on May 1, 2019 and bore interest at 15% per annum, with a minimum of 15% interest payable if the loan is repaid prior to May 1, 2019. In addition, the Company issued 35,000 shares of common stock to the 2018 Lender, which shares contained piggy-back registration rights. If the shares were not registered on the next selling shareholder registration statement, the Company would have been obligated to issue an additional 15,000 shares to the 2018 Lender. Upon the sale of Rekor Recognition Systems, Inc. (“Rekor Recognition”), the company’s wholly owned subsidiary, or its assets, the 2018 Lender was entitled to receive 7% of any proceeds received by the Company or Rekor Recognition in excess of $5,000,000 (the “Lender’s Participation”). In addition, commencing January 1, 2020, the 2018 Lender was to be paid 7% of Rekor Recognition’s earnings before interest, taxes, depreciation and amortization, less any capital expenditures, which amount was to be credited for any payments that might ultimately be paid to the 2018 Lender as its Lender’s Participation, if any. At April 3, 2018, the fair value of shares issued was $126,000. On October 24, 2018, the Company and Rekor Recognition entered a note amendment with the 2018 Lender by which the maturity date of the note was extended to May 1, 2020 (the “2018 Promissory Note Amendment”). The 2018 Promissory Note Amendment further provided for payment of interest through May 1, 2019, if the principal was repaid before May 1, 2019. At October 24, 2018, an additional $62,500 fee was paid as consideration for extending the maturity date to May 1, 2020 and designated as financing costs related to the 2018 Promissory Note Amendment. Amortized financing cost for the three months ended September 30, 2019 and 2018 was determined to be $0 and $29,000, respectively, and for the nine months ended September 30, 2019 and 2018 was determined to be $31,000 and $58,000, respectively. Amortized financing cost is presented as part of interest expense in the accompanying unaudited condensed consolidated statement of operations. The 2018 Promissory Note had an effective interest rate of 19.5%. On March 12, 2019, the $2,000,000 balance due on the 2018 Promissory Note was retired in its entirety in exchange for an equivalent principal amount of the 2019 Promissory Notes (see below). In addition, Rekor paid to the 2018 Lender $1,050,000 of consideration for the re-acquisition by the Company of the Lender’s Participation and $75,000 of interest due through May 1, 2019. All amounts paid were obtained from the proceeds of the 2019 Promissory Notes. The 2018 Lender consideration of $1,050,000 for the Lender’s Participation and unamortized financing costs of $63,000 are recorded as costs in connection with the loss on the extinguishment of debt of $1,113,000 for the nine months ended September 30, 2019.

 

2019 Promissory Notes

 

On March 12, 2019, the Company entered into a note purchase agreement pursuant to which investors, including OpenALPR Technology, Inc. (see Note 4) (the “2019 Lenders”) loaned $20,000,000 to Rekor (the “2019 Promissory Notes”) and the Company issued to the 2019 Lenders warrants to purchase 2,500,000 shares of Rekor common stock (the “March 2019 Warrants”)(See Note 4). The loan is due and payable on March 11, 2021 and bears interest at 16% per annum, of which at least 10% per annum is required to be paid in cash. Any remaining interest accrues to be paid at maturity or earlier redemption. The notes also require a $1,000,000 exit fee due at maturity, or a premium if paid before the maturity date, and compliance with affirmative, negative and financial covenants, including a fixed charge coverage ratio, minimum liquidity and maximum capital expenditures. The fixed charge coverage ratio covenant related to this note has been deferred through December 31, 2019. Transaction costs included $403,000 for a work fee payable over 10 months, $290,000 in legal fees and a $200,000 closing fee. The loan is secured by a security interest in substantially all of the assets of Rekor. The March 2019 Warrants are exercisable over a period of five years, at an exercise price of $0.74 per share, and are valued at $706,000. The warrants were exercisable commencing March 12, 2019 and expire on March 12, 2024. Amortized financing cost for the three and nine months ended September 30, 2019 were $328,000 and $719,000, respectively, and are included in interest expense on the unaudited condensed consolidated statement of operations. The 2019 Promissory Notes has an effective interest rate of 24.87%.

 

The principal amounts due for long-term notes payable described above are shown below as of September 30, 2019 (dollars in thousands):

 

2019   $ -  
2020     -  
2021     21,000  
2022     1,000  
2023     -  
Thereafter     -  
Total   $ 22,000  
         
Less unamortized interest     (44 )
Less unamortized financing costs     (1,880 )
Notes payable   $ 20,076  
v3.19.3
INCOME TAXES
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business.

  

The 2017 Tax Cut and Jobs Act ("2017 Act") changed U.S. tax law and included various provisions that impacted the Company. The 2017 Act affected the Company by changing U.S. tax rates, increasing the Company’s ability to utilize accumulated net operating losses generated after December 31, 2017, and impacted the estimates of deferred tax assets and liabilities.

 

The Company’s income tax provision for the nine months ended September 30, 2019 and 2018 was $35,000 and $22,000, respectively. The increase in the tax expense is primarily related to state minimum taxes and the state of Texas gross receipts tax. The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance through the nine months ended September 30, 2019. The Company’s income tax provision for the three months ended September 30, 2019 and 2018 was $12,000 and $22,000, respectively. The tax provision for the nine months ended September 30, 2019 and 2018, was fully attributable to operations that are classified as held for sale.

 

The Company files income tax returns in the United States and in various states. No U.S. Federal, state or foreign income tax audits were in process as of September 30, 2019.

 

Management has 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. After considering all available facts, the Company fully reserved for its net deferred tax assets because management believes that it is more-likely-than-not that their benefits will not be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. 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 nine months ended September 30, 2019 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 2015 through 2018 tax years remain subject to examination by the Internal Revenue Service.

 

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.

 

v3.19.3
RESTRUCTURING
9 Months Ended
Sep. 30, 2019
Restructuring and Related Activities [Abstract]  
RESTRUCTURING

        In June 2019, the Company implemented a new organizational structure and plan to improve operating results by reducing operating costs by eliminating redundant positions, and the Company initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the Company to drive future revenue growth. For the nine months ended September 30, 2019, the Company recorded $333,000 of charges, related to one-time employee termination benefits, in connection with these activities. These charges were related to the Professional Services Segment and are included as part of general and administrative expenses in the accompanying unaudited condensed consolidated statement of operations. As of September 30, 2019, the remaining liability related to the restructuring activities was $253,000 and is presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets. The amounts due are expected to be paid within the next 12 months.

v3.19.3
COMMON STOCK OPTION AGREEMENT
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
COMMON STOCK OPTION AGREEMENT

On March 16, 2016, two stockholders of the Company entered into an option agreement with Avon Road (collectively, the “Avon Road Parties”). Under the terms of this agreement Avon Road paid the stockholders $10,000 each (a total of $20,000) for the right to purchase, on a simultaneous and pro-rata basis, up to 4,318,856 shares of Rekor’s common stock owned by those two shareholders at $0.52 per share, which was determined to be the fair value. The option agreement had a two-year term which would have expired on March 16, 2018. On September 7, 2017, the Avon Road Parties entered into an amended and restated option agreement which extended the right to exercise the option up to and including March 21, 2019 (the “Amended and Restated Option Agreement”). Pursuant to the Amended and Restated Option Agreement, on December 10, 2018, Avon Road exercised the option to purchase 4,318,856 shares of Rekor’s common stock.

 

v3.19.3
OPERATING LEASES
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
OPERATING LEASES

The Company leases facilities for office space in various locations throughout the United States. The office leases have remaining lease terms of one to five years, some of which include options to terminate within one year.

 

Effective January 1, 2019, the Company adopted Topic 842, as amended, which requires lessees to recognize a ROU asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. The Company adopted ASU 2016-02 using the optional transition method whereby the Company applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment, which after completing its implementation analysis, resulted in no adjustment to the Company’s January 1, 2019 beginning retained earnings balance. On January 1, 2019, the Company recognized $921,000 of ROU operating lease assets and $951,000 of operating lease liabilities, including noncurrent operating lease liabilities of $728,000 as a result of adopting this standard. The difference between ROU operating lease assets and operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. As part of adopting ASU 2016-02, the Company elected several practical expedients as discussed in Note 2. The comparative periods have not been restated for the adoption of ASU 2016-02.

 

Operating lease expense from continuing operations for the three months ended September 30, 2019 and 2018 was $85,000 and $180,000, and for the nine months ended September 30, 2019 and 2018 was $268,000 and $516,000, respectively, and is part of general and administrative expenses in the accompanying condensed consolidated statement of operations.

 

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $48,000 and $56,000 for the three and nine months ended September 30, 2019, respectively.

 

During the third quarter of 2019 the Company performed an assessment and determined that one of its operating leases met the criteria to be classified as a lease abandonment. For the three and nine months ended September 30, 2019 the Company recognized $70,000 of expense related to the loss of lease abandonment which is included in other expenses in the condensed consolidated statement of operations.

 

On May 9, 2019, the Company entered into a sublease agreement to lease office space in Columbia, Maryland expiring on August 31, 2021. The Company recognized $291,000 of ROU operating lease assets and $291,000 of operating lease liabilities, including noncurrent operating lease liabilities of $232,000.

 

Supplemental balance sheet information related to leases as of September 30, 2019 was as follows (dollars in thousands): 

  

Operating lease right-of-use lease assets from continuing operations   $ 761  
Operating lease right-of-use lease assets from operations held for sale     154  
Total operating lease right-of-use assets   $ 915  
         
Lease liability, short-term   $ 296  
Lease liability, long-term     673  
Lease liability from operations held for sale     169  
  Total operating lease liabilities   $ 1,138  
         
Weighted average remaining lease term - operating leases from continuing operations     3.8  
         
Weighted average discount rate - operating leases     9 %

 

Maturities of lease liabilities were as follows (dollars in thousands):

 

2019 (October to December)   $ 156  
2020     451  
2021     319  
2022     158  
2023     159  
2024     81  
Total lease payments     1,324  
Less imputed interest     186  
Maturities of lease liabilities   $ 1,138  
         

 

v3.19.3
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

Firestorm

 

On June 25, 2019, the Company sent a letter to three former executives of the Company and Firestorm (the Firestorm Principals). The letter described the Company's position that, because the Company believes that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement pursuant to which Firestorm was acquired by the Company, the entire Membership Interest Purchase Agreement and the transactions contemplated thereby, including the issuance of the warrants, are subject to rescission. On August 17, 2019, the Company filed suit in the United States District Court for the Southern District of New York against three former executives of the Company and Firestorm (the Firestorm Principals). The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement pursuant to which Firestorm was acquired by the Company, and seeks rescission of the Membership Interest Purchase Agreement and certain transactions contemplated thereby, including the issuance of notes and warrants to the Firestorm Principals. On October 9, 2019, the Company filed an Amended Complaint. On November 4, 2019, the Firestorm Principals filed an answer to the Amended Complaint and asserted counterclaims against the Company, Firestorm, and certain executives of the Company.

v3.19.3
EQUITY INCENTIVE PLAN
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
EQUITY INCENTIVE PLAN

In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”) which replaced the 2016 Equity Award Plan (the “2016 Plan”). The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants. Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares.

 

Stock Options

 

Stock options granted under the 2017 Plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. Stock options are granted at exercise prices as determined by the Board of Directors. The vesting period is generally three to four years with a contractual term of ten years.

 

The 2017 Plan is administered by the Administrator, which is currently the Board of Directors of the Company. The Administrator has the exclusive authority, subject to the terms and conditions set forth in the 2017 Plan, to determine all matters relating to awards under the 2017 Plan, including the selection of individuals to be granted an award, the type of award, the number of shares of Rekor common stock subject to an award, and all terms, conditions, restrictions and limitations, if any, including, without limitation, vesting, acceleration of vesting, exercisability, termination, substitution, cancellation, forfeiture, or repurchase of an award and the terms of any instrument that evidences the award.

 

When making an award under the 2017 Plan, the Administrator may designate the award as “qualified performance-based compensation,” which means that performance criteria must be satisfied in order for an employee to be paid the award. Qualified performance-based compensation may be made in the form of restricted common stock, restricted stock units, common stock options, performance shares, performance units or other stock equivalents. The 2017 Plan includes the performance criteria the Administrator has adopted, subject to stockholder approval, for a “qualified performance-based compensation” award.

 

A summary of stock option activity under the Company’s 2017 Plan for the nine months ended September 30, 2019 is as follows:

 

    Number of Shares Subject to Option     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value  
Outstanding balance at December 31, 2018     1,227,557     $ 2.13       8.39       -  
Granted     862,049       1.02       9.43          
Exercised     -       -       -          
Forfeited     (66,930 )     2.62       -          
Expired     -       -       -          
    Canceled     (315,520 )     1.96       -          
Outstanding balance at September 30, 2019     1,707,156     $ 1.68       8.57     $ 1,407  
Exercisable at September 30, 2019     776,963     $ 1.67       7.88     $ 575  

 

Stock compensation expense for the three months ended September 30, 2019 and 2018 was $76,000 and $87,000, respectively, and for the nine months ended September 30, 2019 and 2018 was $314,000 and $296,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The weighted average grant date fair value of options granted, to employees and non-employees, for the nine months ended September 30, 2019 was $0.52. The intrinsic value of the stock options granted during the nine months ended September 30, 2019 was $1,030,000. No options were granted for the nine months ended September 30, 2018. The total fair value of options that are vested as of September 30, 2019 and 2018 was $684,000 and $735,000, respectively.

 

As of September 30, 2019, there was $634,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over an average remaining period of 1.77 years.

v3.19.3
LOSS PER SHARE
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
LOSS PER SHARE

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

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2019     2018     2019     2018  
    (Dollars in thousands, except per share data)     (Dollars in thousands, except per share data)  
Basic and diluted loss per share                        
    Net loss from continuing operations   $ (3,456 )   $ (528 )   $ (10,978 )   $ (3,649 )
    Less: preferred stock accretion     (191 )     (167 )     (554 )     (483 )
    Less: preferred stock dividends     (114 )     (115 )     (344 )     (345 )
        Net loss attributable to shareholders from continuing operations     (3,761 )     (810 )     (11,876 )     (4,477 )
Net income (loss) from operations held for sale     (172 )     25       (450 )     30  
Net loss attributable to shareholders   $ (3,993 )   $ (785 )   $ (12,326 )   $ (4,447 )
    Weighted average common shares outstanding - basic and diluted     19,878,518       14,542,362       19,592,679       14,524,030  
        Basic and diluted loss per share from continuing operations   $ (0.19 )   $ (0.06 )   $ (0.61 )   $ (0.31 )
        Basic and diluted (loss) earnings per share from operations held for sale     (0.01 )     0.01       (0.02 )     -  
Basic and diluted loss per share   $ (0.20 )   $ (0.05 )   $ (0.63 )   $ (0.31 )
            Common stock equivalents excluded due to anti-dilutive effect     5,400,047       2,675,906       5,400,047       2,690,768  

 

As the Company had a net loss for the three and nine months ended September 30, 2019, the following 5,400,047 potentially dilutive securities were excluded from diluted loss per share: 2,251,232 for outstanding warrants, 959,937 related to the Series A Preferred Stock, 481,722 related to the Series B Preferred Stock and 1,707,156 related to outstanding options.

 

As the Company had a net loss for the three and nine months ended September 30, 2018, the following potentially 2,675,906 and 2,690,768 dilutive securities, respectively, were excluded from diluted loss per share: 917,950 for outstanding warrants, 974,487 related to the Series A Preferred Stock, 481,722 related to the Series B Preferred Stock and 301,747 and 316,609 related to outstanding options.

 

Loss Per Share under Two – Class Method

 

The Series A Preferred Stock and Series B Preferred Stock have the non-forfeitable right to participate on an as converted basis at the conversion rate then in effect in any common stock dividends declared and, as such, is considered a participating security. The Series A Preferred Stock and Series B Preferred Stock are included in the computation of basic and diluted loss per share pursuant to the two-class method. Holders of the Series A Preferred Stock and Series B Preferred Stock do not participate in undistributed net losses because they are not contractually obligated to do so.

v3.19.3
HELD FOR SALE OPERATIONS
9 Months Ended
Sep. 30, 2019
Discontinued Operations and Disposal Groups [Abstract]  
HELD FOR SALE OPERATIONS

In September 2019, the Company determined that the Global business met the criteria for held for sale accounting because it expects to complete the sale of Global during the next 12 months. Historically, Global has been presented as part of the Professional Services Segment.

 

This pending disposition is a result of the Company’s strategic decision to concentrate resources on the development of its Technology Segment and will result in material changes in the Company's operations and financial results. As a consequence, the Company is reporting the operating results and cash flows of Global as held for sale, including for all prior periods reflected in the unaudited condensed consolidated financial statements and these notes.

 

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations from Global for the three and nine months ended September, 2019 and 2018 has been classified as held for sale and presented as part of income (loss) from operations held for sale in the accompanying unaudited consolidated statements of operations presented herein. The assets and liabilities also have been classified as held for sale under the line captions of current assets held for sale and current liabilities held for sale in the Company's condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

 

The assets and liabilities classified as held for sale operations in the Company's condensed consolidated financial statements as of September 30, 2019 and December 31, 2018 are shown below (dollars in thousands). 

 

   

September 30,

2019

   

December 31,

2018

 
ASSETS            
Cash and cash equivalents   $ 226     $ 90  
Accounts receivable, net     2,981       2,289  
Other current assets, net     322       257  
  Total current assets     3,529       2,636  
Property and equipment, net     138       176  
Right-of-use lease assets, net     154       -  
Goodwill     1,691       1,691  
Intangible assets, net     1,994       2,208  
Deposits and other long-term assets     9       79  
Total assets held for sale   $ 7,515     $ 6,790  
LIABILITIES                
Accounts payable and accrued expenses   $ 942     $ 800  
Short-term borrowings     1,623       1,095  
Lease liability, short term     110       -  
Other liabilities, current portion     5       -  
Total current liabilities held for sale     2,680       1,895  
Other long-term liabilities     120       90  
Lease liability, long term     59       -  
Total liabilities held for sale   $ 2,859     $ 1,985  

    

The major components of the operations held for sale, net of tax, are presented in the condensed consolidated statements of operations below (dollars in thousands).

 

    For the Three Months ended September 30,     For the Nine Months ended September 30,  
    2019     2018     2019     2018  
             
Revenue   $ 6,205     $ 7,242     $ 20,260     $ 21,435  
Cost of revenue     5,378       6,263       17,551       18,694  
Gross profit     827       979       2,709       2,741  
Operating expenses:                                
General and administrative expenses     755       809       2,744       2,352  
Selling and marketing expenses     93       93       142       241  
Operating expenses     848       902       2,886       2,593  
Income (loss) from operations     (21 )     77       (177 )     148  
Other income (expense):                                
Loss on extinguishment of debt     (31 )     -       (31 )     -  
Interest expense     (108 )     (30 )     (209 )     (96 )
Other income     -     -       2     -  
Total other expense     (139 )     (30 )     (238 )     (96 )
Income (loss) from operations held for sale   (160 )   47     (415 )   52  
Income tax provision from operations held for sale       (12      (22      (35      (22
Net income (loss) from operations held for sale     (172    25      (450    30  

 

v3.19.3
SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2019
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

As of November 14, 2019, the Company sold an additional 626,516 shares of common stock.

v3.19.3
GENERAL AND BASIS OF PRESENTATION (Tables)
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Contract liabilities
2019   $ 246  
2020     544  
2021     223  
2022     200  
2023     189  
Thereafter     93  
Total   $ 1,495  
v3.19.3
BUSINESS SEGMENTS (Tables)
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Summary of segments
    Technology     Professional Services     Corporate Services     Consolidated  
                         
Three Months Ended September 30, 2019                        
Revenues   $ 1,536     $ 3,447     $ -     $ 4,983  
Gross profit     1,146       1,605       -       2,751  
Income (loss) from operations     (722 )     365       (1,724 )     (2,081 )
Loss from operations held for sale     -       (21 )     -       (21 )
                                 
Three Months Ended September 30, 2018                                
Revenues   $ 892     $ 5,015     $ -     $ 5,907  
Gross profit     487       2,454       -       2,941  
Income (loss) from operations     (83 )     446       (678 )     (315 )
Income from operations held for sale     -       77       -       77  
                                 
Nine Months Ended September 30, 2019                                
Revenues   $ 3,962     $ 10,922     $ -     $ 14,884  
Gross profit     2,810       5,054       -       7,864  
Loss from operations*     (1,312 )     (1,606 )     (3,917 )     (6,889 )
Loss from operations held for sale     -       (177 )     -       (177 )
* Including intangible assets impairment     -       1,549       -       1,549  
                                 
Nine Months Ended September 30, 2018                                
Revenues   $ 2,639     $ 12,632     $ -     $ 15,271  
Gross profit     1,538       6,199       -       7,737  
Loss from operations     (332 )     (48 )     (3,058 )     (3,438 )
Income from operations held for sale     -       148       -       148  
v3.19.3
ACQUISITION (Tables)
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Purchase price allocation

The table below shows the final breakdown related to the Secure Education acquisition (dollars in thousands):

 

Cash paid   $ 100  
Common stock issued     163  
Warrants issued at $5.44     66  
Warrants issued at $6.53     57  
Total consideration     386  
Less intangible assets and intellectual property     (386 )
Net goodwill recorded   $ -  

 

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

 

Assets acquired   $ 415  
Liabilities acquired     (388 )
Net assets acquired     27  
Less intangible assets     7,436  
Consideration paid (see below)     (12,397 )
Net Goodwill recorded   $ 4,934  
         
Cash consideration   $ 7,000  
Notes payable     5,000  
Common stock consideration     397  
Total acquisition consideration   $ 12,397  

 

Pro-forma financial information
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2019     2018     2019     2018  
    (Dollars in thousands, except per share data)     (Dollars in thousands, except per share data)  
Revenues from continuing operations   $ 4,983     $ 6,352     $ 15,853     $ 16,472  
Net loss from continuing operations     (3,456 )     (104 )     (10,170 )     (2,817 )
Basic and diluted loss per share   $ (0.19 )   $ (0.03 )   $ (0.56 )   $ (0.24 )
Basic and diluted number of shares     19,878,518       15,142,362       19,761,363       15,124,030  
v3.19.3
INTANGIBLE ASSETS (Tables)
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Changes in the carrying amount of goodwill by reportable business segment
 

Segment

 

Balance as of

December 31,

2018

   

Open ALPR

Acquisition

   

Balance as of

September 30,

2019

 
Goodwill from continuing operations  Technology   $ 1,402     $ 4,934     $ 6,336  
Goodwill from held for sale operations  Professional Services     1,691       -       1,691  
Total goodwill     $ 3,093     $ 4,934     $ 8,027  
Change in intangible assets
   

Balance as of

December 31,

2018

    Additions     Amortization     Impairment     Sale of BCM    

Balance as of

September 30,

2019

 
Intangible assets subject to amortization from continuing operations                                    
Customer relationships   $ 2,475     $ 90     $ (363 )   $ (1,549 )   $ (249 )   $ 404  
Marketing related     69       223       (45 )     -       -       247  
Technology based     83       7,123       (557 )     -       -       6,649  
Intangible assets subject to amortization from continuing operations     2,627       7,436       (965 )     (1,549 )     (249 )     7,300  
Intangible assets subject to amortization from held for sale operations     2,208       -       (214 )     -       -       1,994  
Total intangible assets subject to amortization   $ 4,835     $ 7,436     $ (1,179 )   $ (1,549 )   $ (249 )   $ 9,294  
Schedule of intangible assets
    Customer Relationships     Marketing Related     Technology Based     Total  
Identifiable intangible assets   $ 461     $ 327     $ 7,207     $ 7,995  
Accumulated amortization     (57 )     (80 )     (558 )     (695 )
Identifiable intangible assets from continuing operations, net     404       247       6,649       7,300  
Identifiable intangible assets from operations held for sale, net     1,685       309       -       1,994  
Identifiable intangible assets, net   $ 2,089     $ 556     $ 6,649     $ 9,294  
Estimated annual amortization expense
2019   $ 287  
2020     1,150  
2021     1,141  
2022     1,117  
2023     1,096  
Thereafter     2,509  
Total   $ 7,300  
v3.19.3
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Tables)
9 Months Ended
Sep. 30, 2019
Supplemental Cash Flow Information [Abstract]  
Supplemental disclosure of cash flow information
    For the Nine Months Ended September 30,  
    2019     2018  
    (Dollars in thousands)  
Cash paid for interest - continuing operations   $ 1,544     $ 298  
Cash paid for interest - held for sale operations     220       96  
Cash paid for taxes - held for sale operations     12       -  
Non-cash investing and financing activities                
Property and equipment - continuing operations     39       -  
Accounts payable - continuing operations     (39 )     -  
Property and equipment - held for sale operations     -       32  
Notes payable - held for sale operations     -       (32 )
Proceeds from short-term borrowing arrangement transferred to settle line of credit     312       -  
Repayment of line of credit     (312 )     -  
Business combinations, net of cash                
Current assets     415       -  
Intangible assets     7,436       386  
Goodwill     4,934       -  
Current liabilities     (388 )     -  
Cash paid acquisition of OpenALPR Technology     (7,000 )     -  
Note issued acquisition of OpenALPR Technology     (5,000 )        
Issuance of common stock     (397 )     (163 )
Issuance of common stock warrants     -       (123 )
Sale of Secured Education                
Current assets     (58 )     -  
Intangible assets sold     (250 )     -  
Current liabilities     54       -  
Loss on sale     3       -  
Financing                
Notes payable - continuing operations     21,000          
Debt discount financing costs     (2,599 )     -  
Extinguishment of debt     (1,113 )     -  
Repayment of notes payable and interest expense, net of debt discount     (2,515 )     -  
Investment in OpenALPR Technology     (12,000 )     -  
Issuance of warrants in conjunction with notes payable     706          
Accounts Payable     360       -  
Proceeds from notes payable     3,839          
Common stock issued in connection with note payable     -       126  
Adoption of ASC-842 Lease Accounting:                
Right-of-use lease asset     1,212       -  
Deferred rent     30       -  
Lease liability   $ (1,242 )   $ -  
v3.19.3
DEBT (Tables)
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Future principal amounts
2019   $ -  
2020     -  
2021     21,000  
2022     1,000  
2023     -  
Thereafter     -  
Total   22,000  
         
Less unamortized interest     (44 )
Less unamortized financing costs     (1,880 )
Notes payable     20,076  
v3.19.3
OPERATING LEASES (Tables)
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Summary of operating lease
Operating lease right-of-use lease assets from continuing operations   $ 761  
Operating lease right-of-use lease assets from operations held for sale     154  
Total operating lease right-of-use assets   $ 915  
         
Lease liability, short-term   $ 296  
Lease liability, long-term     673  
Lease liability from operations held for sale     169  
  Total operating lease liabilities   $ 1,138  
         
Weighted average remaining lease term - operating leases from continuing operations     3.8  
         
Weighted average discount rate - operating leases     9 %
Maturities of lease liabilities
2019 (October to December)   $ 156  
2020     451  
2021     319  
2022     158  
2023     159  
2024     81  
Total lease payments     1,324  
Less imputed interest     186  
Maturities of lease liabilities   $ 1,138  
         
v3.19.3
EQUITY INCENTIVE PLAN (Tables)
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stock option activity

    Number of Shares Subject to Option     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value  
Outstanding balance at December 31, 2018     1,227,557     $ 2.13       8.39       -  
Granted     862,049       1.02       9.43          
Exercised     -       -       -          
Forfeited     (66,930 )     2.62       -          
Expired     -       -       -          
    Canceled     (315,520 )     1.96       -          
Outstanding balance at September 30, 2019     1,707,156     $ 1.68       8.57     $ 1,407  
Exercisable at September 30, 2019     776,963     $ 1.67       7.88     $ 575  

v3.19.3
LOSS PER SHARE (Tables)
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Loss per common share
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2019     2018     2019     2018  
    (Dollars in thousands, except per share data)     (Dollars in thousands, except per share data)  
Basic and diluted loss per share                        
    Net loss from continuing operations   $ (3,456 )   $ (528 )   $ (10,978 )   $ (3,649 )
    Less: preferred stock accretion     (191 )     (167 )     (554 )     (483 )
    Less: preferred stock dividends     (114 )     (115 )     (344 )     (345 )
        Net loss attributable to shareholders from continuing operations     (3,761 )     (810 )     (11,876 )     (4,477 )
Net income (loss) from operations held for sale     (172 )     25       (450 )     30  
Net loss attributable to shareholders   $ (3,993 )   $ (785 )   $ (12,326 )   $ (4,447 )
    Weighted average common shares outstanding - basic and diluted     19,878,518       14,542,362       19,592,679       14,524,030  
        Basic and diluted loss per share from continuing operations   $ (0.19 )   $ (0.06 )   $ (0.61 )   $ (0.31 )
        Basic and diluted (loss) earnings per share from operations held for sale     (0.01 )     0.01       (0.02 )     -  
Basic and diluted loss per share   $ (0.20 )   $ (0.05 )   $ (0.63 )   $ (0.31 )
            Common stock equivalents excluded due to anti-dilutive effect     5,400,047       2,675,906       5,400,047       2,690,768  
v3.19.3
HELD FOR SALE OPERATIONS (Tables)
9 Months Ended
Sep. 30, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued operations

The assets and liabilities classified as held for sale operations in the Company's condensed consolidated financial statements as of September 30, 2019 and December 31, 2018 are shown below (dollars in thousands). 

 

   

September 30,

2019

   

December 31,

2018

 
ASSETS            
Cash and cash equivalents   $ 226     $ 90  
Accounts receivable, net     2,981       2,289  
Other current assets, net     322       257  
  Total current assets     3,529       2,636  
Property and equipment, net     138       176  
Right-of-use lease assets, net     154       -  
Goodwill     1,691       1,691  
Intangible assets, net     1,994       2,208  
Deposits and other long-term assets     9       79  
Total assets held for sale   $ 7,515     $ 6,790  
LIABILITIES                
Accounts payable and accrued expenses   $ 942     $ 800  
Short-term borrowings     1,623       1,095  
Lease liability, short term     110       -  
Other liabilities, current portion     5       -  
Total current liabilities held for sale     2,680       1,895  
Other long-term liabilities     120       90  
Lease liability, long term     59       -  
Total liabilities held for sale   $ 2,859     $ 1,985  

    

The major components of the operations held for sale, net of tax, are presented in the condensed consolidated statements of operations below (dollars in thousands).

 

    For the Three Months ended September 30,     For the Nine Months ended September 30,  
    2019     2018     2019     2018  
             
Revenue   $ 6,205     $ 7,242     $ 20,260     $ 21,435  
Cost of revenue     5,378       6,263       17,551       18,694  
Gross profit     827       979       2,709       2,741  
Operating expenses:                                
General and administrative expenses     755       809       2,744       2,352  
Selling and marketing expenses