• Filing Date: 2019-11-15
  • Form Type: 10-Q/A
  • Description: Quarterly report (Amendment)
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  

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