• Filing Date: 2020-05-13
  • Form Type: 10-Q
  • Description: Quarterly report
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 14, 2020
Document And Entity Information    
Entity Registrant Name Rekor Systems, Inc.  
Entity Central Index Key 0001697851  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Amendment Flag false  
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   22,869,494
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
Entity File Number 001-38338  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
CURRENT ASSETS    
Cash and cash equivalents $ 1,087 $ 1,075
Restricted cash and cash equivalents 415 461
Accounts receivable, net 737 776
Inventory 488 302
Other current assets, net 388 175
Current assets held for sale and discontinued operations 7,408 7,441
Total current assets 10,523 10,230
Property and equipment, net 480 442
Right-of-use lease assets, net 383 283
Goodwill 6,336 6,336
Intangible assets, net 7,993 8,244
Long- term assets held for sale and discontinued operations 3,407 3,457
Total assets 29,122 28,992
CURRENT LIABILITIES    
Accounts payable and accrued expenses 3,264 3,678
Lease liability, short term 231 148
Contract liabilities 799 749
Current liabilities held for sale and discontinued operations 5,787 5,757
Total current liabilities 10,081 10,332
Notes payable 21,922 20,409
Lease liability, long term 172 161
Contract liabilities, long term 775 775
Deferred tax liability 10 10
Long term liabilities held for sale and discontinued operations 502 536
Total liabilities 33,462 32,223
Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value, 505,000 shares authorized and 502,327 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 6,010 5,804
Commitment and Contingencies
STOCKHOLDERS' (DEFICIT) EQUITY    
Common stock, $0.0001 par value, 100,000,000 and 30,000,000 shares authorized, 22,786,757 and 21,595,653 shares issued and outstanding as of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, respectively 0 0
Series B Cumulative Convertible Preferred stock, $0.0001 par value, 240,861 shares authorized, issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 0 0
Additional paid-in capital 21,959 19,371
Accumulated deficit (32,311) (28,408)
Total stockholders' (deficit) equity (10,350) (9,035)
Total liabilities and stockholders' (deficit) equity $ 29,122 $ 28,992
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Common stock, par value $ .0001 $ 0.0001
Common stock, authorized 100,000,000 30,000,000
Common stock, issued 22,786,757 21,595,653
Common stock, outstanding 22,786,757 21,595,653
Series A    
Preferred stock, par value $ .0001 $ 0.0001
Preferred stock, authorized 505,000 505,000
Preferred stock, issued 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
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue $ 1,595 $ 1,010
Cost of revenue 494 490
Gross profit 1,101 520
OPERATING EXPENSES:    
General and administrative expenses 2,791 1,543
Selling and marketing expenses 371 158
Research and development expenses 543 5
Operating expenses 3,705 1,706
Loss from operations (2,604) (1,186)
Other income (expense):    
Loss on extinguishment of debt 0 (1,113)
Interest expense (1,163) (209)
Other income 0 2
Total other expense (1,163) (1,320)
Loss before income taxes (3,767) (2,506)
Income tax provision (7) (12)
Net loss from continuing operations (3,774) (2,518)
Net loss from held for sale and discontinued operations (14) (357)
Net loss $ (3,788) $ (2,875)
Loss per common share from continuing operations - basic and diluted $ (0.19) $ (0.15)
Loss per common share from held for sale and discontinued operations - basic and diluted .00 (0.02)
Loss per common share - basic and diluted $ (0.19) $ (0.17)
Weighted average shares outstanding    
Basic and diluted 21,929,768 18,800,496
v3.20.1
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, 2018 18,767,619 240,861      
Beginning balance, amount at Dec. 31, 2018 $ 2 $ 0 $ 15,518 $ (12,064) $ 3,456
Stock-based compensation     63   63
Issuance of warrants in conjunction with notes payable     706   706
Common stock issued in OpenALPR Technology acquisition, shares 600,000        
Common stock issued in OpenALPR Technology acquisition, amount $ 0   397   397
Preferred stock dividends       (115) (115)
Accretion of Series A preferred stock     (179)   (179)
Net loss       (2,875) (2,875)
Ending balance, shares at Mar. 31, 2019 19,367,619 240,861      
Ending balance, amount at Mar. 31, 2019 $ 2 $ 0 16,505 (15,054) 1,453
Beginning balance, shares at Dec. 31, 2019 21,595,653 240,861      
Beginning balance, amount at Dec. 31, 2019 $ 2 $ 0 19,371 (28,408) (9,035)
Stock-based compensation     171   171
Issuance of warrants in conjunction with notes payable         0
Exercise of cashless warrants in exchange for common stock 43,218        
Exercise of warrants in exchange for common stock 555,000        
Exercise of warrants in exchange for common stock, amount     411   411
Issuance of common stock pursuant to at the market offering net, shares 536,730        
Issuance of common stock pursuant to at the market offering net, amount $ 0   2,169   2,169
Exercise of warrants related to series A preferred stock, shares 36,862        
Exercise of warrants related to series A preferred stock, amount $ 0   38   38
Issuance upon exercise of stock options, shares 1,294        
Issuance upon exercise of stock options, amount $ 0   5   5
Preferred stock dividends       (115) (115)
Accretion of Series A preferred stock     (206)   (206)
Net loss       (3,788) (3,788)
Ending balance, shares at Mar. 31, 2020 22,768,757 240,861      
Ending balance, amount at Mar. 31, 2020 $ 2 $ 0 $ 21,959 $ (32,311) $ (10,350)
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss from continuing operations $ (3,774) $ (2,518)
Net loss from held for sale and discontinued operations (14) (357)
Net loss (3,788) (2,875)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 78 69
Amortization of right-of-use lease asset 32 0
Share-based compensation 171 63
Amortization of financing costs 330 92
Amortization of intangible assets 313 129
Changes in operating assets and liabilities    
Loss on extinguishment of debt 0 1,113
Accounts receivable 39 7
Inventory (186) (47)
Other current assets (213) (80)
Accounts payable and accrued expenses 754 (326)
Contract liabilities (38) (32)
Lease liability 50 0
Net cash used in operating activities continuing operations (2,444) (1,530)
Net cash (used in) provided by operating activities, held for sale operations 452 (440)
Net cash used in operating activities (1,992) (1,970)
CASH FLOWS FROM INVESTING ACTIVITIES    
Capital expenditures (178) (308)
Net cash (used in) provided by investing activities, continuing operations (178) (308)
Net cash provided by investing activities - held for sale operations 0 0
Net cash (used in) provided by investing activities (178) (308)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net proceeds from notes payable 0 3,839
Net proceeds from exercise of options 5 0
Net proceeds from exercise of warrants 411 0
Net proceeds from exercise of warrants associated to series A preferred stock 38 0
Net proceeds from at-the-market agreement 2,169 0
Payment of debt modification costs (100) 0
Net cash provided by financing activities continuing operations 2,523 3,839
Net cash provided by (used in) financing activities held for sale operations (556) 723
Net cash provided by financing activities 1,967 4,562
Net increase (decrease) in cash, cash equivalents and restricted cash, continuing operations (99) 2,001
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents held for sale operations and discontinued operations (104) 283
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents (203) 2,284
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period 1,866 2,767
Cash, cash equivalents and restricted cash and cash equivalents at end of period 1,663 5,051
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents:    
Cash and cash equivalents at end of period 1,087 4,125
Restricted cash and cash equivalents at end of period 415 577
Cash and cash equivalents at end of period held for sale operations 161 349
Cash, cash equivalents and restricted cash and cash equivalents at end of period $ 1,663 $ 5,051
v3.20.1
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2020
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 unaudited condensed consolidated financial position as of March 31, 2020, the unaudited condensed consolidated results of operations, consolidated statements of shareholders’ deficit and unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019.

 

The financial data and other information disclosed in the notes to the unaudited condensed consolidated financial statements related to these periods are unaudited. The results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

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. Amounts for the first quarter of 2020 and for the period ending December 31, 2019, have been reclassified to conform to the current year presentation. Due to the held for sale classification of Global and AOC Key Solutions, as well as, the discontinuance of all professional services activities, certain amounts have been reclassified in order to conform to the current period presentation.

 

Rekor Systems, Inc. (the “Company” or “Rekor”), was formed in February 2017. The Company is a leader in the field of vehicle identification and management systems driven by advances in artificial intelligence ("AI"). In development for over five years using AI processes, including deep machine learning algorithms, the Company’s core software enables the creation of more powerful and capable vehicle recognition systems that can be deployed at a fraction of the cost of traditional vehicle recognition systems. The software enables a wider field of view, greater light sensitivity, recognitions at faster speeds and the ability to identify the color, make and type of a vehicle as well as direction of travel. These capabilities are particularly useful in solving a wide variety of real-world roadway and vehicle related challenges. In addition, the reductions in cost have opened up a number of new uses for vehicle recognition technology that were not previously cost effective. 

 

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.

 

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. During the first quarter of 2020, the Company began to separately report the results of AOC Key Solutions, Inc. (“AOC Key Solutions”), the Company’s wholly owned subsidiary, including substantially all of the assets and liabilities comprising AOC Key Solutions, as operations held for sale. Additionally, during the first quarter of 2020, in connection with the Company’s plan to sell AOC Key Solutions and Global, the Company determined that all of the Professionals Services segment should be classified held for sale or discontinued operations. The Company reported Firestorm Solutions, LLC (“Firestorm Solutions”) and Firestorm Franchising, LLC (“Firestorm Franchising” and together with Firestorm Solutions, “Firestorm”) as part of held for sale and discontinued operations. This strategic shift by the Company was done to focus on its technology offerings and products.

 

The Company is reporting the operating results and cash flows of Global, AOC Key Solutions and Firestorm as held for sale and discontinued operations, and thus they have been excluded from continuing operations for all periods presented. Prior to the Company’s decision to sell Global and AOC Key Solutions, the operating results for these subsidiaries were presented in the Professional Services segment. Prior to the Company’s decision to discontinue the operations of its Professional Services segment, the operating results of Firestorm were presented in the Professional Services segment. The assets and liabilities of Global, AOC Key Solutions and Firestorm are presented as current and long-term assets and liabilities held for sale and discontinued in the unaudited condensed consolidated balance sheets and its results are presented as loss from held for sale and discontinued operations in the unaudited condensed consolidated statement of operations.

 

On April 2, 2020, the Company entered into an agreement with the members of AOC Key Solutions’ management to sell AOC Key Solutions. This transaction closed on April 2, 2020 subsequent to to the execution of the sales agreement and is further discussed in the Company’s subsequent events footnote.

 

Going Concern Assessment

 

For all annual and interim periods, management will assess going concern uncertainty in the Company’s unaudited condensed 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 unaudited condensed 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 February 2017 and has relied on cash on hand, external bank lines of credit, the sale of a note, proceeds from the sale of common stock, debt financings and a public offering of its common stock to support cashflow from operations. The Company attributes losses to merger and acquisition costs, public company corporate overhead and non-capital expenditures. As of and for the three months ended March 31, 2020, the Company had a net loss from continuing operations of $3,774,000 and a working capital deficit of $1,179,000. The Company's net cash position was decreased by $34,000 for the three months ended March 31, 2020 due to the net loss from operations, offset by the net proceeds of $2,169,000 from the At-the-Market Agreement and the net proceeds from the issuance of common stock in connection with exercise of warrants and stock options of $454,000.

 

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 unaudited condensed 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, the cash on hand and working capital. Additionally, as of March 31, 2020, the Company has access to raise up to $9,490,000 through the At Market Issuance Sales Agreement (the “Sales Agreement”). As of April 30, 2020, the Company has $9,490,000 available for sale under the Sales Agreement. 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.

 

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to maintain timely collections from existing customers, as well as continue the growth of its technology business, (ii) timely completion of the disposition of the businesses in its Professional Services Segment, (iii) the continued performance of its contractors, subcontractors and vendors, (iv) its ability to maintain and build good relationships with its lenders and financial intermediaries, (v) its ability to meet debt covenants or obtain waivers in case of noncompliance and (vi) the stabilization of the world economy and global financial markets. To the extent that events outside of the Company's control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, its ability to continue to secure new business, raise capital, complete the sale of its assets held for sale in a timely fashion and otherwise, depending on the severity of such impact, materially adversely affect its operating results.

 

The Company’s operations have been affected by the recent and ongoing outbreak of the coronavirus disease (“COVID-19”) which was declared a pandemic by the World Health Organization in March 2020. The impact includes the need for employees to work remotely, restrictions on travel affecting the Company’s ability to attend meetings, conferences, consultations and installations and otherwise provide and market its products and services, and disruptions to its customers' operations which may affect its revenues. The Company also expects to benefit from the availability of financing under the CARES Act (see Note 13). The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires the extensive use of management's 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, the results of which 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. 

 

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of the fair value of consideration transferred in a business combination over the fair value of tangible and intangible assets acquired, net of the fair value of liabilities assumed. Goodwill is tested for impairment within one year of acquisitions or annually as of October 1, and whenever indicators of impairment exist. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company’s qualitative assessment indicates that goodwill impairment is more likely than not, the Company will perform a two-step impairment test. The Company will test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, based primarily on expected growth and general economic conditions.

 

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. Except for goodwill, the Company does not have any intangible assets with indefinite useful lives.

 

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 March 31, 2020 and December 31, 2019 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of March 31, 2020 and December 31, 2019 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 March 31, 2020. There were no changes in levels during the three months ended March 31, 2020.

 

Revenue Recognition

 

The Company derives its revenues substantially from license and subscription fees for software and related products and services.

 

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

 

    Three Months Ended March 31,  
    2020     2019  
Revenue            
Automated traffic safety enforcement   $ 745     $ 817  
Licensing and subscription revenue     850       193  
Total revenue   $ 1,595     $ 1,010  

 

Revenues

 

The revenues for technology products and services are from fees that provide customers with software licenses and related support and service fees for various public safety services.

 

In March 2019, the Company acquired substantially all of the assets of a software development company, OpenALPR Technologies, Inc. The software acquired from this acquisition and subsequently developed by the Company have provided the basis for the Company’s licensing and subscription revenue. Licensing and subscription services, include inclode those products which operate in many installation locations with a high accuracy rate, which include a web server, a self-managed database, and access to a powerful, cross-platform application programming interface. The Company’s proprietary software employs a convolutional neural network architecture to classify images and features that include seamless video analysis and data analytics. Current customers include law enforcement agencies, highway authorities, parking system operators, private security companies, and wholesale and retail operations supporting logistics and customer loyalty programs. During the second quarter of 2019, the Company changed its method of selling its software from perpetual software licenses, with associated maintenance services, to service subscriptions of limited duration. These subscriptions give the customer a license to use the latest version of the Company’s software only during the term of the subscription. Revenue is generally recognized ratably over the contract term. 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 is expected to be relatively consistent. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Revenue is recognized ratably over the licensing or subscription term.

 

Automated traffic safety enforcement revenues reflect arrangements to provide traffic safety systems to a number of municipalities in North America. These systems include hardware that identifies red light and school safety zone traffic violations and software that captures and records forensic images, analyses the images to provide data and supports citation management services. The Company also provides an enterprise parking enforcement solution that the Company licenses to parking management companies and municipalities.  Revenue is recognized monthly based on the number of camera systems that are operated, or the number of citations issued by the relevant municipality.

 

For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors.

 

  A performance obligation is a promise in a contract with a customer to transfer services that are distinct. The performance obligations that are not yet satisfied or partially satisfied are performance obligations that are expected to be recognized as revenue in the future for a contract with a customer which was executed as of a particular date. At March 31, 2020, the Company had approximately $13,831,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 34% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the unaudited condensed consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the unaudited condensed consolidated balance sheets. When billings occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. Unbilled accounts receivables of $247,000 and $440,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively. Additionally, unbilled accounts receivables of $1,751,000 and $346,000 were included in current assets held for sale and discontinued in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

 

When the Company advance bills clients prior to providing services, 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 unaudited condensed consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the three months ended March 31, 2020 were not materially impacted by any other factors. Contract liabilities from the period ended March 31, 2020 and December 31, 2019 were $1,574,000 and $1,524,000, respectively. All contract liabilities as of March 31, 2020 and December 31, 2019 were attributable to continued operations. During the three months ended March 31, 2020 $243,000 of the contract liabilities balance as of December 31, 2019 were recognized as revenue.

 

The services due for contract liabilities described above are shown below as of March 31, 2020 (dollars in thousands):

 

2020   $ 717  
2021     297  
2022     270  
2023     195  
2024     95  
Total   $ 1,574  

 

Practical Expedients ElectionCosts to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. The Company elected to use the practical expedient to expense costs to obtain a contract as incurred when the amortization period would have been one year or less. As of March 31, 2020, and December 31, 2019, costs incurred to obtain contracts in excess of one year have been immaterial to date.

 

Segment Reporting

 

The FASB ASC Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. In 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 reflected the Company’s separate focus on technology products and services versus professional services.

 

As part of a strategic shift by the Company, all operations related to the Professional Services segment have been classified as held or sale and discontinued as of 2020. As of January 1, 2020, the Company has one reportable segment. Continuing operations are all operations that previously were reported as part of the Technology Segment.

  

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 March 31, 2020 and December 31, 2019 were $415,000 and $461,000, respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets. 

 

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 March 31, 2020 and December 31, 2019, the Company had deposits from continuing operations totaling $1,502,000 and $1,536,000, respectively, in one U.S. financial institution that was federally insured up to $250,000 per account.

 

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

 

Company A accounted for 17% and less than 10% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

Company B accounted for 13% and 27% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

Company C accounted for less than 10% and 12% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

As of March 31, 2020, accounts receivable from Company A totaled $140,000 or 19% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2019, Company A accounted for $198,000 or 26% 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 three month period ended March 31, 2020 or unaudited condensed consolidated accounts receivable balance as of March 31, 2020.

 

Significant Accounting Policies

 

Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 

 

New Accounting Pronouncements Effective in the Three Months ended March 31, 2020

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This ASU 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 adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s 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.

 

v3.20.1
ACQUISITIONS
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
ACQUISITION

OpenALPR Technology Acquisition

 

On March 12, 2019, the Company completed the acquisition of certain assets and assumed certain liabilities of OpenALPR Technology, Inc. (the “OpenALPR Technology Acquisition”). Consideration paid as part of the OpenALPR Technology 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 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.

 

The purchase price allocation to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the OpenALPR Technology Acquisition occurred on March 12, 2019, the results of operations including OpenALPR Technology Acquisition from the date of acquisition have been included in the Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

 

The final purchase price allocation of the OpenALPR Technology Acquisition 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):

 

Accounts receivable, net   $ 381  
Other current assets, net     13  
Property and equipment, net     21  
Contract liabilities     (388 )
Net assets acquired     27  
Less intangible assets     7,436  
Consideration paid     (12,397 )
Net goodwill recorded   $ 4,934  
         
Cash consideration   $ 7,000  
Note payable     5,000  
Common stock consideration     397  
Total acquisition consideration   $ 12,397  

 

Operations of Combined Entities

 

The following unaudited pro forma combined financial information gives effect to the OpenALPR Technology Acquisition as if it was consummated as of January 1, 2019. 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, 2019 or to project potential operating results as of any future date or for any future periods.

 

    Three Months Ended March 31,  
    2020     2019  
    (Dollars in thousands, except per share data)  
Revenue from continuing operations   $ 1,595     $ 1,979  
Net loss from continuing operations     (3,774 )     (1,710 )
Basic and diluted loss per share continuing operations   $ (0.19 )   $ (0.10 )
Basic and diluted number of shares     21,929,768       19,367,619  

 

v3.20.1
HELD FOR SALE AND DISCONTINUED OPERATIONS
3 Months Ended
Mar. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
HELD FOR SALE AND DISCONTINUED OPERATIONS

In September 2019 and March 2020, the Company determined that Global and AOC Key Solutions, respectively, met the criteria for held for sale accounting because it expects to complete the sale of Global and AOC Key Solutions during the next 12 months. Historically, Global and AOC Key Solutions have been presented as part of the Professional Services Segment. On April 2, 2020, AOC Key Solutions was sold pursuant to a purchase and sale agreement as further detailed in Note 10.

 

During the first quarter of 2020, in connection with the Company’s plan to sell AOC Key Solutions and Global, the Company determined that all of the historical Professionals Services Segment, not subject to sale, should be classified as discontinued operations. As part of this plan Firestorm has also been classified as discontinued operations and presented as part of held for sale and discontinued operations. Previously, Firestorm was not included as part of held or sale and discontinued operations as it did not meet the threshold of being considered a strategic shift.

 

The pending dispositions are 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, AOC Key Solutions and Firestorm as held for sale and discontinued operations, 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, AOC Key Solutions and Firestorm for the three months ended March 31, 2020 and 2019 have been classified as held for sale and discontinued operations and presented as part of loss from held for sale and discontinued operations in the accompanying unaudited condensed consolidated statements of operations presented herein. The assets and liabilities also have been classified as held for sale and discontinued under the line captions of current and long term assets held for sale and discontinued and current and long term liabilities held for sale and discontinued in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.

 

The assets and liabilities classified as held for sale and discontinued operations in the Company's unaudited condensed consolidated financial statements as of March 31, 2020 and December 31, 2019 are shown below (dollars in thousands). 

 

    March 31, 2020     December 31, 2019  
    Global     AOC Key Solutions     Firestorm     Total     Global     AOC Key Solutions     Firestorm     Total  
ASSETS                                                
Cash and cash equivalents   $ 37     $ 118     $ 6     $ 161     $ 225     $ 93     $ 12     $ 330  
Accounts receivable, net     3,183       3,866       -       7,049       2,763       4,055       -       6,818  
Other current assets, net     157       41       -       198       238       52       3       293  
Current assets held for sale and discontinued     3,377       4,025       6       7,408       3,226       4,200       15       7,441  
Property and equipment, net     113       37       -       150       113       41       -       154  
Right-of-use lease assets, net     105       477       -       582       130       499       -       629  
Goodwill     669       -       -       669       669       -       -       669  
Intangible assets, net     1,994       -       -       1,994       1,994       -       -       1,994  
Deposits and other long-term assets     -       12       -       12       -       11       -       11  
Long-term assets held for sale and discontinued     2,881       526       -       3,407       2,906       551       -       3,457  
Total assets held for sale and discontinued   $ 6,258     $ 4,551     $ 6     $ 10,815     $ 6,132     $ 4,751     $ 15     $ 10,898  
LIABILITIES                                                                
Accounts payable and accrued expenses   $ 724     $ 1,572     $ 29     $ 2,325     $ 461     $ 1,260     $ 33     $ 1,754  
Lines of credit     1,776       1,404       -       3,180       1,842       1,894       -       3,736  
Lease liability, short term     115       103       64       282       113       100       54       267  
Current liabilities held for sale and discontinued     2,615       3,079       93       5,787       2,416       3,254       87       5,757  
Other long-term liabilities     33       -       -       33       -       -       -       -  
Lease liability, long term     -       439       30       469       30       467       39       536  
Long-term liabilities held for sale and discontinued     33       439       30       502       30       467       39       536  
Total liabilities held for sale and discontinued   $ 2,648     $ 3,518     $ 123     $ 6,289     $ 2,446     $ 3,721     $ 126     $ 6,293  

  

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

 

    Three Months Ended March 31,  
    2020     2019  
    Global     AOC Key Solutions     Firestorm     Total     Global     AOC Key Solutions     Firestorm     Total  
Revenue   $ 6,305     $ 3,392     $ -     $ 9,697     $ 7,058     $ 2,878     $ 680     $ 10,616  
Cost of revenue     5,476       1,866       -       7,342       6,146       1,592       295       8,033  
Gross profit     829       1,526       -       2,355       912       1,286       385       2,583  
Operating expenses:                                                                
General and administrative expenses     762       1,284       (4 )     2,042       971       1,115       508       2,594  
Selling and marketing expenses     39       131       -       170       82       125       63       270  
Operating expenses     801       1,415       (4 )     2,212       1,053       1,240       571       2,864  
Income loss income from operations     28       111       4       143       (141 )     46       (186 )     (281 )
Other income (expense):                                                                
Interest expense     (90 )     (74 )     -       (164 )     (48 )     (31 )     -       (79 )
Other expense     5       2       -       7       1       2       -       3  
Total other expense     (85 )     (72 )     -       (157 )     (47 )     (29 )     -       (76 )
Income (loss) from held for sale and discontinued operations     (57 )     39       4       (14 )     (188 )     17       (186 )     (357 )
Income tax provision from held for sale and discontinued operations     -       -       -       -       -       -       -       -  
Net income (loss) from held for sale and discontinued operations   $ (57 )   $ 39     $ 4     $ (14 )   $ (188 )   $ 17     $ (186 )   $ (357 )

 

v3.20.1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
3 Months Ended
Mar. 31, 2020
Supplemental Cash Flow Information [Abstract]  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Supplemental disclosures of cash flow information for the three months ended March 31, 2020 and 2019 were as follows (dollars in thousands):

 

    Three Months Ended March 31,  
    2020     2019  
Cash paid for interest - continuing operations   $ 506     $ 119  
Cash paid for interest - held for sale and discontinued operations     106       148  
Non-cash financing - paid-in-kind interest transferred to the principal balance of the 2019 Promissory Notes     (1,283 )     -  
Non-cash operating - paid-in-kind interest transferred to the principal balance of the 2019 Promissory Notes     1,283       -  
Current assets     -       415  
Intangible assets     -       7,436  
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 )
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  
Adoption of ASC-842 Lease Accounting:                
Right-of-use lease asset     132       921  
Deferred rent     -       30  
Lease liability   $ (132 )   $ (951 )

  

v3.20.1
OPERATING LEASES
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
OPERATING LEASES

We have operating leases for office facilities in various locations throughout the United States. The Company’s leases have remaining terms of one to five years. Certain of the Company’s leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining total future lease payments.

 

Operating lease expense from continuing operations for the three months ended March 31, 2020 and 2019 was $48,000 and $25,000, respectively, and is part of general and administrative expenses in the accompanying unaudited condensed consolidated statement of operations.

 

Cash paid for amounts included in the measurement of operating lease liabilities from continuing operations was $48,000 and $0 for the three months ended March 31, 2020 and 2019.

 

Supplemental balance sheet information related to leases as of March 31, 2020 was as follows (dollars in thousands): 

  

Operating lease right-of-use lease assets from continuing operations   $ 383  
Operating lease right-of-use lease assets from held for sale and discontinued operations     582  
Total operating lease right-of-use assets   $ 965  
         
Lease liability, short-term   $ 231  
Lease liability, long-term     172  
Lease liability from held for sale and discontinued operations     751  
  Total operating lease liabilities   $ 1,154  
         
Weighted Average Remaining Lease Term - operating leases from continuing operations     2.1  
         
Weighted Average Discount Rate - operating leases     9 %

 

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

 

2020 (remainder 2020)   $ 442  
2021     412  
2022     177  
2023     178  
2024     100  
Total lease payments     1,309  
Less imputed interest     (155 )
Maturities of lease liabilities   $ 1,154  

 

v3.20.1
INTANGIBLE ASSETS
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
INTAGIBLE ASSETS

Goodwill

 

There have been no changes from December 31, 2019 in the carrying amount of goodwill for the three months ended March 31, 2020.

 

 

Intangible Assets Subject to Amortization

 

The following summarizes the change in intangible assets from December 31, 2019 to March 31, 2020 (dollars in thousands):     

 

   

December 31,

2019

    Additions     Amortization    

March 31,

2020

 
Intangible assets subject to amortization from continuing operations                        
Customer relationships   $ 396     $ -     $ (9 )   $ 387  
Marketing related     230       -       (17 )     213  
Technology based     6,395       -       (256 )     6,139  
Internally developed capitalized software     1,223       62       (31 )     1,254  
Intangible assets subject to amortization from continuing operations     8,244       62       (313 )     7,993  
Intangible assets from held for sale and discontinued operations     1,994       -       -       1,994  
Total intangible assets   $ 10,238     $ 62     $ (313 )   $ 9,987  

 

The following provides a breakdown of identifiable intangible assets as of March 31, 2020 (dollars in thousands):

 

    Customer Relationships     Marketing Related     Technology Based     Internally Developed Capitalized Software     Total  
Identifiable intangible assets   $ 461     $ 327     $ 7,206     $ 1,352     $ 9,346  
Accumulated amortization     (74 )     (114 )     (1,067 )     (98 )     (1,353 )
Identifiable intangible assets from continuing operations, net     387       213       6,139       1,254       7,993  
Identifiable intangible assets from held for sale and discontinued operations, net     1,685       309       -       -       1,994  
Identifiable intangible assets, net   $ 2,072     $ 522     $ 6,139     $ 1,254     $ 9,987  

 

These intangible assets are being amortized on a straight-line basis over their weighted average estimated useful life of 6.0 years. Amortization expense attributable to continuing operations for the three months ended March 31, 2020 and 2019 was $313,000 and $129,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Amortization expense attributable to held for sale and discontinued operations for the three months ended March 31, 2020 and 2019 was $0 and $241,000, respectively, and is presented as part of income (loss) from held for sale and discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

 

 

As of March 31, 2020, the estimated annual amortization expense from continuing operations for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

  

2020   $ 964  
2021     1,274  
2022     1,193  
2023     1,105  
2024     1,060  
Thereafter     1,451  
Capitalized software not yet placed in service     946  
Total   $ 7,993  

 

v3.20.1
DEBT
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
DEBT

Long-Term Debt

 

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 aggregate balance of these notes payable was $966,000 and $961,000, net of unamortized interest, as of March 31, 2020 and December 31, 2019, respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $34,000 and $39,000, 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”). 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 three months ended March 31, 2019.

 

2019 Promissory Notes

 

On March 12, 2019, the Company entered into a note purchase agreement pursuant to which investors, including OpenALPR Technology, Inc. (the “2019 Lenders”) loaned $20,000,000 to the Company (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”). The loan 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. As of March 31, 2020, the Company had a waiver in place for the fixed charge coverage ratio covenant related to this note until May 31, 2020. 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 were valued at $706,000, at the time of issuance. The warrants were exercisable commencing March 12, 2019 and expire on March 12, 2024.

 

As of the anniversary date of the commencement of the 2019 Promissory Notes $1,283,000 of the paid-in kind interest had not been paid by the Company and per the purchase agreement has been added to the principal balance of the 2019 Promissory Notes as of March 31, 2020.

 

On March 26, 2020, the Company entered into the First Amendment to Note Purchase Agreement which effectively extended the maturity date of the 2019 Promissory Notes from March 11, 2021 to June 12, 2021. The Company incurred $100,000 in transaction costs related to the First Amendment to Note Purchase Agreement, these costs are financing costs and deferred over the remaining life of the loan.

 

Amortized financing costs for the three months ended March 31, 2020 and 2019 were $325,000 and $68,000, respectively, and are included in interest expense on the unaudited condensed consolidated statement of operations. The 2019 Promissory Notes have an effective interest rate of 24.87%.

 

The principal amounts due for long-term notes payable described above are shown below as of March 31, 2020 (dollars in thousands):

 

2020   $ -  
2021     22,283  
2022     1,000  
2023     -  
2024     -  
Thereafter     -  
Total     23,283  
         
Less unamortized interest     (34 )
Less unamortized financing costs     (1,327 )
Notes payable   $ 21,922  

 

Short-Term Borrowings

 

On August 9, 2019, AOC Key Solutions, entered into an agreement with LSQ Funding Group, L.C. (“LSQ”), as an unrelated third party, pursuant to which AOC Key Solutions sells its accounts receivable to LSQ and LSQ advances AOC Key Solutions 90% of the value of the receivable. AOC Key Solutions 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 Key Solutions bears the risk of non-payment by the account debtor. The funded amount of accounts receivables that LSQ has provided to AOC Key Solutions was $1,404,000 and $1,894,000 as of March 31, 2020 and December 31, 2019, respectively, and is presented as part of current liabilities held for sale and discontinued operations on the unaudited condensed consolidated balance sheets. To secure its obligations to LSQ, AOC Key Solutions has granted a first priority security interest in the AOC Key Solutions accounts receivable and proceeds thereof. As of March 31, 2020 and December 31, 2019, there were approximately $2,070,000 and $2,714,000 of receivables that are subject to collateral as part of this agreement. The receivables held as collateral are presented as part of current assets held for sale and discontinued on the unaudited condensed consolidated balance sheets.

 

On August 9, 2019, Global, entered an agreement with an unrelated third party, 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 $1,776,000 and $1,842,000 as of March 31, 2020 and December 31, 2019, respectively, and is presented as part of current liabilities held for sale and discontinued 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 March 31, 2020 and December 31, 2019, there were approximately $2,625,000 and $2,455,000, respectively, of receivables that are subject to collateral as part of this agreement. The receivables held as collateral are presented in current assets held for sale and discontinued on the unaudited condensed consolidated balance sheets.

 

During the three months ended March 31, 2020, the Company recorded $164,000, in interest expense from held for sale and discontinued operations, related to the agreement with LSQ.

 

v3.20.1
INCOME TAXES
3 Months Ended
Mar. 31, 2020
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, the Company reviewed 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 Company’s income tax provision for the three months ended March 31, 2020 and 2019 was $7,000 and $12,000, respectively. The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance, outside of the deferred tax liability related to the indefinite lived intangible, through the three months ended March 31, 2020.

 

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, outside of the deferred tax liability related to the indefinite lived intangible, 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 three months ended March 31, 2020 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.

v3.20.1
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

On August 19, 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”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC.  The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.  The Complaint requests equitable rescission of that transaction, or, alternatively, monetary damages.

 

Following an initial amended complaint, answer and counterclaims, and defendants’ motion for judgment on the pleadings, on January 30, 2020, the Company filed a Second Amended Complaint, which the Firestorm Principals answered together with counterclaims on February 28, 2020.  Thereafter, on March 30, 2020, the Company moved to dismiss certain counterclaims against certain executives named as counterclaim-defendants, which resulted in the Firestorm Principals voluntarily dismissing those counterclaims against those parties.  The Company thereafter filed its response and affirmative defenses to the Counterclaims on April 22, 2020.  On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which the Company will be opposing.

 

The Company intends to continue vigorously litigating its claims against the Firestorm Principals and believes that the Firestorm Principals’ remaining counterclaims are without merit.

 

Vigilant Solutions, LLC, a subsidiary of Motorola Solutions, Inc., filed a complaint on February 21, 2020 against the Company and certain of its subsidiaries in the US District Court for the District of Maryland. The complaint alleges that certain of the Company’s products violate a patent held by Vigilant. The Company has retained counsel to investigate the claims made in the complaint and our investigation into these matters is ongoing. Nevertheless, based on a review of the complaint, the Company believes that it has substantial defenses to the allegations contained in the complaint and that the validity of the patent underlying the complaint is subject to challenge. The Company intends to vigorously defend the allegations of the Vigilant complaint.

 

On January 31, 2020, the Company wholly owned subsidiary, OpenALPR filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc. (“PCS”) for breach of software license agreements pursuant to which software to was licensed to PCS. On February 19, 2020 PCS filed an answer, counterclaim and joinder in the case, among other things, seeking to join the Company as a party to the litigation and making counterclaims for defamation, fraud and intentional interference with existing and future business relationships. The Company believes that it has substantial defenses to the counterclaims and intend to vigorously defend the allegations of the counterclaims.

 

 In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of the Company’s business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated. It is the opinion of the Company’s management that the outcome of these proceedings, individually and collectively, will not be material to the Company’s unaudited condensed consolidated financial statements as a whole.

 

v3.20.1
STOCKHOLDERS' DEFICIT
3 Months Ended
Mar. 31, 2020
Stockholders' Equity Attributable to Parent [Abstract]  
STOCKHOLDERS' DEFICIT

Common Stock

 

The Company has adopted and approved an amendment to increase the number of authorized shares of common stock from 30,000,000 to 100,000,000, $0.0001 par value, which was effective March 18, 2020. The rights and privileges terms of the additional authorized shares of common stock will be identical to those of the currently outstanding shares of common stock. However, because the holders of common stock do not have preemptive rights to purchase or subscribe for any new issuances of common stock, the subsequent potential issuance of additional shares of common stock will reduce the current stockholders’ percentage ownership interest in the total outstanding shares of common stock. The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’ relative rights and limitations. As of March 31, 2020, and December 31, 2019, the issued and outstanding common shares of Rekor were 22,768,757 and 21,595,653, respectively.

 

For the three months ended March 31, 2020, the Company issued 1,294 shares of Rekor common stock related to the exercise of common stock options. There were no stock options exercised for the three months ended March 31, 2019.

  

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 Acquisition. 

 

For the three months ended March 31, 2020 and 2019, the Company issued 1,173,104 and 600,000 shares of Rekor common stock, respectively. Of the shares issued in the three months ended March 31, 2020, 598,218 shares of Rekor common stock were issued in exchange for cash and cashless exercise of 607,517 warrants, 36,862 shares were issued as part of the exercise of warrants related to series A preferred stock and 536,730 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 $226,000 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. For the three months ended March 31, 2020, based on settlement date, the Company sold 536,730 shares of common stock at a weighted-average selling price of $4.15 per share in accordance with the Sales Agreement. Net cash provided for the three months ended March 31, 2020 from the Sales Agreement was $2,169,000 after paying 3.0% or $67,000 related to cash commissions provided to B. Riley FBR. As of March 31, 2020, $9,490,000 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 which began 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 March 31, 2020 and December 31, 2019.

  

Rekor 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 is recorded through additional paid in capital of $206,000 and $179,000 for the three months ended March 31, 2020 and 2019, respectively.

 

As of March 31, 2020, and December 31, 2019, 502,327 shares of Series A Preferred Stock were issued and outstanding.

 

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 three months ended March 31, 2020 and 2019 the Company did not pay cash dividends to shareholders of record of Series A Preferred Stock. Accrued dividends payable to Series A Preferred Stock shareholders were $649,000 and $551,000 as of March 31, 2020 and December 31, 2019, respectively, and are presented as part of the accounts payable and accrued expenses on the accompanying unaudited condensed consolidated.

 

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 Rekor Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). As part of the Global Merger, the Company issued 240,861 shares of $0.0001 par value Series B Preferred Stock. All Series B Preferred Stock was issued at a price of $10.00 per share as part of the acquisition of the Global Merger. 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 Rekor.

 

The Series B Preferred Stock is 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. For the three months ended March 31, 2020 and 2019, the Company did not pay cash dividends to shareholders of record of Series B Preferred Stock. Accrued dividends payable to Series B Preferred Stock shareholders were $82,000 and $54,000 as of March 31, 2020 and December 31, 2019, respectively, and are presented as part of the accounts payable and accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

 

Warrants

 

The Company had warrants outstanding that are exercisable into a total of 1,846,870 and 2,251,232 shares of Rekor common stock as of March 31, 2020 and December 31, 2019, respectively.

  

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 203,155 and 240,017 shares of Rekor common stock as of March 31, 2020 and December 31, 2019, 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. In the three months ended March 31, 2020, 76,000 of the outstanding warrants were exercised and converted into 36,862 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 March 31, 2020 and December 31, 2019, there were 631,254 Firestorm Warrants outstanding.

  

Pursuant to its acquisition of Secure Education Consultants 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 March 31, 2020, and December 31, 2019, 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 are exercisable commencing April 27, 2019 and expire on October 29, 2023. During the year ended December 31, 2019, 189,813 warrants were exercised in cash and cashless transactions resulting in the issuance of 148,279 shares of common stock. During the three months ended March 31, 2020, 6,292 warrants were exercised and converted into 4,657 shares of the Company’s common stock. As of March 31, 2020 and December 31, 2019, 7,670 and 16,437 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. Of the 2,500,000 warrants, 625,000 were issued as partial consideration for the OpenALPR Technology Acquisition. During the year ended December 31, 2019, 963,125 warrants were exercised in cash and cashless transactions resulting in the issuance of 783,387 shares of common stock. During the three months ended March 31, 2020, 598,750 warrants were exercised in cash and cashless transactions resulting in the issuance of 591,758 shares of common stock As of March 31, 2020 and December 31, 2019, 938,125 and 1,536,875 warrants related to the 2019 Promissory Notes remain outstanding, respectively.

 

v3.20.1
EQUITY INCENTIVE PLAN
3 Months Ended
Mar. 31, 2020
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 compensation expense for the three months ended March 31, 2020 and 2019 was $171,000 and $63,000, respectively, and is presented as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

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 three months ended March 31, 2020 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, 2019     1,655,383     $ 1.68       8.33     $ 3,224  
      Granted     20,000       4.32       9.91          
      Exercised     (1,294 )     3.81                  
      Forfeited     (3,146 )     1.42                  
Canceled     (36,684 )     1.82                  
Outstanding Balance at March 31, 2020     1,634,259     $ 1.71       8.17     $ 2,854  
Exercisable at March 31, 2020     1,050,452     $ 1.79       6.59     $ 1,743  

 

The weighted average grant date fair value of options granted, to employees and non-employees, for the three months ended March 31, 2020 and 2019 was $0.31 and $0.68, respectively. The intrinsic value of the stock options granted during the three months ended March 31, 2020 and 2019 was $0 and $3,000, respectively. The total fair value of options that vested in the three months ended March 31, 2020 and 2019 was $40,000 and $513,000, respectively.

 

As of March 31, 2020, there was $368,000 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 1.52 years.

 

Restricted Stock Units

 

A summary of RSU activity under the Company’s 2017 Plan for the three months ended March 31, 2020 is as follows:

 

    Number of Shares     Weighted Average Unit Price     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value  
Outstanding Balance at December 31, 2019     -     $ -       -     $ -  
      Granted     334,450       4.06       2.75          
      Vested     -       -                  
      Forfeited     -       -                  
Outstanding Balance at March 31, 2020     334,450     $ 4.06       2.75     $ -  

 

The grant date fair value was based on the estimated fair value of our common stock on the date of grant. All RSUs granted vest upon the satisfaction of a service-based vesting condition.

 

As of March 31, 2020, there was $1,317,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 2.75 years.

 

Compensation expense for restricted stock and RSUs is recognized on a straight-line basis over the requisite service period. There were not RSUs issued in fiscal year 2019.

   

v3.20.1
LOSS PER SHARE
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
LOSS PER SHARE

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

 

    Three Months Ended March 31,  
    2020     2019  
Basic and diluted loss per share            
    Net loss from continuing operations   $ (3,774 )   $ (2,518 )
    Less: preferred stock accretion     (206 )     (179 )
    Less: preferred stock dividends     (115 )     (115 )
        Net loss attributable to shareholders from continuing operations     (4,095 )     (2,812 )
Net loss from held for sale and discontinued operations     (14 )     (357 )
Net loss attributable to shareholders   $ (4,109 )   $ (3,169 )
    Weighted average common shares outstanding - basic and diluted     21,929,768       18,800,496  
        Basic and diluted loss per share from continuing operations   $ (0.19 )   $ (0.15 )
        Basic and diluted loss per share from held for sale and discontinued operations     -       (0.02 )
Basic and diluted loss per share   $ (0.19 )   $ (0.17 )
            Common stock equivalents excluded due to anti-dilutive effect     5,293,838       6,316,157  

 

As the Company had a net loss for the three months ended March 31, 2020, the following 5,293,838 potentially dilutive securities were excluded from diluted loss per share: 1,846,870 for outstanding warrants, 974,487 related to the Series A Preferred Stock, 481,722 related to the Series B Preferred Stock, 1,656,309 related to outstanding options and 334,450 related to outstanding RSUs.

 

As the Company had a net loss for the three months ended March 31, 2019, the following 6,316,157 potentially dilutive securities were excluded from diluted loss per share: 3,714,491 for outstanding warrants, 974,487 related to the Series A Preferred Stock, 481,722 related to the Series B Preferred Stock and 1,145,457 related to outstanding options. 

 

(Loss) Earnings 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.

 

v3.20.1
SUBSEQUENT EVENTS
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

AOC Key Solutions Sale

 

On April 2, 2020, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among the Company, AOC Key Solutions and PurpleReign, LLC, a Virginia limited liability company owned by a member of AOC Key Solution’s management (the “Buyer”), pursuant to which the Company agreed to sell AOC Key Solutions.

 

Subject to the terms and conditions of the Purchase Agreement, the Buyer agreed to purchase all of the outstanding equity interests of AOC Key Solutions for a purchase price of $4,000,000, comprising (i) $3,400,000 in cash, and (ii) a subordinated promissory note (the “Subordinated Note”) in the initial principal amount of $600,000 (the “Transaction”). The Transaction closed concurrently with execution of the Purchase Agreement.

 

2019 Promissory Notes

 

On April 2, 2020, the Company transferred $2,200,000 to the holders of the 2019 Promissory Notes. $2,000,000 of the funds were used as a prepayment of principal while the other $200,000 was paid as premium percentage as the portion of the 2019 Promissory Notes were paid prior to the maturity date.

 

On April 2, 2020, the Company entered into a partial release and Second Amendment to Note Purchase Agreement (the “Second Amendment”), by and among the Credit Parties, the Purchasers and the Agent. Pursuant to the terms of the Second Amendment, AOC Key Solutions was released as a Credit Party and the assets related to AOC Key Solutions were released as collateral, and the Asset Disposition Proceeds terms of the Note Purchase Agreement were amended to reflect the transaction.

 

Global PPP Loan

 

On May 5, 2020, Global, entered into a promissory note with BOKF, NA, d/b/a Bank of Oklahoma, which provides for a loan in the principal amount of $5,005,000 (the “Global PPP Loan Note”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Global PPP Loan Note has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The Global PPP Loan Note may be prepaid at any time prior to maturity with no prepayment penalties. The Global PPP Loan Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the Global PPP Loan Note may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Global intends to use the entire Global PPP Loan Note amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act.

 

The Small Business Administration (“SBA”), in consultation with the Department of Treasury, issued new guidance that creates uncertainty regarding the qualification requirements for a PPP loan for public companies. The Company will review the new guidance at the time of issuance and determine whether it remains eligible for the PPP Loan at that time.

 

v3.20.1
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern Assessment

For all annual and interim periods, management will assess going concern uncertainty in the Company’s unaudited condensed 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 unaudited condensed 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 February 2017 and has relied on cash on hand, external bank lines of credit, the sale of a note, proceeds from the sale of common stock, debt financings and a public offering of its common stock to support cashflow from operations. The Company attributes losses to merger and acquisition costs, public company corporate overhead and non-capital expenditures. As of and for the three months ended March 31, 2020, the Company had a net loss from continuing operations of $3,774,000 and a working capital deficit of $1,179,000. The Company's net cash position was decreased by $34,000 for the three months ended March 31, 2020 due to the net loss from operations, offset by the net proceeds of $2,169,000 from the At-the-Market Agreement and the net proceeds from the issuance of common stock in connection with exercise of warrants and stock options of $454,000.

 

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 unaudited condensed 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, the cash on hand and working capital. Additionally, as of March 31, 2020, the Company has access to raise up to $9,490,000 through the At Market Issuance Sales Agreement (the “Sales Agreement”). As of April 30, 2020, the Company has $9,490,000 available for sale under the Sales Agreement. 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.

 

The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to maintain timely collections from existing customers, as well as continue the growth of its technology business, (ii) timely completion of the disposition of the businesses in its Professional Services Segment, (iii) the continued performance of its contractors, subcontractors and vendors, (iv) its ability to maintain and build good relationships with its lenders and financial intermediaries, (v) its ability to meet debt covenants or obtain waivers in case of noncompliance and (vi) the stabilization of the world economy and global financial markets. To the extent that events outside of the Company's control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, its ability to continue to secure new business, raise capital, complete the sale of its assets held for sale in a timely fashion and otherwise, depending on the severity of such impact, materially adversely affect its operating results.

 

The Company’s operations have been affected by the recent and ongoing outbreak of the coronavirus disease (“COVID-19”) which was declared a pandemic by the World Health Organization in March 2020. The impact includes the need for employees to work remotely, restrictions on travel affecting the Company’s ability to attend meetings, conferences, consultations and installations and otherwise provide and market its products and services, and disruptions to its customers' operations which may affect its revenues. The Company also expects to benefit from the availability of financing under the CARES Act (see Note 13). The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the extensive use of management's 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, the results of which 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. 

 

Goodwill and Intangible Assets

Goodwill represents the excess of the fair value of consideration transferred in a business combination over the fair value of tangible and intangible assets acquired, net of the fair value of liabilities assumed. Goodwill is tested for impairment within one year of acquisitions or annually as of October 1, and whenever indicators of impairment exist. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company’s qualitative assessment indicates that goodwill impairment is more likely than not, the Company will perform a two-step impairment test. The Company will test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, based primarily on expected growth and general economic conditions.

 

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. Except for goodwill, the Company does not have any intangible assets with indefinite useful lives.

 

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 March 31, 2020 and December 31, 2019 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of March 31, 2020 and December 31, 2019 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 March 31, 2020. There were no changes in levels during the three months ended March 31, 2020.

 

Revenue Recognition

The Company derives its revenues substantially from license and subscription fees for software and related products and services.

 

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

 

    Three Months Ended March 31,  
    2020     2019  
Revenue            
Automated traffic safety enforcement   $ 745     $ 817  
Licensing and subscription revenue     850       193  
Total revenue   $ 1,595     $ 1,010  

 

Revenues

 

The revenues for technology products and services are from fees that provide customers with software licenses and related support and service fees for various public safety services.

 

In March 2019, the Company acquired substantially all of the assets of a software development company, OpenALPR Technologies, Inc. The software acquired from this acquisition and subsequently developed by the Company have provided the basis for the Company’s licensing and subscription revenue. Licensing and subscription services, include inclode those products which operate in many installation locations with a high accuracy rate, which include a web server, a self-managed database, and access to a powerful, cross-platform application programming interface. The Company’s proprietary software employs a convolutional neural network architecture to classify images and features that include seamless video analysis and data analytics. Current customers include law enforcement agencies, highway authorities, parking system operators, private security companies, and wholesale and retail operations supporting logistics and customer loyalty programs. During the second quarter of 2019, the Company changed its method of selling its software from perpetual software licenses, with associated maintenance services, to service subscriptions of limited duration. These subscriptions give the customer a license to use the latest version of the Company’s software only during the term of the subscription. Revenue is generally recognized ratably over the contract term. 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 is expected to be relatively consistent. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Revenue is recognized ratably over the licensing or subscription term.

 

Automated traffic safety enforcement revenues reflect arrangements to provide traffic safety systems to a number of municipalities in North America. These systems include hardware that identifies red light and school safety zone traffic violations and software that captures and records forensic images, analyses the images to provide data and supports citation management services. The Company also provides an enterprise parking enforcement solution that the Company licenses to parking management companies and municipalities.  Revenue is recognized monthly based on the number of camera systems that are operated, or the number of citations issued by the relevant municipality.

 

For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors.

 

  A performance obligation is a promise in a contract with a customer to transfer services that are distinct. The performance obligations that are not yet satisfied or partially satisfied are performance obligations that are expected to be recognized as revenue in the future for a contract with a customer which was executed as of a particular date. At March 31, 2020, the Company had approximately $13,831,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 34% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the unaudited condensed consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the unaudited condensed consolidated balance sheets. When billings occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. Unbilled accounts receivables of $247,000 and $440,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively. Additionally, unbilled accounts receivables of $1,751,000 and $346,000 were included in current assets held for sale and discontinued in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

 

When the Company advance bills clients prior to providing services, 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 unaudited condensed consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the three months ended March 31, 2020 were not materially impacted by any other factors. Contract liabilities from the period ended March 31, 2020 and December 31, 2019 were $1,574,000 and $1,524,000, respectively. All contract liabilities as of March 31, 2020 and December 31, 2019 were attributable to continued operations. During the three months ended March 31, 2020 $243,000 of the contract liabilities balance as of December 31, 2019 were recognized as revenue.

 

The services due for contract liabilities described above are shown below as of March 31, 2020 (dollars in thousands):

 

2020   $ 717  
2021     297  
2022     270  
2023     195  
2024     95  
Total   $ 1,574  

 

Practical Expedients ElectionCosts to Obtain and Fulfill a Contract ‒ The Company’s incremental costs to obtain a contract consist of sales commissions. The Company elected to use the practical expedient to expense costs to obtain a contract as incurred when the amortization period would have been one year or less. As of March 31, 2020, and December 31, 2019, costs incurred to obtain contracts in excess of one year have been immaterial to date.

 

Segment Reporting

The FASB ASC Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. In 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 reflected the Company’s separate focus on technology products and services versus professional services.

 

As part of a strategic shift by the Company, all operations related to the Professional Services segment have been classified as held or sale and discontinued as of 2020. As of January 1, 2020, the Company has one reportable segment. Continuing operations are all operations that previously were reported as part of the Technology Segment.

  

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 March 31, 2020 and December 31, 2019 were $415,000 and $461,000, respectively, and correspond to equal amounts of related accounts payable and are presented as part of accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheets. 

 

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 March 31, 2020 and December 31, 2019, the Company had deposits from continuing operations totaling $1,502,000 and $1,536,000, respectively, in one U.S. financial institution that was federally insured up to $250,000 per account.

 

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

 

Company A accounted for 17% and less than 10% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

Company B accounted for 13% and 27% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

Company C accounted for less than 10% and 12% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

 

As of March 31, 2020, accounts receivable from Company A totaled $140,000 or 19% of the unaudited condensed consolidated accounts receivable balance. As of December 31, 2019, Company A accounted for $198,000 or 26% 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 three month period ended March 31, 2020 or unaudited condensed consolidated accounts receivable balance as of March 31, 2020.

 

Significant Accounting Policies

Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 

 

New Accounting Pronouncements Effective in the Three Months ended March 31, 2020

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This ASU 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 adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s 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.

 

v3.20.1
GENERAL AND BASIS OF PRESENTATION (Tables)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of revenue
    Three Months Ended March 31,  
    2020     2019  
Revenue            
Automated traffic safety enforcement   $ 745     $ 817  
Licensing and subscription revenue     850       193  
Total revenue   $ 1,595     $ 1,010  
Contract liabilities
2020   $ 717  
2021     297  
2022     270  
2023     195  
2024     95  
Total   $ 1,574  
v3.20.1
ACQUISITION (Tables)
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Purchase price allocation
Accounts receivable, net   $ 381  
Other current assets, net     13  
Property and equipment, net     21  
Contract liabilities     (388 )
Net assets acquired     27  
Less intangible assets     7,436  
Consideration paid     (12,397 )
Net goodwill recorded   $ 4,934  
         
Cash consideration   $ 7,000  
Note payable     5,000  
Common stock consideration     397  
Total acquisition consideration   $ 12,397  
Pro-forma financial information
    Three Months Ended March 31,  
    2020     2019  
    (Dollars in thousands, except per share data)  
Revenue from continuing operations   $ 1,595     $ 1,979  
Net loss from continuing operations     (3,774 )     (1,710 )
Basic and diluted loss per share continuing operations   $ (0.19 )   $ (0.10 )
Basic and diluted number of shares     21,929,768       19,367,619  
v3.20.1
HELD FOR SALE AND DISCONTINUED OPERATIONS (Tables)
3 Months Ended
Mar. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued operations

The assets and liabilities classified as held for sale and discontinued operations in the Company's unaudited condensed consolidated financial statements as of March 31, 2020 and December 31, 2019 are shown below (dollars in thousands). 

 

    March 31, 2020     December 31, 2019  
    Global     AOC Key Solutions     Firestorm     Total     Global     AOC Key Solutions     Firestorm     Total  
ASSETS                                                
Cash and cash equivalents   $ 37     $ 118     $ 6     $ 161     $ 225     $ 93     $ 12     $ 330  
Accounts receivable, net     3,183       3,866       -       7,049       2,763       4,055       -       6,818  
Other current assets, net     157       41       -       198       238       52       3       293  
Current assets held for sale and discontinued     3,377       4,025       6       7,408       3,226       4,200       15       7,441  
Property and equipment, net     113       37       -       150       113       41       -       154  
Right-of-use lease assets, net     105       477       -       582       130       499       -       629  
Goodwill     669       -       -       669       669       -       -       669  
Intangible assets, net     1,994       -       -       1,994       1,994       -       -       1,994  
Deposits and other long-term assets     -       12       -       12       -       11       -       11  
Long-term assets held for sale and discontinued     2,881       526       -       3,407       2,906       551       -       3,457  
Total assets held for sale and discontinued   $ 6,258     $ 4,551     $ 6     $ 10,815     $ 6,132     $ 4,751     $ 15     $ 10,898  
LIABILITIES                                                                
Accounts payable and accrued expenses   $ 724     $ 1,572     $ 29     $ 2,325     $ 461     $ 1,260     $ 33     $ 1,754  
Lines of credit     1,776       1,404       -       3,180       1,842       1,894       -       3,736  
Lease liability, short term     115       103       64       282       113       100       54       267  
Current liabilities held for sale and discontinued     2,615       3,079       93       5,787       2,416       3,254       87       5,757  
Other long-term liabilities     33       -       -       33       -       -       -       -  
Lease liability, long term     -       439       30       469       30       467       39       536  
Long-term liabilities held for sale and discontinued     33       439       30       502       30       467       39       536  
Total liabilities held for sale and discontinued   $ 2,648     $ 3,518     $ 123     $ 6,289     $ 2,446     $ 3,721     $ 126     $ 6,293  

  

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

 

    Three Months Ended March 31,  
    2020     2019  
    Global     AOC Key Solutions     Firestorm     Total     Global     AOC Key Solutions     Firestorm     Total  
Revenue   $ 6,305     $ 3,392     $ -     $ 9,697     $ 7,058     $ 2,878     $ 680     $ 10,616  
Cost of revenue     5,476       1,866       -       7,342       6,146       1,592       295       8,033  
Gross profit     829       1,526       -       2,355       912       1,286       385       2,583  
Operating expenses:                                                                
General and administrative expenses     762       1,284       (4 )     2,042       971       1,115       508       2,594  
Selling and marketing expenses     39       131       -       170       82       125       63       270  
Operating expenses     801       1,415       (4 )     2,212       1,053       1,240       571       2,864  
Income loss income from operations     28       111       4       143       (141 )     46       (186 )     (281 )
Other income (expense):                                                                
Interest expense     (90 )     (74 )     -       (164 )     (48 )     (31 )     -       (79 )
Other expense     5       2       -       7       1       2       -       3  
Total other expense     (85 )     (72 )     -       (157 )     (47 )     (29 )     -       (76 )
Income (loss) from held for sale and discontinued operations     (57 )     39       4       (14 )     (188 )     17       (186 )     (357 )
Income tax provision from held for sale and discontinued operations     -       -       -       -       -       -       -       -  
Net income (loss) from held for sale and discontinued operations   $ (57 )   $ 39     $ 4     $ (14 )   $ (188 )   $ 17     $ (186 )   $ (357 )

 

v3.20.1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Tables)
3 Months Ended
Mar. 31, 2020
Supplemental Cash Flow Information [Abstract]  
Supplemental disclosure of cash flow information

 

    Three Months Ended March 31,  
    2020     2019  
Cash paid for interest - continuing operations   $ 506     $ 119  
Cash paid for interest - held for sale and discontinued operations     106       148  
Non-cash financing - paid-in-kind interest transferred to the principal balance of the 2019 Promissory Notes     (1,283 )     -  
Non-cash operating - paid-in-kind interest transferred to the principal balance of the 2019 Promissory Notes     1,283       -  
Current assets     -       415  
Intangible assets     -       7,436  
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 )
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  
Adoption of ASC-842 Lease Accounting:                
Right-of-use lease asset     132       921  
Deferred rent     -       30  
Lease liability   $ (132 )   $ (951 )

v3.20.1
OPERATING LEASES (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Summary of operating lease
Operating lease right-of-use lease assets from continuing operations   $ 383  
Operating lease right-of-use lease assets from held for sale and discontinued operations     582  
Total operating lease right-of-use assets   $ 965  
         
Lease liability, short-term   $ 231  
Lease liability, long-term     172  
Lease liability from held for sale and discontinued operations     751  
  Total operating lease liabilities   $ 1,154  
         
Weighted Average Remaining Lease Term - operating leases from continuing operations     2.1  
         
Weighted Average Discount Rate - operating leases     9 %
Maturities of lease liabilities
2020 (remainder 2020)   $ 442  
2021     412  
2022     177  
2023     178  
2024     100  
Total lease payments     1,309  
Less imputed interest     (155 )
Maturities of lease liabilities   $ 1,154  
v3.20.1
INTANGIBLE ASSETS (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Changes in the carrying amount of goodwill by reportable business segment
   

December 31,

2019

    Additions     Amortization    

March 31,

2020

 
Intangible assets subject to amortization from continuing operations                        
Customer relationships   $ 396     $ -     $ (9 )   $ 387  
Marketing related     230       -       (17 )     213  
Technology based     6,395       -       (256 )     6,139  
Internally developed capitalized software     1,223       62       (31 )     1,254  
Intangible assets subject to amortization from continuing operations     8,244       62       (313 )     7,993  
Intangible assets from held for sale and discontinued operations     1,994       -       -       1,994  
Total intangible assets   $ 10,238     $ 62     $ (313 )   $ 9,987  
Schedule of intangible assets
    Customer Relationships     Marketing Related     Technology Based     Internally Developed Capitalized Software     Total  
Identifiable intangible assets   $ 461     $ 327     $ 7,206     $ 1,352     $ 9,346  
Accumulated amortization     (74 )     (114 )     (1,067 )     (98 )     (1,353 )
Identifiable intangible assets from continuing operations, net     387       213       6,139       1,254       7,993  
Identifiable intangible assets from held for sale and discontinued operations, net     1,685       309       -       -       1,994  
Identifiable intangible assets, net   $ 2,072     $ 522     $ 6,139     $ 1,254     $ 9,987  
Estimated annual amortization expense
2020   $ 964  
2021     1,274  
2022     1,193  
2023     1,105  
2024     1,060  
Thereafter     1,451  
Capitalized software not yet placed in service     946  
Total   $ 7,993  
v3.20.1
DEBT (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Future principal amounts
2020   $ -  
2021     22,283  
2022     1,000  
2023     -  
2024     -  
Thereafter     -  
Total     23,283  
         
Less unamortized interest     (34 )
Less unamortized financing costs     (1,327 )
Notes payable   $ 21,922  
v3.20.1
EQUITY INCENTIVE PLAN (Tables)
3 Months Ended
Mar. 31, 2020
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, 2019     1,655,383     $ 1.68       8.33     $ 3,224  
      Granted     20,000       4.32       9.91          
      Exercised     (1,294 )     3.81                  
      Forfeited     (3,146 )     1.42                  
Canceled     (36,684 )     1.82                  
Outstanding Balance at March 31, 2020     1,634,259     $ 1.71       8.17     $ 2,854  
Exercisable at March 31, 2020     1,050,452     $ 1.79       6.59     $ 1,743  
Restricted Stock Units Activity
    Number of Shares     Weighted Average Unit Price     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value  
Outstanding Balance at December 31, 2019     -     $ -       -     $ -  
      Granted     334,450       4.06       2.75          
      Vested     -       -                  
      Forfeited     -       -                  
Outstanding Balance at March 31, 2020     334,450     $ 4.06       2.75     $ -  
v3.20.1
LOSS PER SHARE (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Loss per common share
    Three Months Ended March 31,  
    2020     2019  
Basic and diluted loss per share            
    Net loss from continuing operations   $ (3,774 )   $ (2,518 )
    Less: preferred stock accretion     (206 )     (179 )
    Less: preferred stock dividends     (115 )     (115 )
        Net loss attributable to shareholders from continuing operations     (4,095 )     (2,812 )
Net loss from held for sale and discontinued operations     (14 )     (357 )
Net loss attributable to shareholders   $ (4,109 )   $ (3,169 )
    Weighted average common shares outstanding - basic and diluted     21,929,768       18,800,496  
        Basic and diluted loss per share from continuing operations   $ (0.19 )   $ (0.15 )
        Basic and diluted loss per share from held for sale and discontinued operations     -       (0.02 )
Basic and diluted loss per share   $ (0.19 )   $ (0.17 )
            Common stock equivalents excluded due to anti-dilutive effect     5,293,838       6,316,157  
v3.20.1
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue $ 1,595 $ 1,010
Automated traffic safety enforcement    
Revenue 745 817
Licensing and Subscription    
Revenue $ 850 $ 193
v3.20.1
GENERAL AND BASIS OF PRESENTATION (Details 1)
$ in Thousands
Mar. 31, 2020
USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
2020 $ 717
2021 297
2022 270
2023 195
2024 95
Total $ 1,574
v3.20.1
GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Company A | Revenue    
Risk 17.00% 10.00%
Company A | Accounts Receivable    
Risk 19.00% 10.00%
Company B | Revenue    
Risk 13.00% 27.00%
Company C | Revenue    
Risk 10.00% 12.00%
v3.20.1
ACQUISITION (Details) - OpenALPR Technology
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Accounts receivable, net $ 381
Other current assets, net 13
Property and equipment, net 21
Contract liabilities (388)
Net assets acquired 27
Less intangible assets 7,436
Consideration paid (12,397)
Net goodwill recorded 4,934
Cash consideration 7,000
Note payable 5,000
Common stock consideration 397
Total acquisition consideration $ 12,397
v3.20.1
ACQUISITION (Details 1) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Business Combinations [Abstract]    
Revenues from continuing operations $ 1,595 $ 1,979
Net loss from continuing operations $ (3,774) $ (1,710)
Basic and diluted loss per share continuing operations $ (.19) $ (.10)
Basic and diluted number of shares 21,929,768 19,367,619
v3.20.1
HELD FOR SALE AND DISCONTINUED OPERATIONS (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
ASSETS    
Cash and cash equivalents $ 161 $ 330
Accounts receivable, net 7,049 6,818
Other current assets, net 198 293
Current assets held for sale and discontinued 7,408 7,441
Property and equipment, net 150 154
Right-of-use lease assets net 582 629
Goodwill 669 669
Intangible assets, net 1,994 1,994
Deposits and other long-term assets 12 11
Long-term assets held for sale and discontinued 3,407 3,457
Total assets held for sale and discontinued 10,815 10,898
Liabilities    
Accounts payable and accrued expenses 2,325 1,754
Lines of Credit 3,180 3,736
Lease liability, short term 282 267
Current liabilities held for sale and discontinued 5,787 5,757
Other long-term liabilities 33 0
Lease liability, long term 469 536
Long-term liabilities held for sale and discontinued 502 536
Total liabilities held for sale 6,289 6,293
Global    
ASSETS    
Cash and cash equivalents 37 225
Accounts receivable, net 3,183 2,763
Other current assets, net 157 238
Current assets held for sale and discontinued 3,377 3,226
Property and equipment, net 113 113
Right-of-use lease assets net 105 130
Goodwill 669 669
Intangible assets, net 1,994 1,994
Deposits and other long-term assets 0 0
Long-term assets held for sale and discontinued 2,881 2,906
Total assets held for sale and discontinued 6,258 6,132
Liabilities    
Accounts payable and accrued expenses 724 461
Lines of Credit 1,776 1,842
Lease liability, short term 115 113
Current liabilities held for sale and discontinued 2,615 2,416
Other long-term liabilities 33 0
Lease liability, long term 0 30
Long-term liabilities held for sale and discontinued 33 30
Total liabilities held for sale 2,648 2,446
AOC Key Solutions    
ASSETS    
Cash and cash equivalents 118 93
Accounts receivable, net 3,866 4,055
Other current assets, net 41 52
Current assets held for sale and discontinued 4,025 4,200
Property and equipment, net 37 41
Right-of-use lease assets net 477 499
Goodwill 0 0
Intangible assets, net 0 0
Deposits and other long-term assets 12 11
Long-term assets held for sale and discontinued 526 551
Total assets held for sale and discontinued 4,551 4,751
Liabilities    
Accounts payable and accrued expenses 1,572 1,260
Lines of Credit 1,404 1,894
Lease liability, short term 103 100
Current liabilities held for sale and discontinued 3,079 3,254
Other long-term liabilities 0 0
Lease liability, long term 439 467
Long-term liabilities held for sale and discontinued 439 467
Total liabilities held for sale 3,518 3,721
Firestorm    
ASSETS    
Cash and cash equivalents 6 12
Accounts receivable, net 0 0
Other current assets, net 0 3
Current assets held for sale and discontinued 6 15
Property and equipment, net 0 0
Right-of-use lease assets net 0 0
Goodwill 0 0
Intangible assets, net 0 0
Deposits and other long-term assets 0 0
Long-term assets held for sale and discontinued 0 0
Total assets held for sale and discontinued 6 15
Liabilities    
Accounts payable and accrued expenses 29 33
Lines of Credit 0 0
Lease liability, short term 64 54
Current liabilities held for sale and discontinued 93 87
Other long-term liabilities 0 0
Lease liability, long term 30 39
Long-term liabilities held for sale and discontinued 30 39
Total liabilities held for sale $ 123 $ 126