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What changed in Rekor Systems, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Rekor Systems, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+232 added−264 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-29)

Top changes in Rekor Systems, Inc.'s 2023 10-K

232 paragraphs added · 264 removed · 153 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeRekor's solutions can support diverse use cases, including real-time incident detection and response, data driven traffic operations and traffic management, proactive traffic calming around events, Federal Highway Administration ("FHWA") mandated vehicle classification, counts, and speed collection and reporting, analytics for bicycle, pedestrians, and other micromobility modes, patterns and hot spots for greenhouse gas emissions, high-definition ("HD") video management and traffic surveillance, law enforcement and intelligence-based policing, citation management, contactless compliance and enforcement, among others.
Biggest changeRekor's solutions support diverse use cases, including: 1) traffic reports, including counts showing Federal Highway Administration ("FHWA") mandated vehicle classifications and speed, analytics for bicycle, pedestrians, and other micro-mobility modes, as well as patterns and hot spots for greenhouse gas emissions, 2) data driven traffic operations and traffic management, real-time incident detection and response, including proactive traffic calming around events, and 3) high-definition ("HD") video traffic surveillance, to assist law enforcement and support intelligence-based policing, including contactless compliance and enforcement, among others.
This represents a once-in-a-generation level of investment and bipartisan support for creating and scaling transportation digital infrastructure for the 21st century.
This represents a once-in-a-generation level of investment and bipartisan support for creating and scaling digital transportation infrastructure for the 21st century.
With our advanced technology and domain expertise, we are well-equipped to serve multiple public agencies and private sector segments with comprehensive roadway intelligence. 6 Table of Contents To summarize, Rekor One roadway intelligence engine, along with our Rekor Partner Network allows us to collect, connect, and organize more data from the roadways than ever before possible, and generate rich insights that enable our customers to make thoughtful decisions impacting their communities every day.
With our advanced technology and domain expertise, we are well-equipped to serve multiple public agencies and private sector segments with comprehensive roadway intelligence. 6 Table of Contents To summarize, the Rekor One® roadway intelligence engine, along with our Rekor Partner Network allows us to collect, connect, and organize more data from the roadways than ever before possible, and generate rich insights that enable our customers to make thoughtful decisions impacting their communities every day.
This application is a channel for agencies to interact directly with the public, keeping citizens the up to date and aware of potentially dangerous events and incidents to help prevent additional incidents from occurring.
This application is a channel for agencies to interact directly with the public, keeping citizens up to date and aware of potentially dangerous events and incidents to help prevent additional incidents from occurring.
We specialize in collecting and aggregating mobility-related data from multiple sources into our Rekor One™ roadway intelligence engine, transforming this data into knowledge and actionable insights, and securely distributing those insights to multiple users across our software platforms and applications. Our proprietary technologies use recent advances in artificial intelligence, machine learning, data analysis, edge processing, and communications.
We specialize in collecting and aggregating mobility-related data from multiple sources into our Rekor One® roadway intelligence engine, transforming this data into knowledge and actionable insights, and securely distributing those insights to multiple users across various software platforms and applications. Our proprietary technologies use recent advances in artificial intelligence, machine learning, data analysis, edge processing, and communications.
To date, we have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel. Seasonality We derive revenues substantially from the sale of software, hardware and related services. Therefore, we do not currently anticipate a significant seasonality impact on our revenues.
To date, we have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel. Seasonality We derive revenues substantially from the sale of software, hardware and related services and do not currently anticipate a significant seasonality impact on our revenues.
Our platform is hosted on AWS GovCloud for secure data handling and stored in secure databases with limited access only to authorized system administrators. Moreover, Rekor One™ incorporates a privacy filter that uses a proprietary algorithm to strip personally identifiable information (“PII”) from data, ensuring that data privacy is always safeguarded.
Our platform is hosted on AWS GovCloud for secure data handling and stored in secure databases with limited access only to authorized system administrators. Moreover, Rekor One® incorporates a privacy filter that uses a proprietary algorithm to strip personally identifiable information (“PII”) from data, ensuring that data privacy is safeguarded.
Automotive OEMs and government agencies in the transportation industry are starting to focus on how to leverage connected vehicle data with AI to improve safety. We are building deep partnerships and enhancing our solutions with data to facilitate the delivery of real-time information to citizens.
Automotive OEMs and government agencies in the transportation industry are starting to focus on how to leverage connected vehicle data with AI to improve safety. We are building partnerships and enhancing our solutions with data to facilitate the delivery of real-time information to citizens.
By facilitating a variety of modular upgrades to existing infrastructure, combining data from various sources, and providing valuable real-time, historical, and predictive insights, Rekor can continue to deliver solutions that meet the needs of customers across the value chain. 17 Table of Contents Marketing and Sales We offer product and services in multiple markets, using direct sales, an eCommerce platform and extensive partnerships and alliances.
By facilitating a variety of modular upgrades to existing infrastructure, combining data from various sources, and providing valuable real-time, historical, and predictive insights, Rekor can continue to deliver solutions that meet the needs of customers across the value chain. 17 Table of Contents Marketing and Sales We offer products and services in multiple markets, using direct sales, an eCommerce platform and extensive partnerships and alliances.
The application provides cloud-based dashboards and reports the count of EVs, provide heatmaps for EVs as well as a breakdown of EV models, greenhouse gas emissions and smog, and other useful metrics.
The application provides cloud-based dashboards and reports the count of EVs, provides heatmaps for EVs as well as a breakdown of EV models, greenhouse gas emissions and smog, and other useful metrics.
In 2023, we will be working to extend our reach into smaller communities as we continue to serve medium-large DOT and law enforcement departments with our direct sales representatives. Given that our primary market is state and local governments in the United States, the majority of our sales efforts involve a request for proposal process and/or grant application process.
In 2024, we will be working to extend our reach into smaller communities as we continue to serve medium-large DOT and law enforcement departments with our direct sales representatives. Given that our primary market is state and local governments in the United States, the majority of our sales efforts involve a request for proposal process and/or grant application process.
According to a report from the American Society of Civil Engineers ("ASCE"), US infrastructure has been graded a C minus, indicating that there is significant and urgent need for improvement. Over 65% of the 4.3 million miles of US roadways are rated in poor condition, which impacts the safety of drivers and passengers.
According to a report from the American Society of Civil Engineers ("ASCE"), US infrastructure has been graded a C minus, indicating that there is significant and urgent need for improvement. Over 65% of the 4.2 million miles of US roadways are rated in poor condition, which impacts the safety of drivers and passengers.
This involves consolidating fragmented and disparate systems, as well as adding new layers of connectivity, to create a unified infrastructure. To achieve this goal, we are working closely with a wide range of stakeholders, including local and federal government agencies, law enforcement, transit providers, infrastructure owners/operators, automotive OEMs, and technology and communications providers.
This involves consolidating fragmented and disparate systems, as well as adding new layers of connectivity, to create a unified environment. To achieve this goal, we are working closely with a wide range of stakeholders, including local and federal government agencies, law enforcement, transit providers, infrastructure owners/operators, automotive OEMs, and technology, communications and data providers.
Agencies can leverage Rekor’s AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the sustainability planning application. 11 Table of Contents Rekor Scout™ for Public Safety Rekor is transforming the typically siloed, reactive, single-purpose world of legacy law enforcement and security technology with real-time, AI-driven solutions that act as connectors between agencies and force multipliers in a chronically under-resourced space.
Agencies can leverage Rekor’s AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the sustainability planning application. 11 Table of Contents Rekor Scout ® for Public Safety Rekor is helping to transform the typically siloed, reactive, single-purpose world of legacy law enforcement and security technology with real-time, AI-driven solutions that act as connectors between agencies and force multipliers in a chronically under-resourced space.
Since the launch of our Rekor One roadway intelligence Engine in 2020, our market-specific solutions have gained widespread adoption, both in the government and commercial sectors. We are confident in our competitive position and look forward to continued growth and success as we lead the way in intelligent infrastructure.
Since the launch of our Rekor One® roadway intelligence Engine in 2020, our market-specific solutions have gained increased adoption, both in the government and commercial sectors. We are confident in our competitive position and look forward to continued growth and success as we lead the way in intelligent infrastructure.
By applying a multi-layer architectural approach and protocols inspired by the Open System Interconnection ("OSI") model, which was instrumental in creating computer operating systems in the 1970s and the internet in the 1980s, we are collaborating with members of the Rekor Partner Network to integrate various transportation infrastructure systems into a cohesive network of roadway intelligence assets and insights.
By applying a multi-layer architectural approach and protocols inspired by the Open System Interconnection ("OSI") model, which was instrumental in creating computer operating systems in the 1970s and the internet in the 1980s, we are collaborating with members of the Rekor Partner Network to integrate various transportation infrastructure systems – hardware, technology, and datasets - into a cohesive network of roadway intelligence assets and insights.
Within Rekor One, our proprietary algorithms curate data from multiple sources, including edge-based IoT devices, existing roadway sensors, and a growing network of transportation data partners, unlocking multiple trillions of additional data points.
Within the Rekor One® environment, our proprietary algorithms curate data from multiple sources, including edge-based IoT devices, existing roadway sensors, and a growing network of transportation data partners, unlocking multiple trillions of additional data points.
In 2023, we will continue to capture and submit proposals and apply for grants, while also seeking opportunities to submit concurrently with strategic partners. Our eCommerce platform offers businesses and individuals around the world a convenient way to purchase our high-value vehicle recognition solutions with just a credit card and a click.
In 2024, we will continue to capture and submit proposals and apply for grants for our customers, while also seeking opportunities to submit concurrently with strategic partners. Our eCommerce platform offers businesses and individuals around the world a convenient way to purchase our high-value vehicle recognition solutions with just a credit card and a click.
So much so that on February 2, 2023, the US Department of Transportation declared a national crisis and state of emergency for roadway safety and launched an urgent roadway safety call-to-action demanding stakeholders to commit to specific actions to reverse the spike in serious injuries and deaths on our roadways.
On February 2, 2023, the US Department of Transportation declared a national crisis and state of emergency for roadway safety and launched an urgent roadway safety call-to-action demanding stakeholders to commit to specific actions to reverse the spike in serious injuries and deaths on our roadways.
We also excel by providing tailored datasets and integrated solutions and workflows to multiple agencies through a single platform, allowing us to meet the unique needs of various markets. Our unique approach allows us to collect vehicle classification, counts and speed across all FHWA13 classes.
We also excel by providing tailored datasets and integrated solutions and workflows to multiple agencies through a single platform, allowing us to meet the unique needs of various markets. Our unique approach allows us to collect vehicle classification, counts and speed across all 13 FHWA classes.
The competition in roadway intelligence takes various forms - some solely focused on Automatic License Plate Recognition ("ALPR") and vehicle recognition technology, while others specialize in data creation, aggregation, insights platforms, or smart city technologies. Additionally, there are a variety of vendors supporting the classification, counting, and speed of vehicles according to Federal Highway Administration guidelines.
The competition in roadway intelligence takes various forms - some solely focused on Automatic License Plate Recognition ("ALPR") and vehicle recognition technology, while others specialize in data creation, aggregation, insights platforms, or smart city technologies. Additionally, there are a variety of vendors supporting the classification, counting, and speed of vehicles according to FHWA guidelines.
These additional insights and data feeds help further the real-time view agencies have of their roadways and provide additional layer of information that drive decision-making.
These additional insights and data feeds help further the real-time view agencies have of their roadways and provide additional layers of information that drive decision-making.
Our operations are conducted primarily by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc., or ("Rekor Recognition"), Waycare Technologies, Ltd., or (“Waycare”), and Southern Traffic Services, Inc., or (“STS”). A New Operating System for Roadways The condition of national transportation infrastructure systems is a matter of great concern, particularly in the United States.
Our operations are conducted primarily by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc. ("Rekor Recognition"), Waycare Technologies, Ltd. (“Waycare”), Southern Traffic Services, Inc. (“STS”), and All Traffic Data Systems (“ATD”). A New Operating System for Roadways The condition of national transportation infrastructure systems is a matter of great concern, particularly in the United States.
The Edge Max can be integrated into a network and features an onboard modem, easy mounting, optional solar power, and can even be configured with multiple cameras to increase capture range. 13 Table of Contents Rekor Edge Pro ™ Rekor Edge Pro is a complete vehicle recognition solution that can be used on a standalone basis or integrated into a network.
The Edge Max can be integrated into a network and features an onboard modem, easy mounting, optional solar power, and can even be configured with multiple cameras to increase capture range. Rekor Edge Pro ™ Rekor Edge Pro™ is a complete vehicle recognition solution that can be used on a standalone basis or integrated into a network.
The platform allows for self-service sign-up and a range of subscription options while also funneling customers directly to our sales support team if they need more information. We recently launched our Edge Pro camera system, our first hardware device for sale directly through the eCommerce platform.
The platform allows for self-service sign-up and a range of subscription options while also funneling customers directly to our sales support team if they need more information. Our Edge Pro camera system is the first hardware device for sale directly through the eCommerce platform.
This is a unique moment for Rekor, and one that we have been preparing for since 2018. 4 Table of Contents Roadway Intelligence Rekor has been dedicated to being a leader in roadway intelligence by collecting, connecting, and organizing global mobility data since its inception.
This is a unique moment for Rekor, and one that we have been preparing for since 2018. 4 Table of Contents Roadway Intelligence Rekor has become a leader in roadway intelligence by collecting, connecting, and organizing global mobility data since its inception.
To address urgent transportation issues and ensure the competitiveness of the US economy, an unprecedented amount of funding has been made available from the federal government through the Infrastructure Investment and Jobs Act ("IIJA"), Inflation Reduction Act, and CHIPS and Science Act to create digitally-enabled transportation infrastructure that will provide public goods and new economic value.
To address these urgent issues and ensure the competitiveness of the US economy, an unprecedented amount of funding has been made available from the federal government through the Infrastructure Investment and Jobs Act ("IIJA"), the Inflation Reduction Act, and the CHIPS and Science Act, that is available to help create a digitally-enabled transportation infrastructure that can serve the public good and provide new economic value.
If these transportation network issues remain unaddressed, it is projected that the United States will face a $10 trillion gap in its gross domestic product.
If these transportation network issues remain unaddressed, it has been projected that the United States will face a $10 trillion loss in its gross domestic product.
With our commitment to intellectual property rights and our talented personnel, we are well-positioned to lead the market in delivering cutting-edge solutions and services. 18 Table of Contents Acquisitions On June 17, 2022, we completed the STS Acquisition. On August 18, 2021, we completed the Waycare Technology Acquisition.
With our commitment to intellectual property rights and our talented personnel, we are well-positioned to lead the market in delivering cutting-edge solutions and services. 18 Table of Contents Acquisitions On June 17, 2022, we completed the STS Acquisition. On January 2, 2024, we completed the ATD Acquisition.
While we will continue to pursue opportunities to sell perpetual licenses and hardware, our primary focus is on providing cutting-edge SaaS offerings and services with recurring annual revenues. Our eCommerce site and mobile apps allow us to serve individuals and smaller organizations at scale using a self-service recurring revenue model.
While we will continue to pursue opportunities to sell perpetual licenses and hardware, our primary focus is on providing cutting-edge SaaS offerings and services with recurring annual revenues. Our eCommerce site allows us to serve individuals and smaller organizations at scale using a self-service recurring revenue model. We expect the market for our solutions and services to be extraordinary.
This includes upgrading existing infrastructure to efficiently collect reliable data, aggregating that data with third-party data, processing the data with superior analytical tools, and delivering datasets and actionable insights tailored to the specific needs of multiple agencies through a single platform.
We are concentrating on providing data resources that are more reliable, efficient and readily available. This includes upgrading existing infrastructure to efficiently collect reliable data, aggregating that data with third-party data, processing the data with superior analytical tools, and delivering datasets and actionable insights tailored to the specific needs of multiple agencies through a single platform.
Our global workforce is highly educated, technical and specialized, with a substantial majority of employees working in technical roles. As o f March 29, 2023, we had 268 employees, of which 267 were full-time and one was considered part-time. We consider our employee relations to be good.
Our global workforce is highly educated, technical and specialized, with a substantial majority of employees working in technical roles. As o f March 25, 2024, we had 351 employees, of which 347 were full-time and four considered part-time. We consider our employee relations to be good.
Additional information concerning the STS and Waycare Technology Acquisition is provided in this Annual Report on Form 10-K under ITEM 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” Human Capital Management We look for our employees to represent the best and brightest in our industry and the talent we select to be a part of our team defines our culture and success.
For additional information, s ee Item 8 of Part II, “Financial Statements and Supplementary Data — Note 17 — Subsequent Events” Additional information concerning the STS and ATD Acquisitions is provided in this Annual Report on Form 10-K under ITEM 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” Human Capital Management We look for our employees to represent the best and brightest in our industry and the talent we select to be a part of our team defines our culture and success.
With our deep expertise and technology, Rekor is well positioned to help businesses and governments unlock the true potential of their infrastructure data, driving innovation and enhancing the lives of billions of people worldwide. 7 Table of Contents The Road Ahead We find ourselves at a pivotal moment in history, where governments are investing heavily in upgrading and digitizing outdated infrastructure.
With our deep expertise and technology, Rekor is well positioned to help businesses and governments unlock the true potential of their infrastructure data, driving innovation and enhancing the lives of billions of people worldwide. 7 Table of Contents The Road Ahead The United States government is investing heavily in upgrading and digitizing the nation’s outdated infrastructure.
Rekor Discover – Sustainability Planning Application The Sustainability Planning application within the Rekor Discover platform helps agencies better plan for electric vehicle ("EV") charge station deployment, understand the movement of EVs and their adoption, and gather insights on where emissions and greenhouse gasses are emitted from the roadway.
The Vehicle Insite application helps users better plan for electric vehicle ("EV") charge station deployment, understand the movement of EVs and their adoption, and gather insights on where emissions and greenhouse gases are emitted from the roadway.
Where we have developed proprietary technologies, such as our unique edge processing and privacy filter technologies, we will take decisive action to protect our innovations and intellectual property rights. However, it will be through our unyielding pursuit of innovation and quality that we will establish ourselves as a leader in the industry.
Where we have developed proprietary technologies, such as our unique edge processing and privacy filter technologies, we have taken action to protect our innovations and intellectual property rights. However, our primary strategy for establishing ourselves as a leader in the industry has been the pursuit of innovation and quality. .
Traffic management agencies are able to access a live map view of their roadways and are alerted to irregular events and potential incidents that have been identified through AI leveraging multiple sources of data. Once confirmed by the agency, multiple responders are notified to rapidly approach and clear the roadways, enabling traffic to continue and roadway safety to improve.
Traffic management agencies are able to access a live map view of their roadways and are alerted to irregular events and potential incidents that have been identified through AI assisted analysis of multiple sources of data.
By providing a comprehensive set of solutions across a wide range of use cases, however, we feel that we can stand apart from most of our competitors, who only operate in a narrow segment of the market. We are concentrating on providing data resources that are more reliable, efficient and readily available.
Furthermore, several competitors possess a larger installed base of active devices, making the competition even more fierce. By providing a comprehensive set of solutions across a wide range of use cases, however, we feel that we can stand apart from most of our competitors, who only operate in a narrow segment of the market.
Recent technological advances, such as edge- and cloud-based computing, artificial intelligence, and the internet of things, have given us an unprecedented opportunity to revolutionize mobility and bridge the divide between rapidly evolving technology and aging infrastructure. These endeavors are not simply aspirations, but active pursuits we are currently engaged in as described in detail below.
Recent technological advances, such as edge- and cloud-based computing, artificial intelligence, and the internet of things, have given us an unprecedented opportunity to revolutionize mobility and bridge the divide between rapidly evolving technology and aging infrastructure. We are actively engaged in providing state-of-the-art AI-driven roadway intelligence solutions to enhance public safety, urban mobility, and transportation management.
At the core of our roadway intelligence solutions is the Rekor One roadway intelligence engine. It is through this engine that we deliver a range of solutions that cater to public safety, urban mobility, transportation management, and commercial markets.
Our Rekor One® roadway intelligence engine allows us to deliver a range of solutions that serve government and commercial customers in the public safety, urban mobility and transportation management areas.
At Rekor, we are building a future for our customers where the mobility internet is interactive, generating and distributing real-time transportation intelligence to improve traffic management, public safety, maintenance, and emergency services, and planning agencies, as well as by connected and autonomous vehicles.
At Rekor, we are forging a future where the mobility internet is not just connected, but interactive, delivering real-time roadway intelligence to revolutionize traffic management, public safety, maintenance, emergency services, and planning agencies, as well as supporting connected and autonomous vehicles. Our enduring mission is to innovate and perfect a unique, AI-driven, and edge-based IoT network.
Our unwavering dedication to delivering mission-critical solutions is propelled by our vision of helping to creating intelligent, secure, and sustainable streets for all communities. The ultimate objective is for Rekor to be the foundation of a digital-enabled internet and operating system for roadways that will enable smarter, safer, and more eco-friendly mobility for all.
The ultimate objective is for Rekor to be a foundational partner in building a digitally-enabled internet and operating system for roadways that will enable smarter, safer, and more eco-friendly mobility for all.
Today, our comprehensive portfolio offers multiple cutting-edge, AI-driven, edge-based Internet of Things ("IoT") devices for roadside data collection, a vast array of curated and integrated data sets from a network of transportation ecosystem data providers, tailored platforms, applications, and data streams that provide accurate, real-time, and predictive actionable insights for any moving objects on roadways.
Today, our comprehensive portfolio of products and services offers multiple cutting-edge Internet of Things ("IoT") devices for roadside data collection, an array of curated and integrated data sets from a network of transportation ecosystem data providers, as well as platforms, applications, and data streams that have been tailored for use by a demanding customer base consisting of federal state and local government agencies and large corporate clients.
Rekor One™ roadway intelligence engine is purpose-built to be a single source of truth, fueled by rich data and powered by AI. With access to multiple sources of data and our award-winning AI-driven innovations, we provide a range of solutions that address diverse use cases across various public and private sector segments.
With access to multiple sources of data and our award-winning AI-driven innovations, we provide a range of solutions that address diverse use cases across various public and private sector segments. Our platforms facilitate the efficient collection, analysis, and distribution of vast amounts of data, unlocking real-time and predictive operational insights that have previously been unavailable.
We face intense competition in the transportation and public safety markets, pitted against rival companies with significant technical, marketing, distribution, and resource advantages, as well as established hardware, software, and service offerings. Furthermore, several competitors possess a larger installed base of active devices, making the competition even more fierce.
To maintain our competitive edge, we prioritize key factors such as design innovation, security and privacy features, product quality and reliability, and exceptional service and support. We face intense competition in the transportation and public safety markets, pitted against rival companies with significant technical, marketing, distribution, and resource advantages, as well as established hardware, software, and service offerings.
Rekor is a technology company that provides state-of-the-art AI-driven roadway intelligence solutions to enhance public safety, urban mobility, and transportation management. By collecting, connecting, and organizing the world’s mobility data, Rekor delivers precise, real-time, and predictive actionable insights for any moving objects on roadways.
By collecting, connecting, and organizing the world’s mobility data, Rekor delivers precise, real-time, and predictive actionable insights for any moving objects on roadways. We are dedicated to delivering mission-critical solutions that help to create intelligent, secure, and sustainable streets for all communities.
Data capture, aggregation and AI/ML analysis is done on device, at the point of capture on the roadway. This allows us and our customers to gather insights from the roadway in real-time where it matters.
Data capture, aggregation and AI/ML analysis is done on device, at the point of capture on the roadway, so that it can be efficiently delivered to the point of use without processing delays.
Vehicle category classification, vehicle counts, and speed reports are made available in web-based dashboards or exported in multiple file formats that meet TMG standards. 14 Table of Contents Competitive Strengths Our unparalleled, patented technology has been prominently featured by renowned outlets and has driven our global expansion.
Vehicle category classification, vehicle counts, and speed reports are made available in web-based dashboards or exported in multiple file formats that meet TMG standards. 13 Table of Contents Rekor Traffic Services With the addition of STS in 2022 and ATD in 2024, Rekor offers 3000+ personnel-years of unparalleled traffic data collection and traffic engineering expertise and services to our customers using both traditional and AI-based approaches.
Rekor Edge Max ™ System Rekor Edge Max is a fixed traffic data collection system that captures and transforms high-resolution roadway data into holistic traffic insights.
This reduces costs and enables our systems to work with significantly reduced bandwidth requirements, allowing us to deploy in almost any area, at scale, gathering insights from the roadway in real-time where it matters. Rekor Edge Max ™ Rekor Edge Max™ is a fixed traffic data collection system that captures and transforms high-resolution roadway data into holistic traffic insights.
We will continue to optimize our investments to uniquely combine physical and digital infrastructure that is foundational to a new operating system for the roadways.
Our commitment is to continue to focus our investments, merging physical and digital infrastructure to lay the groundwork for a new, advanced operating system for roadways. As we move forward, Rekor is positioned to play an indispensable and impactful role, supporting private and public agencies as they design and construct digital infrastructure operating system of the future.
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ITEM 1. BUSINESS Overview Rekor stands at the forefront of innovation, leading the charge to become the premier provider of roadway intelligence and data-driven mobility insights on a global scale.
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ITEM 1. BUSINESS Overview Rekor is working to revolutionize public safety, urban mobility, and transportation management using AI-powered solutions designed to meet the distinct demands of each market we serve. We work hand-in-hand with our customers to deliver mission-critical traffic and engineering services that assist them in achieving their goals.
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As a technology company, we are dedicated to transforming the public safety, urban mobility, and transportation management market segments worldwide with our cutting-edge, AI-driven solutions tailored specifically to the unique needs of each sector. Our commitment to delivering mission-critical solutions for roadway intelligence is driven by our vision of creating smarter, safer, and more sustainable streets for all communities.
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Our vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities.
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To achieve this vision, we strive to collect, connect, and organize the world's mobility data, harnessing its full potential to provide the most essential, real-time, and predictive actionable mobility insights.
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We work towards this by collecting, connecting, and organizing mobility data, and making it accessible and useful to our customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting. To achieve these goals, we have developed a robust, interconnected hardware infrastructure and advanced, purpose-built software platforms.
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With our innovative approach and relentless pursuit of excellence, we are making mobility data universally accessible and useful for all, empowering our customers to make informed decisions and drive meaningful progress towards a better future.
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These powerful tools, enriched by a diverse range of data and state-of-the-art AI, can produce a level of roadway intelligence that we believe is unmatched. Our solutions empower clients to efficiently manage and optimize the complex interactions of vehicles in motion, ensuring smooth operations within and around public safety, urban mobility, and transportation systems.
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Our primary objective has been and remains to develop unique and differentiated AI-based and edge-based IoT that will play a central role in facilitating this process, while aligning with key partners in the transportation ecosystem to provide the most comprehensive view of roadways.
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This network is designed to be pivotal in this transformation, working in harmony with key partners in the transportation and public safety ecosystem to deliver the most comprehensive insights impacting safety, health, and sustainability for roadways, communities, and citizens.
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As agencies plan for and build the transportation network of the future, Rekor expects to play a critical and disproportionately valuable role in meeting the essential need for real-time and predictive roadway intelligence. 5 Table of Contents Roadway Intelligence Powered by Rekor Rekor's cutting-edge technology and domain expertise gives us a position of strength in the emerging field of roadway intelligence.
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We are dedicated to fulfilling the critical demand for real-time and predictive roadway intelligence, ensuring that our solutions are not just innovative but also instrumental in shaping the future of public safety, urban mobility, and transportation management. 5 Table of Contents Roadway Intelligence Powered by Rekor Our Rekor One® roadway intelligence engine is purpose-built to be a single source of truth, powered by AI and fueled by rich data.
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Our platform facilitates the efficient collection, analysis, and distribution of vast amounts of data, unlocking real-time and predictive operational insights like never before.
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Once confirmed by the agency, multiple responders are notified to rapidly approach and clear the roadways, enabling traffic to continue and roadway safety to improve.
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It also allows our systems to work with significantly reduced bandwidth requirements, allowing us to deploy in almost any area, at scale, while also reducing costs. Rekor’s law enforcement products and services also include speed trailers and other in-car and mobile vehicle recognition devices.
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Rekor Discover ™ – Vehicle Insite Application Rekor Discover’s Vehicle Insite application analyzes real-time video to provide actionable, on-property vehicle intelligence such as vehicle characteristics, Electric Vehicle (EV) statistics and other visit metrics.
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With an estimated total addressable intelligent infrastructure market of $148 billion by 2026, we expect the market for our solutions and services to be extraordinary.
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Utilizing state-of-the-art AI and high-definition camera systems, Vehicle Insite delivers real-time traffic data to deepen the customer’s understanding of the vehicles visiting their properties, enabling enriched experiences and targeted marketing initiatives. Our Visit Metrics feature assists in the analysis of traffic flow patterns to prepare and plan for volume fluctuations, enabling a smooth and efficient experience.
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To maintain our competitive edge, we are required to prioritize key factors such as design innovation, security and privacy features, product quality and reliability, and exceptional service and support.
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Our Vehicle Characteristics feature provides vehicle demographics to leverage in the creation of targeted marketing campaigns that engage and attract the ideal customer segments. Our Vehicle Characteristics feature provides vehicle demographics to leverage in the creation of targeted marketing campaigns that engage and attract the ideal customer segments.
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Traffic services include, but are not limited to the following: Our global presence features an installation base spanning the United States and several international countries, allowing us to deploy our highly experienced field staff anywhere to ensure our commercial and government clients receive tailored solutions irrespective of their geographical location.
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Traditional Traffic Studies Rekor's traditional traffic studies serve as the cornerstone for both permanent and temporary traffic analytics projects, delivering vital data and insights for those involved in the planning and management of roadway infrastructure and commercial initiatives.
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Our team of experts provides accurate vehicle volume counts all year round, every hour of the day, supporting trend analysis, real-time adjustments, and the advancement of traffic management systems. We emphasize tailoring our approach to meet specific goals, ensuring that each project is conducted efficiently, effectively, and in a cost-conscious manner.
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Innovative AI-driven Traffic Studies For agencies seeking to enhance their traffic management services, Rekor presents the cutting-edge AI-driven Rekor Edge Series. These solutions, available in both portable and permanent formats, mark a significant departure from traditional methods. They can be deployed quickly at roadside locations, eliminating the need for manual data collection in potentially dangerous or traffic-heavy areas.
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Transitioning to Rekor’s AI-driven systems not only increases the accuracy and efficiency of traffic data collection but also prioritizes the safety of road workers by minimizing their need to work in risky conditions or disrupt traffic flow.
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This innovative approach is swiftly gaining favor among commercial and public entities for its ability to ensure safety, minimize road disruptions, and deliver scalable and speedy solutions. These AI-powered systems are redefining the standards of efficiency and precision, allowing clients to adeptly meet contemporary traffic management challenges.
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Extensive Traffic Engineering Services Rekor is dedicated to offering comprehensive traffic engineering services, leveraging both historical and newly gathered data.
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Our advanced analytical methods convert raw data into actionable insights, supporting a wide range of studies, including: ● Origin-Destination Studies: Map vehicle routes to support urban development planning. ● Travel Time Studies: Provide insights into travel efficiency and congestion patterns. ● Occupancy Studies: Analyze parking and vehicle occupancy to understand utilization trends. ● Traffic Impact & Operations Analysis: Forecast the implications of new developments and refine traffic control strategies. ● Access Management Studies: Formulate approaches to manage vehicular access points effectively. ● Traffic Signal Warrant Analysis: Evaluate the necessity for traffic signal installations. ● Traffic Signal System Timing Analysis and Design: Optimize traffic signal timings for smoother traffic flow. ● Intersection Improvements: Upgrade intersections to bolster safety and improve traffic movement. ● Turning Movement Counts: Document the volume and direction of vehicles, pedestrians, or cyclists at specific road locations to enhance road design, traffic signal management, and overall traffic efficiency.
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Our extensive technology portfolio, combined with our ability to deploy skilled teams anywhere in the world for traffic engineering and traffic services, positions us as a leading force in shaping the future of traffic management and infrastructure development. 14 Table of Contents Competitive Strengths Our unparalleled, patented technology has been prominently featured by renowned outlets and has driven our global expansion.
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There is a portion of our revenue that requires our technicians and field support team to work outside, their ability to work and provide services to our end customers can be impacted by inclement weather in the winter months.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we experience unfavorable market conditions, or if we cannot or do not maintain operations at a scope that is commensurate with such conditions or are later required to or choose to suspend such operations, our business, prospects, financial condition and operating results may be harmed. 28 Table of Contents Risks relating to our common stock If securities or industry analysts do not publish research or publish inaccurate or unfavorable reports about our business, our stock price and trading volume could decline.
Biggest changeMoreover, these types of events could negatively impact consumer spending in the impacted regions or depending upon the severity, globally, which could adversely impact our operating results. 27 Table of Contents Risks relating to our common stock If securities or industry analysts do not publish research or publish inaccurate or unfavorable reports about our business, our stock price and trading volume could decline.
Our capital requirements will depend on many factors, including, but not limited to: our ability to increase revenue, reduce net losses or generate net income; market acceptance of our services, and the overall level of sales of our services; our need to respond to technological advancements and our competitors’ introductions of new products, services or technologies; our ability to control costs; promptness of customer payments; our ability to successfully negotiate arrangements with credit providers; and enhancements to subsidiaries’ infrastructure and systems.
Our capital requirements will depend on many factors, including, but not limited to: our ability to increase revenue, reduce net losses and generate net income; market acceptance of our services, and the overall level of sales of our services; our need to respond to technological advancements and our competitors’ introductions of new products, services or technologies; our ability to control costs; promptness of customer payments; our ability to successfully negotiate arrangements with credit providers; and enhancements to subsidiaries’ infrastructure and systems.
We cannot assure you any future patents that may be applied for and issued will not be challenged, invalidated or circumvented. Any patents that may issue in the future from future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers.
We cannot assure you any future patents that may be applied for and issued will not be challenged, invalidated or circumvented. Any patents that we may issue in the future from future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers.
The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share paid by investors. We do not intend to pay dividends on our common stock for the foreseeable future.
The price per share at which we may sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share paid by investors. We do not intend to pay dividends on our common stock for the foreseeable future.
Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability. 26 Table of Contents Our success depends in large part on our ability to protect and enforce our intellectual property rights.
Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability. 26 Table of Contents Our success depends in part on our ability to protect and enforce our intellectual property rights.
Moreover, if they do not recognize the need for and benefits of our platform and solutions, they may decide to adopt alternative services to satisfy some portion of their business needs. Our ability to expand the market that our platform and solutions address depends upon a number of factors, including the cost, performance and perceived value associated with them.
Moreover, if they do not recognize the need for and benefits of our platform and solutions, they may decide to adopt alternative services to satisfy some portion of their business needs. Our ability to expand the market that our platforms and solutions address depends upon a number of factors, including the cost, performance and perceived value associated with them.
If our customers do not renew their subscriptions for our products and services, renew on less favorable terms, or do not purchase additional functionality or subscriptions, our revenue may grow more slowly than expected or decline, and our profitability and gross margins may be harmed.
If our customers do not renew their contracts and subscriptions for our products and services, renew on less favorable terms, or do not purchase additional functionality, our revenue may grow more slowly than expected or decline, and our profitability and gross margins may be harmed.
We will need to raise additional capital in the future, which may not be available on acceptable terms, or at all. We have experienced fluctuations in earnings and cash flows from operations from year to year.
We may need to raise additional capital in the future, which may not be available on acceptable terms, or at all. We have experienced fluctuations in earnings and cash flows from operations from year to year.
Employee retention may be particularly challenging, as employees may experience an uncertainty about their future roles with us. The achievement of the benefits expected from the integration of acquired companies may require us to incur significant costs.
Employee retention may be particularly challenging, as employees may experience uncertainty about their future roles with us. The achievement of the benefits expected from the integration of acquired companies may require us to incur significant costs.
The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock. 29 Table of Contents We are a “ smaller reporting company ” and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.
The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock. 28 Table of Contents We are a “ smaller reporting company ” and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.
To support business growth, or if our business declines, we expect to need to raise additional capital to support operations, pursue acquisitions or expand our operations. Such additional capital may be raised through bank borrowings, or other debt or equity financings.
To support business growth, or if our business declines, we may need to raise additional capital to support operations, pursue acquisitions or expand our operations. Such additional capital may be raised through bank borrowings, or other debt or equity financings.
The market for our platform and solutions could fail to grow significantly or there could be a reduction in demand for its services as a result of a lack of acceptance, technological challenges, competing services, decreases in spending by current and prospective customers, weakening economic conditions and other causes.
The market for our platforms and solutions could fail to grow significantly or there could be a reduction in demand for its services as a result of a lack of acceptance, technological challenges, competing services, decreases in spending by current and prospective customers, weakening economic conditions and other causes.
Our NOLs at December 31, 2022 may also be impaired under similar provisions of state law and may expire unused or underused, which would prevent us from using our NOL carryforwards to offset future taxable income.
Our NOLs at December 31, 2023 may also be impaired under similar provisions of state law and may expire unused or underused, which would prevent us from using our NOL carryforwards to offset future taxable income.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take certain actions you desire. 30 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take certain actions you desire. 29 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 1C.
We rely on single-source outsourcing partners primarily located in Asia to supply and manufacture many components of substantially all of our hardware products. Any failure of these partners to perform can have a negative impact on our cost or supply of components or finished goods.
We rely on outsourcing partners primarily located in Europe and Asia to supply and manufacture many components of substantially all of our hardware products. Any failure of these partners to perform can have a negative impact on our cost or supply of components or finished goods.
Our strategic transition to a technology-based company focused on roadway intelligence will require us to generate sufficient new revenues from the roadway intelligence market to support our business plan while continuing to operate as a public company.
Our success as a technology-based company focused on roadway intelligence will require us to generate sufficient new revenues from the roadway intelligence market to support our business plan while continuing to operate as a public company.
As of March 24, 2023, our executive officers, directors, five percent or greater stockholders and their respective affiliates owned in the aggregate approximately 38.5% of our common stock. These stockholders have the ability to influence us through this ownership position and may have a determining role in matters requiring stockholder approval.
As of March 25, 2024, our executive officers, directors, five percent or greater stockholders and their respective affiliates owned in the aggregate approximately 5.1% of our common stock. These stockholders have the ability to influence us through this ownership position and may have a determining role in matters requiring stockholder approval.
Risks Relating to Our Corporate Structure and Business We are currently not profitable, and we may be unable to become profitable on a quarterly or annual basis. For the year ended December 31, 2022, we had a loss from continuing operations of $83,454,000 .
Risks Relating to Our Corporate Structure and Business We are currently not profitable, and we may be unable to become profitable on a quarterly or annual basis. For the year ended December 31, 2023, we had a loss from continuing operations of $45,685,000 .
Our operating margins experience downward pressure in the short term as a result of these investments. Furthermore, our investments may not produce the expected results. If we are unable to successfully execute our go-to-market strategy, we may experience decreases in our revenues and operating margins.
Our operating margins experience downward pressure in the short term as a result of these investments. Furthermore, our investments may not produce the expected results. If we are unable to successfully execute our go-to-market strategy and product development activities, we may experience continued losses.
In addition , 8,951,543 shares of our common stock that are subject to outstanding options, restricted stock units and warrants as of March 24, 2023, wil l become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, and Rules 144 and 701 under the Securities Act.
In addition , 12,395,649 shares of our common stock that are subject to outstanding options, restricted stock units and warrants as of March 25, 2024, wil l become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, and Rules 144 and 701 under the Securities Act.
We may be limited in the portion of net operating loss carryforwards that we can offset future taxable income for U.S. federal and state income tax purposes. As of December 31, 2022, we had gross federal and state net operating loss carryforwards, or NOLs, of approximately $114,742,000 and $106,866,000 , respectively.
We may be limited in the portion of net operating loss carryforwards that we can offset future taxable income for U.S. federal and state income tax purposes. As of December 31, 2023 , we had gross federal and state net operating loss carryforwards, or NOLs, of approximately $156,392,000 and $149,122,000 , respectively.
In addition, we have experienced and expect to continue to experience significant expenses related to acquisitions and the development of new products and services.
A significant portion of our expenses are fixed in advance. In addition, we have experienced and expect to continue to experience significant expenses related to acquisitions and the development of new products and services.
Based on shares outstanding as of March 24, 2023, 6,821,752 shares of common stock, or 12.4%, a re beneficially owned by our officers, directors and their affiliated entities, and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Based on shares outstanding as of March 25, 2024, 4,388,872 shares of common stock, or 5.1%, a re beneficially owned by our officers, directors and their affiliated entities, and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
As a result, we may continue to experience operating losses and net losses in the future, which would make it difficult to fund operations and achieve our business plan and could cause the market price of our common stock to decline. We rely, in part, on third-party data providers and existing camera networks to grow our business.
As a result, we may continue to experience operating losses and net losses in the future, which would make it difficult to fund operations and achieve our business plan and could cause the market price of our common stock to decline.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock.
Investors may experience future dilution as a result of future equity offerings. In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock.
However, future sales of substantial amounts of our common stock in the public market, including shares issued on exercise of outstanding options, or the perception that such sales may occur, could adversely affect the market price of our common stock. Investors may experience future dilution as a result of future equity offerings.
However, future sales of substantial amounts of our common stock in the public market, including shares issued on exercise of outstanding options, or the perception that such sales may occur, could adversely affect the market price of our common stock. The market price of our common stock may be volatile and this may adversely affect our stockholders.
Despite our past experience, opportunities to grow our business through third-party data may not be available to us in the future. The market for our Rekor One platform is new and unproven, may decline or experience limited growth and is dependent in part on our ability to attract new customers to adopt our platform and use our services.
The market for certain of our solutions is new and unproven, may decline or experience limited growth and is dependent in part on our ability to attract new customers to adopt our platform and use our services.
As of March 24, 2023 , we have a total of 55,020,612 shar es of common stock outstanding .
As of March 25, 2024 , we have a total of 85,324,918 shar es of common stock outstanding .
Customers have no obligation to renew their subscriptions after their subscription period expires, and these subscriptions may not be renewed on the same or more profitable terms. As a result, our ability to sustain our revenue base depends in part on subscription renewals.
Customers have no obligation to renew their contracts or subscriptions after they expire, and these contracts and subscriptions may not be renewed on the same or more profitable terms. In addition, many of our large governmental contracts are subject to termination on short notice without cause.
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A significant portion of our expenses are fixed in advance. As such, we generally are unable to reduce our expenses significantly in the short term to compensate for any unexpected delay or decrease in anticipated revenues or increases in planned investments.
Added
As a result, our ability to sustain our revenue base depends in part on contracts and subscription renewals.
Removed
If we are unable to enter into agreements with third-party data providers or successfully maintain them, our growth may be adversely impacted. We rely, in part, on access to third-party data and access to existing camera networks to grow our business.
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The price at which our common stock trades may be volatile. The stock market can experience significant price and volume fluctuations that affect the market prices of all securities, including securities of companies like us.
Removed
The majority of the third-party data agreements allow us to access connected vehicle data, existing camera networks or other data services, thereby increasing the data points used in our solutions. Any agreement we enter into with a third party may not be on favorable terms, and the expected benefits and growth from these agreements may not materialize as planned.
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The market price of our common stock may be influenced by many factors, including: • our operating and financial performance; • variances in our quarterly financial results compared to expectations; • future sales of common stock or debt or the perception that sales could occur; • investor perception of our business and our prospects; • developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein; or • general economic and stock market conditions.
Removed
Moreover, these types of events could negatively impact consumer spending in the impacted regions or depending upon the severity, globally, which could adversely impact our operating results. 27 Table of Contents We may be impacted by macroeconomic conditions resulting from the global COVID-19 pandemic. Since the first quarter of 2020, there has been a worldwide impact from the COVID-19 pandemic.
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In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated to or disproportionate to the operating performance of companies in our industry. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
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Government regulations and shifting social behaviors have limited or closed non-essential transportation, government functions, business activities and person-to-person interactions. In some cases, the relaxation of such trends has been followed by actual or contemplated returns to stringent restrictions on gatherings or commerce, including in parts of the U.S., and the rest of the world.
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CYBERSECURITY Rekor recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data and our exposure management solutions. Our assessment and management of material risks from cybersecurity threats are integrated into our overall risk management processes.
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During the COVID-19 pandemic, certain industry events at which we present and participate have been canceled, postponed or moved to virtual-only experiences, we have encouraged all of our employees to work remotely, and we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future due to the ongoing pandemic.
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We implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our information systems and data depending on the environment. We have an established policy on information security, as well as overall corporate information, workforce and workplace standards policies.
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Additionally, we may see our services carrying less revenue-generating traffic in areas subject to “shelter in place” restrictions or related government orders as the population of those areas refrain from traveling and normal commerce activities. We cannot predict the duration or direction of current global trends or their sustained impact.
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These are collectively designed to establish auditable procedures for information security oversight by management, including: 1) identification of different types and forms of information, 2) guidelines for acceptable use and dissemination of information, 3) handling use and destruction of information, 4) personnel and physical site security, 5) incident reporting and response, 6) recovery plans, and 7) standards for web-based applications, communications and mobile devices.
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Ultimately, we continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and deploy our solutions, workforce and other resources accordingly.
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Three levels of security procedures have been identified as relating to the sensitivity of the information we manage in connection with different operations. Our policies call for the individuals assigned to these procedures to review and certify them annually and to recommend changes where appropriate.
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All breaches are required to be reported to senior management and the Board, together with a report on response and recovery, as well as recommendations to address further challenges.
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Our information security procedures are overseen by our Chief Information Security Officer, supported by our Chief Technology Officer and our IT Manager, who are responsible to provide regular reports to our Chief Executive Officer and Chief Financial Officer as well as the technology and social responsibility committee and the governance committee of our Board.
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These procedures are responsible for identifying, assessing, and managing cybersecurity threats and risks and work to monitor and evaluate our threat environment and risk profile using various methods. These methods include evaluating our and our industry’s risk profile, coordinating with law enforcement concerning select threats, and engaging with third parties to conduct external audits and threat assessments for certain systems.
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Our Information Security Policy and procedures are reviewed on an ongoing basis. These procedures are implemented by our Chief Information Security Officer, assisted by Managed Service Provider (“MSP”). Our MSP has over 15 years of experience and possesses various cybersecurity certifications.
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Third-party service providers can assist us from time to time in identifying, assessing, and managing material risks from cybersecurity threats, including for example cybersecurity consultants and software providers, managed cybersecurity service providers, threat intelligence service providers, forensic investigators, penetration testing firms, dark web monitoring services, and professional services firms, including legal counsel and auditors.
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By partnering with these specialized providers, we can leverage their insights and expertise to implement cybersecurity strategies and processes that are designed to align with industry best practices.
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Our senior management evaluates material risks from cybersecurity threats against our overall business objectives and this evaluation and the management of material risks from cybersecurity threats is integrated into our overall risk management processes. This integration is designed to ensure that cybersecurity considerations are part of our decision-making processes.
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In addition, the Board’s Technology and Social Responsibility Committee includes a member who has had extensive experience in cybersecurity, including in particular cybersecurity standards for smart city transportation systems. See Risk Factors in this Annual Report on Form 10-K for a description of the risks from cybersecurity threats that may materially affect us and how they may do so.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWhile we believe it is necessary to maintain offices through which our services are coordinated, we feel there are sufficient available office rental properties to adequately serve our needs should we need to relocate or expand our operations. 31 Table of Contents
Biggest changeWhile we believe it is necessary to maintain offices through which our services are coordinated, we feel there are sufficient available office rental properties to adequately serve our needs should we need to relocate or expand our operations. 30 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAs a result of the settlement agreement, the Company expects to record a reduction to notes payable, the related accrued interest and other assets and liabilities already presented as discontinued operations. The Company will also cancel warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.
Biggest changeAs a result of the settlement agreement, the Company recorded a reduction to notes payable, the related accrued interest and other assets and liabilities already presented as discontinued operations.
These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings we accrue reserves when a loss is probable, and the amount of such loss can be reasonably estimated.
These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, 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.
ITEM 3. LEGAL PROCEEDINGS On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC.
Firestorm Principals On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Case no. 1:19-cv-07767-VEC.
From time to time, we may be named as a party to various lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.
ITEM 3. LEGAL PROCEEDINGS From time to time, the Company may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.
In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $175,000, and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.
In exchange for the mutual releases, the Company transferred certain Firestorm assets to CrisisRisk Strategies, LLC, made a payment of $175,000, and the Firestorm Principals extinguished of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.
When it is our opinion that the outcome of these proceedings, individually and collectively, will not be material to our consolidated financial statements as a whole we do not provide detailed descriptions of such matters in our financial statements.
It is the Company’s opinion that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.
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The settlement also results in there being no litigation pending against the Company at this time. 32 Table of Contents On January 31, 2020, our 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.
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The Company also cancelled warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm. 31 Table of Contents H.C Wainwright & Co., LLC In March 2023, the Company entered into an engagement letter with H.C. Wainwright & Co., LLC, ("HCW"), related to a previous capital raise the Company completed in March 2023.
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(“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.
Added
That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company may enter into during the specified tail period with investors introduced to the Company by HCW during the term of the letter, as well as a right of first refusal ("ROFR"), to act as the Company's exclusive underwriter or placement agent on any subsequent financing transactions utilizing an underwriter or placement agent occurring within twelve months from the consummation of a transaction pursuant to the engagement letter.
Removed
On June 21, 2020, PCS filed a motion to join us and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counterclaims against OpenALPR 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.
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In July 2023, subsequent to the announcement of an agreement the Company entered into with one of its stockholders in connection with the exercise of warrants held by the stockholder, which the Company refers to as the July Warrant Exercise Transaction, the Company received a letter from HCW claiming entitlement to certain “tail” fees and warrant consideration stemming from the agreement with the Company's stockholder.
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On November 23, 2020, the court denied PCS’s Motion for Joinder with prejudice. On August 30, 2021, OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on August 31, 2021. We consider this matter closed. On September 18, 2020, Fordham Financial Management, Inc.
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The Company believed then, and believes now, that this claim is without merit. As a result of this claim and for other reasons articulated to HCW, the Company terminated its engagement letter with HCW, including for cause, which, the Company believes, eliminated both the “tail” provision and the ROFR provision with respect to this transaction.
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(“Fordham”) commenced a lawsuit against us in the Supreme Court for the State of New York, New York County. Fordham alleged that we breached an underwriting agreement and brought claims for breach of contract, a declaratory judgment, and attorneys’ fees and expenses, seeking damages.
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On or about October 23, 2023, HCW filed a complaint in New York State Supreme Court asserting a claim for breach of contract against the Company relating to the July Warrant Exercise Transaction.
Removed
On October 17, 2022, the Court granted Fordham’s motion for summary judgment and denied the Company’s cross-motions for summary judgment and to compel discovery.
Added
HCW sought to recover compensatory and consequential damages and certain warrants under its letter agreement with Rekor and other fees, not less than a cash fee of $825,000 and the value of warrants to purchase an aggregate of up to 481,100 shares of common stock of the company at an exercise price of $2.00 per share as well as attorneys’ fees.
Removed
The Court awarded Fordham $1,025,000, representing 3% of the gross proceeds generated from the Company’s previously announced and concluded at-the-market equity program commenced on August 14, 2019, plus pre-judgment interest accruing at 9% per annum since April 14, 2019, and reasonable attorneys’ fees. The Company chose not to appeal the decision and satisfied the judgement.
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On February 29, 2024, HCW filed a notice of discontinuance without prejudice and advised the court that it intends to commence a new proceeding by filing a new complaint that would address the claim in this lawsuit and subsequent events. On March 4, 2024, the court discontinued this lawsuit without prejudice.
Removed
In exchange for a payment of $1,320,000 by the Company, the plaintiff agreed to a full and complete discharge of the plaintiff’s claim. This amount was recorded in other expense, net on the Company’s consolidated statements of operations.
Added
On February 29, 2024, HCW initiated a new action with the filing of complaint in New York State Supreme Court. In this lawsuit, HCW advances the same breach of contract theory and seeks to recover the same damages as sought in the prior now-dismissed lawsuit.
Added
In addition, HCW seeks to recover an additional $2,156,000 in damages plus the value of warrants to purchase an aggregate of up to 805,000 shares of common stock at an exercise price of $3.125 per share in connection with Rekor’s February 2024 offering.
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HCW alleges that Rekor breached its engagement letter with HCW by failing to give Rekor notice of this offering and failing to provide HCW with the opportunity to exercise the ROFR with respect to this transaction. The Company believes these claims are without merit. The Company intends to vigorously defend itself in this lawsuit.
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Occupational Safety and Health Administration ( “ OSHA ” ) Claim In 2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints.
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On November 30, 2023, OSHA issued its determination that, based on the information gathered thus far in its investigation, OSHA was unable to conclude that there was reasonable cause to believe that a violation of the statute occurred. OSHA thereby dismissed the complaint. Thereafter, Claimants appealed the determination by filing objections and requesting a hearing before an Administrative Law Judge.
Added
The Company likewise filed a request for an award of attorneys’ fees. On January 4, 2024, the Office of Administrative Law Judges (“OALJ”) processed the appeals and issued its Notice of Docketing and Order of Consolidation.
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On February 28, 2024, the OALJ issued an Order setting forth a revised schedule governing the case with the start of the hearing schedule for December 2, 2024. The Company believes these claims are without merit. The Company intends to vigorously defend itself in this lawsuit.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

4 edited+4 added−11 removed8 unchanged
Biggest changeAny future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant.
Biggest changeAny future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant. 33 Table of Contents Recent Sales of Unregistered Securities STS Acquisition As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2022, as part of the purchase price the Company issued to the sellers of STS 798,666 unregistered shares of the Company’s common stock, valued at $2,000,000.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the Nasdaq Capital Market under the symbol “REKR”.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 32 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the Nasdaq Capital Market under the symbol “REKR”.
Holders As of March 29, 2023, there were 63 registered holders of record of our common stock, excluding stockholders for whom shares are held in “nominee” or “street name.” The actual number of common stockholders is greater than the number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Holders As of March 25, 2024, there were 58 registered holders of record of our common stock, excluding stockholders for whom shares are held in “nominee” or “street name.” The actual number of common stockholders is greater than the number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
STS Acquisition As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2022, as part of the purchase price the Company issued to the sellers of STS 798,666 unregistered shares of the Company’s common stock, valued at $2,000,000.
ATD Acquisition As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 3, 2024, as part of the purchase price the Company issued to the sellers of ATD 3,496,464 unregistered shares of the Company’s common stock, valued at $10,000,000.
Removed
Recent Sales of Unregistered Securities Registered Public Offering followed by Automatic Conversion of Series A Cumulative Convertible Redeemable Preferred Stock and Series B Cumulative Convertible Redeemable Preferred Stock On February 9, 2021, we issued and sold 6,126,936 shares of our common stock, which includes 799,166 shares of common stock sold pursuant to the exercise of an overallotment option (the "2021 Public Offering").
Added
The stock consideration paid to the sellers was issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D, as promulgated thereunder.
Removed
The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $70.1 million. The shares were sold pursuant to an underwriting agreement with B.
Added
On February 27, 2024, the Company filed a registration statement on Form S-3 to register these shares. 2023 Promissory Notes Redemption On March 4, 2024, the Company completed the redemption of all its outstanding senior secured notes (the “2023 Promissory Notes”).
Removed
Riley Securities, Inc. and Lake Street Capital Markets, LLC, as representatives of the several underwriters named therein and our shelf registration statement on Form S-3 (Registration Statement No. 333-224423) filed by the Company with the Securities and Exchange Commission (the “SEC”) that became effective on April 30, 2018.
Added
The 2023 Promissory Notes were redeemed at the redemption price of 115% of the $12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000 (the “Redemption Payment”).
Removed
On February 4, 2021, a prospectus supplement and accompanying prospectus were filed with the SEC in connection with the offering and a related registration statement (File No. 333-252735) was filed pursuant to Rule 462(b) promulgated under the Securities Act.
Added
The noteholders elected to accept $1,875,000 of the Redemption Payment in the form of 750,000 unregistered shares of the Company’s common stock, par value $0.0001 per share, having a value of $2.50 per share, with the remainder of the Redemption Payment to be paid in cash.
Removed
As a result of the closing of the 2021 Public Offering, all of our issued and outstanding Series A Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and Series B Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) were automatically converted pursuant to their respective terms into an aggregate of 1,416,785 shares of our common stock.
Removed
As a result of the automatic conversion of the Series A Preferred, the Series A Preferred will no longer be quoted on the OTC Pink.
Removed
The Series B Preferred was not quoted on any trading market. 34 Table of Contents Waycare Acquisition On August 18, 2021, the Company completed its acquisition of Waycare by acquiring 100% of the issued and outstanding shares of Waycare. As a result of the acquisition, Waycare is a wholly-owned subsidiary of the Company.
Removed
The aggregate purchase price for the shares of Waycare was $60,171,000 , less the amount of Waycare’s debt and certain transaction expenses and subject to a customary working capital adjustment. The purchase price was comprised of $39,884,000 of cash and 2,784,474 shares of the Company’s common stock, valued at $20,287,000.
Removed
As a result of the transaction, Waycare became a wholly-owned subsidiary of the Company. Additionally, pursuant to the terms of the Waycare purchase agreement, the Company reserved for issuance to Waycare’s continuing employees an aggregate of 686,248 restricted stock units, which were granted on November 3, 2021 pursuant to the terms of the Company’s 2017 Equity Award Plan, as amended.
Removed
The restricted stock units are subject to customary vesting schedules and are intended to incentivize the continued performance of Waycare’s employees. On August 24, 2021, a registration statement on Form S-8 was filed with the SEC (File No. 333-259041), to registered 597,544 shares issued in exchange for options held under Waycare’s employee incentive plan.
Removed
On October 29, 2021, a resale registration statement on Form S-3 was filed with the SEC (File No. 333-26067), and subsequently declared effective by the SEC on November 10, 2021, allowing for the registered resale of 2,186,931 shares of common stock received as consideration by Waycare’s former stockholders.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

62 edited+25 added−74 removed57 unchanged
Biggest changeYear ended December 31, (Dollars in thousands) 2022 2021 Revenue $ 19,920 $ 11,575 Cost of revenue, excluding depreciation and amortization 10,890 4,549 Operating expenses: General and administrative expenses 26,612 23,006 Selling and marketing expenses 8,329 4,474 Research and development expenses 18,616 8,292 Goodwill impairment 34,835 - Depreciation and amortization 6,422 3,088 Total operating expenses 94,814 38,860 Loss from continuing operations (85,784 ) (31,834 ) Other income (expense): Interest expense, net (21 ) (27 ) Other expense, net (1,279 ) (90 ) Gain on the sale of business 2,643 - Gain on extinguishment of debt - 886 Total other income 1,343 769 Loss before income taxes (84,441 ) (31,065 ) Income tax benefit 987 3,819 Equity in loss of investee - (150 ) Net loss from continuing operations $ (83,454 ) $ (27,396 ) 43 Table of Contents Comparison of the Years Ended December 31, 2022 and 2021 Revenue Year ended December 31, Change (Dollars in thousands) 2022 2021 $ % Revenue $ 19,920 $ 11,575 $ 8,345 72 % The increase in revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily a result of our recent acquisition of STS and its existing customer base.
Biggest changeYear ended December 31, (Dollars in thousands) 2023 2022 Revenue $ 34,933 $ 19,920 Cost of revenue, excluding depreciation and amortization 16,499 10,890 Operating expenses: General and administrative expenses 27,038 26,612 Selling and marketing expenses 7,347 8,329 Research and development expenses 18,271 18,616 Depreciation and amortization 7,894 6,422 Goodwill impairment - 34,835 Total operating expenses 60,550 94,814 Loss from continuing operations (42,116 ) (85,784 ) Other income (expense): Gain on extinguishment of debt 527 - Gain on the sale of business - 2,643 Interest expense, net (3,596 ) (21 ) Other expense, net (468 ) (1,279 ) Total other income (expense) (3,537 ) 1,343 Loss before income taxes (45,653 ) (84,441 ) (Provision) benefit for income taxes (32 ) 987 Net loss from continuing operations $ (45,685 ) $ (83,454 ) 41 Table of Contents Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year ended December 31, Change (Dollars in thousands) 2023 2022 $ % Revenue $ 34,933 $ 19,920 $ 15,013 75 % The increase in revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily attributable to our Urban Mobility product line.
Each of these acquisitions has led to increased visibility for the Company among national and state level DOTs in the United States, Mexico and Israel. ● Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy.
Each of these acquisitions has led to increased visibility for the Company among national and state level DOTs in the United States and Israel. ● Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy.
We expect our general and administrative expenses to continue to remain high for the foreseeable future due to the costs associated with our growth and the costs of accounting, compliance, insurance and investor relations as a public company.
We expect our general and administrative expenses to continue to remain high for the foreseeable future due to the costs associated with our growth and the costs of accounting, compliance, legal, insurance, and investor relations as a public company.
Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition. 39 Table of Contents Components of Operating Results Revenues The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing offerings.
Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition. 38 Table of Contents Components of Operating Results Revenues The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing offerings.
As with any large market, this will require considerable effort and resources. 37 Table of Contents ● Expansion of Automated Enforcement of Motor Vehicle Laws – We expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial.
As with any large market, this will require considerable effort and resources. 36 Table of Contents ● Expansion of Automated Enforcement of Motor Vehicle Laws – We expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial.
We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses. 42 Table of Contents Results of Operations Our historical operating results in dollars are presented below.
We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses. 40 Table of Contents Results of Operations Our historical operating results in dollars are presented below.
These assumptions include, among other factors, its ability to raise additional capital, if necessary, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period.
These assumptions include, among other factors, its ability to raise additional capital, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period.
Should one or more key personnel leave the Company or join a competitor, the Company’s business, operating results, and financial condition can be adversely affected. ● Inability to Compete Effectively - Competition and technology advancements by others may erode the Company’s business and result in inability to capture new business and revenue.
Should one or more key personnel leave the Company or join a competitor, the Company’s business, operating results, and financial condition can be adversely affected. ● Inability to Compete Effectively - Competition and technological advancements by others may erode the Company’s business and result in inability to capture new business and revenue.
Our actual results could differ from these estimates under different assumptions or conditions. We believe the application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
Our actual results could differ from these estimates under different assumptions or conditions. We believe the application of the estimates inherently required therein, are reasonable. These estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
In the first of these acquisitions, we acquired an award winning leader in the development of predictive analytics for traffic management using a combination of internally generated an third party data sources. This acquisition was designed to assure transportation agencies that we were developing the most advanced data analysis systems to support their missions in safety and efficiency.
In the first of these acquisitions, we acquired a leader in the development of predictive analytics for traffic management using a combination of internally generated and third party data sources. This acquisition was designed to assure transportation agencies that we were developing the most advanced data analysis systems to support their missions in safety and efficiency.
The analysis of operation is solely related to continuing operations and does not consider the results of discontinued operations.
The analysis of operations is solely related to continuing operations and does not consider the results of discontinued operations.
Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance. 49 Table of Contents Lease Obligations As of December 31, 2022 , we had significant leased building space at the following locations: ● Columbia, Maryland – The corporate headquarters ● Tel Aviv, Israel We believe our facilities are in good condition and adequate for their current use.
Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance. 47 Table of Contents Lease Obligations As of December 31, 2023 , we had significant leased building space at the following locations: ● Columbia, Maryland – The corporate headquarters ● Tel Aviv, Israel We believe our facilities are in good condition and adequate for their current use.
These offerings typically, include a mixture of data collection, software, hardware, implementation, engineering services, customer support and maintenance 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.
These offerings include a mixture of data collection, implementation, engineering, customer support and maintenance services as well as software and hardware. 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.
Operating expenses also include depreciation, amortization and impairment of assets. General and Administrative General and administrative expenses consist of personnel costs for our executive, finance, legal, human resources and administrative departments. Additional expenses include office leases, professional fees and insurance.
Operating expenses also include impairment of assets. General and Administrative General and administrative expenses consist of personnel costs for our executive, finance, legal, human resources, and administrative departments. Additional expenses include office leases, professional fees, and insurance.
Total Contract Value The total contract value of contracts won in the current period also provides us some visibility into our future operating results and cash flows from operations.
Total Contract Value The total contract value of contracts won in the current period also provides us with visibility into our future operating results and cash flows from operations.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021, which have been prepared in accordance with U.S. GAAP.
Critical Accounting Estimates Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022, which have been prepared in accordance with U.S. GAAP.
We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2022 . 46 Table of Contents Non-GAAP Measures EBITDA and Adjusted EBITDA We calculate EBITDA as net loss before interest, taxes, depreciation and amortization.
We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2023 . 44 Table of Contents Non-GAAP Measures EBITDA and Adjusted EBITDA We calculate EBITDA as net loss before interest, taxes, depreciation and amortization.
These contracts generally cover a term of one to five years, which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately $12,678,000 of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.
These contracts generally cover a term of one to five years, during which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately $18,624,000 of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years.
We expense direct costs of revenues when incurred. 40 Table of Contents Operating Expenses Our operating expenses consist of general and administrative expenses, sales and marketing, research and development and depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses.
We expense direct costs of revenues when they incur. 39 Table of Contents Operating Expenses Our operating expenses consist of general and administrative expenses, sales and marketing, research and development and depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses.
Performance Obligations While a portion of the total contract value won in a particular period represents point-in-time revenue or recurring revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues.
Performance Obligations While a portion of the total contract value won in a particular period represents revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues.
However, our ability to improve Adjusted Gross Margin overtime is not guaranteed and could be impacted by the factors affecting our performance.
However, our ability to improve Adjusted Gross Margin over time is not guaranteed and could be impacted by the factors affecting our performance.
GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections and estimates and will make certain key assumptions.
As part of this assessment, based on conditions that are known and reasonably knowable to management, management has considered various scenarios, forecasts, projections, and estimates and will make certain key assumptions.
For the year ended December 31, 2022 and 2021 , we funded our operations primarily through cash from the sale of equity, operating activities from our subsidiaries, the sale of our subsidiaries and the issuance of debt.
For the years ended December 31, 2023 and 2022 , we funded our operations primarily through cash from the sale of equity, operating activities from our subsidiaries and the issuance of debt.
We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross Margin to improve over time to the extent that we can gain efficiencies through the broader adoption of our technology and successfully cross-selling and upselling our current and future offerings.
We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross Margin to continue to improve over time to the extent that we can gain efficiencies through the adoption of our technology and successfully cross-sell and upsell our current and future offerings.
ITEM 6. [RESERVED] 35 Table of Contents ITEM 7.
ITEM 6. [RESERVED] 34 Table of Contents ITEM 7.
Cost of Revenue, Excluding Depreciation and Amortization Year ended December 31, Change (Dollars in thousands) 2022 2021 $ % Cost of revenue, excluding depreciation and amortization $ 10,890 $ 4,549 $ 6,341 139 % For the year ended December 31, 2022, cost of revenue, excluding depreciation and amortization increased compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our go-to-market strategy and increase of revenue.
Cost of Revenue, Excluding Depreciation and Amortization Year ended December 31, Change (Dollars in thousands) 2023 2022 $ % Cost of revenue, excluding depreciation and amortization $ 16,499 $ 10,890 $ 5,609 52 % For the year ended December 31, 2023, cost of revenue, excluding depreciation and amortization increased compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our increase in revenue.
As of December 31, 2022, we had appro ximately $21,412,000 of performance obligations with respect to contracts that were closed prior to December 31, 2022 but have a contractual period beyond December 31, 2022 . This represents growth of $6,636,000 or 45% compared to $14,776,000 of performance obligations as of December 31, 2021.
As of December 31, 2023, we had appro ximately $26,390,000 of performance obligations with respect to contracts that were closed prior to December 31, 2023 but have a contractual period beyond December 31, 2023 . This represents growth of $4,978,000 or 23% compared to $21,412,000 of performance obligations as of December 31, 2022.
We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) one-time consulting fees, (vii) legal judgements and settlements, (viii) gains or losses on the remeasurement of earnouts or contingent considerations, and (ix) other unusual or non-recurring items.
We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs and (vii) other unusual or non-recurring items.
The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands): Year ended December 31, 2022 2021 Net loss from continuing operations $ (83,454 ) $ (27,396 ) Income tax benefit (987 ) (3,819 ) Interest expense, net 21 27 Depreciation and amortization 6,422 3,088 EBITDA $ (77,998 ) $ (28,100 ) Gain on extinguishment of debt $ - $ (886 ) Share-based compensation 6,616 3,909 Gain on the sale of ATSE (2,643 ) - Gain due to the remeasurement of the STS Earnout and Contingent Consideration, net (883 ) - Goodwill impairment 34,835 - Loss due to change in value of equity investments - 150 Legal judgements and settlements 1,608 136 One-time consulting fees 1,024 2,025 Adjusted EBITDA $ (37,441 ) $ (22,766 ) 47 Table of Contents Adjusted Gross Profit and Adjusted Gross Margin Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization.
The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands): Year ended December 31, 2023 2022 Net loss from continuing operations $ (45,685 ) $ (83,454 ) Provision (benefit) for income taxes 32 (987 ) Interest expense, net 3,596 21 Depreciation and amortization 7,894 6,422 EBITDA $ (34,163 ) $ (77,998 ) Gain on extinguishment of debt $ (527 ) $ - Share-based compensation 4,352 6,616 Gain on the sale of ATSE - (2,643 ) Loss (gain) due to the remeasurement of the STS Earnout and Contingent Consideration, net 384 (883 ) Impairment of SAFE agreement 101 - Goodwill impairment - 34,835 Legal judgements and settlements 801 1,608 One-time consulting fees 365 1,024 Adjusted EBITDA $ (28,687 ) $ (37,441 ) 45 Table of Contents Adjusted Gross Profit and Adjusted Gross Margin Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization.
Income Tax Benefit The income tax benefit for the year ended December 31, 2022 , was $987,000 , which is due primarily to the step-up in the basis of tangible and intangible assets related to the STS acquisition, as compared to tax benefit of $3,819,000 for the year ended December 31, 2021 , which is due primarily to the step-up in the basis of intangible assets related to the Waycare acquisition.
Income Tax Provision (Benefit) The provision for income taxes for the year ended December 31, 2023 , was $32,000 , a s compared to tax benefit of $987,000 for the year ended December 31, 2022 , which is due primarily to the step-up in the basis of intangible assets related to the STS acquisition.
As of December 31, 2022 , we had unrestricted cash and cash equivalents from continuing operations of $1,924,000 and working capital deficit of $6,010,000, as compared to unrestricted cash and cash equivalents of $25,796,000 and working capital of $16,911,000 as of December 31, 2021 .
As of December 31, 2023 , we had unrestricted cash and cash equivalents from continuing operations of $15,385,000 and working capital of $8,100,000, as compared to unrestricted cash and cash equivalents of $1,924,000 and a working capital deficit of $6,010,000 as of December 31, 2022 .
The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included: Year ended December 31, 2022 2021 (Dollars in thousands, except percentages) Revenue $ 19,920 $ 11,575 Cost of revenue, excluding depreciation and amortization 10,890 4,549 Adjusted Gross Profit $ 9,030 $ 7,026 Adjusted Gross Margin 45.3 % 60.7 % Adjusted Gross Margin, for the year ended December 31, 2022 decreased to 45.3% from 60.7% for the year ended December 31, 2021.
The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included (dollars in thousands) : Year ended December 31, 2023 2022 (Dollars in thousands, except percentages) Revenue $ 34,933 $ 19,920 Cost of revenue, excluding depreciation and amortization 16,499 10,890 Adjusted Gross Profit $ 18,434 $ 9,030 Adjusted Gross Margin 52.8 % 45.3 % Adjusted Gross Margin, for the year ended December 31, 2023 increased to 52.8% from 45.3% for the year ended December 31, 2022 .
As a result, we performed an interim impairment assessment as of September 30, 2022 and determined that as of the reporting date we had an impairment related to goodwill in the amount of $34,835,000.
Goodwill Impairment During the third quarter of 2022, we experienced a significant decline in our market capitalization, which management deemed a triggering event related to goodwill. As a result, we performed an interim impairment assessment as of September 30, 2022 and determined that as of the reporting date we had an impairment related to goodwill in the amount of $34,835,000.
For the year ended December 31, 2022, we won contracts valued at $21,962,000 , compared to $8,936,000 of contracts won for the year ended December 31, 2021. This represents growth of $13,026,000 or 146% , period over period.
For the year ended December 31, 2023, we won contracts valued at $49,087,000 , compared to $21,962,000 of contracts won for the year ended December 31, 2022. This represents growth of $27,125,000 or 124% , period over period.
Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund operations for the next twelve months following the issuance of the audited financial statements.
Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations for the next twelve months following the issuance of these consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
Year ended December 31, 2022 2021 Change $ % Recurring revenue $ 13,091 $ 4,634 $ 8,457 182 % As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform.
The following table sets forth our recurring revenue for the periods included (dollars in thousands) : Year ended December 31, 2023 2022 Change $ % Recurring revenue $ 20,755 $ 13,091 $ 7,664 59 % As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform.
We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits.
Income Tax Provision Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits.
The growth of our recurring revenue provides some insights into our future operating results and cash flow from operations. This enables us to better manage and invest in our business.
Our recurring revenue model and revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business.
On December 6, 2022, we divested our ATSE business, a non-core business unit, for approximate ly $3,390,000. Opportunities, Trends and Uncertainties We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time.
Opportunities, Trends and Uncertainties We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time.
The Company's ability to generate positive operating results and complete the execution of its business strategy will depend on (i) its ability to continue the growth of its technology business, (ii) the continued performance of its contractors, subcontractors and vendors, (iii) its ability to maintain and build good relationships with its lenders and financial intermediaries, (iv) its ability to maintain timely collections from existing customers, and (v) the stability of the world economy and global financial markets.
The Company's ability to generate positive operating results and execute its business strategy will depend on (i) its ability to continue the growth of its customer base, (ii) its ability to continue to improve its quarterly financial metrics such as net loss and cash used from operating activities (iii) the continued performance of its contractors, subcontractors and vendors, (iv) its ability to maintain and build good relationships with investors, lenders and other financial intermediaries, (v) its ability to maintain timely collections from existing customers, and (vi) the ability to scale its business processes.
Depreciation and Amortization Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs. 41 Table of Contents Other Income (Expense) Other income (expense) consists primarily of legal settles, legal judgements, interest expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, interest income earned on cash and cash equivalents, short-term investments and note receivables.
Other Income (Expense) Other income (expense) consists primarily of legal settlements, legal judgements, interest income and expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, interest income earned on cash and cash equivalents, short-term investments and note receivables.
During the year ended December 31, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS. During the year ended December 31, 2021, the Company had net cash outflows of $39,770,000 related to the acquisition of Waycare.
During the year ended December 31, 2023, the Company had net cash outflows of $1,388,000 related to capital expenditures compared to $4,171,000 for the year ended December 31, 2022. Additionally, during the year ended December 31, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS.
On June 17, 2022 , we completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS.
This acquisition is included in the presentation of our continuing operations. 35 Table of Contents Acquisitions and Dispositions On June 17, 2022 , we completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS.
We expect to improve, replace and increase facilities as considered appropriate to meet the needs of our planned operations. 50 Table of Contents Liquidity and Capital Resources The net cash flows from operating, investing and financing activities for the periods below were as follows (dollars in thousands): Year ended December 31, 2022 2021 Change $ % Net cash used in operating activities - continuing operations $ (40,070 ) $ (18,893 ) $ (21,177 ) -112 % Net cash used in investing activities - continuing operations (8,264 ) (47,318 ) 39,054 -83 % Net cash provided by financing activities - continuing operations 23,868 70,992 (47,124 ) -66 % Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents - continuing operations $ (24,466 ) $ 4,781 $ (29,247 ) -612 % Net cash used in operating activities for the year ended December 31, 2022, had a net increase of $21,177,000, which was attributable to the increase in the loss from continuing operations of $56,058,000.
We expect to improve, replace and increase facilities as considered appropriate to meet the needs of our planned operations. 48 Table of Contents Liquidity and Capital Resources The net cash flows from operating, investing and financing activities for the periods below were as follows (dollars in thousands): Year ended December 31, 2023 2022 Change $ % Net cash used in operating activities - continuing operations $ (32,178 ) $ (40,070 ) $ 7,892 20 % Net cash provided by (used in) investing activities - continuing operations 270 (8,264 ) 8,534 -103 % Net cash provided by financing activities - continuing operations 45,602 23,868 21,734 91 % Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents - continuing operations $ 13,694 $ (24,466 ) $ 38,160 -156 % Net cash used in operating activities for the year ended December 31, 2023, had a net decrease of $7,892,000, which was attributable to the improvement of our Adjusted EBITDA of $8,754,000 which saw a 23% improvement period over period.
In addition, the Company experienced lower margins on certain hardware sales during the year. 48 Table of Contents Key Performance Indicators We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Additionally, the Company has worked diligently to reduce its software and data costs. 46 Table of Contents Key Performance Indicators We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. 51 Table of Contents Balance Sheet Arrangements, Contractual Obligations and Commitments As of the date of this Annual Report on Form 10-K, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
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 and implement new business, raise capital, and otherwise, depending on the severity of such impact, materially adversely affect its operating results. 49 Table of Contents Balance Sheet Arrangements, Contractual Obligations and Commitments As of the date of this Annual Report on Form 10-K, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
In 2022, we divested our Automated Traffic Safety Enforcement ("ATSE") business, a non-core business unit. As a result of the divestiture, we determined that ATSE met the criteria to be considered discontinued and it is no longer presented with continuing operations.
As a result of the divestiture, we determined that ATSE met the criteria to be considered discontinued and it was no longer presented with continuing operations. Additionally, in 2022, we completed the acquisition of 100% of the issued and outstanding capital stock of Southern Traffic Services, Inc. ("STS").
We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict. Our revenue with the discontinued operations of our ATSE business were $22,280,000 for the year ended December 31, 2022, as compared to $14,294,000 for the year ended December 31, 2021.
Recurring Revenue As part of the ongoing development of our selling strategy, we have been focusing on sales that employ contracts with recurring revenue. We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict.
In addition, states adopting contactless compliance programs may be able to garner significant net cash contributions to their annual budgets while reducing the number of non-compliant vehicles on their roadways. 38 Table of Contents ● Infrastructure Investment and Jobs Act ( “ IIJA ” ) and the Bipartisan Infrastructure Law ( “ BIL ” ) - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems.
However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain. 37 Table of Contents ● Infrastructure Investment and Jobs Act ( “ IIJA ” ) and the Bipartisan Infrastructure Law ( “ BIL ” ) - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems.
In the prior comparable period, through our 2021 Public Offering, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $70,125,000.
Lastly, in the fourth quarter of 2023, we raised $14,330,000 related to our Series A Prime Revenue Sharing Notes. In the prior comparable period, through our 2022 Sales Agreement, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $22,754,000.
As of December 31, 2022 , and 2021 , our evaluation revealed no uncertain tax positions that would have a material impact on the consolidated financial statements. 57 Table of Contents Going Concern, Liquidity and Management ’ s Plan For all annual and interim periods, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S.
Liquidity and Going Concern Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP.
For additional details regarding our legal settlements please s ee Item 3 of Part I, “Legal Proceedings”. In connection with the sale of ATSE, we recognized a gain on the sale of the business of $2,643,000 during the year ended December 31, 2022.
Other expense, net increased in the current period compared to the prior period as a result of legal judgements and settlements that happened during the year ended December 31, 2022. For additional details regarding our legal settlements please s ee Item 3 of Part I, “Legal Proceedings”.
Additionally, for the year ended December 31, 2022 we recognized an impairment related to our goodwill of $34,835,000. The net decrease in net cash used in investing activities of $39,054,000 was primarily due to a decrease in the outflow of funds related to merger and acquisition activities.
The net increase in net cash used in investing activities of $8,534,000 was primarily due to a decrease in the outflow of funds related to merger and acquisition activities and capital expenditures.
The Company attributes losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the year ended December 31, 2022, the Company had a net loss from continuing operati ons of $83,454,000 and a working capital deficit of $6,010,000 .
The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services.
Depreciation and Amortization The increase in depreciation and amortization during the year is attributable primarily to increased technology-based intangible assets that were acquired as part of our acquisition of Waycare and the customer relationships and the trade name that was acquired as part of our acquisition of STS.
Research and Development Expense The decrease in research and development expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily attributable to a decrease in subcontractor labor expenses as the Company utilized its current workforce to focus on the development of new products and software. 43 Table of Contents Depreciation and Amortization The increase in depreciation and amortization during the period is attributable primarily to the increased technology-based intangible assets that were acquired as part of our acquisition of STS.
Selling and Marketing Expenses The increase in selling and marketing expenses during the year ended December 31, 2022, compared to the year ended December 31, 2021, was attributable mainly to increased marketing efforts to promote our products and services including digital marketing and other sales efforts.
The remaining increase in revenue growth during the year ended December 31, 2023, compared to the year ended December 31, 2022 was primarily attributable to increased sales in sales of the Company's software and hardware products.
Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates.
Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. 50 Table of Contents Revenue Recognition Judgment is required for the estimation of the standalone selling price (“SSP”) and the allocation of the transaction price by relative SSPs.
The Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit, the sale of a note, proceeds from the sale of common stock, proceeds from the private sale of the Company’s non-core subsidiaries, proceeds from note receivables, debt financings and a public offering of its common stock to support cash flow from operations.
The Company has generated losses and negative operating cashflows since its inception and has relied on external sources of financing to support the cash flow from operations.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months from the issuance of the Annual Report on Form 10-K. New Accounting Pronouncements See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Business and Significant Accounting Policies” 58 Table of Contents
New Accounting Pronouncements See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Business and Significant Accounting Policies” 51 Table of Contents
Other Income (Expense) Year ended December 31, Change (Dollars in thousands) 2022 2021 $ % Other income (expense): Interest expense, net $ (21 ) $ (27 ) $ 6 22 % Other expense, net (1,279 ) (90 ) (1,189 ) -1321 % Gain on the sale of business 2,643 - 2,643 - Gain on extinguishment of debt - 886 (886 ) -100 % Total other income $ 1,343 $ 769 $ 574 -75 % The increase is other expense in the current year was related to legal judgements and settlements that happened during the year ended December 31, 2022.
Other Income (Expense) Year ended December 31, Change (Dollars in thousands) 2023 2022 $ % Other income (expense): Gain on extinguishment of debt $ 527 $ - $ 527 - Gain on the sale of business - 2,643 (2,643 ) -100 % Interest expense, net (3,596 ) (21 ) (3,575 ) -17024 % Other expense, net (468 ) (1,279 ) 811 63 % Total other income (expense) $ (3,537 ) $ 1,343 $ (4,880 ) 363 % Interest expense increased period over period due to the issuance of the 2023 Promissory Notes.
In addition, the Company experienced lower margins on certain hardware sales during the year. 44 Table of Contents Operating Expenses Year ended December 31, Change (Dollars in thousands) 2022 2021 $ % Operating expenses: General and administrative expenses $ 26,612 $ 23,006 $ 3,606 16 % Selling and marketing expenses 8,329 4,474 3,855 86 % Research and development expenses 18,616 8,292 10,324 125 % Goodwill impairment 34,835 - 34,835 - Depreciation and amortization 6,422 3,088 3,334 108 % Total operating expenses $ 94,814 $ 38,860 $ 55,954 144 % General and Administrative Expenses The increase in general and administrative expenses during the year ended December 31, 2022, compared to the year ended December 31, 2021, were primarily due to a $3,894,000 increase in personnel costs related to an increase in headcount, and increase of $1,326,000 of rent expense primarily related to our leased space in Columbia, Maryland and Tel Aviv, Israel.
The costs of revenue increased at a lower rate than our revenue increased as the Company was able to realize efficiencies in its operations and better manage its software costs. 42 Table of Contents Operating Expenses Year ended December 31, Change (Dollars in thousands) 2023 2022 $ % Operating expenses: General and administrative expenses $ 27,038 $ 26,612 $ 426 2 % Selling and marketing expenses 7,347 8,329 (982 ) -12 % Research and development expenses 18,271 18,616 (345 ) -2 % Depreciation and amortization 7,894 6,422 1,472 23 % Goodwill impairment - 34,835 (34,835 ) -100 % Total operating expenses $ 60,550 $ 94,814 $ (34,264 ) -36 % General and Administrative Expenses The increase in general and administrative expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, were primarily due to increases related to our automobile fleet and insurance.
With our innovative approach and relentless pursuit of excellence, we are working to make mobility data universally accessible and, empowering our customers to make informed decisions and drive meaningful progress towards a better future. General The information provided in this discussion and analysis of Rekor’s financial condition and results of operations covers the years ended December 31, 2022 and 2021.
General The information provided in this discussion and analysis of Rekor’s financial condition, and results of operations covers the years ended December 31, 2023 and 2022. In 2022, we divested our Automated Traffic Safety Enforcement ("ATSE") business, a non-core business unit.
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Overview Rekor is leading the charge to become the premier provider of roadway intelligence and data-driven mobility insights on a global scale. As a technology company, we are dedicated to transforming the public safety, urban mobility, and transportation management market segments worldwide with our cutting-edge, AI-driven solutions tailored specifically to the unique needs of each sector.
Added
Overview Rekor is working to revolutionize public safety, urban mobility, and transportation management using AI-powered solutions designed to meet the distinct demands of each market we serve. We work hand-in-hand with our customers to deliver mission-critical traffic and engineering services that assist them in achieving their goals.
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Our commitment to delivering mission-critical solutions for roadway intelligence is driven by our vision of creating smarter, safer, and more sustainable streets for all communities. To achieve this vision, we strive to collect, connect, and organize the world’s mobility data, harnessing its full potential to provide the most essential, real-time, and predictive actionable mobility insights.
Added
Our vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities.
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Additionally, in 2022, we completed the acquisition of 100% of the issued and outstanding capital stock of Southern Traffic Services, Inc. ("STS") and in 2021, we completed the acquisition of 100% of the issued and outstanding capital stock of Waycare Technologies, Ltd.
Added
We work towards this by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to our customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.
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These acquisitions are included in the presentation of our operations. 36 Table of Contents Acquisitions and Dispositions On August 18, 2021, we completed the acquisition of Waycare Technologies Ltd. (“Waycare”) for an aggregate purchase price of $60,171,000, consisting of $39,884,000 in cash and $20,287,000 of stock consideration.
Added
On December 6, 2022, we divested our ATSE business, a non-core business unit, for approximate ly $3,390,000. On January 2, 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $19,795,000, consisting of $9,795,000 in cash which included closing adjustments and $10,000,000 of stock consideration.
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However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain. ● Resurgent COVID 19 - The spread of a novel strain of COVID-19 around the world since the first quarter of 2020 has caused significant volatility in U.S. and international markets.
Added
Depreciation and Amortization Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.
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Despite the roll-out of vaccinations, there continues to be significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. As such, we are unable to determine the full impact on our operations should the global pandemic resurface in 2023.
Added
During the year ended December 31, 2023, revenue attributable to our Urban Mobility product line was $16,773,000, compared to $7,692,000 compared for the year ended December 31, 2022. Additionally, our contactless compliance revenue increased $1,110,000 for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Removed
The pandemic has accelerated the adoption of new technologies by businesses. According to a McKinsey Global Survey of executives, their companies have accelerated the digitization of their customer and supply-chain interactions and their internal operations by three to four years.
Added
These costs were partially offset due to a decrease in our personnel costs related to a reduction of salaries and overall payroll during the year. Additionally, for the year ended December 31, 2022, the Company recognized a $1,001,000 gain related to the remeasurement of the STS Earnout which decreased the Company's general and administrative expenses during the period.
Removed
Funding for digital initiatives has increased, creating opportunities for innovative solution providers such as Rekor. ● Pressure on Government Budgets – COVID-19 has caused significant strain on government budgets. With less money to spend and more need for resources, government agencies need affordable, effective, and scalable solutions for revenue recovery and discovery.
Added
Selling and Marketing Expenses The decrease in selling and marketing expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to a $965,000 decrease in stock-based compensation expenses.
Removed
With subscription pricing and an intelligent infrastructure platform that accomplishes multiple agency missions, we are uniquely positioned to provide agencies with force-multiplying tools when money and human resources are limited. Agencies can be better positioned to improve public safety, manage resources more effectively, and make an impact on their citizen's quality of life with limited capital expenditure.
Added
In connection with the sale of ATSE, we recognized a gain on the sale of the business of $2,643,000 during the year ended December 31, 2022. Gain on extinguishment of debt is a result of the settlement agreement in the Firestorm litigation.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 59 Item 8. Financial Statements and Supplementary Data. 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 112
Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 52 Item 8. Financial Statements and Supplementary Data. 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 103

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