Rekor Systems, Inc.

Previous wording

Comparison of the Three Months Ended March 31, 2025 and the Three Months Ended March 31, 2024

Current wording

Comparison of the Three and Six Months Ended June 30, 2025 and the Three and Six Months Ended June 30, 2024

Previous wording

The decrease in revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily attributable to adverse weather conditions and a slowdown in project activity, partially driven by ongoing uncertainty within the government sector.

Current wording

The decrease in revenue for the three and six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily attributable to adverse weather conditions and a slowdown in project activity, partially driven by ongoing uncertainty within the government sector.

Previous wording

For the three months ended March 31, 2025, thedecreasein general and administrative expenses was primarily due to a $225,000 decrease in professional services related to our operations and payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Current wording

For the three and six months ended June 30, 2025, thedecreasein general and administrative expenses was primarily due to a $365,000 and $628,000 decrease in payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Previous wording

For the three months ended March 31, 2025, thedecrease in selling and marketing expenses was primarily due toa $568,000 decreased relatedto payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Current wording

For the three and six months ended June 30, 2025, thedecrease in selling and marketing expenses was primarily due toa$251,000 and $848,000 decreased relatedto payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Previous wording

For the three months ended March 31, 2025, thedecrease in research and development expenses was primarily due toa $918,000 decreased relatedto payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Current wording

For the three and six months ended June 30, 2025, thedecrease in research and development expenses was primarily due toa $1,220,000 and $2,138,000 decreased relatedto payroll and payroll related costs as a result of cost containment efforts intended to conform to operations.

Previous wording

For the three months ended March 31, 2025, interest expense decreased period over period due to the early redemption of the 2023 Promissory Notes.

Current wording

For the three months ended June 30, 2025, interest expense remained fairly consistent period over period, however, for the six months ended June 30, 2025 interest expense decrease compared to the corresponding period in 2024 due to the early redemption of the 2023 Promissory Notes.

Previous wording

Adjusted Gross Margin For the three months ended March 31, 2025, increased compared to three months ended March 31, 2024. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work. Typically our software sales carry a higher Adjusted Gross Margin.

Current wording

Adjusted Gross Margin For the three and six months ended June 30, 2025, decreased compared to the three and six months ended June 30, 2024. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work. Typically our software sales carry a higher Adjusted Gross Margin.

Previous wording

As of March 31, 2025, we had approximately $14,485,000 of contracts that were closed prior to March 31, 2025 but have a contractual period beyond March 31, 2025. This represents an increase of $35,000 or 0.2% compared to $14,450,000 of performance obligations as of December 31, 2024. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term. Performance obligations for large contracts gradually decrease as they approach the renewal stage and increase if and when renewed. We currently expect to recognize approximately 89% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.

Current wording

As of June 30, 2025, we had approximately $13,231,000 of contracts that were closed prior to June 30, 2025 but have a contractual period beyond June 30, 2025. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term. Performance obligations for large contracts gradually decrease as they approach the renewal stage and increase if and when renewed. We currently expect to recognize approximately 88% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2025 had a increase of $193,000, which was primarily attributable to various fluctuations in our operating assets and liabilities.

Current wording

Net cash used in operating activities for the six months ended June 30, 2025 had a decrease of $2,192,000, which was primarily attributable to a reduction in our net loss.

Previous wording

The decrease in net cash used in investing activities of $8,793,000 was primarily due to the net cash outflow of $8,969,000 related to the acquisition of ATD.

Current wording

The decrease in net cash used in investing activities of $9,077,000 was primarily due to the net cash outflow of $9,222,000 related to the acquisition of ATD.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2025 decreased by $6,174,000 from the prior three month period ended March 31, 2024. During the three months ended March 31, 2025, as part of our Sale Agreement, we received net proceeds of $7,659,000. During the three months ended March 31, 2024, as part of our 2024 Public Offering, we received net proceeds of $26,362,000, these proceeds were partially offset by the repayment of our 2023 Promissory Notes

Current wording

Net cash provided by financing activities for the six months ended June 30, 2025 increased by $868,000 from the prior six month period ended June 30, 2024. During the six months ended June 30, 2025, as part of our Sale Agreement, we received net proceeds of $17,699,000. During the six months ended June 30, 2024, as part of our 2024 Public Offering, we received net proceeds of $26,362,000, these proceeds were partially offset by the repayment of our 2023 Promissory Notes

Previous wording

For the three months ended March 31, 2025 and 2024, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity. As of March 31, 2025, we had cash and cash equivalents and restricted cash of $4,309,000 and a working capital of $3,073,000, as compared to cash and cash equivalents and restricted cash of $5,329,000 and working capital of $1,707,000 as of December 31, 2024.

Current wording

For the three and six months ended June 30, 2025 and 2024, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity. As of June 30, 2025, we had cash and cash equivalents and restricted cash of $5,170,000 and a working capital of $6,159,000, as compared to cash and cash equivalents and restricted cash of $5,329,000 and working capital of $1,707,000 as of December 31, 2024.

Previous wording

We have generated losses since our inception and have relied on cash on hand and external sources of financing to support cash flow from operations. We attribute losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the three months ended March 31, 2025, we had working capital of $3,073,000 and a net loss of $10,874,000.

Current wording

We have generated losses since our inception and have relied on cash on hand and external sources of financing to support cash flow from operations. We attribute losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the six months ended June 30, 2025, we had working capital of $6,159,000 and a net loss of $19,532,000.

Previous wording

Our cash decreased by $1,020,000 for the three months ended March 31, 2025 primarily due to the net loss of $10,874,000, this amount was partially offset by external financing activity.

Current wording

Our cash decreased by $159,000 for the six months ended June 30, 2025 primarily due to the net loss of $19,532,000, this amount was partially offset by external financing activity.

Previous wording

On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Northland Securities, Inc. (the “Agent”), pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), having an aggregate offering price of up to $25,000,000. The Agent is entitled to receive from the Company a commission in an amount equal to (i) 3.0% of the gross sales price per share sold through it as agent in agency transactions and (ii) 6.0% of the purchase price per share sold to the Agent, as principal in principal transactions. The Company incurred issuance costs of approximately $237,000 related to legal, accounting, and other fees in connection with the Sales Agreement. These costs were charged against the gross proceeds of the Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

Current wording

On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Northland Securities, Inc. (the “Agent”), pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), having an aggregate offering price of up to $25,000,000. The Agent is entitled to receive from the Company a commission in an amount equal to (i) 3.0% of the gross sales price per share sold through it as agent in agency transactions and (ii) 6.0% of the purchase price per share sold to the Agent, as principal in principal transactions. The Company incurred issuance costs of approximately $245,000 related to legal, accounting, and other fees in connection with the Sales Agreement. These costs were charged against the gross proceeds of the Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

Previous wording

As of March 31, 2025 the Company issued 5,148,600 shares of its common stock at a weighted average selling price of $1.58 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $7,659,000 after paying $237,000 related to the issuance cost, as well as 3.0% or $244,000 related to cash commissions provided to the Agent.

Current wording

As of June 30, 2025 the Company issued 14,914,600 shares of its common stock at a weighted average selling price of $1.24 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $17,699,000 after paying $245,000 related to the issuance cost, as well as 3.0% or $555,000 related to cash commissions provided to the Agent.

Previous wording

Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations for the next twelve months following the issuance of these unaudited condensed consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

Current wording

Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months following the issuance of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.