Rekor Systems, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE1 – GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Rekor Systems, Inc. (“Rekor”) was formed in* February 2017.*The consolidated financial statements include the accounts of Rekor, the parent company, and its wholly-owned subsidiaries Rekor Recognition Systems, Inc., Waycare Technologies Inc. and Waycare Technologies Ltd. (collectively, “Waycare”), Southern Traffic Services, Inc. (“STS”) and All Traffic Data Services, LLC (“ATD”) (collectively, the “Company”).

The Company stands at the forefront of the roadway intelligence sector, working to revolutionize public safety, urban mobility, and transportation management on a global scale. The Company's vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities. The Company works towards this vision by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

These unaudited condensed consolidated interim financial statements of 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 donot contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial statements as of and for the periods ended* June 30, 2025* and2024.

The financial data and other information disclosed in these notes are unaudited. The results for thethree andsix months ended* June 30, 2025*, arenot necessarily indicative of the results to be expected for the year ending* December 31, 2025*.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form10-K for the full year ended* December 31, 2024*. The year-end condensed balance sheet data was derived from audited financial statements but doesnot include all disclosures required by U.S. GAAP.

Dollar amounts, except per share data, in the notes to these unaudited condensed consolidated financial statements are rounded to the nearest*$1,000.*

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Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the extensive use of management’s estimates. Management uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to the collectability of accounts receivable, the fair value of intangible and long lived-assets, the fair value of goodwill, the fair value of debt and equity instruments, income taxes and determination of standalone selling prices in contracts with customers that contain multiple performance obligations. 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 arenot apparent from other sources. Actual results* may*differ from those estimates under different assumptions or conditions.

Liquidity and Going Concern

Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at leastone year from the date these unaudited condensed consolidated financial statements are 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 has considered various scenarios, forecasts, projections and estimates and will make certain key assumptions. These assumptions include, among other factors, its ability to raise additional capital, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period.

The Company has generated losses and negative operating cashflows since its inception and has relied on external sources of financing to support cash flow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these products and services. As of and for thesix months ended* June 30, 2025*, the Company had working capital of $6,159,000 and a net loss of $19,532,000, respectively.

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 nexttwelve months following the issuance of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements donot include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The Company is actively monitoring its operations, cash on hand and working capital. The Company is currently in the process of reviewing and exploring external financing options in order to sustain its operations. If additional financing isnot available, the Company also has contingency plans to continue to reduce or defer expenses and cash outlays in the look-forward period.

Segment Information

The Company operates as asingle operating and reportable segment. Rekor offers a variety of platforms that collect, connect and organize mobility data, making it accessible and useful to its customers for real-time insights and decision-making.

The Company’s chief operating decision maker (“CODM”) is the interim president and chief executive officer.

The Company doesnot report balance sheet information by segment since it isnot reviewed by the CODM.

The CODM uses net income to assess segment performance. The significant expenses regularly reviewed by the CODM are cost of revenues, excluding depreciation and amortization and the Company’s operating expenses. The presentation of these items to the CODM is consistent with the Company’s presentation of these items on the unaudited condensed consolidated statement of operations.

Goodwill

The excess purchase consideration over the fair value of acquired assets and assumed liabilities is recorded as goodwill. Goodwill is subject to impairment testing on an annual basis. The Company will assess goodwill for impairment annually on* October**1st* of each year, or more often if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. The Company will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock. As of* June 30, 2025*, the Company didnot identify any events that would cause it to assess goodwill for impairment.

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Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of* June 30, 2025* and* December 31, 2024* because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt and long-term receivables approximates fair value as of* June 30, 2025* and* December 31, 2024*, 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 ASC Topic820, Fair Value Measurements and Disclosures (“ASC820”). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishesthree levels of inputs that* may*be used to measure fair value:

Level1 – Quoted prices in active markets for identical assets or liabilities.

Level2 – Inputs other than Level1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot active; or other inputs that are observable or can be corroborated by

observable market data for substantially the full term of the assets or liabilities.

Level3 – Unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs* may*result in a reclassification of levels for certain securities

within the fair value hierarchy.

The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level3 inputs.

The Company doesnot have any Level1 or Level2 assets or liabilities. The Company considers its contingent consideration and ATD Holdback Shares to be Level3 securities as the fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level3 fair value measurement.

There wereno changes in levels during the period ended* June 30, 2025*.

The following is a rollforward of the company’s contingent consideration liability and ATD Holdback Shares:

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Revenue Recognition

The Company derives its revenues primarily from the licensing and sale of its roadway data and traffic management product and service offerings. These offerings include a mixture of data collection, implementation, engineering, customer support and maintenance services, as well as software and hardware. Revenue is recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC606, the Company performs the followingfive steps:

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

Revenues

Recurring revenue

Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue both from long-term contracts with customers that provide for periodic payments and from short-term contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales.

Recurring revenues are generated through the Company’s Software-as-a-Service ("SaaS") model, where the Company provides customers with the right to access the Company’s software solutions for a fee. These services are made available to the customer continuously throughout the contractual period. However, the extent to which the customer uses the services* mayvary at the customer’s discretion. The contracts with customers are generally for a term ofone* tofive years. The payments for SaaS solutions* may*be received either at the inception of the arrangement or over the term of the arrangement. These SaaS solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such, we recognize revenue for these arrangements ratably over the term of the contractual agreement.

The Company also currently receives recurring revenues under contracts entered into using a subscription model for data collection services and bundled hardware and software over a period. Payments for these services and subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement. In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface. The subscription arrangements with these customers typically donot provide the customer with the right to take possession of the Company’s software at any time. Instead, customers are granted continuous access to the Company’s solutions over the contractual period. The Company’s subscription services arrangements are non-cancelable and donot contain refund-type provisions. Accordingly, any fixed consideration related to the arrangement is generally recognized as recurring revenue on a straight-line basis over the contract term beginning on the date access to the Company’s software is provided.

eCommerce revenue is defined by the Company as revenue obtained through direct sales on the Company’s eCommerce platform. The Company’s eCommerce revenue generally includes subscriptions to the Company’s vehicle recognition software that can be purchased online and activated through a digital key. The Company's contracts with eCommerce customers are generally for a term ofone month with automatic renewal each month. The Company invoices and receives fees from its customers monthly. Revenue is recognized ratably over the term of the contract.

Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates. The Company’s customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them. As customer support isnot critical to the customers' ability to derive benefit from their right to use the Company’s software, customer support is considered a distinct performance obligation when sold together with a long-term license for software. Customer support for perpetual and term licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for subscription licenses is renewable concurrently with such licenses for the same duration of time. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the customer support obligation, in line with how the Company believes services are provided.

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Product and service revenue

Implementation revenue is recognized when the Company provides installation, construction and other implementation services to its customers. These services involve a fee and are typically associated with the sale of the Company’s data collection services, software and hardware. The Company’s implementation revenue is recognized over time as the implementation is completed.

In addition to recurring revenue from software sales, the Company recognizes point-in-time revenue related to the sale of perpetual software licenses. The Company sells perpetual licenses that provide customers the right to use software for an indefinite period in exchange for aone-time license fee, which is generally paid at contract inception. The Company’s perpetual licenses provide a right to use intellectual property (“IP”) that is functional in nature and has significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when the customer has access to the software, which normally occurs once software activation keys have been made available to the customer.

The Company also generates revenue through the sale of hardware through its partner program and internal sales force distribution channels. The Company satisfies its performance obligation upon the transfer of control of hardware to its customers. The Company invoices end-user customers upon transfer of control of the hardware to its customers. The Company provides hardware installation services to customers which range fromone tosix months. The revenue related to the installation component is recognized over time as the implementation is completed.

Contactless compliance revenues reflect arrangements to provide hardware systems and services that identify uninsured motor vehicles, notify owners of non-compliance through a diversion citation, and assist them in obtaining the required insurance as an alternative to traditional enforcement methods. Revenue is recognized monthly based on the number of diversion citations collected by the relevant jurisdiction.

The Company also generates revenue through its engineering services. These services are provided at the request of its customers and the revenue related to these services is recognized over time as the service is completed.

Revenue by Customer Type

The following table presents a summary of revenue by customer type (dollars in thousands):

Urban Mobility

Urban mobility revenue consists of revenue derived from the Company's roadway data aggregation activities. These activities can include the use of software applications that are part of the Rekor Discover® platform, the primary application being Rekor’s count, class & speed application. The application fully automates the aggregation of Federal Highway Administration (“FHWA”)13-bin vehicle classification, speed, and volume data. Revenues associated with the deployment of other traffic sensors, traffic studies, or construction associated with traffic data collection are also part of data aggregation revenue, which is generated through both recurring pay-for-data contracts and hardware sales with a recurring software maintenance component.

Transportation Management

Transportation management revenue is associated with the Rekor Command® platform and the associated applications underneath the platform. These provide traffic operations and traffic management centers with support through actionable, real-time incident reports integrated into a cross-agency communication and response system. Revenue is generated through contracts that include an upfront as well as recurring component.

Public Safety

Public safety revenue consists of licensing of the Rekor Scout® platform, licensing of Rekor CarCheck™ API, licensing of Rekor’s vehicle recognition software, as well as systems deployed for security, contactless compliance and public safety. Revenue is generated through recurring and perpetual license sales as well asone-time hardware sales.

Performance obligations

The Company contracts with customers in a variety of ways, including contracts that obligate the Company to provide services over time. Some contracts include performance obligations for several distinct services. For those contracts that have multiple distinct performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors. This* may*result in a deferral or acceleration of revenue recognized relative to cash received for each distinct performance obligation.

Where performance obligations for the remaining term of a contract with a customer arenot yet satisfied or have only been partially satisfied as of a particular date, the unsatisfied portion is to be recognized as revenue in the future. As of* June 30, 2025*, the unsatisfied portion of the remaining performance obligation was approximately $13,231,000. The Company expects to recognize approximately 88% of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized within the next five years thereafter.

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Unbilled accounts receivable

The timing of revenue recognition, billings and cash collections result in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the unaudited condensed consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the unaudited condensed consolidated balance sheets. When billing occurs after services have been provided, such unbilled amounts will generally be billed and collected within60 to120 days, but typicallyno longer than over the nexttwelve months. Unbilled accounts receivables of $1,931,000 and $1,623,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of* June 30, 2025* and* December 31, 2024*, respectively.

Contract liabilities

When the Company advance bills clients prior to providing services, generally such amounts will be earned and recognized in revenue within the nextsix months tofive years, depending on the length of the period during which services are to be provided. This revenue and the corresponding decrease in liabilities are recognized on a contract-by-contract basis at the end of each reporting period and reflected on the unaudited condensed consolidated balance sheet for such period. During thesix months ended* June 30, 2025*, $2,160,000 of the contract liabilities balance as of* December 31, 2024* was recognized as revenue.

The services due for contract liabilities described above are shown below as of* June 30, 2025* (dollars in thousands):

Cash and Cash Equivalents, and Restricted Cash

The Company considers all highly-liquid debt instruments to be cash equivalents.

Cash subject to contractual restrictions andnot readily available for use is classified as restricted cash. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash for these client jurisdictions as of* June 30, 2025* and* December 31, 2024* were $340,000 and $316,000, respectively, and correspond to equal amounts of related liabilities.

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Concentrations of Credit Risk

The Company deposits its temporary cash investments with highly rated quality financial institutions that are located in the United States and Israel. The United States deposits are federally insured up to*$250,000* per insured bank, for each account ownership category. As of* June 30, 2025* and* December 31, 2024*, the Company had deposits totaling $5,170,000 and $5,329,000, respectively, in multiple U.S. financial institutions andone Israeli financial institution.

No single customer accounted for more than10% of the Company’s unaudited condensed consolidated revenues for thethree andsix months ended* June 30, 2025and2024*, respectively.

As of* June 30, 2025*, no single customer accounted for more than10% of the Company's unaudited condensed consolidated accounts receivable balance. As of* December 31, 2024*, asingle customer accounted for 12% of the Company's consolidated accounts receivable balance.

Accounts Payable and Other Current Liabilities

As of* June 30, 2025* and* December 31, 2024*, amounts owed to board members of $68,000 and $104,000 were presented as part of accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets.

A summary of other current liabilities is as follows (in thousands):

New Accounting Pronouncements Effective in Future Periods

In* December 2023,the FASB issued ASU2023*-09 - Income Taxes (Topic740): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. The guidance is effective for the Company's annual periods beginning* January 1, 2025*on a prospective basis, with a retrospective option, and early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

In* November 2024,the FASB issued ASU2024*-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of operations. The guidance in this ASU is effective for fiscal years beginning after* December 15, 2026,and interim periods within fiscal years beginning after December 15, 2027.Early adoption is permitted. The amendments maybe applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact that the adoption of ASU2024*-03 will have on its consolidated financial statements and disclosures.

The Company doesnot believe that any recently issued, butnot yet effective, accounting standards, other than the standards discussed above, could have a material effect on the accompanying unaudited condensed consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

Additional significant accounting policies of the Company are also described in Note1 of the Company’s Annual Report on Form10-K for the year ended* December 31, 2024*.

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NOTE2 – ACQUISITION

ATD Acquisition

On* January 2, 2024 (*the “Closing Date”), the Company acquired All Traffic Data Services, LLC, a Colorado limited liability company (“ATD”), pursuant to that certain Interest Purchase Agreement (the “ATD Purchase Agreement”), dated as of the Closing Date, by and among the Company, ATD and All Traffic Holdings, LLC (the “Seller”). The Seller is a portfolio company of Seaport Capital, a private equity firm. ATD is engaged in the business of advanced traffic data collection. Under the terms of the ATD Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”).

The acquisition met the criteria to be accounted for as a business combination in accordance with ASC805, Business Combinations (“ASC805”). This method requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which isnot amortized but is tested at least annually for impairment. The aggregate purchase price for the interests of ATD was approximately $20,576,000. The purchase price comprised approximately $10,048,000 in cash, which included closing adjustments and 3,496,464 unregistered shares of the Company’s common stock (the “Stock Consideration”), based on a volume weighted average trading price of the Company’s common stock over athirty consecutive trading day period prior to the date of the ATD Purchase Agreement, which was $2.86.2,832,135 of the Stock Consideration was issued at closing, while the other 664,329 shares of the Stock Consideration were issued and delivered to the Seller on* January 2, 2025.Subsequent to this transaction these shares were registered on a Form S-3. As the total number of ATD Holdback Shares to be issued to the Seller wasnot* fixed, the ATD Holdback Shares were deemed to be liability classified and were measured at fair value each reporting period. As a result of the transaction, ATD became a wholly-owned subsidiary of the Company and ATD’s key employees have agreed to continue employment with the Company orone of its affiliates.

The Company incurred $548,000 in legal and professional fees related to the acquisition which were expensed as incurred and recognized in general and administrative expenses in the consolidated statement of operations, during the year ended* December 31, 2024.*

In accordance with the acquisition method of accounting for a business combination, the purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the Closing Date. The table below shows the breakdown related to the purchase price allocation for the acquisition (dollars in thousands):

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NOTE3 - LEASES

The Company has operating leases for office facilities in various locations throughout the United States and Israel. Additionally, the Company has financing leases for vehicles it uses for its operations throughout the United States. The Company’s leases have remaining terms ofone toeight years. Certain of the Company’s leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining total future lease payments.

During thefirst quarter of2025, the Company entered into a lease amendment that modified the timing of contractual lease payments related to its lease in Columbia Maryland. Based on the Company's evaluation, the amendment qualified as a lease modification under ASC842. As a result of the modification, the Company recognized a decrease of $1,344,000 in both its operating lease liability and the corresponding operating lease right-of-use asset.

Lease cost recognized in our consolidated statements of operations is summarized as follows (dollars in thousands):

Other information about lease amounts recognized in our consolidated financial statements is as follows:

Maturities of operating and financing lease liabilities for continuing operations at* June**30,* 2025 were as follows (dollars in thousands):

NOTE4 – SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for thesix months ended* June 30, 2025and2024* were as follows (dollars in thousands):

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NOTE5 – INTANGIBLE ASSETS

Intangible Assets Subject to Amortization

The following provides a breakdown of identifiable intangible assets, net as of* June 30, 2025* and* December 31, 2024* (dollars in thousands):

These intangible assets are amortized on a straight-line basis over their estimated useful life. Amortization expense for thethree months ended* June 30, 2025and2024* was $300,000 and $1,171,000, respectively, and for thesix months ended* June 30, 2025and2024* was $600,000 and $2,343,000, respectively, and is presented as part of depreciation and amortization in the unaudited condensed consolidated statements of operations. During the current period there have beenno events that would cause the Company to evaluate its intangible assets for impairment.

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As of* June 30, 2025*, the estimated impact from annual amortization from intangible assets for each of the nextfive fiscal years and thereafter is as follows (dollars in thousands):

NOTE6 – DEBT

STS Notes

On* June 17, 2022,pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $2,000,000 of notes payable in the form oftwo* unsecured, subordinated promissory notes, each in the principal amount of $1,000,000 and bearing an interest rate of 3.0% per annum, payable quarterly. Notes in the principal amount of $1,000,000 matured on* September**30,* 2024, and $1,000,000 in principal amount of the notes matured on* June 17,2025. On September 30, 2024and June 27, 2025,the Company paid thefirst* andsecond payment in the principal amount of $1,000,000 and $1,000,000, respectively. As of* June 30, 2025*, the aggregate balance of these notes payable was fully satisfied.

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Series A Prime Revenue Sharing Notes

On* December 15, 2023,the Company issued $15,000,000 in Series A Prime Revenue Sharing Notes. Interest accrues on the Series A Prime Revenue Sharing Notes at a fixed annual rate of 13.25% and is paid monthly. The entire outstanding principal balance, together with all interest accrued and unpaid is due and payable on the maturity date of December 15, 2026.*Debt issuance costs paid in connection with the Series A Prime Revenue Sharing Notes were $670,000 and are being amortized as interest expense using a straight-line method over the term of the Series A Prime Revenue Sharing Notes. The Company has a related party relationship with Arctis Global, LLC, which invested $5,000,000 in connection with the $15,000,000 initial closing of the Series A Prime Revenue Sharing Notes.

Interest is based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers infive states, each of which has been rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies. The Company entered into a base Indenture for the Series A Prime Revenue Sharing Notes as of* December 15, 2023with Argent Institutional Trust Company, as trustee. The Indenture creates afirst* priority security interest for the benefit of the holders of all subsequent notes issued under the Indenture. The Series A Prime Revenue Sharing Notes rank senior to the Company’s existing and future secured and unsecured debt with respect to the pool of revenue securing the Series A Prime Revenue Sharing Notes.

As part of the terms of the Series A Prime Revenue Sharing Notes the Company is required to maintain an interest reserve related tonot less thanthree times the next monthly interest payment. Additionally, there is a sinking fund requirement which takes effect if thethree year value of eligible contracts is less than 170% of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes. If the sinking fund requirement takes effect, the Company is required to maintain a cash balance sufficient to amortize the principal amount due on all series of Prime Revenue Sharing Notes outstanding under the Indenture in equal monthly installments by the respective due dates of each such series. The amount related to the interest reserve was $500,000 as of* June 30, 2025and is held by athird* party and is presented as part of deposits on the consolidated balance sheets. The Company isnot in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes and the sinking fund requirement hasnot been triggered as of* June**30,* 2025.

The Company* mayprepay the Series A Prime Revenue Sharing Notes at any time up until December 15, 2026by paying a premium ranging from 103% to 106%. Repayment of the Series A Prime Revenue Sharing Notes consisting of all principal, plus any unpaid accrued interest, mayalso be accelerated by the note holder upon a change in control or event of default. Interest expense related to the Series A Prime Revenue Sharing Notes was $497,000 and $497,000 forthree* months ended* June 30, 2025and2024* respectively, and $994,000 and $993,000 for thesix months ended* June 30, 2025and2024*, respectively.

Interest Expense

The following table presents the interest expense net of interest income related to the contractual interest and the amortization of debt issuance costs for the Company’s debt arrangements (dollars in thousands):

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Schedule of Principal Amounts Due of Debt

The principal amounts due for long-term notes payable are shown below as of* June 30, 2025* (dollars in thousands):

NOTE7 – INCOME TAXES

The Company maintains a full valuation allowance against its net deferred taxes, outside of the deferred tax liability related to the indefinite lived intangibles, through* June 30, 2025*.

The Company files income tax returns in Israel, the United States and in various states.No U.S. Federal, state or foreign income tax audits were in process as of* June 30, 2025*.

The Company evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, the Company fully reserved for its net deferred tax assets, outside of the deferred tax liability related to the indefinite lived intangibles, because the Company doesnot believe that it is more likely thannot that their benefits will 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 thesix months ended* June 30, 2025* and2024, the Company didnot 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. The2019 through2023 tax years remain subject to examination by the Internal Revenue Service. As of* June 30, 2025* and* December 31, 2024*, our evaluation revealedno uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements.

For thethree andsix months ended* June 30, 2025and2024*, the Company didnot record any expense or benefit related to income tax.

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NOTE8 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company* may*be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated.

H.C. Wainwright & Co., LLC

In* March 2023,the Company entered into an engagement letter with H.C. Wainwright & Co., LLC, ("HCW"), related to a capital raise (seeNOTE* 9 –STOCKHOLDERS’* EQUITY*). That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company* mayenter into during the specified tail period with investors introduced to the Company by HCW during the term of the letter, as well as a right offirst* refusal ("ROFR") to act as the Company's exclusive underwriter or placement agent on any subsequent financing transactions utilizing an underwriter or placement agent occurring withintwelve months from the consummation of a transaction pursuant to the engagement letter.

In* July 2023,the Company entered into an agreement withone* of its warrant holders in connection with the exercise of warrants, which the Company refers to as the* JulyWarrant Exercise Transaction. Subsequent to the JulyWarrant Exercise Transaction, the Company received a letter from HCW claiming entitlement to certain “tail” fees and warrant consideration stemming from the July*Warrant Exercise Transaction. The Company believed then, and believes now, that this claim is without merit. As a result of this claim and for other reasons articulated to HCW, the Company terminated its engagement letter with HCW, including for cause, which, the Company believes, eliminated both the “tail” provision and the ROFR provision with respect to the engagement letter.

On or about* October 23, 2023,HCW filed a complaint in New York State Supreme Court asserting a claim for breach of contract against the Company relating to the JulyWarrant Exercise Transaction. HCW sought to recover compensatory and consequential damages and certain warrants under its letter agreement with Rekor and other fees,not less than a cash fee of $825,000 and the value of warrants to purchase an aggregate of up to 481,100 shares of common stock of the company at an exercise price of $2.00 per share as well as attorneys’ fees. On February**29,* 2024, HCW filed a notice of discontinuance without prejudice and advised the court that it intended to commence a new proceeding by filing a new complaint that would address the claim in this lawsuit and subsequent events. On* March 4, 2024,*the court discontinued this lawsuit without prejudice.

On* February**29,* 2024, HCW initiated the new action with the filing of complaint in New York State Supreme Court. In this lawsuit, HCW advances the same breach of contract theory and seeks to recover the same damages as sought in the prior now-dismissed lawsuit. In addition, HCW seeks to recover an additional $2,156,000 in damages plus the value of warrants to purchase an aggregate of up to 805,000 shares of common stock at an exercise price of $3.125 per share in connection with Rekor’s* February 2024offering, which we refer to as the2024* Public Offering. HCW alleges that Rekor breached its engagement letter with HCW by failing to give HCW notice of this offering and failing to provide HCW with the opportunity to exercise the ROFR with respect to this transaction. On* May 3, 2024,Rekor answered HCW’s complaint and filed counterclaims against HCW and Armistice Capital LLC ("Armistice") relating to Rekor’s March 2023Registered Direct Offering, Armistice’s trading activity in Rekor common stock, and Rekor’s2024* Public Offering. After HCW and Armistice moved to dismiss Rekor’s counterclaims, Rekor filed amended counterclaims on* October 1, 2024.*Rekor seeks to recover damages from HCW and Armistice. HCW and Armistice have now moved to dismiss the amended counterclaims. Those motions are pending. Discovery is ongoing in the matter.

The Company believes HCW's claims are without merit. The Company intends to vigorously defend itself in this lawsuit.

Occupational Safety and Health Administration (“OSHA”) Claim

In2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints. On* November 30, 2023,*OSHA issued its determination that, based on the information gathered thus far in its investigation, OSHA was unable to conclude that there was reasonable cause to believe that a violation of the statute occurred. OSHA thereby dismissed the complaint.

Thereafter, Claimants appealed the determination by filing objections and requesting a hearing before an Administrative Law Judge. The Company likewise filed a request for an award of attorneys’ fees. On* January 4, 2024,the Office of Administrative Law Judges (“OALJ”) processed the appeals and issued its Notice of Docketing and Order of Consolidation. On February 28, 2024,the OALJ issued an Order setting forth a revised schedule governing the case with the start of the hearing scheduled for March 3, 2025.In advance of the March 3, 2025hearing, the parties agreed to bifurcate the matter intotwo* separate hearings. Thefirst hearing from* March 3-5, 2025 was set to address liability and thesecond from April 24-25, 2025 was set to address damages. The parties were able to settle the claim filed byone employee in advance of the March 3, 2025hearing. The hearing did proceed for the claim filed by another employee. The Court didnot* make a finding on liability at the hearing. At the Court's request, the parties submitted post-hearing briefs in* April 2025.The Company doesnot* know when the Court will make its findings after the receipt of the briefs. The parties were next set to appear before the Court on* April 24-25, 2025 to address damages. On April 22, 2025,the Court notified the parties that the April 24-*25, 2025 damages hearing was cancelled. The Court indicated that it was going to review the briefs submitted on the liability phase and evidence in the matter and would reschedule a damages hearing, if necessary. We donot know when the Court will make a finding on the liability phase.

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NOTE9 – STOCKHOLDERS’** EQUITY**

Authorized Common Stock

On* April 22, 2024,following approval by the Company's stockholders, the Company amended its charter to increase the number of authorized shares of common stock from 100,000,000 to 300,000,000. The number of authorized shares of the Company’s preferred stock wasnot* affected by this amendment and remained unchanged at 2,000,000 shares.

At Market Issuance Sales Agreement

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.

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 in issuance costs, as well as 3.0% or $555,000 related to cash commissions provided to the Agent.

ATD Acquisition

In connection with the acquisition of ATD on* January 2, 2024,the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration. On January 2, 2025,theone* year anniversary of closing of the ATD Acquisition, the Company issued and delivered to ATD’s former owners664,329 holdback shares of the Company’s common stock in full satisfaction of the purchase price for the ATD Acquisition. The shares issued in connection with the ATD Acquisition have been registered on a resale registration statement on Form S-3, declared effective by the SEC on* June 17, 2024.*

2024 Public Offering

On* February 9, 2024,the Company issued and sold 10,000,000 shares of its common stock, at an offering price of $2.50 per share of common stock (the“2024* Public Offering Price”) in a registered public offering by the Company (the*“2024* Public Offering”), pursuant to an underwriting agreement with William Blair & Company, L.L.C., as representative of the several underwriters named therein (collectively, the “Underwriters”).

On* February9,* 2024, the Underwriters exercised in-full their option to purchase up to 1,500,000 additional shares of common stock at the2024 Public Offering Price (the “Underwriters’ Option”). The exercise closed on* February13,* 2024. The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and offering expenses payable by the Company of $2,388,000 was approximately $26,362,000 in aggregate for the2024 Public Offering including the exercise of the Underwriters’ Option.

Prepaid Advance

On* August**14,* 2024, the Company entered into a Prepaid Advance Agreement (the “Prepaid Advance”) with YA II PN, Ltd., a Cayman Islands exempt limited company (the “Investor”), an affiliate of Yorkville Advisors Global, LP. In accordance with the terms of the Prepaid Advance, the Investor advanced $15,000,000 to the Company. After giving effect to the purchase price discount of 6% provided for in the Prepaid Advance, net proceeds to the Company were $14,100,000.

Pursuant to the terms of the Prepaid Advance, withinone year the Company could have received an additional $20,000,000 on the same terms as the initial Prepaid Advance, subject to satisfaction of certain conditions. On* October 22, 2024,the Company and the Investor entered into AmendmentNo.1* to the Prepaid Advance Agreement (the “Amendment”) to eliminate the option for additional advances.

The Company incurred issuance costs and original issuance discounts totaling approximately $888,000 associated with the issuance of the Prepaid Advance, which were expensed as incurred as a component of other income (expense) in the consolidated statements of operations for the year ended* December 31, 2024.Due to the various embedded derivatives that would otherwise require separate valuation and bifurcation as derivative liabilities, the Company elected to account for the Prepaid Advance under the fair value option as prescribed by ASC825.*

As of* December 31, 2024,the Company has terminated and fully satisfied the outstanding balance of $15,000,000 under the Prepaid Advance. During the year ended December 31, 2024,*the Company recorded $900,000 in charges related to the settlement of the Prepaid Advance liability.

Redemption of2023 Promissory Notes

On* March 4, 2024,the Company elected to prepay the outstanding2023* Promissory Notes. The2023 Promissory Notes were redeemed at the redemption price of 115% of the $12,500,000 aggregate principal amount of the2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000 (the “Redemption Payment”). The noteholders elected to accept $1,875,000 of the Redemption Payment in the form of 750,000 unregistered shares of the Company’s common stock, par value $0.0001 per share, having a value of $2.50 per share, with the remainder of the Redemption Payment to be paid in cash. As a result of the Redemption Payment, the Company recognized a loss on extinguishment of debt of $4,693,000, which included $1,875,000 related to the early termination payment and $2,818,000 related to unamortized issuance costs. The shares of common stock issued in connection with the Redemption payment have been registered on a resale registration statement on Form S-3, declared effective by the SEC on* July 30, 2024.*

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Warrants

There wasno activity related to the Company warrants during the period ended* June 30, 2025*. The table below shows the Company's outstanding warrants as of* June 30, 2025*:

NOTE10 – EQUITY INCENTIVE PLAN

In* August 2017,the Company approved and adopted the2017* Equity Award Plan (the*“2017* Plan”). The2017 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 the2017 Plan were initially set at 3,000,000 shares. In* October 2021,the Company announced it had registered an additional 4,368,733 shares of its common stock available for issuance under the2017* Plan.

On* April 29, 2024,the Company filed a registration statement on Form S-8 solely to register an additional 7,912,216 shares of its common stock available for issuance under the2017* Plan. This increase was approved by the Company’s Board of Directors on* March22,* 2024, and by the Company’s stockholders on* April18,* 2024 at the Company’s annual meeting.

Stock Options

Stock options granted under the2017 Plan* maybe either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs maybe 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 years with a contractual term often years.

For thethree andsix months ended* June 30, 2025and2024* there wasno stock compensation expense related to stock options.

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A summary of stock option activity under the Company’s2017 Plan during the period ended* June 30, 2025* is as follows:

As of* June 30, 2025*, there was $0 of unrecognized stock compensation expense related to unvested stock options granted under the2017 Plan.

Restricted Stock Units

Stock compensation expense related to Restricted Stock Units ("RSUs") for thethree months ended* June 30, 2025and2024* was $723,000 and $1,115,000, respectively and for thesix months ended* June 30, 2025and2024* was $2,093,000 and $2,282,000 respectively, and is presented based on the awardees' operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations.

A summary of RSU activity under the Company’s2017 Plan for thesix months ended* June 30, 2025* is as follows:

All RSUs granted vest upon the satisfaction of a service-based vesting condition.

As of* June 30, 2025*, there was $1,852,000 of unrecognized stock compensation expense related to unvested RSUs granted under the2017 Plan that will be recognized over an average remaining period of 0.91 years.

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NOTE11 – LOSS PER SHARE

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

As the Company had a net loss for thethree andsix months ended* June 30, 2025*, the following 7,415,057 potentially dilutive securities were excluded from diluted loss per share:4,331,100 for outstanding warrants,481,533 related to outstanding options, and 2,602,424 related to outstanding RSUs.

As the Company had a net loss for thethree andsix months ended* June 30, 2024*, the following 9,627,895 potentially dilutive securities were excluded from diluted loss per share:6,606,100 for outstanding warrants,681,461 related to outstanding options,664,329 related to the ATD Holdback Shares and 1,676,005 related to outstanding RSUs.

**NOTE12 **–SUBSEQUENT EVENTS

At Market Issuance Sales Agreement

From* June 30, 2025to August 11, 2025*the Company issued 3,974,232 shares of its common stock in exchange for net cash of$4,653,000 under the Sales Agreement.

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