• Filing Date: 2020-11-09
  • Form Type: 10-Q
  • Description: Quarterly report
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  

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, 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.  On April 27, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which the Company has opposed.  In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.  That motion was fully briefed as of February 21, 2020.  It remains sub judice, and no argument has been scheduled upon it.


In the year 2020, the Firestorm Principals filed suit in New York Supreme Court in Sullivan County against directors of the Company, alleging breach of fiduciary duty and libel.  The Company believes that this suit is without merit and intend to vigorously litigate this matter.


At this stage of these litigations, the Company is unable to render an opinion regarding the likelihood of a favorable outcome.  The Company intends to continue vigorously litigating its claims against the Firestorm Principals and believes that the Firestorm Principals’ remaining counterclaims and suits against Rekor directors and officers 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 the Company’s subsidiaries in the US District Court for the District of Maryland. The complaint alleged that certain of the Company’s products violated a patent held by Vigilant. On June 10, 2020, the Company filed an Answer to the complaint denying the pertinent allegations and asserting substantial defenses to the allegations contained in the complaint, including that the patent underlying the complaint is invalid. On September 23, 2020, the Company filed a Motion to Stay Pending Inter Partes Review in light of a Petition for Inter Partes Review filed by the Company and certain subsidiaries against Vigilant in the U.S. Patent and Trademark Office (as discussed below). Vigilant opposed the Motion.


On September 8, 2020, the Company and certain of the Company’s subsidiaries that were defendants in the Vigilant Solutions, LLC Litigation discussed above filed a Petition for Inter Partes Review at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (“PTAB”) requesting that the PTAB review and find unpatentable certain claims of the patent asserted by Vigilant in the Vigilant Solutions, LLC Litigation. The PTAB was expected to decide whether to institute review in March or April 2021. 


In November of 2020, Rekor and Vigilant Solutions, LLC agreed to resolve the district court litigation and intellectual property rights action between the parties pursuant to a confidential settlement agreement. The Company will have no material effect from its obligations under the agreement.


On January 31, 2020, the Company’s 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 was licensed to PCS. On June 14, 2020, PCS filed its operative answer to the Complaint.  On June 21, 2020, PCS filed a motion to join the Company and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them for defamation, fraud and intentional interference with existing and future business relationships. On July 13, 2020, OpenALPR filed an opposition to the motion for joinder. The parties are currently awaiting the Court’s decision on joinder. Nevertheless, the Company believes that it has substantial defenses to the claims and intend to vigorously defend the allegations of those claims.


 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.