Rekor Systems (REKR) 10-Q 14 Aug 19 2019 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 13, 2019
Document And Entity Information
Entity Registrant Name	Rekor Systems, Inc.
Entity Central Index Key	0001697851
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		20,270,041
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$ 3,096	$ 2,159
Restricted cash and cash equivalents	572	609
Accounts receivable, net	7,267	5,265
Inventory	214	73
Other current assets, net	358	424
Total current assets	11,507	8,530
Property and equipment, net	1,819	1,467
Right-of-use lease assets, net	1,068	0
Goodwill	8,027	3,093
Intangible assets, net	9,647	4,835
Deposits and other long-term assets	61	130
Total assets	32,129	18,055
CURRENT LIABILITIES
Accounts payable and accrued expenses	5,175	4,237
Lines of credit	2,790	1,661
Notes payable, current portion	0	2,469
Other liabilities, current portion	5	0
Lease liability, short term	504	0
Contract liabilities	648	207
Total current liabilities	9,122	8,574
Notes payable	19,744	965
Other long-term liabilities	24	0
Lease liability, long term	681	0
Deferred rent	0	8
Contract liabilities, long term	739	0
Total liabilities	30,310	9,547
Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value, 505,000 shares authorized and 502,327 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	5,415	5,052
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, $0.0001 par value, 30,000,000 shares authorized, 19,382,185 and 18,767,619 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	2	2
Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of June 30, 2019 and December 31, 2018, respectively	0	0
Series B Cumulative Convertible Preferred stock, $0.0001 par value, 240,861 shares authorized, issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	0	0
Additional paid-in capital	16,496	15,518
Accumulated deficit	(20,094)	(12,064)
Total stockholders' (deficit) equity	(3,596)	3,456
Total liabilities and stockholders' (deficit) equity	$ 32,129	$ 18,055

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	2,000,000	2,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	30,000,000	30,000,000
Common stock, issued	19,382,185	18,767,619
Common stock, outstanding	19,382,185	18,767,619
Series A
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	505,000	505,000
Preferred stock, issued	502,327	502,327
Preferred stock, outstanding	502,327	502,327
Series B
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	240,861	240,861
Preferred stock, issued	240,861	240,861
Preferred stock, outstanding	240,861	240,861

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue:
Technology	$ 1,416	$ 872	$ 2,426	$ 1,746
Professional Services	10,913	11,466	21,530	21,811
Total revenue	12,329	12,338	23,956	23,557
Cost of revenue:
Technology	271	369	761	697
Professional Services	8,166	8,496	16,198	16,303
Total cost of revenue	8,437	8,865	16,959	17,000
Gross profit:
Technology	1,145	503	1,665	1,049
Professional Services	2,747	2,970	5,332	5,508
Gross profit	3,892	3,473	6,997	6,557
OPERATING EXPENSES:
General and administrative expenses	4,898	3,829	9,035	8,543
Selling and marketing expenses	603	495	1,031	946
Research and development expenses	302	5	307	121
Impairment of intangible assets	1,549	0	1,549	0
Operating expenses	7,352	4,329	11,922	9,610
Loss from operations	(3,460)	(856)	(4,925)	(3,053)
Other income (expense):
Loss on extinguishment of debt	0	0	(1,113)	0
Interest expense	(1,417)	(171)	(1,705)	(264)
Other income (expense)	(38)	105	(33)	201
Total other expense	(1,455)	(66)	(2,851)	(63)
Loss before income taxes	(4,915)	(922)	(7,776)	(3,116)
Income tax provision	(12)	0	(24)	0
Net loss	$ (4,927)	$ (922)	$ (7,800)	$ (3,116)
Loss per common share - basic and diluted	$ (0.27)	$ (0.08)	$ (0.44)	$ (0.25)
Weighted average shares outstanding
Basic and diluted	19,369,399	14,533,030	19,135,176	14,514,864

Condensed Consolidated Statem_2

Condensed Consolidated Statements of Changes in Stockholders' (Deficit) Equity - USD ($) $ in Thousands	Common Stock	Series B	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning balance, shares at Dec. 31, 2017	14,463,364	240,861
Beginning balance, amount at Dec. 31, 2017	$ 1	$ 0	$ 12,343	$ (5,834)	$ 6,510
Adjustment to adopt new accounting guidance revenue recognition				(67)	(67)
Beginning balance, shares at January 1, 2018	14,463,364	240,861
Beginning balance, amounts at January 1, 2018	$ 1	$ 0	12,343	(5,901)	6,443
Stock-based compensation			209		209
Issuance of warrants in conjunction with notes payable					0
Issuance of warrants			123		123
Common stock issued in Secure Education Consultants acquisition, shares	33,333
Common stock issued in Secure Education Consultants acquisition, amount			163		163
Issuance related to note payable, shares	35,000
Issuance related to note payable, amount			126		126
Issuance upon exercise of stock options, shares	3,998
Issuance upon exercise of stock options, amount			7		7
Preferred stock dividends				(230)	(230)
Accretion of Series A preferred stock			(316)		(316)
Net loss				(3,116)	(3,116)
Ending balance, shares at Jun. 30, 2018	14,535,695	240,861
Ending balance, amount at Jun. 30, 2018	$ 1	$ 0	12,655	(9,247)	3,409
Beginning balance, shares at Mar. 31, 2018	14,496,697	240,861
Beginning balance, amount at Mar. 31, 2018	$ 1	$ 0	12,586	(8,210)	4,377
Stock-based compensation			97		97
Issuance related to note payable, shares	35,000
Issuance related to note payable, amount			126		126
Issuance upon exercise of stock options, shares	3,998
Issuance upon exercise of stock options, amount			7		7
Preferred stock dividends				(115)	(115)
Accretion of Series A preferred stock			(161)		(161)
Net loss				(922)	(922)
Ending balance, shares at Jun. 30, 2018	14,535,695	240,861
Ending balance, amount at Jun. 30, 2018	$ 1	$ 0	12,655	(9,247)	3,409
Beginning balance, shares at Dec. 31, 2018	18,767,619	240,861
Beginning balance, amount at Dec. 31, 2018	$ 2	$ 0	15,518	(12,064)	3,456
Stock-based compensation			238		238
Issuance of warrants in conjunction with notes payable			706		706
Exercise of cashless warrants	14,566
Common stock issued in OpenALPR Technology acquisition, shares	600,000
Common stock issued in OpenALPR Technology acquisition, amount			397		397
Preferred stock dividends				(230)	(230)
Accretion of Series A preferred stock			(363)		(363)
Net loss				(7,800)	(7,800)
Ending balance, shares at Jun. 30, 2019	19,382,185	240,861
Ending balance, amount at Jun. 30, 2019	$ 2	$ 0	16,496	(20,094)	(3,596)
Beginning balance, shares at Mar. 31, 2019	19,367,619	240,861
Beginning balance, amount at Mar. 31, 2019	$ 2	$ 0	16,505	(15,052)	1,455
Stock-based compensation			175		175
Exercise of cashless warrants	14,566
Preferred stock dividends				(115)	(115)
Accretion of Series A preferred stock			(184)		(184)
Net loss				(4,927)	(4,927)
Ending balance, shares at Jun. 30, 2019	19,382,185	240,861
Ending balance, amount at Jun. 30, 2019	$ 2	$ 0	$ 16,496	$ (20,094)	$ (3,596)

Condensed Consolidated Statem_3

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (7,800)	$ (3,116)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	160	174
Amortization of right-of-use lease asset	144	0
Share-based compensation	238	209
Amortization of financing costs	330	29
Accretion of debt discount	106	0
Deferred rent	0	(6)
Change in fair value of derivative liability	0	(75)
Amortization of intangible assets	826	511
Impairment of intangible assets	1,549	0
Loss on extinguishment of debt	1,113	0
Loss on sale of Secure Education	3	0
Changes in operating assets and liabilities:
Accounts receivable	(1,680)	(337)
Inventory	(141)	26
Deposits	69	0
Other current assets	79	181
Accounts payable and accrued expenses	481	545
Contract liabilities	792	50
Lease liability and deferred rent	(35)	0
Net cash used in operating activities	(3,766)	(1,809)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of note receivable	0	1,475
Proceeds from sale of Secure Education	250	0
Capital expenditures	(491)	(503)
Net cash (used in) provided by investing activities	(241)	972
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings	1,129	2,000
Repayments of short-term borrowings	(61)	(796)
Net proceeds from notes payable	3,839	0
Net proceeds from exercise of options	0	7
Payment of preferred dividends	0	(230)
Net cash provided by financing activities	4,907	981
Net increase in cash, cash equivalents and restricted cash	900	144
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period	2,768	1,957
Cash, cash equivalents and restricted cash and cash equivalents at end of period	3,668	2,101
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents:
Cash and cash equivalents at end of period	3,096	1,280
Restricted cash and cash equivalents at end of period	572	821
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$ 3,668	$ 2,101

GENERAL AND BASIS OF PRESENTATI

GENERAL AND BASIS OF PRESENTATION	6 Months Ended
	Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
GENERAL AND BASIS OF PRESENTATION	These unaudited condensed consolidated interim financial statements of Rekor Systems, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of June 30, 2019, the consolidated results of operations, consolidated statements of shareholders’ (deficit) equity and consolidated statements of cash flows for the three and six-month periods ended June 30, 2019 and 2018. The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and six-month period ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019. These condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated balance sheet data as of December 31, 2018 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2018 but does not include all disclosures required by U.S. GAAP. Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000. Certain prior year amounts have been reclassified to conform with the current year presentation. Beginning in the second quarter of 2019, sales and marketing expenses and research and development expenses have been presented separately from general and administrative expenses on the condensed consolidated statements of operations, whereas in prior periods these amounts were included in one caption titled "selling, general and administrative expenses." Amounts for the first quarter of 2019 have been reclassified to conform to the current year presentation. Rekor Systems, Inc. (the “Company” or “Rekor”), (formerly Novume Solutions, Inc.) was formed in February 2017 to effectuate the mergers of, and become a holding company for KeyStone Solutions, LLC. (“KeyStone”) and Brekford Traffic Safety, Inc. (“Brekford”). On February 28, 2019, the Company changed the name of its wholly owned subsidiary, Brekford Traffic Safety, Inc. to Rekor Recognition Systems, Inc. (“Rekor Recognition”). On April 26, 2019, the Company changed its name from Novume Solutions, Inc. to Rekor Systems, Inc. In March 2019, Rekor acquired certain assets and certain liabilities of OpenALPR Technology, Inc. (such assets and liabilities being referred to herein as “OpenALPR Technology”) through its subsidiary, OpenALPR Software Solutions, LLC (“OpenALPR”). The financial information in this Quarterly Report only includes OpenALPR in the results of operations beginning as of March 12, 2019 (see Note 4). Use of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual amounts may differ from these estimates. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, fair value of debt and equity instruments, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. Going Concern Assessment For all annual and interim periods, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans and external bank lines of credit, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions. These assumptions including among other factors, the expected timing and nature of the Company’s programs and projected cash expenditures, its ability to delay or curtail these expenditures or programs and its ability to raise additional capital, if necessary, to the extent management has the proper authority to execute them and considers it probable that those implementations can be achieved within the look-forward period. The Company has generated losses since its inception in August 2017 and has relied on cash on hand, external bank lines of credit, the sale of a note, debt financing, and a public offering of its common stock to support cashflow from operations. As of and for the six months ended June 30, 2019, the Company had a net loss of $7,800,000 and working capital of $2,385,000. The Company's net cash position was increased by $937,000 in June 2019 by the issuance of $20,000,000 senior secured notes, of which $5,000,000 was issued as a note payable to the seller, offset by $7,000,000 of cash paid for the acquisition of OpenALPR, and approximately $6,227,000 related to the extinguishment of debt and associated fees related to acquiring new debt (see Note 7). Management believes that based on relevant conditions and events that are known and reasonably knowable, its current forecasts and projections, for one year from the date of the filing of the consolidated financial statements in this Quarterly Report on Form 10-Q, indicate the Company’s ability to continue operations as a going concern for that one-year period. The Company is actively monitoring its operations, cash on hand and working capital. Additionally, the Company has access to the capital market, which the Company can use to raise funds. Additionally, the Company has contingency plans to reduce or defer expenses and cash outlays should operations weaken in the look-forward period or additional financing, if needed, is not available. Goodwill and Intangible Assets In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment, if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of October 1, and whenever indicators of impairment exist. The fair value of intangible assets is compared with their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. During the second quarter of 2019 we wrote-off $1,549,000 of intangible assets associated with the Company’s wholly owned subsidiaries Firestorm and BC Management, Inc. (“BC Management”) (see Note 5). Revenue Recognition The Company derives its revenues substantially from two sources: (1) subscription revenues for software licenses, technology products and services (2) professional services to clients. Revenue is recognized upon transfer of control of promised products and services to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. If the consideration promised in the contract includes a variable amount, for example maintenance fees, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company determines the amount of revenue to be recognized through application of the following steps: ● Identification of the contract, or contracts, with a customer ● Identification of the performance obligations in the contract ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of revenue when, or as, performance obligations are satisfied The subscription revenues for software licenses, technology products and services revenues are comprised of fees that provide customers with access to the software licenses and related support and updates during the term of the arrangement. Revenue is generally recognized ratably over the contract term. During the second quarter the Company changed its revenue contracts in the Technology Segment from perpetual software licenses to monthly subscriptions. This change may impact the Company’s revenue in the short term. However, over the long term the total impact of revenue will be consistent. The Company’s professional services contracts recognize revenue based on a time and materials or fixed fees basis. These revenues are recognized as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts, or ratably over the contact term for fixed price contracts with subscription services. Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (included within accounts receivable, net), and contract liabilities (deferred revenue) on the condensed consolidated balance sheet. When billings occur after the work has been performed, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. Unbilled receivables of $1,532,000 and $1,125,000 are included in accounts receivable, net in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next 6 months to five years, depending on the subscription or licensing period. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the six-month period ended June 30, 2019 were not materially impacted by any other factors. The services due for contract liabilities described above are shown below as of June 30, 2019 (dollars in thousands): 2019 $ 482 2020 224 2021 216 2022 188 2023 185 Thereafter 92 Total $ 1,387 Segment Reporting The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment Reporting The Technology Segment will be responsible for the activities in developing technology and distributing and licensing products and services with vehicle recognition features. In connection with this effort in March 2019, the Company acquired OpenALPR Technology (See Note 4). The Professional Services Segment will be responsible for the activities that provide professional services for government contracting market, as well as staffing services for the aerospace and aviation markets. Cash, Cash Equivalents and Restricted Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with the maturity of three months or less to be cash equivalents. Cash subject to contractual restrictions and not readily available for use is classified as restricted cash and cash equivalents. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash and cash equivalents for these client jurisdictions as of June 30, 2019 and December 31, 2018 were $572,000 Fair Value of Financial Instruments The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, restricted cash and cash equivalents, inventory, accounts receivable and accounts payable approximate fair value as of June 30, 2019 and December 31, 2018 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of June 30, 2019 and December 31, 2018, given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors. The determination of fair value is based upon the fair value framework established by Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures Level 1 – Level 2 – Level 3 – Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 2 and Level 3 inputs. The Company has concluded that its Series A Preferred Stock is a Level 3 financial instrument and that the fair value approximates the carrying value, which includes the accretion of the discounted interest component through June 30, 2019. There were no changes in levels during the three and six months ended June 30, 2019 and 2018. Concentrations of Credit Risk The Company places its temporary cash investments with high credit quality financial institutions located in the United States (“U.S.”). At June 30, 2019 and December 31, 2018, the Company had deposits totaling $3,668,000 and $2,768,000, respectively, in three U.S. financial institutions that were federally insured up to $250,000 per account. We have a market concentration of revenue and accounts receivable in our Professional Services Segment related to our customer base. One customer in the Professional Services Segment accounted for approximately $3,517,000 or 15% and $5,073,000 or 22% of the condensed consolidated revenue for the six months ended June 30, 2019 and 2018, respectively. There was one customer in the Professional Services Segment that accounted for approximately $1,385,000 or 15% and $2,428,000 or 20% of the condensed consolidated revenue for the three months ended June 30, 2019 and 2018, respectively. Additionally, as of June 30, 2019, accounts receivable from two customers totaled $806,000 or 11% and $1,715,000 or 24%, respectively, of the condensed consolidated accounts receivable balance. As of December 31, 2018 there was one customer that accounted for $1,043,000 or 20% of the condensed consolidated accounts receivable balance. No other single customer accounted for more than 10% of our condensed consolidated revenue for the six months ended June 30, 2019 or condensed consolidated accounts receivable balance as of June 30, 2019.

NEW ACCOUNTING PRONOUNCEMENTS

NEW ACCOUNTING PRONOUNCEMENTS	6 Months Ended
	Jun. 30, 2019
Accounting Policies [Abstract]
NEW ACCOUNTING PRONOUNCEMENTS	New accounting pronouncements effective in the six-month period ended June 30, 2019 In February 2016, the FASB issued Accounting Standards Update (“ Leases (Topic 842) . Leases (Topic 842): Targeted Improvements In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting The Company does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

BUSINESS SEGMENTS

BUSINESS SEGMENTS	6 Months Ended
	Jun. 30, 2019
Segment Reporting [Abstract]
BUSINESS SEGMENTS	FASB ASC Topic 280, Segment Reporting The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance. Summarized financial information concerning the Company’s reportable segments is presented below: Technology Professional Services Corporate Services Consolidated (Dollars in thousands) Three Months Ended June 30, 2019: Revenues $ 1,416 $ 10,913 $ - $ 12,329 Gross profit 1,145 2,747 - 3,892 Loss from operations* (391 ) (1,850 ) (1,219 ) (3,460 ) * Including intangible assets impairment - 1,549 - 1,549 Three Months Ended June 30, 2018: Revenues 872 11,466 - 12,338 Gross profit 503 2,970 - 3,473 Loss from operations 9 (48 ) (817 ) (856 ) Six Months Ended June 30, 2019: Revenues 2,426 21,530 - 23,956 Gross profit 1,665 5,332 - 6,997 Loss from operations* (590 ) (2,130 ) (2,205 ) (4,925 ) * Including intangible assets impairment - 1,549 - 1,549 Six Months Ended June 30, 2018: Revenues 1,746 21,811 - 23,557 Gross profit 1,049 5,508 - 6,557 Loss from operations (249 ) (423 ) (2,381 ) (3,053 )

ACQUISITIONS

ACQUISITIONS	6 Months Ended
	Jun. 30, 2019
Business Combinations [Abstract]
ACQUISITION	Secure Education Consultants Acquisition On January 1, 2018, the Company completed its acquisition of certain assets of Secure Education Consultants (“SEC”) through Firestorm. Consideration paid as part of this acquisition included: $100,000 in cash; 33,333 shares of Rekor common stock valued at $163,000; warrants to purchase 33,333 shares of Rekor common stock, exercisable over a period of five years, at an exercise price of $5.44 per share, valued at $66,000; and warrants to purchase 33,333 of Rekor common stock, exercisable over a period of five years, at an exercise price of $6.53 per share, valued at $57,000. The Company has completed its analysis of the purchase price allocation. The Company recorded $386,000 of customer relationships to intangible assets. The table below shows the final breakdown related to the Secure Education acquisition (dollars in thousands): Cash paid $ 100 Common stock issued 163 Warrants issued, at $5.44 66 Warrants issued, at $6.53 57 Total consideration 386 Less intangible assets and intellectual property (386 ) Net goodwill recorded - On June 1, 2019, the Company sold all its interest in Secure Education for consideration of $250,000. As a result of the Secure Education sale, the Company disposed $249,000 of net intangible assets, $58,000 of accounts receivables, and $54,000 of accounts payables. This resulted in a loss of $3,000 that is presented as a part of general and administrative expenses in the accompanying condensed consolidated statement of operations. OpenALPR Acquisition On November 14, 2018, the Company entered into an Asset Purchase Agreement (the “OpenALPR Purchase Agreement”) by and among the Company, OpenALPR Technology, Inc. and Matthew Hill pursuant to which the Company agreed to purchase all of the assets of OpenALPR Technology Inc. and its subsidiaries, except for certain excluded assets, and assumed certain liabilities as provided for in the OpenALPR Purchase Agreement. The Company agreed to pay $15,000,000, subject to certain adjustments, provided that OpenALPR Technology, Inc. could elect to receive up to 1,000,000 shares of the Company’s common stock, par value, $0.0001 per share, in lieu of up to $5,000,000 in cash valued at a price per share of $5.00. On February 15, 2019, the Company entered into Amendment No. 1 to the OpenALPR Purchase Agreement, pursuant to which the parties agreed to amend the Base Purchase Price to $7,000,000, subject to adjustment after closing, issue a promissory note in the amount of $5,000,000, and issue 600,000 shares of Rekor common stock as consideration for the acquisition of OpenALPR Technology’s assets. On March 8, 2019, the Company entered into Amendment No. 2 to the OpenALPR Asset Purchase Agreement which eliminated the working capital adjustment set forth in the OpenALPR Asset Purchase Agreement, as amended, and replaced it with an adjustment for prepaid maintenance contracts. On March 12, 2019, the Company completed the acquisition of the of OpenALPR Technology and assumed certain assets and liabilities (the “OpenALPR Acquisition”). Consideration paid as part of the OpenALPR Acquisition was: $7,000,000 in cash, subject to adjustment after closing; 600,000 shares of Rekor common stock, valued at $397,000; and $5,000,000 of the 2019 Promissory Notes (see Note 7) principal amount, together with an accompanying warrant to purchase 625,000 shares of Rekor common stock, exercisable over a period of five years, at an exercise price of $0.74 per share, valued at $208,000 (“March 2019 Warrants” see Note 9). The purchase price allocation to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the acquisition of the OpenALPR Technology occurred on March 12, 2019, the results of operations for OpenALPR from the date of acquisition have been included in the Company’s condensed consolidated statement of operations for the three and six-months ended June 30, 2019. The final purchase price allocation, completed in the second quarter of 2019, resulted in adjustments to intangible assets of approximately $4,934,000, since our previous estimates as of March 31, 2019, and primarily related to fair value adjustments to technology-based intangible assets. The final purchase price allocation of the acquisition of OpenALPR is as follows: intangible assets of $7,436,000 and goodwill of $4,934,000 along with net assets acquired of $415,000, and contract obligations assumed of $388,000. The table below shows the breakdown related to the final purchase price allocation for the OpenALPR Technology acquisition (dollars in thousands) : Assets acquired $ 415 Liabilities acquired (388 ) Net assets acquired 27 Less intangible assets 7,436 Consideration paid (see below) (12,397 ) Goodwill recorded $ 4,934 Cash consideration $ 7,000 Note payables 5,000 Common stock consideration 397 Total acquisition consideration $ 12,397 Hill Employment Agreement On November 14, 2018, concurrent with the execution of the OpenALPR Purchase Agreement, the Company entered into an employment agreement with Matthew Hill (the “Hill Employment Agreement”) which became effective as of March 12, 2019, the closing date of the OpenALPR Purchase Agreement. Operations of Combined Entities The following unaudited pro forma combined financial information gives effect to the acquisition of Secure Education and OpenALPR Technology as if they were consummated as of January 1, 2018. This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2018 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods. Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) Revenues $ 12,329 $ 12,460 $ 24,925 $ 23,985 Net loss (4,927 ) (917 ) (6,992 ) (2,919 ) Basic and diluted loss per share $ (0.27 ) $ (0.08 ) $ (0.39 ) $ (0.23 ) Basic and diluted number of shares 19,369,399 15,133,030 19,135,176 15,148,197

IDENTIFIABLE INTANGIBLE ASSETS

IDENTIFIABLE INTANGIBLE ASSETS	6 Months Ended
	Jun. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
IDENTIFIABLE INTANGIBLE ASSETS	The following summarizes the change in intangible assets from December 31, 2018 to June 30, 2019: Balance as of December 31, 2018 Additions Amortization Impairment Sale of Secure Education Balance as of June 30, 2019 Intangible assets subject to amortization: (Dollars in thousands) Customer relationships $ 4,257 $ 90 $ (419) $ (1,549) $ (249) $ 2,130 Marketing related 495 223 (104) - - 614 Technology based 83 7,123 (303 - - 6,903 Total intangible assets subject to amortization $ 4,835 $ 7,436 $ (826) $ (1,549) $ (249) $ 9,647 The following provides a breakdown of identifiable intangible assets as of June 30, 2019: Customer Relationships Marketing Related Technology Based Total (Dollars in thousands) Identifiable intangible assets $ 2,409 $ 953 $ 7,207 $ 10,569 Accumulated amortization (279 ) (339 ) (304 ) (922 ) Identifiable intangible assets, net $ 2,130 $ 614 $ 6,903 $ 9,647 With the acquisition of OpenALPR Technology, the Company identified technology-based intangible assets of $11,845,000 in its preliminary purchase price allocation. The final purchase price allocation, completed in the second quarter of 2019, resulted in adjustments to intangible assets of approximately $4,934,000, since our previous estimates as of March 31, 2019, and primarily related to fair value adjustments to technology-based intangible assets. The final purchase price allocation of the acquisition of OpenALPR is as follows: technology-based intangible assets of $7,123,000, marketing-related intangible assets of $223,000, customer-related intangibles of $90,000 and goodwill of $4,934,000 along with net assets acquired of $27,000. These intangible assets are being amortized on a straight-line basis over their weighted average estimated useful life of 6.6 years. Amortization expense for the three months ended June 30, 2019 and 2018 was $456,000 and $255,000, respectively, and for the six months ended June 30, 2019 and 2018 was $826,000 and $511,000, respectively, and is presented as part of general and administrative expenses in the accompanying condensed consolidated statements of operations. Firestorm, the Company’s wholly owned subsidiary, provided services related to crisis management, crisis communications, emergency response, and business continuity and other emergency, crisis and disaster preparedness initiatives. Its fully owned subsidiary, BC Management, was an executive search firm for business continuity, disaster recovery, crisis management and risk management professionals and a provider of business continuity research with annual studies covering compensation assessments, program maturity effectiveness, event impact management reviews, IT resiliency and critical supply analyses. Its other wholly owned subsidiary, Secure Education, was comprised of an expert team of highly trained, former U.S. Secret Service Agents and assists clients by designing customized plans, conducting security assessments, delivering training, and responding to critical incidents. On June 1, 2019, the Company completed the sale of Secure Education which included $249,000 of intangible assets (see Note 4). On June 28, 2019 the Company discontinued the operations of BC Management, resulting in an impairment of $242,000 of intangible assets related to its acquisition in December 2018. The discontinued operation of BC Management does not constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial results. On June 30, 2019, the Company recorded an intangible asset impairment of $1,307,000 of customer relationship intangible assets from the Firestorm acquisition. In the second quarter of 2019, the Company evaluated the performance of all the franchisees of Firestorm Franchising, LLC and notified them of the termination of their agreements on the basis of non-performance. The discontinued operation of Firestorm Franchising, LLC does not constitute a significant strategic shift that will have a material impact on the Company's ongoing operations and financial results. As of June 30, 2019, the estimated annual amortization expense for each of the next five fiscal years and thereafter is as follows (dollars in thousands) : 2019 $ 718 2020 1,436 2021 1,384 2022 1,240 2023 1,226 Thereafter 3,643 Total $ 9,647

SUPPLEMENTAL DISCLOSURES OF CAS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	6 Months Ended
	Jun. 30, 2019
Supplemental Cash Flow Information [Abstract]
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	Supplemental disclosures of cash flow information for the six months ended June 30, 2019 and 2018 were as follows: For the Six Months Ended June 30, 2019 2018 (Dollars in thousands) Cash paid for interest $ 1,023 $ 155 Business combinations, net of cash: Current assets 415 - Intangible assets 7,436 386 Goodwill 4,934 - Current liabilities (388) - Cash paid acquisition of OpenALPR Technology (7,000) - Note issued acquisition of OpenALPR Technology (5,000) - Issuance of common stock (397) (163) Issuance of common stock warrants - (123) Sale of SEC: Current assets (58) - Intangible assets sold (250) - Current liabilities 54 - Loss on sale 3 - Financing: Notes payable 21,000 - Debt discount financing costs (2,599) - Extinguishment of debt (1,113) - Repayment of notes payable and interest expense, net of debt discount (2,515) - Investment in OpenALPR Technology (12,000) - Issuance of warrants in conjunction with notes payable 706 Accounts payable 360 - Proceeds from notes payable 3,839 - Common stock issued in connection with note payable - 126 Adoption of ASC-842 Lease Accounting: Right-of-use lease asset 1,212 - Deferred rent 30 - Lease liability $ (1,242) $ - On January 5, 2018, April 6, 2018 and July 9, 2018, the Company paid cash dividends of $88,000 to shareholders of record of Series A Preferred Stock as of the end of the previous month. On September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, the Company accrued dividends of $88,000 to these Preferred Stock shareholders and did not pay dividends in cash. Accrued dividends payable to Series A Preferred Stock shareholders were $352,000 and $176,000 as of June 30, 2019 and December 31, 2018, respectively, and is presented as part of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets. On January 5, 2018, April 6, 2018 and July 9, 2018, the Company paid cash dividends of $27,000 to shareholders of record of Series B Preferred Stock as of the end of the previous month. As of June 30, 2019, the Company paid $108,000, which represents all accrued dividends to these Preferred Stock shareholders. Accrued dividends payable to Series B Preferred Stock shareholders were $0 and $54,000 as of June 30, 2019 and December 31, 2018, respectively, and is presented as part of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.

DEBT

DEBT	6 Months Ended
	Jun. 30, 2019
Debt Disclosure [Abstract]
DEBT	Line of Credit Global Technical Services, Inc. and Global Contract Professionals, Inc, (together “Global”), the Company’s wholly owned subsidiaries, have revolving lines of credit with Wells Fargo Bank National Association (“WFB”) (“Wells Fargo Credit Facilities”). WFB agreed to advance to Global, 90% of all eligible accounts with a maximum facility amount of $5,000,000. Interest is payable under the Wells Fargo Credit Facilities at a monthly rate equal to the Three-Month LIBOR, (as such term is defined under the Wells Fargo Credit Facilities), in effect from time to time plus 3%, plus an additional margin of 3%. Payment of the revolving lines of credit is secured by the accounts receivable of Global. The current term of the Wells Fargo Credit Facilities run through December 31, 2019, with automatic renewal terms of 12 months. WFB or Global may terminate the Wells Fargo Credit Facilities upon at least 60 days’ written notice prior to the last day of the current term. The principal balance as of June 30, 2019 and December 31, 2018 was $2,238,000 and $1,095,000, respectively. As part of the agreements for the Wells Fargo Credit Facilities, Global must maintain certain financial covenants that require, among other things, maintenance of minimum amounts and ratios of working capital and fixed charges. WFB waived financial covenant requirements for the six months ended June 30, 2019, with an extension until September 30, 2019. On November 12, 2017, AOC Key Solutions, Inc. (“AOC”), the company’s wholly owned subsidiary, entered into an Account Purchase Agreement and related agreements (the “AOC Wells Agreement”) with WFB. Pursuant to the AOC Wells Agreement, AOC Key Solutions agreed to sell and assign to WFB all of its Accounts (as such term is defined in Article 9 of the Uniform Commercial Code), constituting accounts arising out of sales of Goods (as such term is defined in Article 9 of the Uniform Commercial Code) or rendition of services that WFB deems to be eligible for borrowing under the AOC Wells Agreement. WFB agreed to advance to AOC Key Solutions, 90% of all eligible accounts with a maximum facility amount of $3,000,000. Interest is payable under the AOC Wells Agreement at a monthly rate equal to the Daily One Month LIBOR, (as such term is defined under the AOC Wells Agreement), in effect from time to time plus 5%. The AOC Wells Agreement also provides for a deficit interest rate equal to the then applicable interest rate plus 50% and a default interest rate equal to the then applicable interest rate or deficit interest rate, plus 50%. The initial term of the AOC Wells Agreement runs through December 31, 2018 (the “Initial Term”), with automatic renewal terms of 12 months (the “Renewal Term”), commencing on the first day after the last day of the Initial Term. The current term of the AOC Wells Agreement runs through December 31, 2019. AOC Key Solutions may terminate the AOC Wells Agreement upon at least 60 days’ prior written notice, but no more than 120 days’ written notice, prior to and effective as of the last day of the Initial Term or the Renewal Term, as the case may be. WFB may terminate the AOC Wells Agreement at any time and for any reason upon 30 days’ written notice or without notice upon the occurrence of an Event of Default (as such term is defined in the AOC Wells Agreement) after the expiration of any grace or cure period. The principal balance as of June 30, 2019 and December 31, 2018 was $551,000 and $566,000, respectively. As part of the AOC Wells Agreement, AOC Key Solutions must maintain certain financial covenants that require, among other things, maintenance of minimum amounts and ratios of working capital and cash flow. WFB waived financial covenant requirements for the six months ended June 30, 2019, with an extension until September 30, 2019. Long-Term Debt On March 16, 2016, the Company entered into a Subordinated Note and Warrant Purchase Agreement (the “Avon Road Note Purchase Agreement”) pursuant to which $500,000 in subordinated debt (the "Avon Road Note") was issued by the Company to Avon Road Partners, L.P. (“Avon Road”), an affiliate of Robert Berman, the Company’s President and CEO and a member of the Company’s Board of Directors. The Avon Road Subordinated Note Warrants had an expiration date of March 16, 2019. On March 12, 2019, the $500,000 balance due on the Avon Road Note was retired in its entirety in exchange for an equivalent principal amount of the 2019 Promissory Notes (see below). On January 25, 2017, pursuant to the terms of its acquisition of Firestorm, the Company issued $1,000,000 in the aggregate form of four unsecured, subordinated promissory notes with interest payable over five years. The principal amount of one of the notes payable is $500,000 payable at an interest rate of 2% and the remaining three notes are evenly divided over the remaining $500,000 and payable at an interest rate of 7%. The notes mature on January 25, 2022. The balance of these notes payable was $952,000 and $938,000, net of unamortized interest, as of June 30, 2019 and December 31, 2018, respectively, to reflect the amortized fair value of the notes issued due to the difference in interest rates of $48,000 and $62,000, respectively. On April 3, 2018, the Company entered into a transaction pursuant to which an institutional investor (the “2018 Lender”) loaned $2,000,000 to the Company (the “2018 Promissory Note”). The loan was originally due and payable on May 1, 2019 and bears interest at 15% per annum, with a minimum of 15% interest payable if the loan is repaid prior to May 1, 2019. In addition, the Company issued 35,000 shares of common stock to the 2018 Lender, which shares contain piggy-back registration rights. If the shares are not registered on the next selling shareholder registration statement, the Company will be obligated to issue an additional 15,000 shares to the 2018 Lender. Upon the sale of Rekor Recognition or its assets, the 2018 Lender was entitled to receive 7% of any proceeds received by the Company or Rekor Recognition in excess of $5,000,000 (the “Lender’s Participation”). In addition, commencing January 1, 2020, the 2018 Lender was to be paid 7% of Rekor Recognition’s earnings before interest, taxes, depreciation and amortization, less any capital expenditures, which amount was to be credited for any payments that might ultimately be paid to the 2018 Lender as its Lender’s Participation, if any. At April 3, 2018, the fair value of shares issued was $126,000. On October 24, 2018, the Company and Rekor Recognition entered into a note amendment with the 2018 Lender by which the maturity date of the note was extended to May 1, 2020 (the “2018 Promissory Note Amendment”). The 2018 Promissory Note Amendment further provided for payment of interest through May 1, 2019, if the principal was repaid before May 1, 2019. At October 24, 2018, an additional $62,500 fee was paid as consideration for extending the maturity date to May 1, 2020 and designated as financing costs related to the 2018 Promissory Note Amendment. Amortized financing cost for the three months ended June 30, 2019 and 2018 was determined to be $0 and $29,000, respectively, and for the six months ended June 30, 2019 and 2018 was determined to be $31,000 and $29,000, respectively. Amortized financing cost is included in interest expense. The 2018 Promissory Note had an effective interest rate of 19.5%. On March 12, 2019, the $2,000,000 balance due on the 2018 Promissory Note was retired in its entirety in exchange for an equivalent principal amount of the 2019 Promissory Notes (see below). In addition, Rekor paid to the 2018 Lender $1,050,000 of consideration for the re-acquisition by the Company of the Lender’s Participation and $75,000 of interest due through May 1, 2019. All amounts paid were obtained from the proceeds of the 2019 Promissory Notes. The 2018 Lender consideration of $1,050,000 for the Lender’s Participation and unamortized financing costs of $63,000 are recorded as costs in connection with extinguishment of debt of $1,113,000 for the six months ended June 30, 2019. 2019 Promissory Notes On March 12, 2019, the Company entered into a note purchase agreement pursuant to which investors, including OpenALPR Technology, Inc. (see Note 4), (the “2019 Lenders”) loaned $20,000,000 to Rekor (the “2019 Promissory Notes”) and the Company issued to the 2019 Lenders warrants to purchase 2,500,000 shares of Rekor common stock (the “March 2019 Warrants”)(See Note 4). The loan is due and payable on March 11, 2021 and bears interest at 16% per annum, of which at least 10% per annum is required to be paid in cash. Any remaining interest accrues to be paid at maturity or earlier redemption. The notes also require a $1,000,000 exit fee due at maturity, or a premium if paid before the maturity date, and compliance with affirmative, negative and financial covenants, including a fixed charge ratio, minimum liquidity and maximum capital expenditures. The covenants related to this note have been deferred until September 2019. Transaction costs included $403,000 for a work fee payable over 10 months, $290,000 in legal fees and a $200,000 closing fee. The loan is secured by a security interest in substantially all of the assets of Rekor. The March 2019 Warrants are exercisable over a period of five years, at an exercise price of $0.74 per share, and are valued at $706,000. The warrants are exercisable commencing March 12, 2019 and expire on March 12, 2024. The 2019 Promissory Notes has an effective interest rate of 24.87%. The principal amounts due for long-term notes payable described above and a minor equipment note payable are shown below as of June 30, 2019 (dollars in thousands) : 2019 $ - 2020 - 2021 21,000 2022 1,000 2023 - Total $ 22,000 Less unamortized interest $ (48 ) Less unamortized financing costs (2,208 ) Long-term debt $ 19,744

INCOME TAXES

INCOME TAXES	6 Months Ended
	Jun. 30, 2019
Income Tax Disclosure [Abstract]
INCOME TAXES	The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business. The 2017 Tax Cut and Jobs Act (“2017 Act”) changed U.S. tax law and included various provisions that impacted the Company. The 2017 Act affected the Company by changing U.S. tax rates, increasing the Company’s ability to utilize accumulated net operating losses generated after December 31, 2017, and impacted the estimates of deferred tax assets and liabilities. The Company’s income tax provision for June 30, 2019 and 2018 was $24,000 and $0, respectively. The increase in the tax expense is primarily related to state minimum taxes and the state of Texas gross receipts tax. The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance through the six months ended June 30, 2019. The Company files income tax returns in the United States and in various states. No U.S. Federal, state or foreign income tax audits were in process as of June 30, 2019. Management has evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, the Company fully reserved for its net deferred tax assets because management believes that it is more-likely-than-not that their benefits will not be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly. For the six months ended June 30, 2019 the Company did not record any interest or penalties related to unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax expense. The 2015 through 2018 tax years remain subject to examination by the Internal Revenue Service.

STOCKHOLDERS' (DEFICIT) EQUITY

STOCKHOLDERS' (DEFICIT) EQUITY	6 Months Ended
	Jun. 30, 2019
Stockholders' Equity Attributable to Parent [Abstract]
STOCKHOLDERS' (DEFICIT) EQUITY	Common Stock The Company is authorized to issue 30,000,000 shares of common stock, $0.0001 par value. As of June 30, 2019, and December 31, 2018, the issued and outstanding common shares of Rekor were 19,382,185 and 18,767,619, respectively. In January 2018, the Company issued 33,333 shares of Rekor common stock as consideration as part of its acquisition of Secure Education. In April 2018, the Company issued 35,000 shares of Rekor common stock as additional consideration to the 2018 Lender in connection with the 2018 Promissory Note. On November 1, 2018, the Company issued 4,125,000 shares of common stock through an underwritten public offering at a public offering price of $0.80 per share. Net proceeds to the Company was approximately $2,800,000. In addition, the Company granted underwriters a 45-day option to purchase up to 618,750 additional shares of common stock to cover over-allotment, if any. The underwriters did not exercise this option and the options were cancelled. As part of the consideration to the underwriters, the Company issued to the underwriters warrants to purchase an aggregate of 206,250 shares of common stock, exercisable over a period of five years, at an exercise price of $1.00 per share. The underwriter warrants have a value of approximately $200,000 are exercisable commencing April 27, 2019 and expire on October 29, 2023. For the six months ended June 30, 2018, the Company issued 3,998 shares of Rekor common stock related to the exercise of common stock options. On December 13, 2018, the Company received a letter from Nasdaq indicating that the Company is required to maintain a minimum bid price of $1.00 per share of its common stock. The Company's closing bid price of its common stock had been less than $1.00 for the previous 30 consecutive business days. As such, the Company was not compliant with the minimum bid price requirements under Nasdaq Listing Rule 5550(a)(2). The letter from Nasdaq provided the Company with an initial compliance period of 180 calendar days, or until June 11, 2019, to regain compliance with the minimum bid price requirement. During second compliance period of 180 calendar the closing bid price of the Company’s common stock was above $1.00 for more than 10 consecutive business days, and Nasdaq provided the Company with a written confirmation of compliance indicating that the matter was closed. On February 15, 2019, the Company entered into Amendment No. 1 to the OpenALPR Purchase Agreement, pursuant to which the Company agreed to issue 600,000 shares of Rekor common stock as partial consideration for the acquisition of the OpenALPR Technology. On March 12, 2019, the Company issued 600,000 shares of Rekor common stock as part of the consideration for the acquisition of the OpenALPR Technology. For the six months ended June 30, 2019 and 2018, the Company issued 614,566 and 72,331 shares of Rekor common stock, respectively. Out of these, 14,566 shares of Rekor common stock in exchange for the cashless exercise of 42,020 warrants during the second quarter of 2019. Preferred Stock The Company is authorized to issue up to 2,000,000 shares of preferred stock, $0.0001 par value. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of the winding-up of its affairs. The authorized but unissued shares of the preferred stock may be divided into, and issued in, designated series from time to time by one or more resolutions adopted by the Board of Directors of the Company. The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock. Series A Cumulative Convertible Redeemable Preferred Stock Of the 2,000,000 authorized shares of preferred stock, 505,000 shares are designated as $0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”). The holders of Series A Preferred Stock are entitled to quarterly dividends of 7.0% per annum per share. The holders of Series A Preferred Stock have a right to convert each share into common stock at an initial conversion price and a specified conversion price which increases annually based on the passage of time beginning in November 2019. The holders of Series A Preferred Stock also have a put right after 60 months from the issuance date to redeem any or all of the Series A Preferred Stock at a redemption price of $15.00 per share plus any accrued but unpaid dividends. The Company has a call right after 36 months from the issuance date to redeem all of the Series A Preferred Stock at a redemption price which increases annually based on the passage of time beginning in November 2019. The Series A Preferred Stock contains an automatic conversion feature based on a qualified initial public offering in excess of $30,000,000 or a written agreement by at least two-thirds of the holders of Series A Preferred Stock at an initial conversion price and a specified price which increases annually based on the passage of time beginning in November 2016. Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity in the accompanying condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018. The Company adjusts the value of the Series A Preferred Stock to redemption value at the end of each reporting period. The adjustment to the redemption value is recorded through additional-paid-in-capital of $184,000 and $161,000 for the three months ended June 30, 2019 and 2018, respectively and $363,000 and $316,000 for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, and December 31, 2018, 502,327 shares of Series A Preferred Stock were issued and outstanding. The holders of Series A Preferred Stock are entitled to quarterly cash dividends of $0.175 (7% per annum) per share. Dividends accrue quarterly and dividend payments for declared dividends are due within five business days following the end of a quarter. On January 5, 2018, April 6, 2018 and July 9, 2018, the Company paid cash dividends of $88,000 to shareholders of record of Series A Preferred Stock as of the end of the previous month. On September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, the Company accrued dividends of $88,000 to Series A Preferred Stock shareholders of record. Accrued dividends payable to Series A Preferred Stock shareholders were $352,000 and $176,000 as of June 30, 2019 and December 31, 2018, respectively, and is presented as part of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets. On February 15, 2019, the Company’s Series A Preferred Stock, which had been designated as securities trading on the OTC Markets OTCQX exchange, was transferred to being designated as trading on the OTC Markets OTCQB exchange. Series B Cumulative Convertible Preferred Stock Of the 2,000,000 authorized shares of preferred stock, 240,861 shares are designated as $0.0001 par value Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). The Series B Preferred Stock has a conversion price of $5.00 per share. Each Series B Preferred Stock has an automatic conversion feature based on the share price of the Company. The holders of Series B Preferred Stock are entitled to quarterly cash dividends of 1.121% (4.484% per annum) per share. Dividends accrue quarterly and dividend payments for declared dividends are due within five business days following the end of a quarter. As of June 30, 2019, there were no accrued outstanding dividends payable to the Series B Preferred Stock shareholder, as all amounts outstanding were paid as of June 30, 2019. Accrued dividends payable to Series B Preferred Stock shareholders were $54,000 as of December 31, 2018, and are included in accrued expenses on the accompanying condensed consolidated balance sheets. Warrants The Company had warrants outstanding that are exercisable into a total of 3,605,805 and 1,214,491 shares of Rekor common stock as of June 30, 2019 and December 31, 2018, respectively. As part of its acquisition of Brekford on August 29, 2017, the Company assumed Brekford’s obligations with respect to the Brekford Warrants. The exercise price for the Brekford Warrants was $7.50 and they expired on March 31, 2020. Effective October 16, 2018, the Company entered into exchange agreements with holders of the Brekford Warrants pursuant to which the Company issued to the holders an aggregate of 96,924 shares of common stock in exchange for the return of the warrants to the Company for cancellation. As of June 30, 2019 and December 31, 2018, no Brekford Warrants were outstanding. As part of a Regulation A Offering in fiscal year 2016 and 2017, the Company issued warrants to the holders of Series A Preferred Stock. The exercise price for these warrants is $1.03 and they are exercisable into a total of 243,655 shares of Rekor common stock. The warrants expire on November 23, 2023. As part of the acquisition of Firestorm on January 24, 2017, the Company issued: warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $2.5744 per share; and warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $3.6083 per share (the “Firestorm Warrants”). The expiration date of the Firestorm Warrants is January 24, 2022. As of June 30, 2019 and December 31, 2018, there were 631,254 Firestorm Warrants outstanding. Pursuant to its acquisition of BC Management on December 31, 2017, the Company issued: warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share; and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “BC Management Warrants”). The expiration date of the BC Management Warrants was December 31, 2022. As of December 31, 2018, there were 66,666 BC Management Warrants outstanding. The BC Management Warrants were surrendered on May 17, 2019 and on June 30, 2019 there were no BC Management Warrants outstanding. Pursuant to its acquisition of Secure Education on January 1, 2018, the Company issued: warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share; and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “Secure Education Warrants”). The expiration date of the Secure Education Warrants is January 1, 2023. As of June 30, 2019 and December 31, 2018, there were 66,666 Secure Education Warrants outstanding. On November 1, 2018, in connection with an underwritten public offering of its common stock, the Company issued to the underwriters warrants to purchase 206,250 shares of its common stock, exercisable over a period of five years, at an exercise price of $1.00 per share. These warrants have a value of approximately $200,000 and are exercisable commencing April 27, 2019 and expire on October 29, 2023. During the six months ended June 30, 2019, 42,020 warrants were exercised in cashless transaction resulting in the issuance of 14,566 shares of common stock. As of June 30, 2019 and December 31, 2018, 164,230 and 206,250 warrants related to the 2018 underwritten public offering remain outstanding, respectively. On March 12, 2019, in connection with the 2019 Promissory Notes, the Company issued warrants to purchase 2,500,000 shares of its common stock, which are immediately exercisable at an exercise price of $0.74 per share, to certain individuals and entities (see Note 7). Of the 2,500,000 warrants, 625,000 were issued as partial consideration for its acquisition of the OpenALPR Technology (see Note 4). As of June 30, 2019, all 2,500,000 warrants related to the 2019 Promissory Notes remain outstanding.

RESTRUCTURING

RESTRUCTURING	6 Months Ended
	Jun. 30, 2019
Restructuring and Related Activities [Abstract]
RESTRUCTURING	In June 2019, the Company implemented a new organizational structure and plan to improve operating results by reducing operating costs by eliminating redundant positions, and the Company initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the Company to drive future revenue growth. For the six months ended June 30, 2019, the Company recorded $333,000 of charges, related to one-time employee termination benefits, in connection with these activities. These charges were related to the Professional Services Segment and are included as part of general and administrative expenses in the accompanying condensed consolidated statement of operations. The restructuring activities have been completed as of June 30, 2019 and there is no remaining liability related to these restructuring activities as of June 30, 2019. As of June 30, 2019, the remaining liability related to the restructuring activities was $333,000 and was presented as part of accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. The amounts due are expected to be paid within the next 12 months.

COMMON STOCK OPTION AGREEMENT

COMMON STOCK OPTION AGREEMENT	6 Months Ended
	Jun. 30, 2019
Equity [Abstract]
COMMON STOCK OPTION AGREEMENT	On March 16, 2016, two stockholders of the Company entered into an option agreement with Avon Road (collectively, the “Avon Road Parties”). Under the terms of this agreement Avon Road paid the stockholders $10,000 each (a total of $20,000) for the right to purchase, on a simultaneous and pro-rata basis, up to 4,318,856 shares of Rekor’s common stock owned by those two shareholders at $0.52 per share, which was determined to be the fair value. The option agreement had a two-year term which would have expired on March 16, 2018. On September 7, 2017, the Avon Road Parties entered into an amended and restated option agreement which extended the right to exercise the option up to and including March 21, 2019 (the “Amended and Restated Option Agreement”). Pursuant to the Amended and Restated Option Agreement, on December 10, 2018, Avon Road exercised the option to purchase 4,318,856 shares of Rekor’s common stock.

OPERATING LEASES

OPERATING LEASES	6 Months Ended
	Jun. 30, 2019
Leases [Abstract]
OPERATING LEASES	The Company leases facilities for office space in various locations throughout the United States. The office leases have remaining lease terms of one to five years, some of which include options to terminate within one year. Effective January 1, 2019, the Company adopted Topic 842, as amended, which requires lessees to recognize a Right-Of-Use (“ROU”) asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. The Company adopted ASU 2016-02 using the optional transition method whereby the Company applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment, which after completing its implementation analysis, resulted in no adjustment to the Company’s January 1, 2019 beginning retained earnings balance. On January 1, 2019, the Company recognized $921,000 of ROU operating lease assets and $951,000 of operating lease liabilities, including noncurrent operating lease liabilities of $728,000 as a result of adopting this standard. The difference between ROU operating lease assets and operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. As part of adopting ASU 2016-02, the Company elected several practical expedients as discussed in Note 2. The comparative periods have not been restated for the adoption of ASU 2016-02. Operating lease expense Cash paid for amounts included in the measurement of operating lease liabilities was $30,000 and $69,000 for the three and six months ended June 30, 2019, respectively. On May 9, 2019, the Company entered into a sublease agreement to lease office space in Columbia, Maryland expiring on August 31, 2021. The Company recognized $291,000 of ROU operating lease assets and $291,000 of operating lease liabilities, including noncurrent operating lease liabilities of $232,000. Supplemental balance sheet information related to leases as of June 30, 2019 was as follows (dollars in thousands) : Operating lease right-of-use lease assets $ 1,068 Lease liability, short term 504 Lease liability, long term 681 Total operating lease liabilities $ 1,185 Weighted Average Remaining Lease Term - operating leases 4.0 Weighted Average Discount Rate - operating leases 9 % Maturities of lease liabilities were as follows (dollars in thousands): 2019 (July to December) $ 230 2020 451 2021 319 2022 158 2023 159 2024 81 Total lease payments 1,398 Less imputed interest 213 Maturities of lease liabilities $ 1,185 Current portion of lease liability $ 504 Long-term portion of lease liability 681 Total lease liability $ 1,185

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	6 Months Ended
	Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES	NeoSystems The Company planned to acquire NeoSystems LLC (“NeoSystems”) under an agreement entered into on November 16, 2017. On March 7, 2018, the Company received notice of termination of the Agreement and Plan of Merger (the “NeoSystems Merger Agreement”). The terms of the NeoSystems Merger Agreement provided that upon termination, the Company was required to pay certain fees and expenses of legal counsel, financial advisors, investment bankers and accountants. On November 29, 2018, the Company paid NeoSystems $225,000 to cover such fees and expenses, which were recorded as general and administrative expenses on the accompanying condensed consolidated statement of operations. Firestorm On June 25, 2019, the Company sent a letter to three former executives of the Company and Firestorm (the Firestorm Principals). The letter described the Company's position that, because the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement pursuant to which Firestorm was acquired by the Company, the entire Membership Interest Purchase Agreement and the transactions contemplated thereby, including the issuance of the warrants, are subject to rescission.

EQUITY INCENTIVE PLAN

EQUITY INCENTIVE PLAN	6 Months Ended
	Jun. 30, 2019
Equity [Abstract]
EQUITY INCENTIVE PLAN	In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”) which replaced the 2016 Equity Award Plan (the “2016 Plan”). The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants. Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares. Stock Options Stock options granted under the 2017 Plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. Stock options are granted at exercise prices as determined by the Board of Directors. The vesting period is generally three to four years with a contractual term of 10 years. The 2017 Plan is administered by the Administrator, which is currently the Board of Directors of the Company. The Administrator has the exclusive authority, subject to the terms and conditions set forth in the 2017 Plan, to determine all matters relating to awards under the 2017 Plan, including the selection of individuals to be granted an award, the type of award, the number of shares of Rekor common stock subject to an award, and all terms, conditions, restrictions and limitations, if any, including, without limitation, vesting, acceleration of vesting, exercisability, termination, substitution, cancellation, forfeiture, or repurchase of an award and the terms of any instrument that evidences the award. When making an award under the 2017 Plan, the Administrator may designate the award as “qualified performance-based compensation,” which means that performance criteria must be satisfied in order for an employee to be paid the award. Qualified performance-based compensation may be made in the form of restricted common stock, restricted stock units, common stock options, performance shares, performance units or other stock equivalents. The 2017 Plan includes the performance criteria the Administrator has adopted, subject to stockholder approval, for a “qualified performance-based compensation” award. A summary of stock option activity under the Company’s 2017 Plan for the six months ended June 30, 2019 is as follows: Number of Shares Subject to Option Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding Balance at December 31, 2018 1,228 $ 2.13 8.39 $ - Granted 791 0.88 9.85 Exercised - - - Forfeited (17 ) 1.65 8.05 Expired - - - Canceled (212 ) 1.55 8.08 Outstanding Balance at June 30, 2019 1,790 $ 1.60 8.80 $ 1,040 Exercisable at June 30, 2019 858 $ 1.74 8.28 $ 393 Stock compensation expense for the three months ended June 30, 2019 and 2018 was $175,000 and $97,000, respectively, and for the six months ended June 30, 2019 and 2018 was $238,000 and $209,000, respectively, and is presented as part of general and administrative expenses in the accompanying condensed consolidated statements of operations. The weighted average grant date fair value of options granted, to employees and non-employees, for the six months ended June 30, 2019 was $1.12. The intrinsic value of the stock options granted during the six months ended June 30, 2019 was $784,000. No options were granted for the six months ended June 30, 2018. The total fair value of options that are vested as of June 30, 2019 and 2018 was $1,604,000 and $887,000, respectively. As of June 30, 2019, there was $536,000 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan that will be recognized over a weighted average period of 2.03

LOSS PER SHARE

LOSS PER SHARE	6 Months Ended
	Jun. 30, 2019
Earnings Per Share [Abstract]
LOSS PER SHARE	The following table provides information relating to the calculation of loss per common share: Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) Basic and diluted loss per share Net loss from continuing operations $ (4,927 ) $ (922 ) $ (7,800 ) $ (3,116 ) Less: preferred stock accretion (184 ) (161 ) (363 ) (316 ) Less: preferred stock dividends (115 ) (115 ) (230 ) (230 ) Net loss attributable to shareholders (5,226 ) (1,198 ) (8,393 ) (3,662 ) Weighted average common shares outstanding - basic and diluted 19,369,399 14,533,030 19,135,176 14,514,864 Loss per share - basic and diluted $ (0.27 ) $ (0.08 ) $ (0.44 ) $ (0.25 ) Common stock equivalents excluded due to anti-dilutive effect 6,918,542 2,754,268 6,918,542 2,779,975 As the Company had a net loss for the three and six months ended June 30, 2019, the following 6,918,542 potentially dilutive securities were excluded from diluted loss per share: 3,672,471 for outstanding warrants, 974,487 related to the Series A Preferred Stock, 481,722 related to the Series B Preferred Stock and 1,789,862 related to outstanding options. As the Company had a net loss for the three and six months ended June 30, 2018, the following potentially 2,754,268 and 2,779,975 dilutive securities, respectively, were excluded from diluted loss per share: 917,950 for outstanding warrants, 974,487 Loss Per Share under Two – Class Method The Series A Preferred Stock and Series B Preferred Stock have the non-forfeitable right to participate on an as converted basis at the conversion rate then in effect in any common stock dividends declared and, as such, is considered a participating security. The Series A Preferred Stock and Series B Preferred Stock are included in the computation of basic and diluted loss per share pursuant to the two-class method. Holders of the Series A Preferred Stock and Series B Preferred Stock do not participate in undistributed net losses because they are not contractually obligated to do so.

GENERAL AND BASIS OF PRESENTA_2

GENERAL AND BASIS OF PRESENTATION (Tables)	6 Months Ended
	Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Contract liabilities	2019 $ 482 2020 224 2021 216 2022 188 2023 185 Thereafter 92 Total $ 1,387

BUSINESS SEGMENTS (Tables)

BUSINESS SEGMENTS (Tables)	6 Months Ended
	Jun. 30, 2019
Segment Reporting [Abstract]
Summary of segments	Technology Professional Services Corporate Services Consolidated (Dollars in thousands) Three Months Ended June 30, 2019: Revenues $ 1,416 $ 10,913 $ - $ 12,329 Gross profit 1,145 2,747 - 3,892 Loss from operations* (391 ) (1,850 ) (1,219 ) (3,460 ) * Including intangible assets impairment - 1,549 - 1,549 Three Months Ended June 30, 2018: Revenues 872 11,466 - 12,338 Gross profit 503 2,970 - 3,473 Loss from operations 9 (48 ) (817 ) (856 ) Six Months Ended June 30, 2019: Revenues 2,426 21,530 - 23,956 Gross profit 1,665 5,332 - 6,997 Loss from operations* (590 ) (2,130 ) (2,205 ) (4,925 ) * Including intangible assets impairment - 1,549 - 1,549 Six Months Ended June 30, 2018: Revenues 1,746 21,811 - 23,557 Gross profit 1,049 5,508 - 6,557 Loss from operations (249 ) (423 ) (2,381 ) (3,053 )

ACQUISITION (Tables)

ACQUISITION (Tables)	6 Months Ended
	Jun. 30, 2019
Business Combinations [Abstract]
Purchase price allocation	The table below shows the final breakdown related to the Secure Education acquisition (dollars in thousands): Cash paid $ 100 Common stock issued 163 Warrants issued, at $5.44 66 Warrants issued, at $6.53 57 Total consideration 386 Less intangible assets and intellectual property (386 ) Net goodwill recorded - The table below shows the breakdown related to the final purchase price allocation for the OpenALPR Technology acquisition (dollars in thousands) : Assets acquired $ 415 Liabilities acquired (388 ) Net assets acquired 27 Less intangible assets 7,436 Consideration paid (see below) (12,397 ) Goodwill recorded $ 4,934 Cash consideration $ 7,000 Notes payable 5,000 Common stock consideration 397 Total acquisition consideration $ 12,397
Pro-forma financial information	Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) Revenues $ 12,329 $ 12,460 $ 24,925 $ 23,985 Net loss (4,927 ) (917 ) (6,992 ) (2,919 ) Basic and diluted loss per share $ (0.27 ) $ (0.08 ) $ (0.39 ) $ (0.23 ) Basic and diluted number of shares 19,369,399 15,133,030 19,135,176 15,148,197

IDENTIFIABLE INTANGIBLE ASSETS

IDENTIFIABLE INTANGIBLE ASSETS (Tables)	6 Months Ended
	Jun. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Schedule of intangible assets	The following summarizes the change in intangible assets from December 31, 2018 to June 30, 2019: Balance as of December 31, 2018 Additions Amortization Impairment Sale of Secure Education Balance as of June 30, 2019 Intangible assets subject to amortization: (Dollars in thousands) Customer relationships $ 4,257 $ 90 $ (419) $ (1,549) $ (249) $ 2,130 Marketing related 495 223 (104) - - 614 Technology based 83 7,123 (303 - - 6,903 Total intangible assets subject to amortization $ 4,835 $ 7,436 $ (826) $ (1,549) $ (249) $ 9,647 The following provides a breakdown of identifiable intangible assets as of June 30, 2019: Customer Relationships Marketing Related Technology Based Total (Dollars in thousands) Identifiable intangible assets $ 2,409 $ 953 $ 7,207 $ 10,569 Accumulated amortization (279 ) (339 ) (304 ) (922 ) Identifiable intangible assets, net $ 2,130 $ 614 $ 6,903 $ 9,647
Estimated annual amortization expense	2019 $ 718 2020 1,436 2021 1,384 2022 1,240 2023 1,226 Thereafter 3,643 Total $ 9,647

SUPPLEMENTAL DISCLOSURES OF C_2

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Tables)	6 Months Ended
	Jun. 30, 2019
Supplemental Cash Flow Information [Abstract]
Supplemental disclosure of cash flow information	For the Six Months Ended June 30, 2019 2018 (Dollars in thousands) Cash paid for interest $ 1,023 $ 155 Business combinations, net of cash: Current assets 415 - Intangible assets 7,436 386 Goodwill 4,934 - Current liabilities (388) - Cash paid acquisition of OpenALPR Technology (7,000) - Note issued acquisition of OpenALPR Technology (5,000) - Issuance of common stock (397) (163) Issuance of common stock warrants - (123) Sale of SEC: Current assets (58) - Intangible assets sold (250) - Current liabilities 54 - Loss on sale 3 - Financing: Notes payable 21,000 - Debt discount financing costs (2,599) - Extinguishment of debt (1,113) - Repayment of notes payable and interest expense, net of debt discount (2,515) - Investment in OpenALPR Technology (12,000) - Issuance of warrants in conjunction with notes payable 706 Accounts payable 360 - Proceeds from notes payable 3,839 - Common stock issued in connection with note payable - 126 Adoption of ASC-842 Lease Accounting: Right-of-use lease asset 1,212 - Deferred rent 30 - Lease liability $ (1,242) $ -

DEBT (Tables)

DEBT (Tables)	6 Months Ended
	Jun. 30, 2019
Debt Disclosure [Abstract]
Future principal amounts	2019 $ - 2020 - 2021 21,000 2022 1,000 2023 - Total $ 22,000 Less unamortized interest $ (48 ) Less unamortized financing costs (2,208 ) Long-term debt $ 19,744

OPERATING LEASES (Tables)

OPERATING LEASES (Tables)	6 Months Ended
	Jun. 30, 2019
Leases [Abstract]
Summary of operating lease	Operating lease right-of-use lease assets $ 1,068 Lease liability, short term 504 Lease liability, long term 681 Total operating lease liabilities $ 1,185 Weighted Average Remaining Lease Term - operating leases 4.0 Weighted Average Discount Rate - operating leases 9 %
Maturities of lease liabilities	2019 (July to December) $ 230 2020 451 2021 319 2022 158 2023 159 2024 81 Total lease payments 1,398 Less imputed interest 213 Maturities of lease liabilities $ 1,185 Current portion of lease liability $ 504 Long-term portion of lease liability 681 Total lease liability $ 1,185

EQUITY INCENTIVE PLAN (Tables)

EQUITY INCENTIVE PLAN (Tables)	6 Months Ended
	Jun. 30, 2019
Equity [Abstract]
Stock option activity	Number of Shares Subject to Option Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding Balance at December 31, 2018 1,228 $ 2.13 8.39 $ - Granted 791 0.88 9.85 Exercised - - - Forfeited (17 ) 1.65 8.05 Expired - - - Canceled (212 ) 1.55 8.08 Outstanding Balance at June 30, 2019 1,790 $ 1.60 8.80 $ 1,040 Exercisable at June 30, 2019 858 $ 1.74 8.28 $ 393

LOSS PER SHARE (Tables)

LOSS PER SHARE (Tables)	6 Months Ended
	Jun. 30, 2019
Earnings Per Share [Abstract]
Earnings (loss) per common share	Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) Basic and diluted loss per share Net loss from continuing operations $ (4,927 ) $ (922 ) $ (7,800 ) $ (3,116 ) Less: preferred stock accretion (184 ) (161 ) (363 ) (316 ) Less: preferred stock dividends (115 ) (115 ) (230 ) (230 ) Net loss attributable to shareholders (5,226 ) (1,198 ) (8,393 ) (3,662 ) Weighted average common shares outstanding - basic and diluted 19,369,399 14,533,030 19,135,176 14,514,864 Loss per share - basic and diluted $ (0.27 ) $ (0.08 ) $ (0.44 ) $ (0.25 ) Common stock equivalents excluded due to anti-dilutive effect 6,918,542 2,754,268 6,918,542 2,779,975

GENERAL AND BASIS OF PRESENTA_3

GENERAL AND BASIS OF PRESENTATION (Details) $ in Thousands	Jun. 30, 2019USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
2019	$ 482
2020	224
2021	216
2022	188
2023	185
Thereafter	92
Total	$ 1,387

BUSINESS SEGMENTS (Details)

BUSINESS SEGMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue	$ 12,329	$ 12,338	$ 23,956	$ 23,557
Gross profit	3,892	3,473	6,997	6,557
Loss from operations	(3,460)	(856)	(4,925)	(3,053)
Including intangible assets impairment	1,549	0	1,549	0
Technology group
Revenue	1,416	872	2,426	1,746
Gross profit	1,145	503	1,665	1,049
Loss from operations	(391)	9	(590)	(249)
Including intangible assets impairment	0		0
Professional services group
Revenue	10,913	11,466	21,530	21,811
Gross profit	2,747	2,970	5,332	5,508
Loss from operations	(1,850)	(48)	(2,130)	(423)
Including intangible assets impairment	1,549		1,549
Corporate expenses
Revenue	0	0	0	0
Gross profit	0	0	0	0
Loss from operations	(1,219)	$ (817)	(2,205)	$ (2,381)
Including intangible assets impairment	$ 0		$ 0

ACQUISITION (Details)

ACQUISITION (Details) - Secure Education $ in Thousands	6 Months Ended
	Jun. 30, 2019USD ($)
Cash paid	$ 100
Common stock issued	163
Warrants issued, at $5.44	66
Warrants issued, at $6.53	57
Total consideration	386
Less intangible assets and intellectual property	(386)
Net goodwill recorded	$ 0

ACQUISITION (Details 1)

ACQUISITION (Details 1) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Notes payable	$ 0	$ (123)
OpenALPR Technology
Assets acquired	415
Liabilities acquired	(388)
Net assets acquired	27
Less intangible assets	7,436
Consideration paid (see below)	(12,397)
Goodwill recorded	4,934
Cash consideration	7,000
Notes payable	5,000
Common stock consideration	397
Total acquisition consideration	$ 12,397

ACQUISITION (Details 2)

ACQUISITION (Details 2) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Business Combinations [Abstract]
Revenues	$ 12,329	$ 12,460	$ 24,925	$ 23,985
Net loss	$ (4,927)	$ (917)	$ (6,992)	$ (2,919)
Basic earnings (loss) per share	$ (0.27)	$ (0.08)	$ (0.39)	$ (0.23)
Basic number of shares	19,369,399	15,133,030	19,135,176	15,148,197

IDENTIFIABLE INTANGIBLE ASSET_2

IDENTIFIABLE INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019
Identifiable intangible assets, gross			$ 10,569
Accumulated amortization			(922)
Identifiable intangible assets, net	$ 9,647		9,647
Intangible assets subject to amortization:	4,835
Additions	7,436
Amortization	(826)	$ (511)
Impairment	(1,549)	$ 0
Sale of Secure Education	(249)
Total intangible assets subject to amortization	9,647
Customer Relationships
Identifiable intangible assets, gross			2,409
Accumulated amortization			(279)
Identifiable intangible assets, net	2,130		2,130
Intangible assets subject to amortization:	4,257
Additions	90
Amortization	(419)
Impairment	(1,549)
Sale of Secure Education	(249)
Total intangible assets subject to amortization	2,130
Marketing Related
Identifiable intangible assets, gross			953
Accumulated amortization			(339)
Identifiable intangible assets, net	614		614
Intangible assets subject to amortization:	495
Additions	223
Amortization	(104)
Impairment	0
Sale of Secure Education	0
Total intangible assets subject to amortization	614
Technology Based
Identifiable intangible assets, gross			7,207
Accumulated amortization			(304)
Identifiable intangible assets, net	6,903		$ 6,903
Intangible assets subject to amortization:	83
Additions	7,123
Amortization	(303)
Impairment	0
Sale of Secure Education	0
Total intangible assets subject to amortization	$ 6,903

IDENTIFIABLE INTANGIBLE ASSET_3

IDENTIFIABLE INTANGIBLE ASSETS (Details 1) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
2019	$ 718
2020	1,436
2021	1,384
2022	1,240
2023	1,226
Thereafter	3,643
Total	$ 9,647	$ 4,835

SUPPLEMENTAL DISCLOSURES OF C_3

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Supplemental Cash Flow Information [Abstract]
Cash paid for interest	$ 1,023	$ 155
Business combinations, net of cash:
Current assets	415	0
Intangible assets	7,436	386
Goodwill	4,934	0
Current liabilities	(388)	0
Cash paid acquisition of OpenALPR Technology	(7,000)	0
Note issued acquisition of OpenALPR Technology	(5,000)	0
Issuance of common stock	(397)	(163)
Issuance of common stock warrants	0	(123)
Sale of Secured Education
Current assets	(58)	0
Intangible assets sold	(250)	0
Current liabilities	54	0
Loss on sale	3	0
Financing:
Notes payable	21,000	0
Debt discount financing costs	(2,599)	0
Extinguishment of debt	(1,113)	0
Repayment of notes payable and interest expense, net of debt discount	(2,515)	0
Investment in OpenALPR Technology	(12,000)	0
Issuance of warrants in conjunction with notes payable	706	0
Accounts payable	360	0
Proceeds from notes payable	3,839	0
Common stock issued in connection with note payable	0	126
Adoption of ASC-842 Lease Accounting:
Right-of-use lease asset	1,212	0
Deferred rent	30	0
Lease liability	$ (1,242)	$ 0

DEBT (Details)

DEBT (Details) - Long-term Debt $ in Thousands	Jun. 30, 2019USD ($)
2019	$ 0
2020	0
2021	21,000
2022	1,000
2023	0
Total	22,000
Less unamortized interest	(48)
Less unamortized financing costs	(2,208)
Long-term debt	$ 19,744

STOCKHOLDERS' (DEFICIT) EQUITY

STOCKHOLDERS' (DEFICIT) EQUITY (Details Narrative) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	2,000,000	2,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	30,000,000	30,000,000
Common stock, issued	19,382,185	18,767,619
Common stock, outstanding	19,382,185	18,767,619
Series B
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	240,861	240,861
Preferred stock, issued	240,861	240,861
Preferred stock, outstanding	240,861	240,861
Series A
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	505,000	505,000
Preferred stock, issued	502,327	502,327
Preferred stock, outstanding	502,327	502,327

OPERATING LEASES (Details)

OPERATING LEASES (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use lease assets	$ 1,068	$ 0
Lease liability, short term	504	0
Lease liability, long term	681	$ 0
Total operating lease liabilities	$ 1,185
Weighted average remaining lease term - operating leases	4 years
Weighted average discount rate - operating leases	9.00%

OPERATING LEASES (Details 1)

OPERATING LEASES (Details 1) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Leases [Abstract]
2019	$ 230
2020	451
2021	319
2022	158
2023	159
2024	81
Total	1,398
Less imputed interest	213
Maturities of lease liabilities	1,185
Current portion of lease liability	504	$ 0
Long-term portion of lease liability	681	$ 0
Total lease liability	$ 1,185

OPERATING LEASES (Details Narra

OPERATING LEASES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Leases [Abstract]
Rent expense	$ 140	$ 193	$ 261	$ 399

EQUITY INCENTIVE PLAN (Details)

EQUITY INCENTIVE PLAN (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2019USD ($)$ / sharesshares
Equity [Abstract]
Number of options outstanding, beginning | shares	1,228
Number of options, granted | shares	791
Number of options, exercised | shares	0
Number of options, forfeited | shares	(17)
Number of options, expired | shares	0
Number of options, cancelled | shares	(212)
Number of options outstanding, ending | shares	1,790
Number of options outstanding, exercisable | shares	858
Weighted average exercise price outstanding, beginning | $ / shares	$ 2.13
Weighted average exercise price, granted | $ / shares	0.88
Weighted average exercise price, exercised | $ / shares	0
Weighted average exercise price, forfeited | $ / shares	1.65
Weighted average exercise price, expired | $ / shares	0
Weighted average exercise price, cancelled | $ / shares	1.55
Weighted average exercise price outstanding, ending | $ / shares	1.60
Weighted average exercise price outstanding, exercisable | $ / shares	$ 1.74
Average remaining contractual term outstanding, beginning	8 years 4 months 20 days
Average remaining contractual term, granted	9 years 10 months 6 days
Average remaining contractual term, canceled	8 years 29 days
Average remaining contractual term, expired	8 years 18 days
Average remaining contractual term outstanding, ending	8 years 9 months 18 days
Average remaining contractual term, exercisable	8 years 3 months 11 days
Aggregate intrinsic value outstanding, beginning | $	$ 0
Aggregate intrinsic value outstanding, ending | $	1,040
Aggregate intrinsic value outstanding, exercisable | $	$ 393

EQUITY INCENTIVE PLAN (Details

EQUITY INCENTIVE PLAN (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Equity [Abstract]
Stock compensation expense	$ 175	$ 97	$ 238	$ 209
Unrecognized stock compensation expense	$ 536		$ 536
Unrecognized stock compensation expense, recognition period			2 years 11 days

LOSS PER SHARE (Details)

LOSS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic and diluted loss per share
Net loss from continuing operations	$ (4,927)	$ (922)	$ (7,800)	$ (3,116)
Less: preferred stock accretion	(184)	(161)	(363)	(316)
Less: preferred stock dividends	(115)	(115)	(230)	(230)
Net loss attributable to shareholders	$ (5,226)	$ (1,198)	$ (8,393)	$ (3,662)
Weighted average common shares outstanding - basic and diluted	19,369,399	14,533,030	19,135,176	14,514,864
Loss per share - basic and diluted	$ (0.27)	$ (0.08)	$ (0.44)	$ (0.25)
Common stock equivalents excluded due to anti-dilutive effect	6,918,542	2,754,268	6,918,542	2,779,975

LOSS PER SHARE (Details Narrati

LOSS PER SHARE (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Potentially dilutive securities excluded from loss per share	6,918,542	2,754,268	6,918,542	2,779,975
Warrants
Potentially dilutive securities excluded from loss per share	3,672,471	917,950	3,672,471	917,950
Series A
Potentially dilutive securities excluded from loss per share	974,487	974,487	974,487	974,487
Series B
Potentially dilutive securities excluded from loss per share	481,722	481,722	481,722	481,722
Options
Potentially dilutive securities excluded from loss per share	1,789,862	380,109	1,789,862	405,816