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”) All Traffic Data Services, LLC (“ATD”) and Rekor Labs, LLC (collectively, the “Company”).

Rekor is a technology company developing trusted-data, privacy, security, and intelligence solutions for real-world transportation, public-safety, video, and sensor networks. We work to modernize public safety, urban mobility, and transportation management through cutting-edge solutions, with a focus on protecting the security and reliability of data and appropriate privacy protections. By collaborating closely with public and private sector customers, we deliver services and solutions that enable them to improve the reliability, efficiency, accountability and security of their operations. Our vision is to create safer, smarter, and more sustainable roadways and communities, improving the lives of citizens and the world around them. Our products and services collect, connect, and organize mobility data, making it more useful and accessible, while providing actionable real-time insights to enable better decision-making. This provides our customers with both enhanced real time and historical data and the tools to manage and use it efficiently, securely and responsibly. Our products and services support improved planning and provide significantly enhanced situational awareness, rapid response capabilities, risk mitigation strategies, and predictive analytics. In our efforts to safeguard privacy and ensure the reliability of data, we have developed proprietary techniques for anonymization of data and verification of video and audio records, which we believe have broad applicability to the media, insurance and other markets beyond our traditional client bases.

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, 2026and2025*.

The financial data and other information disclosed in these notes are unaudited. The results for thethree andsix months ended* June 30, 2026*, arenot necessarily indicative of the results to be expected for the year ending* December 31, 2026*.

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, 2025*. 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 the 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.

Reclassifications

Certain prior-period amounts have been reclassified to conform with the current-period presentation. Most notably, proceeds from notes receivable, which were previously presented within net cash provided by financing activities, are now presented within net cash used in investing activities on the unaudited condensed consolidated statements of cash flows. Other reclassifications relate to the aggregation or disaggregation of certain captions within the financial statements. These reclassifications hadno effect on previously reported net loss, total stockholders' equity, or net cash flows in the aggregate.

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 cash flows 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, 2026*, the Company had a working capital deficit of $6,598,000 and a net loss of $9,912,000.

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 continuously reviews and explores 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 president and chief executive officer.

The Company doesnot report balance sheet information by segment since balance sheet information by segment 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, 2026*, 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 condensed consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of* June 30, 2026* and* December 31, 2025* due to the short-term maturity of these instruments. The carrying amounts reported for long-term debt and long-term receivables also approximate fair value as of* June 30, 2026* and* December 31, 2025*, based on management’s evaluation of current rates compared to market rates of interest and other relevant factors.

The Company applies the fair value framework established by ASC Topic820, Fair Value Measurements and Disclosures ("ASC820"). Refer to the Company's2025 Annual Report on Form10-K for additional information regarding the Company's fair value measurement policies, including the Level1, Level2 and Level3 input hierarchy.

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

As of* June 30, 2026* and* December 31, 2025,the Company hadno* Level1, Level2 or Level3 assets or liabilities outstanding. The Company historically considered its STS Contingent Consideration and ATD Holdback Shares to be Level3 instruments. The STS Contingent Consideration was remeasured tozero during the year ended* December 31, 2025,and the ATD Holdback Shares were settled on January 2, 2025through the issuance of 664,329 shares of the Company's common stock. There wereno* transfers between fair value hierarchy levels during thesix months ended* June 30, 2026*. Refer to the Company's2025 Annual Report on Form10-K for additional information regarding the changes in fair value of these instruments during the year ended* December 31, 2025.*

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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. ASC606 is a framework developed by the Financial Accounting Standards Board to improve consistency in revenue reporting under GAAP. It requires revenue to be 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 by a combination of direct sales, partner-assisted sales, and eCommerce sales. These sales involve both long-term contracts with customers that provide for periodic payments and short-term contracts that are automatically invoiced on a monthly basis.

Where recurring revenue is generated through the Company’s Software-as-a-Service ("SaaS") model, 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 revenue under contracts entered into using a subscription model for data collection services 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.

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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.

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.

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, 2026*, the unsatisfied portion of the remaining performance obligation was approximately $23,709,000. 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 $1,523,000 and $1,993,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of* June 30, 2026* and* December 31, 2025*, 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, 2026*, $3,210,000 of the contract liabilities balance as of* December 31, 2025* was recognized as revenue.

The services due for contract liabilities described above are shown below as of* June 30, 2026* (dollars in thousands):

Cash and Cash Equivalents, and Restricted Cash

The Company considers all highly-liquid debt instruments that are readily convertible into cash and have an original maturity ofthree months or less at the time of purchase 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, 2026* and* December 31, 2025* were $275,000 and $297,000, 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, 2026* and* December 31, 2025*, the Company had deposits totaling $10,041,000 and $16,863,000, respectively, in multiple U.S. financial institutions andone Israeli financial institution.

Customer A accounted for 11% and 13% of the unaudited condensed consolidated revenue for thethree andsix months ended* June 30, 2026*, respectively.No single customer accounted for more than10% of the Company’s unaudited condensed consolidated revenues for thethree andsix months ended* June 30, 2025*.

As of* June 30, 2026* and* December 31, 2025*, Customer A accounted for 11% and 15% of the Company's unaudited condensed consolidated accounts receivable balance, respectively.

Accounts Payable and Other Current Liabilities

As of* June 30, 2026* and* December 31, 2025*, amounts owed to board members of $100,000 and $75,000 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 Current Period

In* March 2025,the FASB issued ASU2025*-05 - Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which clarifies the measurement of expected credit losses for accounts receivable and contract assets arising from revenue transactions within the scope of Topic606. The amendments require entities to measure expected credit losses for these financial assets using a methodology consistent with the current expected credit loss model while clarifying the interaction between the guidance in Topic326 and Topic606. The guidance in this ASU is effective for fiscal years beginning after* December 15, 2025,including interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal years of adoption. The Company adopted ASU2025*-05 effective* January 1, 2026on a modified retrospective basis. The adoption didnot* have a material impact on the Company's unaudited condensed consolidated financial statements or related disclosures for thethree andsix months ended* June 30, 2026*.

Recently Issued Accounting PronouncementsNot Yet Adopted

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 related disclosures.

In* December 2025,the FASB issued ASU2025*-11 - Interim Reporting (Topic270): Improvements to Interim Reporting Guidance, which is intended to improve the clarity and organization of the interim reporting guidance in Topic270. The amendments clarify the scope and presentation requirements for interim financial statements and introduce a general disclosure principle requiring entities to disclose events or transactions occurring since the end of the last annual reporting period that have a material impact on the entity. The guidance also incorporates certain interim disclosure requirements from other Topics into Topic270 to improve accessibility of the interim reporting guidance. The amendments in this ASU are effective for interim reporting periods within fiscal years beginning after* December 15, 2027.Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU2025*-11 will have on its consolidated financial statements and related 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, 2025*.

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NOTE2 - 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 ("ROU asset").

In* December 2025,the Company determined that the operations of its wholly owned subsidiary, Waycare Technologies LTD ("Waycare"), located in Tel Aviv, Israel, wereno* longer sustainable given the entity's operating cost structure. The Company initiated a plan to wind down the Tel Aviv operations and consolidate all engineering functions into its U.S. facilities. The plan was announced to employees on* February 23, 2026,and Tel Aviv operations substantially ceased on February 24, 2026.*

As a result of the decision, the Company identified a triggering event requiring an impairment assessment of the related long-lived assets, including the operating lease ROU asset associated with the Tel Aviv office lease. The Company determined that the undiscounted future cash flows expected from the use and eventual disposition of the operating lease ROU asset were less than its carrying amount and, accordingly, the asset was written down to its estimated fair value. The Company estimated the fair value of the operating lease ROU asset to be approximately*$0,* based on the expected abandonment of the asset withno material residual or sublease value (a Level3 fair value measurement). As a result, the Company recognized an impairment charge of $2,708,000 related to the operating lease ROU asset associated with the Tel Aviv facility during the year ended* December 31, 2025.This impairment charge was included in asset impairment charges in the consolidated statements of operations for the year ended December 31, 2025.Refer to the Company's Annual Report on Form10*-K for the year ended* December 31, 2025for additional information regarding the wind-down of operations in Tel Aviv. No impairment charges related to the Company's right-of-use assets were recognized during thesix* months ended* June 30, 2026*.

As part of the Company’s ongoing efforts to optimize operations and improve efficiency, the Company evaluated its lease portfolio and related renewal options. In connection with this review, the Company took certain actions with respect to its leased locations, including communicating with landlords where appropriate. In relation to the Tel Aviv lease, the Company notified the landlord of its intent to vacate the premises during thesecond quarter of2026, which resulted in a remeasurement of the related lease liability. Because the right-of-use asset associated with the Tel Aviv office had previously been fully impaired, the reduction in the lease liability resulted in the recognition of an approximately $2,753,000 gain on lease remeasurement during thesecond quarter of2026. The gain was recorded within gain on lease remeasurement, net in the unaudited condensed consolidated statements of operations. Losses associated with lease abandonments and terminations are recorded within general and administrative expenses in the unaudited condensed consolidated statements of operations.

In* January 2026,the Company entered into an amendment to the lease for its corporate headquarters in Columbia, Maryland that revised the timing of monthly base rent payments through the remaining lease term. The Company accounted for the amendment as a lease modification that isnot* a separate contract under ASC842. As a result of the modification, the Company recognized a decrease of approximately $224,000 in both its operating lease liability and the corresponding ROU asset. The modification didnot result in a gain or loss.

During thesix months ended* June 30, 2026*, the Company exercised its option to terminate its lease for office space in Plano, Texas, effective* December 31, 2026.*The Company recognized a loss on lease termination of approximately $117,000, which is included in general and administrative expenses in the unaudited condensed consolidated statements of operations. As a result of the lease termination, the Company recognized a $50,000 early termination liability, reduced its operating lease liability by approximately $77,000, and reduced the corresponding right-of-use asset by approximately $144,000.

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

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

Maturities of operating and financing lease liabilities for continuing operations on* June 30, 2026* were as follows (dollars in thousands):

NOTE3 – SUPPLEMENTAL NON-CASH DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for thesix months ended* June 30, 2026and2025* were as follows (dollars in thousands):

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NOTE4 – INTANGIBLE ASSETS

Intangible Assets Subject to Amortization

The following provides a breakdown of identifiable intangible assets, net as of* June 30, 2026* and* December 31, 2025* (dollars in thousands):

These intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for thethree months ended* June 30, 2026and2025* was $300,000 in each period, and for thesix months ended* June 30, 2026and2025* was $600,000 in each period, 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, 2026*, the estimated impact from annual amortization from intangible assets for each of the nextfive fiscal years and thereafter is as follows (dollars in thousands):

NOTE5 – 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. These notes matured and were fully paid on* September**30,* 2024, and* June 17,2025, respectively. As of June 30, 2026*, 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.

The Series A Prime Revenue Sharing Notes are payable from a pool of revenues received from contracts with transportation agencies infive states, each of which has been highly rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies. In connection with the issuance of the Series A Prime Revenue Sharing Notes, the Company entered into a base Indenture (the Indenture), dated* December 15, 2023with Argent Institutional Trust Company, as trustee. The Indenture creates afirst* priority security interest in the contract revenues for the benefit of the holders of the Series A Prime Revenue Sharing Notes and 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.

Under the terms of the Indenture, 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, 2026* and 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, 2026*.

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 for each of thethree* months ended* June 30, 2026and2025*, and $994,000 for each of thesix months ended* June 30, 2026and2025*.

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 loans and notes payable are shown below as of* June 30, 2026* (dollars in thousands):

NOTE6 – 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, 2026*.

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, 2026*.

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, 2026* and2025, 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 through2024 tax years remain subject to examination by the Internal Revenue Service. As of* June 30, 2026* and* December 31, 2025*, 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, 2026and2025*, the Company didnot record any expense or benefit related to income tax.

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NOTE7 – 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. 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 purported fees owed as a result of 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 a complaint in New York State Supreme Court. In the new action, 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.During thethird* quarter of2025, Rekor resolved its claims with Armistice pursuant to a settlement agreement. The proceeds from the settlement were presented as part of other expense (income) in the condensed consolidated statement of operations in the Company's Annual Report on Form10-K for the year ended* December 31, 2025.*Rekor now seeks to recover damages from HCW and HCW moved to dismiss the amended counterclaims. The Court granted HCW’s motion to dismiss Rekor’s counterclaims.

The Company believes HCW's claims are without merit and 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. The parties were able to settle the claim filed byone* employee in advance of a* March 3, 2025hearing scheduled by the OALJ. After the hearing, at the Court's request, the parties submitted post-hearing briefs in April 2025.*

On* September 30, 2025,the OALJ issued an Order in Rekor’s favor, dismissing all aspects of Claimant’s Complaint. On November 24, 2025,the Appellate Review Board ("ARB") served a Notice of Appeal Acceptance and indicated they accepted the matter for review. They subsequently set a briefing schedule for the parties. Complainant's brief was filed on January 22, 2026.The Company's response brief was filed on March 31, 2026.Complainant filed his reply brief on April 14, 2026.The matter has now been fully briefed before the ARB and the Company is awaiting findings from the ARB. The Company doesnot* know when the ARB will issue its finding.

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

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NOTE8 – STOCKHOLDERS’** EQUITY**

Authorized Common Stock

The Company is authorized to issue 300,000,000 shares of common stock, par value $0.0001 per share, and 2,000,000 shares of preferred stock, par value $0.0001 per share.

2025 Sales Agreement

On* February**10,* 2025, the Company entered into an At Market Issuance Sales Agreement (the*"2025* Sales Agreement") with Northland Securities, Inc., pursuant to which the Company could, from time to time, offer and sell shares of common stock having an aggregate offering price of up to $25,000,000. On* August 12, 2025,the Company elected to voluntarily terminate the2025* Sales Agreement.

During the term of the2025 Sales Agreement, the Company issued an aggregate of 18,888,832 shares of common stock at a weighted average selling price of $1.23 per share, generating net proceeds of approximately $22,350,000.

ATD Acquisition

On* January 2, 2025,theone* year anniversary of closing of the ATD Acquisition, the Company issued and delivered to ATD’s former owners 664,329 holdback shares of the Company’s common stock in full satisfaction of the purchase price for the ATD Acquisition.

2025 Underwriting Agreement

On* December 13, 2025,the Company entered into an underwriting agreement with William Blair & Company, L.L.C., as representative of the several underwriters, relating to an underwritten registered direct offering of 8,571,428 units at a public offering price of $1.75 per unit (the"2025* Underwriting Agreement"). Each unit consisted ofone share of the Company's common stock andone warrant to purchaseone share of the Company's common stock at an exercise price of $2.40 per share. The warrants are immediately exercisable and expire on* December 16, 2032.The offering closed on December 16, 2025.*

Gross proceeds from the offering were approximately $15.0 million. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company were approximately $13.9 million. In connection with the offering, the Company entered into a Side Letter Agreement with Anson Advisors Inc. that, among other things, restricts the Company from entering into Variable Rate Transactions (as defined therein) while any* December 2025warrants issued under the2025* Underwriting Agreement remain outstanding.

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Warrants

There wasno activity related to the Company warrants during the period ended* June 30, 2026*. The table below shows the Company's outstanding warrants as of* June 30, 2026*:

NOTE9 – 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. As of* June 30, 2026*, an aggregate of 15,280,949 shares of common stock were authorized for issuance under the2017 Plan.

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, 2026and2025* 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, 2026* is as follows:

As of* June 30, 2026*, 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, 2026and2025* was $212,000 and $723,000, respectively, and for thesix months ended* June 30, 2026and2025* was $1,134,000 and $2,093,000, 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.

On* March 20, 2026,in connection with the Company's amended and restated employment agreement with Robert A. Berman, the Company's President and Chief Executive Officer, the Company granted 1,000,000 fully vested shares of common stock to Mr. Berman, with a grant date fair value of $0.88 per share, resulting in $880,000 of stock-based compensation expense recorded during thesix* months ended* June 30, 2026*. These shares were issued to Mr. Berman in* April 2026.*

A summary of RSU activity under the Company’s2017 Plan for thesix months ended* June 30, 2026* is as follows:

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

As of* June 30, 2026*, there was $1,927,000 of unrecognized stock compensation expense related to unvested RSUs granted under the2017 Plan that will be recognized over an average remaining period of 1.40 years.

Rekor Labs Profit Interests

On* March 25, 2026,*Rekor Labs, LLC (“Rekor Labs”), a consolidated subsidiary of the Company, adopted an amended and restated limited liability company agreement and authorized the issuance of profits interests to certain service providers. In connection with that authorization, Rekor Labs granted profits interests to certain service providers representing 3.5% of Rekor Labs’ fully diluted equity as of the grant date, subject to the terms and conditions of the applicable grant agreements and the amended and restated limited liability company agreement.

The profits interests vest in full upon the consummation of a Fundamental Transaction, as defined in the amended and restated limited liability company agreement, withinsix months following the grant date, subject to the applicable participant’s continued service through the applicable vesting date.

The Company accounts for the profits interest awards as share-based compensation arrangements under ASC718, Compensation — Stock Compensation. Because vesting of the awards is contingent upon the occurrence of a Fundamental Transaction withinsix months following the grant date, the Company evaluated whether the vesting condition was probable as of* June 30, 2026.As of June 30, 2026,the Company determined that the vesting condition remainednot* probable and, accordingly,no additional compensation expense was recognized related to the awards during thethree andsix months ended* June 30, 2026.The Company will continue to reassess the probability of vesting at each reporting date. If the vesting condition becomes probable, the Company will recognize compensation expense based on the grant-date fair value of the awards over the requisite service period, including any cumulative catch-up adjustment required under ASC718.*

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NOTE10 – 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, 2026*, the following 15,648,547 potentially dilutive securities were excluded from diluted loss per share:12,902,528 for outstanding warrants,364,201 related to outstanding options, and 2,381,818 related to outstanding RSUs.

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.

NOTE11 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued and has determined that there areno events requiring disclosure.

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