0001697851 Rekor Systems, Inc. false --12-31 FY 2025 true Our information security procedures are overseen by our Vice President of Risk Management, supported by our Chief Technology Officer and our IT Manager, who are responsible to provide regular reports to our President and Chief Executive Officer and Chief Financial Officer as well as the Governance Committee of our Board. These procedures are responsible for identifying, assessing, and managing cybersecurity threats and risks and work to monitor and evaluate our threat environment and risk profile using various methods. These methods include evaluating our and our industry’s risk profile, coordinating with law enforcement concerning select threats, and engaging with third parties to conduct external audits and threat assessments for certain systems. Our information security procedures are overseen by our Vice President of Risk Management, supported by our Chief Technology Officer and our IT Manager, who are responsible to provide regular reports to our President and Chief Executive Officer and Chief Financial Officer as well as the Governance Committee of our Board. These procedures are responsible for identifying, assessing, and managing cybersecurity threats and risks and work to monitor and evaluate our threat environment and risk profile using various methods. These methods include evaluating our and our industry’s risk profile, coordinating with law enforcement concerning select threats, and engaging with third parties to conduct external audits and threat assessments for certain systems. true true true true Our Information Security Policy and procedures are reviewed on an ongoing basis. These procedures are implemented by our Vice President of Risk Management, assisted by a managed service provider (“MSP”). Our MSP has over 15 years of experience and possesses various cybersecurity certifications. Third-party service providers can assist us from time to time in identifying, assessing, and managing material risks from cybersecurity threats, including for example cybersecurity consultants and software providers, managed cybersecurity service providers, threat intelligence service providers, forensic investigators, penetration testing firms, dark web monitoring services, and professional services firms, including legal counsel and auditors. By partnering with these specialized providers, we can leverage their insights and expertise to implement cybersecurity strategies and processes that are designed to align with industry best practices. risks 131 0 66 0 0 263 0 132 0.0001 0.0001 2,000,000 2,000,000 505,000 505,000 240,861 240,861 0 0 0 0 0.0001 0.0001 300,000,000 300,000,000 136,791,826 104,700,593 136,477,697 104,541,073 314,129 159,520 1 1 1,700,000 5.5 http://fasb.org/us-gaap/2025#AssetImpairmentCharges http://fasb.org/us-gaap/2025#AssetImpairmentCharges 0 0 http://fasb.org/us-gaap/2025#AssetImpairmentCharges http://fasb.org/us-gaap/2025#AssetImpairmentCharges 0 0 12 2 4 664,329 2,832,135 3.14 0 75,000 0 http://fasb.org/us-gaap/2025#AssetImpairmentCharges 1 9 http://fasb.org/us-gaap/2025#AssetImpairmentCharges http://fasb.org/us-gaap/2025#AssetImpairmentCharges 0 106 1,988,000 0 0 2 1 1 1 5 0 5 5 7 3 10 0 0 0 0 false false false false true false As part of the acquisition of Firestorm on January 24, 2017, the Company issued warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $2.5744 per share, and warrants to purchase 315,627 shares of its common stock, exercisable over a period of five years, at an exercise price of $3.6083 per share (the “Firestorm Warrants”). The expiration date of the Firestorm Warrants was January 24, 2022. As part of the settlement of the Firestorm litigation, these warrants were cancelled (see NOTE - 13 COMMITMENTS AND CONTINGENCIES). On January 18, 2023, in connection with the 2023 Promissory Notes, the Company issued the investors warrants to purchase 6,250,000 shares of its common stock, exercisable over a period of five years, at an exercise price of $2.00 per share. These warrants were exercisable commencing January 18, 2023 and expire on January 18, 2028. On November 1, 2018, in connection with an underwritten public offering of its common stock, the Company issued to the underwriters warrants to purchase 206,250 shares of its common stock (the “2018 Public Offering Warrants”), exercisable over a period of five years, at an exercise price of $1.00 per share. These warrants were exercisable commencing April 27, 2019 and expired on October 29, 2023. Pursuant to the Company’s acquisition of Secure Education Consultants on January 1, 2018, the Company issued warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $5.44 per share, and warrants to purchase 33,333 shares of its common stock, exercisable over a period of five years, at an exercise price of $6.53 per share (the “Secure Education Warrants”). The expiration date of the Secure Education Warrants was January 1, 2023. As part of a Regulation A Offering in fiscal years 2016 and 2017, the Company issued warrants to the holders of Series A Preferred Stock (the “Series A Preferred Stock Warrants”). The exercise price for these warrants is $1.03. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38338

Rekor Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware		81-5266334
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6721 Columbia Gateway Drive, Suite 400 Columbia, MD		21046
(Address of Principal Executive Offices)		(Zip Code)

(410) 762-0800

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	REKR	The Nasdaq Stock Market

Securities Registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2025 was approximately $125 million.

As of March 25, 2026, the Registrant had 136,578,177 shares of common stock, $0.0001 par value per share outstanding.

Table of Contents

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	28
Item 1C.	Cybersecurity	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	29
Item 4.	Mine Safety Disclosures	29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	[Reserved]	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	48
Item 8.	Financial Statements and Supplementary Data.	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	98
Item 9A.	Controls and Procedures.	98
Item 9B.	Other Information.	99
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	99
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	100
Item 11.	Executive Compensation	100
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	100
Item 13.	Certain Relationships and Related Transactions, and Director Independence	100
Item 14.	Principal Accountant Fees and Services	100
Part IV
Item 15.	Exhibits, Financial Statements Schedules	101
Item 16.	Form 10-K Summary.	104

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CERTAIN TERMS

Unless the context requires otherwise, all references in this Annual Report on Form 10-K (the “Annual Report”) to “Rekor Systems, Inc.,” “Rekor,” “Company,” “we,” “our” and “us” refer to Rekor Systems, Inc. and its consolidated subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of the U.S. federal securities laws. Other than statements of historical facts, such as statements regarding the objectives of management, timing and the likelihood of success of various activities, the future performance of current and prospective products and services and our future results of operations and financial position, are forward-looking statements, which include all expressions of the expectations, hopes, beliefs, intentions, plans, prospects or strategies of the Company. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “target,” “expect,” “project,” “intend,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “possible,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are based on certain assumptions and analyses made by the management of the Company in light of their respective experience and perception of historical trends, current conditions and expected future developments and their potential effects on the Company as well as other factors they believe are appropriate in the circumstances. They speak only as of the date of this Annual Report and are subject to several substantial risks, uncertainties and assumptions described under the sections entitled “Risk Factors” and elsewhere in this Annual Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, actual results or performance may prove to be materially different from those expressed or implied and you should not rely on these forward-looking statements as predictions of future events. There can be no assurance that future developments affecting the Company will be those anticipated. Should one or more of these risks or uncertainties materialize or should any of the assumptions being made prove incorrect, actual results may vary in material respects. We undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise.

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PART I

ITEM 1. BUSINESS

Overview

Rekor is a roadway intelligence Company, working to modernize public safety, urban mobility, and transportation management through the development of cutting-edge solutions. By collaborating closely with public and private sector customers, we deliver mission-critical services and solutions that enable them to achieve their objectives effectively, while simultaneously building a new digital infrastructure operating system for roadways.

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 significantly enhanced situational awareness, rapid response capabilities, risk mitigation strategies, and predictive analytics.

To implement this vision, we have developed a suite of interconnected AI-driven hardware and purpose-built software platforms. Powered by vast and diverse multi-modal datasets and proprietary AI technologies, these solutions deliver advanced roadway intelligence, enabling clients to more effectively monitor, manage, and optimize the movement of vehicles, traffic, and activities in and around roadways and communities with precision and sensitivity to privacy and environmental concerns.

Our operations are conducted primarily by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc. (“Rekor Recognition”), Waycare Technologies, Ltd. and Waycare Technologies, Inc. (combined “Waycare”), Southern Traffic Services, Inc. (“STS”), and All Traffic Data Services, LLC (“ATD”). We also have a separate subsidiary, Rekor Labs LLC. ("Rekor Labs"), which is working to commercialize a patent-pending technology for verifying the authenticity of video data. Although this technology was developed to respond to requests from public safety customers, we believe it has broad applicability and should therefore be pursued as a separate venture.

A New Operating System for Roadways

We believe the United States of America stands at a critical turning point in the evolution of its transportation and roadway infrastructure. For over 70 years, the nation has relied on analog technologies and manual methodologies that have resulted in inefficiencies, rising costs, and preventable safety hazards. While private-sector innovations like sensor technology, Internet of Things (“IoT”), AI, cloud computing, autonomous vehicles, and smart drones are advancing rapidly, fundamental challenges such as poor roadway quality, traffic congestion, and driver safety continue to present a challenge.

Since 2018, Rekor has worked to deserve a place at the forefront of a wave of transformation and modernization of roadways, actively designing, building, and deploying AI solutions and other advanced complimentary technologies through public-private collaborations with departments of transportation (“DOTs”), public safety agencies, and private sector partners. Rekor is committed to leading the laying the foundation of a groundbreaking new digital infrastructure operating system for roadways—and has already delivered proven value across multiple domains:

●

Enhanced Roadway Safety: Real-time AI monitoring systems detect hazards and reduce roadway fatalities.

●

Optimized Traffic Flow: Intelligent analytics alleviate congestion, improve commute times, and boost productivity.

●

Cost Savings & Efficiency: AI automation streamlines operations, maximizing resource allocation for agencies.

●

Improved Data Accuracy & Insights: Precise, real-time traffic data drives smarter decision-making and better resource planning.

●

Border & Freight Management: AI-driven vehicle identification enhances security while minimizing bottlenecks.

●

Uninsured Driver Reduction: Automated enforcement ensures insurance compliance, improving public safety and reducing costs to government and consumers.

By providing advanced AI-driven insights to assist forward-thinking infrastructure managers, Rekor is reshaping how transportation systems operate. Its solutions empower public agencies and public sector clients to prevent accidents, reduce inefficiencies, and optimize resources, driving smarter, safer, and more efficient roadways across the nation.

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Roadway Intelligence

Rekor is a leader in roadway intelligence, committed to revolutionizing transportation systems by collecting, connecting, and organizing mobility data. Roadway intelligence involves harnessing vast amounts and varieties of data from roadways, vehicles, transportation systems, and hundreds of external elements like weather, special events, and work zones, transforming it into actionable insights.

Through our Rekor One® roadway intelligence engine, we aggregate datasets from diverse sources and securely deliver insights to government agencies and private-sector clients, driving smarter, more effective decision-making across transportation management, urban mobility, and public safety ecosystems.

Our mission extends beyond connectivity—we are building a dynamic, AI-driven network to modernize traffic management, public safety, and emergency services. By applying a digital layer to existing physical infrastructure and roadways, Rekor is creating a next-generation digital operating system for roadways, delivering real-time intelligence that powers economic growth, operational excellence, and improved quality of life for communities.

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Roadway Intelligence Powered by Rekor

Rekor is working to towards transforming transportation and mobility data into actionable insights. Powered by advanced AI and fueled by diverse data sources, Rekor delivers historical and real-time, as well as predictive alerts that can be used to enhance mobility, safety, and operational efficiency across public and private sectors. Our platforms aggregate and analyze trillions of data points from roadway sensors and other IoT devices, enabling customers to make proactive, informed decisions and optimize resources, and enabling us to deliver tailored solutions for government and commercial customers in public safety, urban mobility, and transportation management.

Rekor’s solutions support a variety of use cases, including:

●	Traffic Analysis
	o	Comprehensive traffic reports, including Federal Highway Administration (“FHWA”) mandated vehicle classification, count and speed analytics.
	o	Analytics on bicycles, pedestrians, and other micro-mobility modes.
	o	Identification of patterns and hot spots for emissions and traffic impacts.
●	Traffic Operations & Management
	o	Data-driven traffic operations for improved efficiency.
	o	Real-time incident detection and response for proactive problem-solving.
	o	Proactive traffic calming around events to minimize congestion and enhance safety.
	o	Intelligent analytics to alleviate congestion, shorten commute times, and boost productivity.
●	High-Definition Video Monitoring
	o	Traffic monitoring to assist law enforcement.
	o	Support for intelligence-based policing to improve crime prevention.
	o	Contactless compliance and enforcement solutions for safety and legal adherence.
●	Enhanced Roadway Safety
	o	Real-time AI monitoring systems to detect hazards and reduce roadway fatalities.
	o	Predictive analytics to anticipate and address potential safety risks.
●	Optimized Resource Allocation
	o	AI automation to streamline operations and maximize resource allocation.
	o	Improved data accuracy to support better decision-making and strategic planning.
●	Border & Freight Management
	o	AI-based vehicle identification to enhance national security and minimize bottlenecks at borders and ports.
	o	Weigh-in-Motion (“WIM”) systems for real-time commercial trucking analytics
●	Insurance Compliance & Public Safety
	o	Automated enforcement systems to reduce uninsured drivers and improve overall public safety.

By combining advanced technology, domain expertise, and implementation capacity, Rekor can offer end-to-end roadway intelligence solutions for public agencies and private sector clients. Using our solutions, we are able to generate unique and deep insights that enable proactive and data-driven decision-making, enabling governments and businesses to unlock the full potential of their infrastructure, and foster safer, smarter, and more efficient roadways.

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The Road Ahead

The United States is now making historic investments to modernize and digitize its aging infrastructure, leveraging cutting-edge technologies like artificial intelligence, edge computing, and the internet of things. Rekor is at the forefront of this transformation, delivering state-of-the-art AI-driven roadway intelligence solutions to enhance public safety, urban mobility, and transportation management. By collecting, connecting, and organizing global mobility data, Rekor provides real-time and predictive insights for roadways, enabling smarter, safer, and more efficient mobility.

Our mission is to be a foundational partner in creating the new digital infrastructure operating system for roadways, empowering communities and businesses with actionable intelligence to drive progress. With a focus on innovation, security, and operational excellence, Rekor is shaping the future of transportation, delivering intelligent and connected solutions that pave the way for a brighter, more efficient, and sustainable future for all.

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Platforms, Products, and Solutions

Rekor's revenue streams are driven by our innovative software and data services, along with complementary hardware and peripheral products. The Rekor One® platform is designed to be the central hub of an integrated operating system, supporting the assimilation, analysis, and distribution of data from various sources. Our sales strategy involves offering subscriptions for our software and data solutions, which is intended to build a strong base of recurring revenues. These subscriptions can be provided with or without hardware sales, and our platform is designed to enable customers to enhance their existing sensor network by integrating our proprietary sensors into the network over time. While we may continue to offer long-term licenses for certain strategic partnerships, we anticipate that the bulk of our revenue in the future will come from our newer recurring models.

Rekor Command^® for Transportation Management

Commuters today face continuing congestion, safety risks, and roadway fatalities—challenges amplified by legacy transportation systems that are siloed, reactive, and overwhelmed by unusable data. Rekor Command® enables municipalities to modernize transportation management by unifying diverse data sources—including connected vehicles, incidents, construction, weather, telematics, transit, and existing infrastructure—into a single AI-driven operational platform.

By transforming raw data into real-time and predictive roadway intelligence, Rekor Command® allows agencies to shift from reactive response to proactive, coordinated traffic management. The platform acts as a digital command center for traffic operations and transportation management centers, providing a holistic, real-time view of roadway conditions and enabling faster, more informed decisions that improve safety, reduce congestion, and support sustainability.

Built to identify incidents earlier, prioritize response using AI-powered intelligence, and anticipate emerging risks such as elevated crash potential and irregular congestion, Rekor Command® supports collaborative operations across agencies—connecting traffic operators, first responders, maintenance teams, and the public through shared situational awareness and timely communications.

Rekor Command^® – Roadway Monitoring Application

The Roadway Monitoring application provides transportation operators with a real-time, map-based operational view of roadway conditions across their jurisdiction. By aggregating and analyzing data from multiple sources, the application enables agencies to identify emerging disruptions, monitor traffic conditions, and maintain continuous situational awareness of roadway networks.

Rekor Command^® – Incident Management Application

The Incident Management application enables agencies to detect, prioritize, and manage roadway incidents from initial alert through resolution. AI-driven analytics help operators identify the most critical events and prioritize response actions based on factors such as persistence, traffic impact, and safety risk. The application also supports coordinated response across operational teams and partner agencies through shared event visibility and workflow management.

Rekor Command^® – Advanced Analytics Application

The Advanced Analytics application provides agencies with tools to analyze roadway events, measure operational performance, and identify traffic trends across their networks. Through historical data analysis, reporting, and operational activity logs, agencies can evaluate incident response effectiveness, monitor system performance, and support data-driven transportation planning and investment decisions.

Rekor Command^® – Driver and Community Connect Applications

The Driver Connect and Community Connect applications enable transportation agencies to disseminate timely and trusted roadway information to travelers and the public. Through integrations with navigation platforms, connected vehicle ecosystems, and digital communication channels, agencies can deliver real-time alerts regarding incidents, closures, and roadway conditions. These capabilities improve traveler awareness, support safer routing decisions, and help reduce the likelihood of secondary incidents

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Rekor Discover^® for Urban Mobility

Traditional approaches to capturing roadway and infrastructure analytics for planning and engineering generally employ expensive, manual processes that use antiquated technology to capture a fraction of the available information for a fraction of the time. Cities, states, and municipalities know that having a clear and accurate picture of what’s happening in and around the roadway is critical as they plan and invest in the infrastructure needed for smart cities, smart transit, self-driving vehicles, and multi-modal movement across their geographies. The Rekor Discover® platform ingests data from Rekor’s innovative hardware and fully automates comprehensive analytics and actionable insights about the movement of objects across the roadway. Whether its passenger vehicles, or multi-axle commercial trucks, Rekor Discover® pulls ground truth insights, both in real-time and historically, allowing agencies to better organize and execute their next-generation roadway planning and city building initiatives in a smart and safe forward-looking way. Customers access their dashboard on web-based cloud instances and review on-demand traffic reports and analytics that breakdown vehicle volumes and patterns, FHWA 13-bin vehicle classification, count, electric vehicle volumes and hot spots, geospatial greenhouse gas emissions from vehicles, smog scores, average and spot speeds, along with a variety of other insights. In addition to agencies, many businesses need to understand the vehicle flow, patterns, types, and other important analytics regarding vehicles in their geographies. Whether it is an engineering firm collecting roadway data for their customers, or a real estate developer planning development in a specific area, the capture of accurate, holistic roadway data is valuable for their unique use cases.

Rekor Discover^® – Count, Class and Speed Application

The Count, Class and Speed (“CCS”) application within the Rekor Discover® platform delivers per vehicle record (“PVR”) data and analytics that fully automate FHWA reporting requirements for 13-bin classification. Agencies can leverage Rekor’s portable or fixed AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the CCS application's cloud-based dashboards. In addition to FHWA-13 vehicle category classification, the application also provides vehicle counting, traffic data, and speed reporting, all accessible by different agencies determined time frames. Agencies can generate reports and extract data through a REST API or also by exporting data in multiple Traffic Monitoring Guide (“TMG”) standard formats (PRN, .CSV, and .PDF) for integration with the tools they may already be using. With this technology agencies can make better-informed planning decisions with ground truth information.

Rekor Discover^® – Data as a Service

Rekor Discover Data as a Service provides agencies and customers with continuously available traffic data and analytics to support roadway safety and operational efficiency. Using AI-based fixed and portable systems, Rekor delivers per-vehicle record data including vehicle counts, FHWA 13-bin classification, speed, traffic patterns, and safety indicators such as near-miss events. This data is available in real time through cloud dashboards, APIs, and standard reporting formats, and can be delivered directly into traffic and operations centers to support monitoring, analysis, and decision-making. Discover also provides vehicle and electric-vehicle insights to support infrastructure planning, sustainability initiatives, and integration with existing operational workflows.

Rekor Discover^® – Vehicle Insite Application

Rekor Discover’s Vehicle Insite application analyzes real-time video to provide actionable, on-property vehicle intelligence such as vehicle characteristics, Electric Vehicle (“EV”) statistics and other metrics. Utilizing state-of-the-art AI and high-definition camera systems, Vehicle Insite delivers real-time traffic data to deepen the customer’s understanding of the vehicles visiting their properties, enabling enriched experiences and targeted marketing initiatives. Our Visit Metrics feature assists in the analysis of traffic flow patterns to prepare and plan for volume fluctuations, enabling a smooth and efficient experience. Our Vehicle Characteristics feature provides vehicle demographics to leverage in the creation of targeted marketing campaigns that engage and attract the ideal customer segments. Our Vehicle Characteristics feature provides vehicle demographics to leverage in the creation of targeted marketing campaigns that engage and attract the ideal customer segments. The Vehicle Insite application helps users better plan for EV charge station deployment, understand the movement of EVs and their adoption, and gather insights on where emissions and greenhouse gases are emitted from the roadway. The application provides cloud-based dashboards and reports the count of EVs, provides heatmaps for EVs as well as a breakdown of EV models, greenhouse gas emissions and smog, and other useful metrics. Agencies can leverage Rekor’s AI-based systems to capture this data in a fully automated way and then access this rich data in real-time through the sustainability planning application.

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Rekor Scout® for Public Safety

Rekor is helping to transform the typically siloed, reactive, single-purpose world of legacy law enforcement and security technology with real-time, AI-driven solutions that act as connectors between agencies and force multipliers in a chronically under-resourced space. The Rekor Scout^® platform fully automates previously manual processes with collaborative solutions that keep all stakeholders apprised of developing situations and accelerate reaction times to incidents and offenders. The platform provides accurate license plate and vehicle recognition on nearly any IP, traffic, or security camera. It provides integrated AI support for both existing cameras and any proprietary Rekor AI systems in the network and displays results on a web-based dashboard that can be accessed from anywhere by any authorized user. The platform can connect authorized law enforcement agencies to National Crime Information Center (“NCIC”) lists, allowing them to establish customized hotlists with alerts, apply customized data retention policies and share data with other agencies. Vehicles listed on “blacklists” (stolen, terrorists, amber alerts, etc.) generate an alarm in the dispatching room so that they can be intercepted by a patrol. Millions of cars per week are automatically checked in this way. Through this platform agencies can access real-time alerting, forensic research tools, and investigative tools that accelerate public safety and security missions. Agencies and customers can access plate data by state or province from over 70 countries together with the vehicles’ make, model, color, body type, and direction of travel. Users can also access subtle and unique vehicle characteristics including rust, the presence of a roof rack, mismatched paint, or the like, which can be used for investigative policing and forensics. When combined with high performance reads, parallel processing capability and best-in-class hardware such as those built and deployed by Rekor, Rekor Scout® acts as a force multiplier capturing license plate data and vehicle characteristics across multiple lanes at high vehicle speeds with a high degree of accuracy.

Rekor Scout® can also be accessed through a smartphone app designed specifically for law enforcement. This app enables advanced data capture by public safety officers in the palm of the hand, providing access to extremely accurate license plate recognition in areas not covered by stationary or mobile sensors, even where there is no network connectivity. The mobile application retrieves vehicle license plate number and state of registration and automatically organizes information by sessions, capturing date, location, and timestamp. Verified reads then sync with the Rekor Scout® platform, and users can receive in-app alerts using plate matches from custom and connected hotlists. With on-device encrypted lists and data, the mobile application is compliant with the Federal Bureau of Investigation’s Criminal Justice Information System (“CJIS”).

Through our eCommerce platform, we also offer commercial versions of Rekor Scout® which are sold as a subscription service. Rekor Scout® for commercial users includes specialized offerings that bring value to a variety of industries including parking, retail, logistics and security.

Additional Products Supporting Additional and Commercial Use-Cases

Rekor AutoNotice™ Application for Contactless Compliance

Rekor’s AutoNotice is a cloud-based financial management application that delivers a turnkey information and citation management solution for cities, states, and municipalities for both primary and secondary offenses. Our plate-based application provides a safe, equitable, and unbiased enforcement method that requires no human involvement. The application issues notices and/or sends information to registered vehicle owners when a non-compliant vehicle is detected by a Rekor AI system. Non-compliant vehicles are any vehicles actively detected to be violating the law or otherwise requiring a compliance notice. Non-compliance may include uninsured vehicles, vehicles with expired registration, and vehicles with outdated emissions/inspection statuses. We have an active deployment of our AutoNotice application for contactless compliance scanning millions of plates and delivering thousands of notices/tickets, including a program for the State of Oklahoma that facilitates enrolling uninsured motorists into a diversion program. In addition to the application, there is an application programming interface for third-party payment gateways for credit card transactions to accommodate both phone and web payments. The interface can also automatically record payments in the system and provide functionality to research, manage unapplied payments, and reconcile receipts. A full call-center is also provided with our AutoNotice application to help facilitate payment or information distribution to non-compliant citizens remotely.

Rekor CarCheck^® Application Program Interface (“API”)

Rekor CarCheck^® allows our powerful AI based vehicle and license plate recognition technology to be conveniently accessed for a wide range of commercial applications. This API supports nearly any programming language, analyzes still images of vehicles from different countries and responds in seconds with accurate license plate data, vehicle make, model, body type, color and orientation.

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Rekor Hardware Products

Rekor’s portfolio of innovative hardware products are purpose-built to optimize the value of our software as well as bring the advantages of edge AI processing to capture real-time roadway data. Data capture, aggregation and AI/ML analysis is done on device, at the point of capture on the roadway, so that it can be efficiently delivered to the point of use without processing delays. This reduces costs and enables our systems to work with significantly reduced bandwidth requirements, allowing us to deploy in almost any area, at scale, gathering insights from the roadway in real-time where it matters.

Rekor Edge Max™

Rekor Edge Max™ is a fixed traffic data collection system that captures and transforms high-resolution roadway data into holistic traffic insights. Engineered for high-speed primary roadways and highways up to 120 mph, 3-4 lanes (up to 6 lanes with dual cameras), and 300 ft max range, Edge Max seamlessly captures and processes vehicle data on-device and from advanced distances. The system features a durable enclosure, onboard modem, easy mounting, optional solar power, and can be configured with two cameras to increase capture range. The system captures and analyzes vehicles using the embedded Edge Processing Unit ("EPU") and AI-powered video processing. The Edge Max can be integrated into a network and features an onboard modem, easy mounting, optional solar power, and can even be configured with multiple cameras to increase capture range.

Rekor Edge Pro™

Rekor Edge Pro™ is a complete vehicle recognition solution that can be used on a standalone basis or integrated into a network. Engineered for roadway speeds up to 70 mph, 1-2 lanes, and 75 ft max range, the system can be deployed in neighborhoods, campuses, business districts, and can also be used for parking and access control. It captures and processes data on-device within a durable enclosure. The unit is simple to install and features optional solar power that expands the number of locations where Rekor Edge Pro™ can meet the customer’s needs.

Rekor Edge Flex™

Rekor Edge Flex™ is a non-intrusive, portable data collection system that captures and transforms high-speed roadway data into holistic traffic insights. Powered by a range of modular batteries, the Edge Flex is designed for temporary studies lasting 1 to 7 days. Edge Flex captures up to 12 lanes of traffic and employs AI-powered video processing to analyze it on site using the embedded EPU. Vehicle category classification, vehicle counts, and speed reports are made available in web-based dashboards or exported in multiple file formats that meet TMG standards.

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Rekor Traffic Services

We offer extensive traffic data collection and engineering services using both traditional and AI-based approaches. Traffic services include, but are not limited to the following:

Traditional Traffic Studies

Rekor's traditional traffic studies serve as the cornerstone for both permanent and temporary traffic analytics projects, delivering vital data and insights for those involved in the planning and management of roadway infrastructure and commercial initiatives. Our team of experts provides accurate vehicle volume counts all year round, every hour of the day, supporting trend analysis, real-time adjustments, and the advancement of traffic management systems. We emphasize tailoring our approach to meet specific goals, ensuring that each project is conducted efficiently, effectively, and in a cost-conscious manner.

Innovative AI-driven Traffic Studies

For agencies seeking to enhance their traffic management services, Rekor presents the cutting-edge AI-driven Rekor Edge Series. These solutions, available in both portable and permanent formats, mark a significant departure from traditional methods. They can be deployed quickly at roadside locations, eliminating the need for manual data collection in potentially dangerous or traffic-heavy areas.

Transitioning to Rekor’s AI-driven systems not only increases the accuracy and efficiency of traffic data collection but also prioritizes the safety of road workers by minimizing their need to work in risky conditions or disrupt traffic flow. This innovative approach is swiftly gaining favor among commercial and public entities for its ability to ensure safety, minimize road disruptions, and deliver scalable and speedy solutions. These AI-powered systems are redefining the standards of efficiency and precision, allowing clients to adeptly meet contemporary traffic management challenges.

Extensive Traffic Engineering Services

Rekor is dedicated to offering comprehensive traffic engineering services, leveraging both historical and newly gathered data. Our advanced analytical methods convert raw data into actionable insights, supporting a wide range of studies, including:

	●	Origin-Destination Studies: Map vehicle routes to support urban development planning.
	●	Travel Time Studies: Provide insights into travel efficiency and congestion patterns.
	●	Occupancy Studies: Analyze parking and vehicle occupancy to understand utilization trends.
	●	Traffic Impact & Operations Analysis: Forecast the implications of new developments and refine traffic control strategies.
	●	Access Management Studies: Formulate approaches to manage vehicular access points effectively.
	●	Traffic Signal Warrant Analysis: Evaluate the necessity for traffic signal installations.
	●	Traffic Signal System Timing Analysis and Design: Optimize traffic signal timings for smoother traffic flow.
	●	Intersection Improvements: Upgrade intersections to bolster safety and improve traffic movement.
	●	Turning Movement Counts: Document the volume and direction of vehicles, pedestrians, or cyclists at specific road locations to enhance road design, traffic signal management, and overall traffic efficiency.

Our extensive technology portfolio, combined with our ability to deploy skilled teams anywhere in the world for traffic engineering and traffic services, positions us as a leading force in shaping the future of traffic management and infrastructure development.

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Competitive Strengths

Our proprietary technologies have driven our expansion and been carefully evaluated in proof of concept trials by our public and private clients. We have earned trust and business over established incumbents as well as new entrants in highly competitive bidding processes, owing to our award-winning proprietary technology and exceptional customer service. We work to provide a unique breadth, depth, and sophistication that our integrated platform delivers to multiple missions and agencies. We seek to maintain our first-mover advantage by continuing to invest in our key differentiators and solution set.

In the transportation management, public safety, urban mobility, and commercial markets, we possess and continue to cultivate a variety of competitive strengths that set us apart:

	●	Solution-driven Approach: We bridge the gap between data and actionable solutions by converting data into information, knowledge, and insights through proprietary technology
	●	Single Source Provider: We deliver an integrated platform of solutions to meet diverse needs, serving as infrastructure and data agnostic single-source provider
	●	One Device Multiple Missions: Advanced IoT devices support multiple AI-based data collection and analytics services simultaneously, providing extreme value and extensibility.
	●	Cross-Agency Functionality: Our platform supports multiple missions with unified operating system, integrating directly into agency workflows.
	●	Industry-leading Privacy and Security: Advanced security technologies, SOC II compliance across all platforms, and proprietary algorithms to protect PII.
	●	Enhanced Accuracy and Capture for Vehicle Recognition: Superior performance under broader parameters of speed, viewing angles, and lighting conditions, with ability to capture unique vehicle signatures
	●	Technology leading Vehicle Classification, Count, and Speed: Our AI software also achieves superior accuracy and performance rates across all 13 classes and deep classification of vehicles for DOT studies in line with the latest FHWA guidelines.
	●	Deep Infrastructure Expertise: Hundreds of personnel-years of experience in roadway sensor deployment and traffic engineering.
	●	Functionality with any IP Cameras: Our AI software supports images and vehicle recognition captured by almost any digital camera, providing a flexible, infrastructure-agnostic solution that is easily scalable across geographies.
	●	Edge Processing: Low-latency alerting via edge processing enabling real-time data processing and scale without expensive infrastructure like fiber.
	●	Comprehensive Data-as-a-Service Model: Eliminates hardware ownership burden while providing FHWA-compliant traffic data through managed, turnkey solutions.

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Customer Segments and Markets

Our technology and solutions serve customers in 70 countries worldwide. Our diverse customer base includes cities, states, municipalities, law enforcement agencies, and commercial customers. While many markets are still relying on outdated physical infrastructure or in early stages of technology adoption, we see immense potential for growth.

Our focus is on providing our innovative Software as a Service ("SaaS") model and Data-as-a-Service offerings with recurring annual revenues, supplemented by hardware sales that serve as entry points. Our eCommerce platform enables us to serve individuals and smaller organizations at scale using a self-service recurring revenue model.

We expect the market for our solutions and services to be significant. We are dedicated to addressing a wide range of market segments, including intelligent transportation systems, smart mobility, traffic analytics, incident detection and location systems, traffic and parking management, smart cities, vehicle regulatory compliance programs, and more. We are confident in our competitive position and look forward to continued growth and success as we lead the way in intelligent infrastructure.

Business Drivers and Growth Strategies

Our products and services have consistently demonstrated their ability to significantly enhance public safety, urban mobility, and transportation management, positioning the company as a leader in addressing critical infrastructure challenges.

The transportation and roadway infrastructure market is undergoing transformative change, driven by a convergence of political, economic, societal, and technological forces. Rising safety concerns, rapid urbanization, and the growing need for advanced mobility solutions have prompted governments and businesses to seek innovative, scalable technologies. Increased government attention to the need to digitize transportation infrastructure, create a significant opportunity for Rekor to accelerate its growth and impact.

Our solutions are uniquely aligned with these priorities and address a wide range of challenges:

	●	Rekor Scout^®: Plays a pivotal role in public safety and law enforcement by providing advanced monitoring and intelligence tools for vehicle recognition and Automatic License Plate Recognition (ALPR) that enable proactive policing, crime prevention, real-time crime alerting, contactless compliance, and investigative policing missions. By leveraging AI and high-definition video capabilities, Scout enhances situational awareness and supports proactive, data-driven decision-making, helping to uphold law and order in communities.
	●	Rekor Command^®: Focused on enhancing roadway safety and reducing traffic congestion, Command offers unique and powerful solutions for transportation management, including real-time incident detection, proactive traffic calming, and predictive analytics. These capabilities empower agencies to allocate resources strategically, mitigate risks, response quickly to roadway incidences, and improve traffic flow, ensuring safer and more efficient roadways.
	●	Rekor Discover^®: Critical for analyzing, planning, and maintaining roadways, Discover provides data-driven insights to assess existing infrastructure and guide strategic investments. By integrating real-time data from roadway sensors, video, connected vehicles, and external sources like weather and event data, Discover supports the modernization and long-term resilience of transportation networks.

We have delivered products and services to a diverse range of customers across public and private sectors. These relationships have allowed us to refine our technologies and demonstrate their full potential in real-world applications. We continue to deepen relationships with existing customers while attracting new ones, fostering collaboration, and expanding our network to drive greater value for all stakeholders.

Our subscription-based and data-as-a-service solutions help to ensure scalability and long-term growth, with hardware sales serving as an entry point to drive adoption in key segments. Our efforts are designed to strengthen our leadership in the roadway intelligence industry and enhance its ability to deliver comprehensive, end-to-end solutions.

By aligning our mission with evolving market forces and governmental priorities, we are well-positioned to lead the next generation of transportation and public safety intelligence. With Scout, Command, and Discover working together, Rekor empowers governments and businesses to modernize infrastructure, enhance safety, reduce traffic, and build smarter, more resilient communities. As the U.S. invests in digitizing its transportation systems, we are uniquely equipped to provide the technology and expertise needed to create a brighter future for mobility and public safety.

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Competition

We operate in a competitive multi-billion-dollar market that includes companies focused on siloed areas such as ALPR, vehicle recognition technology, data aggregation, insights platforms, and smart city technologies. Many vendors rely on disconnected, analog, or previous-generation technologies. Our approach stands out by offering comprehensive, end-to-end solutions leveraging advanced AI, edge-based computing, and a robust ecosystem of partners, combined with deep services expertise from concrete to cloud.

What sets us apart is our ability to seamlessly integrate with existing ecosystem players and platforms. Unlike competitors requiring costly rip-and-replace overhauls, our solutions operate alongside and on top of existing physical infrastructure and software systems, ensuring minimal disruption. This approach allows customers to adopt our technology in alignment with current workflows, making adoption simple, intuitive, and cost-effective.

Rekor’s Competitive Advantages

Rekor’s competitive edge lies in its ability to combine deep expertise, advanced technology, and a customer-centric approach to deliver unmatched value. Below are some key factors that differentiate Rekor in the market:

	●	Comprehensive Solutions - A One-Stop Shop: Rekor works with its customers to develop a seamless, all-in-one solution, combining physical infrastructure expertise with advanced digital technologies. From roadway sensors to cloud-based data analytics, Rekor’s “concrete to cloud” approach simplifies deployment for customers and eliminates the need for multiple vendors, streamlining implementation and operations.
	●	Deep Expertise in Roadway Sensor Deployment: With thousands of people-years of experience in roadway sensor deployments, Rekor offers unparalleled expertise. This depth of knowledge allows the company to design and implement scalable, efficient solutions tailored to the unique needs of transportation agencies and municipalities.
	●	Advanced Data Collection & Analysis: Rekor collects detailed vehicle classification, count, and speed data across all 13 FHWA classes, along with deeper insights for connected, hybrid, and electric vehicles, as well as non-motorized roadway users such as bicycles and pedestrians. These capabilities provide customers with a comprehensive understanding of roadway activity, far surpassing most competitors in the market.
	●	Non-Intrusive, Safety-Focused Technology: Rekor’s ability to collect data without disrupting roadways addresses critical safety concerns for its customers. This non-intrusive approach not only enhances safety but also reduces deployment costs and risks, providing a significant competitive advantage.
	●	Proven Innovation in AI & Edge Processing: Rekor’s early adoption of AI and machine learning for vehicle recognition and roadway intelligence has given it a significant lead over competitors. The company’s proprietary edge processing and privacy filtering technologies further differentiate Rekor, enabling high-performance, privacy-compliant solutions that meet the evolving needs of the market.
	●	Integrated Insights & Predictive Analytics: The Rekor One® platform combines data from roadway sensors, connected vehicles, weather, events, and historical trends to deliver real-time, historical, and predictive insights. This comprehensive capability empowers customers to make informed, proactive decisions, optimizing resource allocation and improving safety, traffic management, and urban mobility.
	●	Seamless Integration with Existing Ecosystems: Rekor’s solutions integrate seamlessly with existing infrastructure, software platforms, and workflows, eliminating the need for costly rip-and-replace implementations. By leveraging existing customer data sets and fitting into familiar workflows, Rekor simplifies adoption and accelerates deployment, allowing customers to quickly realize value from its solutions.
	●	Collaboration with Ecosystem Players: Rekor works closely with entrenched ecosystem players to integrate its technologies into their platforms, creating collaborative partnerships that enhance functionality and deliver superior results for end users.

Sustaining Leadership in a Competitive Market

Rekor is not just focused on technological innovation but also on providing unmatched customer value. The company prioritizes:

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Design Innovation: Modular solutions that integrate seamlessly with existing infrastructure.

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Security & Privacy: Proprietary technologies to ensure data protection and compliance with strict privacy standards.

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Product Reliability: High-performance, durable solutions that exceed customer expectations.

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Exceptional Support: Building long-term customer relationships through superior service and support.

Rekor’s “land and expand” growth strategy emphasizes scaling within its existing customer base while attracting new customers with its superior offerings. By upgrading infrastructure to collect reliable data, integrating it with third-party sources, and delivering actionable insights tailored to agency-specific needs, Rekor enables its customers to achieve greater efficiency and safety while driving innovation.

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Addressing Competitive Challenges

We operate in a highly competitive market with rivals having significant resource advantages and larger installed bases, we differentiate through our comprehensive platform spanning wide range of use cases. By leveraging unmatched expertise in sensor deployment, groundbreaking technologies, and actionable insights spanning physical infrastructure to cloud systems, we remain agile, scalable, and highly responsive to customer needs.

As governments increasingly focus on technology advancement, AI innovation, and infrastructure modernization, we are uniquely positioned to align with these priorities. Our flexible, integrative solutions align perfectly with this vision, positioning the company to lead the next generation of roadway intelligence, creating smarter, safer, and more efficient transportation infrastructure and urban mobility for communities nationwide.

Marketing and Sales

We offer products and services through direct sales, an eCommerce platform, and partnerships. Our direct sales force is organized into groups aligned with Intelligent Traffic Systems (ITS) chapters and targeted market segments, with primary focus on direct-to-end-user sales through high-touch consultative processes. We have established partnerships and strategic alliances allowing us to bundle technology into purpose-built solutions for various market segments.

We remain focused on increasing roadway intelligence engagement with national, state, and municipal DOTs, while maintaining focus on law enforcement communities both directly and through strategic partners and resellers. Our solutions provide significant value to DOTs for traffic management, planning and operations, municipal planning organizations for urban mobility, law enforcement for intelligence-based policing, and corporate security applications.

Given our primary market is state and local governments in the United States, the majority of sales efforts involve request for proposal processes and grant applications. In 2025 and beyond, we continue capturing and submitting proposals and applying for grants, while seeking opportunities to submit concurrently with strategic partners.

Our eCommerce platform enables us to provide products and services to international customers without requiring large international sales forces. It offers businesses and individuals worldwide convenient access to high-value vehicle recognition solutions with self-service sign-up and subscription options. Our Edge Pro camera system is available for purchase directly through the platform with pre-loaded ALPR software activated through online or telephone subscription.

Research and Development

Success in our highly competitive industries requires consistent and timely release of innovative products, new data services, and advanced technologies. The development of our current line of products and services has required considerable up-front investment. To maintain our competitive edge, we expect to support these products by continuing to follow cutting-edge technologies and take steps to integrate these into our offerings as appropriate. This will involve developing new AI models and algorithms, licensing intellectual property, and acquiring third-party datasets and technology.

We remain committed to staying abreast of technological developments, adhering to industry standards, and meeting increasingly stringent demands for performance, productivity, quality, and predictability. We plan to continue making investments in research and development, data, and analytics as we maintain our position as an industry leader.

Proprietary Technology and Intellectual Property

Our innovative hardware devices, accessories, software, and services are protected by a collection of patents, copyrights, trademarks, service marks, trade dress, and other forms of intellectual property rights both in the United States and foreign countries. While we recognize the importance of owning these intellectual property rights and believe they contribute to our success, we know that the know-how of our skilled personnel and their technical competence and marketing abilities are the foundation of our Company's achievements.

To ensure our continued success, we will continue to file patent applications to safeguard the innovations that arise from our research, development, and design efforts, and we are currently pursuing multiple patent applications.

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Acquisitions

On January 2, 2024, we completed the ATD Acquisition. Additional information concerning the ATD Acquisition is provided in this Annual Report on Form 10-K under ITEM 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

Human Capital Management

We look for our employees to represent the best and brightest in our industry and the talent we select to be a part of our team defines our culture and success. Our global workforce is highly educated, technical and specialized, with a substantial majority of employees working in technical roles.

As of March 25, 2026, we had 234 employees, of which 233 were full-time and one was considered part-time. Although the competition for top talent in our area is significant, to date, we have been fortunate to have engaged highly qualified employees as needed. We are working to ensure that our growth efforts are not constrained by a lack of qualified personnel.

Seasonality

We derive a substantial part of our revenues from the sale of software, hardware and related services that are not subject to seasonal variation. There is currently a significant portion of our revenue that requires our technicians and field support teams to work outside. Their ability to work and provide services to our end customers can be impacted by inclement weather in the winter months and storm seasons. Should our penetration of tolling and other markets involving per recognition fees expand, we would also expect to become more subject to seasonal traffic patterns.

Insurance and Risk Management

We maintain insurance covering professional liability and claims involving bodily injury, property and economic loss. We consider our present limits of coverage, deductibles, and reserves to be adequate. Whenever possible, we endeavor to eliminate or reduce the risk of loss on a project through quality assurance and control, risk management, workplace safety, and other similar methods.

Risk management is an integral part of our project management approach for fixed-price contracts and our project execution process. We also evaluate risk through internal risk analyses in which our management reviews higher-risk projects, contracts, or other business decisions that require corporate legal and risk management approval.

Regulation

We are regulated in some of the fields in which we operate. When working with governmental agencies and entities, we must comply with laws and regulations relating to the formation, administration, and performance of contracts. These laws and regulations contain terms that, among other things, may require certification and disclosure of all costs or pricing data in connection with various contract negotiations. We are subject to the laws and regulations that restrict the use and dissemination of information classified for national security purposes.

To help ensure compliance with these laws and regulations, our employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations.

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ITEM 1A. RISK FACTORS

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Corporate Structure and Business

We are currently not profitable, and we may be unable to become profitable on a quarterly or annual basis.

For the year ended December 31, 2025, we had a net loss of $31,460,000. We have experienced and expect to continue to experience significant expenses related to acquisitions and the development of new products and services. We have deliberately incurred losses in the past as we worked to develop, test and popularize our products and services. Although the maintenance of these products and services is expected to be significantly less expensive than the initial development, competitive pressure and feedback from customers may result in further development efforts. In addition, significant portion of our expenses are fixed in advance and can only be reduced as on a percentage basis as our revenue increases. Accordingly, we cannot assure that we will be profitable or that our financial performance will sustain a sufficient level to completely support operations at any particular time in the future. Our ability to become profitable in future periods could be impacted by factors that are not in our control, including government activity and regulation, economic instability and other items. Our success as a technology-based company focused on roadway intelligence will require us to generate sufficient new revenues from the roadway intelligence market to support our business plan while continuing to operate as a public company. As a result, we may continue to experience operating losses and net losses in the future, which would make it difficult to fund operations and achieve our business plan and could cause the market price of our common stock to decline.

The market for certain of our solutions is new and unproven, may decline or experience limited growth and is dependent in part on our ability to attract new customers to adopt our platform and use our services.

The market for an ecosystem that connects government agencies, service providers and, ultimately, drivers is relatively new and some aspects of it are unproven. As a result, it is subject to several risks and uncertainties. We believe that our future success will significantly depend in large part on the growth, if any, of this market. The use of advanced vehicle recognition systems and marketplace data to obtain data on vehicles, drivers and the environment is still relatively new and potential customers may not recognize the need for, or benefits of, our platform and solutions. They also may have difficulty understanding or have misconceptions about the technologies we use. This could cause them to move cautiously in deploying our products and services or choose other vendors or providers who might appear to offer similar products.

Our ability to expand the market that our platforms and solutions address depends upon a number of factors, including the cost, performance and perceived value associated with them. The market for our platforms and solutions could fail to grow significantly or there could be a reduction in demand for its services as a result of a lack of acceptance, technological challenges, competing services, decreases in spending by current and prospective customers, weakening economic conditions and other causes. If our market does not experience significant growth, or demand for our services decreases, then our business, results of operations, and financial condition could be adversely affected.

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For our hardware product offerings we depend on component and product manufacturing provided by outsourcing partners, most of which are located outside of the U.S.

We rely on outsourcing partners primarily located in Europe and Asia to supply and manufacture many components of substantially all of our hardware products. Any failure of these partners to perform can have a negative impact on our cost or supply of components or finished goods. In addition, manufacturing or logistics in these locations or transit to final destinations can be disrupted or become more costly for a variety of reasons, including international trade disputes, natural and man-made disasters, information technology system failures, commercial disputes, military actions, and economic, business, labor, environmental, public health or political issues.

Our internal investments and go-to-market strategy may place downward pressure on our operating margins.

To increase our revenue growth, we continue to invest in our business, including investments into new markets and in innovation and product development to expand the suite of solutions we provide to our customers. Our operating margins experience downward pressure in the short term as a result of these investments. Furthermore, our investments may not produce the expected results. If we are unable to successfully execute our go-to-market strategy and product development activities, we may experience continued losses.

We have not been a leading provider of traffic management and public safety products and services in the past and do not have the level of established contacts and existing business relationships that some of our competitors have.

Although it is growing, our presence in the transportation and public safety markets has been limited. As a result of this, although we believe our products and services have significant competitive advantages, we may encounter difficulties in establishing widespread market acceptance of our products in various markets and regions. Early successes in penetrating these markets and regions may not be able to be sustained once our ability to compete with our more established competitors comes to their attention. They may seek to develop more competitive products before their existing contracts expire, reduce prices, use to advantage their past association as a trusted provider and their superior financial and marketing resources and use other stratagems to competitive advantage, which could significantly impact our ability to continue to grow.

We may need to raise additional capital in the future, which may not be available on acceptable terms, or at all.

We have experienced fluctuations in earnings and cash flows from operations from year to year. To support business growth, or if our business declines, we may need to raise additional capital to support operations, pursue acquisitions or expand our operations. Such additional capital may be raised through bank borrowings, or other debt or equity financings. We cannot assure you that any additional capital will be available on a timely basis, on acceptable terms, or at all, and such additional financing may result in further dilution to our stockholders.

Our capital requirements will depend on many factors, including, but not limited to: our ability to increase revenue, reduce net losses and generate net income; market acceptance of our services, and the overall level of sales of our services; our need to respond to technological advancements and our competitors’ introductions of new products, services or technologies; our ability to control costs; promptness of customer payments; our ability to successfully negotiate arrangements with credit providers; and enhancements to subsidiaries’ infrastructure and systems.

If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, and such securities may have rights, preferences and privileges senior to our common stock. Additional equity or debt financing may not be available on favorable terms, on a timely basis, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to continue our operations as planned, develop or enhance our products, expand our sales and marketing programs, take advantage of future opportunities or respond to competitive pressures, or we may be forced to sell assets at prices below their stated value.

If we experience declining or flat revenues and fail to manage such declines effectively, we may be unable to execute our business plans and may experience future weaknesses in operating results.

To achieve future growth, we will need to continue to employ qualified personnel and invest in additional research and development and sales and marketing activities, which could limit our ability to reduce expenses or lead to increases in our expenses and result in future declines in operating results. In addition, our future expansion is expected to place a significant strain on our managerial, administrative, operational, financial and other resources. If we are unable to manage these activities or any revenue declines successfully, our business, financial condition and results of operations could be adversely affected.

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If we are unable to retain our existing customers, our revenue and results of operations would be adversely affected.

Customers have no obligation to renew their contracts or subscriptions after they expire, and these contracts and subscriptions may not be renewed on the same or more profitable terms. In addition, many of our large governmental contracts are subject to termination on short notice without cause. As a result, our ability to sustain our revenue base depends in part on contracts and subscription renewals. We may not be able to accurately predict future trends in customer renewals, and our customers’ renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our products and services, the prices of our services, the prices of the products and services offered by our competitors or reductions in our customers’ spending levels. If our customers do not renew their contracts and subscriptions for our products and services, renew on less favorable terms, or do not purchase additional functionality, our revenue may grow more slowly than expected or decline, and our profitability and gross margins may be harmed.

Our sales cycles for commercial and government clients can be long, unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.

The timing of our revenue from sales to commercial and government clients is difficult to predict. These efforts require us to educate our clients about the use and benefit of our services, including the technical capabilities and potential cost savings to an organization. Both governmental and commercial clients typically undertake a significant evaluation and pilot testing process that has in the past resulted in lengthy sales cycles, typically several months. Government oversight and alignment of operational needs and political support may also introduce delay. We may spend substantial time, effort and money on our sales efforts without any assurance that these efforts will produce any sales. In addition, sales and subscriptions are frequently subject to budget constraints and unplanned administrative, processing and other delays. If sales expected from a specific client for a particular reporting period are not realized in that period or at all, our results could fall short of expectations and our business, operating results and financial condition could be adversely affected.

Industry consolidation may result in increased competition.

Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer a more comprehensive service than they had offered individually. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships or strategic relationships. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. Many of the companies driving this trend have significantly greater financial, technical and other resources than we do and may be better positioned to acquire and offer complementary services and technologies. Such combinations and realignments may create more compelling service offerings or offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. These pressures could result in a loss of customers, reduction in revenues or limitation on our ability to grow.

We may not be able to respond to rapid technological changes in time to address the needs of our customers, which could have a material adverse effect on our sales and profitability.

The cloud-based services and AI-based product markets in which many of our products and services compete are characterized by rapid technological change, frequent introduction of new products and services and evolving industry standards. Our ability to remain competitive will depend in large part on our ability to continue to enhance our existing products and services and develop new service offerings that keep pace with these markets’ rapid technological developments. Additionally, to achieve market acceptance, we must effectively anticipate and offer products and services that meet changing client demands in a timely manner. Clients may require features and capabilities that our current products and services do not have. If we fail to develop products and services that satisfy customer requirements in a timely and cost-effective manner, our ability to renew subscriptions with existing clients and our ability to create or increase demand for our products and services will be harmed, and our revenue and results of operations would be adversely affected.

The success of our business will depend, in part, on the continued services of certain key personnel and our ability to attract and retain qualified personnel.

The success of our business will depend, in part, on the continued services of certain members of our management. Our inability to attract and retain qualified personnel could significantly disrupt our business.

Although we take prudent steps to retain key personnel, we face competition for qualified individuals from numerous professional services and technology companies. For example, our competitors may be able to attract and retain more qualified professional and technical personnel by offering more competitive compensation packages. If we are unable to attract new personnel and retain our current personnel, we may not be able to develop and maintain our services at the same levels as our competitors and we may, therefore, lose potential customers and sales penetration in certain markets. It may also be difficult to attract and retain qualified individuals in the timeframe demanded by our clients. Furthermore, some of our contracts may require us to employ only individuals who have particular government security clearance levels.

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We may fail to realize the anticipated benefits of acquisitions which we consummate, and we may be subject to business uncertainties.

Uncertainties about the effect of our recent and planned acquisitions on employees and customers may have an adverse effect on our Company. These uncertainties may impair our ability to attract, retain and motivate key personnel for a period of time after the acquisitions, and could cause customers, suppliers and others that deal with us to seek to change existing business relationships with us, which may have an adverse effect on our Company. Employee retention may be particularly challenging, as employees may experience uncertainty about their future roles with us.

The achievement of the benefits expected from the integration of acquired companies may require us to incur significant costs. The incurrence of any such costs, as well as any unexpected costs or delays, in connection with such integration, could have a material adverse effect on our business, operating results or financial condition.

We may be required to write-down certain assets after completing our required annual evaluations, which may affect our reported financial results.

The initial determination of the fair value of assets we acquire upon consummation of an acquisition is based upon an internal valuation. We are required to analyze the carrying value of our acquired intangibles and goodwill on an annual basis going forward. After the detailed annual evaluation of the carrying value of the intangible assets, as supported by external analysis, we may be required to make adjustments to our consolidated balance sheet and/or statement of operations. Any adjustments will affect our reported financial results.

Our operating results may be harmed if we are required to collect sales or other related taxes or duties for our licensing and subscription products and services or pay regulatory fees in jurisdictions where we have not historically done so.

Primarily due to the nature of our cloud-based services in certain states and countries, we do not believe we are required to collect sales or other related taxes from our customers in certain states or countries. However, one or more other states or countries may seek to impose sales, regulatory fees or other tax collection obligations on us, including for past sales by us or our resellers and other partners. A successful assertion that we should be collecting sales or other related taxes on our services or paying regulatory fees could result in substantial tax liabilities for past sales, discourage customers from purchasing our services or otherwise harm our business and operating results.

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Improper disclosure of confidential and personal data could result in liability and harm to our reputation.

Our handling and storage of the data we collect from some of our customers, vendors and employees, and our processing of data, which may include confidential or personally identifiable information, through the services we provide, may be subject to a variety of laws and regulations, which have been adopted by various federal, state and foreign governments to regulate the collection, distribution, use and storage of personal information of individuals. Several foreign countries in which we conduct business, including the European Economic Area (“EEA”) and Canada, currently have in place or have recently proposed, laws or regulations concerning privacy, data protection and information security, which are more restrictive than those imposed in the United States. Some of these laws are in their early stages and we cannot yet determine the impact these revised laws and regulations, if implemented, may have on our business. However, any failure or perceived failure by us to comply with these privacy laws, regulations, policies or obligations or any security incident that results in the unauthorized release or transfer of personally identifiable information or other customer data in our possession, could result in government enforcement actions, litigation, fines and penalties and/or adverse publicity, all of which could have an adverse effect on our reputation and business.

For example, the EEA wide General Data Protection Regulation (“GDPR”) became applicable on May 25, 2018, replacing the data protection laws of each EEA member state. The GDPR implemented more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. It also significantly increases penalties for non-compliance, including where we act as a service provider (e.g. data processor). If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices, fines, for example, of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year (whichever is higher) under the GDPR, or other liabilities, as well as negative publicity and a potential loss of business.

Data protection regulation remains an area of increased focus in all jurisdictions and data protection regulations continue to evolve. There is no assurance that we will be able to meet new requirements that may be imposed on the transfer of personally identifiable information from the EU to the United States without incurring substantial expense or at all. European and/or multi-national customers may be reluctant to purchase or continue to use our services due to concerns regarding their data protection obligations. In addition, we may be subject to claims, legal proceedings or other actions by individuals or governmental authorities if they have reason to believe that our data privacy or security measures fail to comply with current or future laws and regulations.

Moreover, we must ensure that certain vendors and customers who have access to such information also have the appropriate privacy policies, procedures and protections in place. Although we take customary measures to protect such information, the continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. If our security measures are breached as a result of third-party action, employee or subcontractor error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to customer data, our reputation may be damaged, our business may suffer and we could incur significant liability. Techniques used to obtain unauthorized access or to sabotage systems change frequently and are growing increasingly sophisticated. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.

This environment demands that we continuously improve our design and coordination of security controls throughout our business. Despite these efforts, it is possible that our security controls over data, training and other practices we follow may not prevent the improper disclosure of personally identifiable or other confidential information.

If an actual or perceived breach of our security occurs, we could be liable under laws and regulations that protect personal or other confidential data resulting in increased costs or loss of revenues and the market perception of our services could be harmed.

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Our business could be negatively impacted by cyber and other security threats or disruptions.

We face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks; insider threats; threats to the security of our facilities and infrastructure; and threats from terrorist acts or other acts of aggression. Cyber threats are constant and evolving and include, but are not limited to, computer viruses, malicious software, destructive malware, attacks by computer hackers attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release or loss of confidential, personal or otherwise protected information (ours or that of our employees, customers or subcontractors), and corruption of data, networks or systems. In addition, we could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners’ or customers’ systems that are used in connection with our business. Our clients and subcontractors face similar threats and/or they may not be able to detect or deter them, or effectively mitigate resulting losses. These threats could damage our reputation as well as our subcontractor’s ability to perform and could affect our client’s ability to pay.

Although we use various procedures and controls to monitor and mitigate the risk of these threats to us, our clients and our partners, there can be no assurance that these procedures and controls will be sufficient. The impact of these factors is difficult to predict, but one or more of them could result in the loss of information or capabilities, harm to individuals or property, damage to our reputation and/or require remedial actions or lead to loss of business, regulatory actions potential liability and financial loss, any one of which could have a material adverse effect on our financial position, results of operations and/or cash flows.

We are dependent upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, our customer and worker relationships and our ability to attract new customers may be adversely affected.

Our business could be interrupted by damage to or disruption of our computer, telecommunications equipment, software systems, or software applications. Our customers’ businesses may be adversely affected by any system, application or equipment failure we experience. As a result of any of the foregoing, our relationships with our customers may be impaired, we may lose customers, our ability to attract new customers may be adversely affected and we could be exposed to contractual liability. Precautions in place to protect us from, or minimize the effect of, such events may not be adequate.

In addition, the failure or disruption of mail, communications and/or utilities could cause an interruption or suspension of our operations or otherwise harm our business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, revenue, profits and operating results could be adversely affected.

If we do not keep pace with rapid technological changes and evolving industry standards, we will not be able to remain competitive, and the demand for our services will likely decline.

The markets in which we operate are in general characterized by the following factors: changes due to rapid technological advances; additional qualification requirements related to technological challenges; and evolving industry standards and changes in the regulatory and legislative environment. Our future success will depend upon our ability to anticipate and adapt to changes in technology and industry standards and to effectively develop, introduce, market and gain broad acceptance of new product and service enhancements incorporating the latest technological advancements.

A downturn of the U.S. or global economy or in our ability to provide customers with a sustained level of support could result in our customers using fewer products and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

Because demand for our solutions and services is sensitive to changes in the level of economic activity, our business may suffer during economic downturns. During periods of weak economic growth or economic contraction, the demand for outsourced services could decline. In addition, market forces may restrict our ability to sustain funding for our sales and support efforts. When the level of demand for our products and services drops, our operating profit could be impacted unfavorably because expenses may not decline as quickly as revenues. In these periods, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our business.

Additionally, during economic downturns, government agencies and companies may slow the rate at which they pay their vendors, or they may become unable to pay their obligations. If our customers become unable to pay amounts owed to us or pay us more slowly, then our cash flow and profitability may suffer significantly.

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Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations, which could subject our business to higher tax liability.

We may be limited in the portion of net operating loss carryforwards that we can offset future taxable income for U.S. federal and state income tax purposes. As of December 31, 2025, we had gross federal and state net operating loss carryforwards, or NOLs, of approximately $229,894,000 and $220,253,000, respectively, which include both domestic and foreign NOLs as further described in Note 10 to our consolidated financial statements. A lack of future taxable income could adversely affect our ability to use these NOLs. In addition, future changes in our stock ownership, including through acquisitions, could result in ownership changes under Section 382 of the Internal Revenue Code and may result in a limitation on the amount of NOL carryforwards that could be used annually to offset future taxable income and taxes payable. Our NOLs at December 31, 2025 may also be impaired under similar provisions of state law and may expire unused or underused, which would prevent us from using our NOL carryforwards to offset future taxable income.

Assertions by a third party that our services and solutions infringe its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or result in settlements or licensing arrangements that could affect our short-term or long-term profitability.

There is frequent litigation in the software and technology industries based on allegations of infringement or other violations of intellectual property rights. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel or require us to develop non-infringing technology or enter into license agreements. Because of the potential for court awards that are difficult to predict, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. In addition, our service agreements may require us to indemnify our customers from certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. Competitors may also seek to use these claims and the pendency of associated litigation as a means of attempting to discredit us or make potential customers fearful of using us, which could harm our relationships with our customers, deter future customers from subscribing to our services or expose us to further litigation. These costs, monetary or otherwise, associated with defending against third-party allegations of infringement could have negative effects on our business, financial condition and operating results.

If our services are used to commit intentional or illegal acts, we may incur significant liabilities, our services may be perceived as not secure, and customers may curtail or stop using our services.

Certain services offered by us enable customers to capture data from video images. Although our service agreements require our customers to comply with all applicable laws, we do not exercise direct control overuse or content of information obtained by our customers through the use of our services. If our services are used by others to commit bad or illegal acts, we may become subject to claims and subject to other potential liabilities. Defending against such claims could be expensive and time-consuming, and there is a possibility that we could incur significant liability to entities who were harmed by such acts. As a result, our business may suffer, and our reputation may be damaged.

We use a limited number of data centers to deliver our services. Any disruption of service at these facilities could harm our business.

Our cloud-based services are hosted from third-party data center facilities located in various parts of the United States. We also use these facilities for some of our development efforts. We do not control the operation of these facilities. The owners of these data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so. In addition, our operations and development efforts could be seriously affected by failures or interruptions in service at these facilities. Any changes in third-party service levels at these third-party data centers or any errors, defects, disruptions or other performance problems with our services related to the non-performance of these facilities could harm our reputation and may damage our clients’ businesses. Interruptions in our services might reduce our revenue, cause us to issue credits to clients, subject us to potential liability, cause clients to terminate their subscriptions or harm our renewal rates.

Our data centers are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. The occurrence of a natural disaster, an act of terrorism, vandalism or other misconduct, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services.

Our long-term success depends, in part, on our ability to expand the sales of our services to customers located outside of the United States, and thus our business is susceptible to risks associated with international sales and operations.

Conducting international operations subjects us to other risks than those we have generally faced in the United States. These risks include: localization of our services and adaptation for local practices, differences in local, legal standards and regulatory requirements; difficulties in managing and staffing international operations; fluctuations in currency exchange rates; dependence on customers, third parties, and channel partners with whom we do not have extensive experience; potentially adverse tax consequences, including the complexities of foreign value-added or other tax systems; reduced or varied protection for intellectual property rights in some countries; and increased financial accounting and reporting burdens and complexities. Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

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Our success depends in part on our ability to protect and enforce our intellectual property rights.

We rely on a combination of trade secret, patent, copyright, service mark and trademark laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our intellectual property rights, all of which can provide only limited protection. In addition, we have not patented significant technologies used to provide our services. We cannot assure you any future patents that may be applied for and issued will not be challenged, invalidated or circumvented. Any patents that we may issue in the future from future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that any future service mark or trademark registrations will be issued for pending or future applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our proprietary rights.

We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Enforcement of our intellectual property rights also depends on our successful legal actions against these infringers, but these actions may not be successful, even when our rights have been infringed.

Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving.

Material defects or errors in the software that we use to deliver our services could harm our reputation, result in significant costs to us and impair our ability to sell our solutions.

The software applications underlying our products and services are inherently complex and may contain material defects or errors, particularly when first introduced or when new versions or enhancements are released. Any defects that cause interruptions to the availability of our products and services could result in: a reduction in sales or delay in market acceptance of our services; sales credits or refunds to customers; loss of existing customers and difficulty in attracting new customers; reputational harm; and diversion of internal resources. The costs incurred in correcting any material defects or errors in our products and services may be substantial and could harm our operating results.

Government regulation of the Internet, telecommunications and other communications technologies could harm our business and operating results.

As internet commerce and telecommunications continue to evolve, increasing regulation by federal, state or foreign governments and agencies becomes more likely. Any increase in regulation could affect our clients’ ability to collect and share data, potentially reducing demand for our products and services. In addition, taxation of products and services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet or utilizing telecommunications services may also be imposed. Any regulation imposing greater fees for internet use or restricting the exchange of information over the internet could diminish the viability of our services, which could harm our business and operating results.

Natural disasters, public health crises, political crises, and other catastrophic events or other events outside of our control may damage our business and operating results.

In the event of natural disasters, public health crises, such as pandemics and epidemics, including from the continued effects of the COVID-19 pandemic, political crises, such as terrorism, war, political instability or other conflicts, or other events outside of our control, our business and operating results could suffer. Moreover, these types of events could negatively impact consumer spending in the impacted regions or depending upon the severity, globally, which could adversely impact our operating results.

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Risks relating to our common stock

If securities or industry analysts do not publish research or publish inaccurate or unfavorable reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease covering us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

Sales of a substantial number of shares of our common stock may cause the price of our common stock to decline.

As of March 25, 2026, we have a total of 136,578,177 shares of common stock outstanding. Based on shares outstanding as of March 25, 2026, 4,430,219 shares of common stock, or 3.2%, are beneficially owned by our officers, directors and their affiliated entities, and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, 13,682,656 shares of our common stock that are subject to outstanding options, restricted stock units and warrants as of March 25, 2026, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, and Rules 144 and 701 under the Securities Act.

We cannot predict what effect, if any, sales of our shares in the public market or the availability of shares for sale will have on the market price of our common stock. However, future sales of substantial amounts of our common stock in the public market, including shares issued on exercise of outstanding options, or the perception that such sales may occur, could adversely affect the market price of our common stock.

The market price of our common stock may be volatile and this may adversely affect our stockholders.

The price at which our common stock trades may be volatile. The stock market can experience significant price and volume fluctuations that affect the market prices of all securities, including securities of companies like us. The market price of our common stock may be influenced by many factors, including:

	•		our operating and financial performance;
	•		variances in our quarterly financial results compared to expectations;
	•		future sales of common stock or debt or the perception that sales could occur;
	•		investor perception of our business and our prospects;
	•		developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein; or
	•		general economic and stock market conditions.

In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated to or disproportionate to the operating performance of companies in our industry. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

Investors may experience future dilution as a result of future equity offerings.

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. We cannot assure investors that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors, and investors purchasing our shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we may sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share paid by investors.

We do not intend to pay dividends on our common stock for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends on our common stock in the foreseeable future. We currently anticipate that for the foreseeable future we will retain all of our future earnings for the development, operation and growth of our business and general corporate purposes. Any future determination to pay dividends on our common stock will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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We are a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.

We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a “smaller reporting company,” and have had annual revenues of less than $100 million and public float of less than $700 million during the most recently completed fiscal year. As a “smaller reporting company,” we are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, "smaller reporting companies" are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited consolidated financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our operating results and financial prospects.

Delaware law and provisions in our certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

The anti-takeover provisions of the Delaware General Corporation Law, or the DGCL, may discourage, delay or prevent a change of control by prohibiting us from engaging in a business combination with stockholders owning in excess of 15% of our outstanding voting stock for three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult, including that: the request of one or more stockholders holding shares in the aggregate entitled to cast not less than 35% of the vote at a meeting is required to call a stockholder meeting. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take certain actions you desire.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 1C. CYBERSECURITY

Rekor recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data and our exposure management solutions. Our assessment and management of material risks from cybersecurity threats are integrated into our overall risk management processes. We implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our information systems and data depending on the environment.

We have an established policy on information security, as well as overall corporate information and workforce and workplace standards policies. These are collectively designed to establish auditable procedures for information security oversight by management, including: 1) identification of different types and forms of information, 2) guidelines for acceptable use and dissemination of information, 3) handling use and destruction of information, 4) personnel and physical site security, 5) incident reporting and response, 6) recovery plans, and 7) standards for web-based applications, communications and mobile devices. Three levels of security procedures have been identified as relating to the sensitivity of the information we manage in connection with different operations. Our policies call for the individuals assigned to these procedures to review and certify them annually and to recommend changes where appropriate. All breaches are required to be reported to senior management and the Board, together with a report on response and recovery, as well as recommendations to address further challenges.

Our information security procedures are overseen by our Vice President of Risk Management, supported by our Chief Technology Officer and our IT Manager, who are responsible to provide regular reports to our President and Chief Executive Officer and Chief Financial Officer as well as the Governance Committee of our Board. These procedures are responsible for identifying, assessing, and managing cybersecurity threats and risks and work to monitor and evaluate our threat environment and risk profile using various methods. These methods include evaluating our and our industry’s risk profile, coordinating with law enforcement concerning select threats, and engaging with third parties to conduct external audits and threat assessments for certain systems.

Our Information Security Policy and procedures are reviewed on an ongoing basis. These procedures are implemented by our Vice President of Risk Management, assisted by a managed service provider (“MSP”). Our MSP has over 15 years of experience and possesses various cybersecurity certifications. Third-party service providers can assist us from time to time in identifying, assessing, and managing material risks from cybersecurity threats, including for example cybersecurity consultants and software providers, managed cybersecurity service providers, threat intelligence service providers, forensic investigators, penetration testing firms, dark web monitoring services, and professional services firms, including legal counsel and auditors. By partnering with these specialized providers, we can leverage their insights and expertise to implement cybersecurity strategies and processes that are designed to align with industry best practices.

Our senior management evaluates material risks from cybersecurity threats against our overall business objectives and this evaluation and the management of material risks from cybersecurity threats is integrated into our overall risk management processes. This integration is designed to ensure that cybersecurity considerations are part of our decision-making processes.

See Risk Factors in this Annual Report on Form 10-K for a description of the risks from cybersecurity threats that may materially affect us and how they may do so.

ITEM 2. PROPERTIES

Our principal executive office is located at 6721 Columbia Gateway Drive, Suite 400, Columbia, Maryland 21046. We do not own any real property. We do not consider any of our leased properties to be materially important to us. While we believe it is necessary to maintain offices through which our services are coordinated, we feel there are sufficient available office rental properties to adequately serve our needs should we need to relocate or expand our operations.

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ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. 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. It is the Company’s opinion that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.

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 (see NOTE 13 – STOCKHOLDERS’ EQUITY). That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company may enter into during the specified tail period with investors introduced to the Company by HCW during the term of the letter, as well as a right of first refusal ("ROFR") to act as the Company's exclusive underwriter or placement agent on any subsequent financing transactions utilizing an underwriter or placement agent occurring within twelve months from the consummation of a transaction pursuant to the engagement letter.

In July 2023, the Company entered into an agreement with one of its warrant holders in connection with the exercise of warrants, which the Company refers to as the July Warrant Exercise Transaction. Subsequent to the July Warrant Exercise Transaction, the Company received a letter from HCW claiming entitlement to certain “tail” fees and warrant consideration stemming from the agreement with the warrant holder. 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 2023 Registered Direct Offering.

On or about October 23, 2023, HCW filed a complaint in New York State Supreme Court asserting a claim for breach of contract against the Company relating to the July Warrant Exercise Transaction. 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 2024 offering, which we refer to as the 2024 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 2023 Registered Direct Offering, Armistice’s trading activity in Rekor common stock, and Rekor’s 2024 Public Offering. After HCW and Armistice moved to dismiss Rekor’s counterclaims, Rekor filed amended counterclaims on October 1, 2024. In Q3 2025, Rekor resolved its claims with Armistice. The proceeds are presented as part of other expense (income) in the condensed consolidated statement of operations. 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. Rekor has filed a notice of appeal of that ruling.

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

In 2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints. 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 by one employee in advance of a March 3, 2025 hearing 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. Our brief is due on March 31, 2026. Complainant then has fourteen (14) days from the submission of our brief to file a reply.

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the Nasdaq Capital Market under the symbol “REKR”.

Holders

As of March 25, 2026, there were 47 registered holders of record of our common stock, excluding stockholders for whom shares are held in “nominee” or “street name.” The actual number of common stockholders is greater than the number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate that all of our earnings will be used to provide working capital, to support our operations, and to finance the growth and development of our business, including potentially the acquisition of, or investment in, businesses, technologies or products that complement our existing business. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant.

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Recent Sales of Unregistered Securities

2023 Promissory Notes with Warrants

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2023, the Company entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $15,000,000 in aggregate principal amount of senior secured promissory notes (the "2023 Promissory Notes"), and (ii) warrants to purchase up to an aggregate of 7,500,000 shares of common stock of the Company. In connection with the initial closing on January 18, 2023, the Company issued $12,500,000 in aggregate principal amount of notes and warrants to purchase 6,250,000 shares of Common Stock, resulting in proceeds to the Company of $12,500,000 before reimbursement of expenses.

New Registered Direct Warrants

On July 25, 2023, we entered into a letter agreement with an institutional investor in connection with the Registered Direct Warrants. Pursuant to the letter agreement, we agreed to issue to the institutional investor 2,850,000 unregistered warrants (the "2023 Private Warrants") to purchase shares of our common stock in exchange for the imposition of volume and trading restrictions on the 6,872,853 shares of common stock issued to the institutional investor in connection with exercise of the 2023 Private Warrants. The 2023 Private Warrants terminate on January 25, 2029, and are exercisable after issuance only for cash. The 2023 Private Warrants have an exercise price of $3.25 per share. The shares of common stock underlying the 2023 Private Warrants have been registered for resale on Form S-3.

ATD Acquisition

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 3, 2024, as part of the purchase price for the ATD acquisition the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration. Additionally, 664,329 shares were to be issued and delivered to the Seller on the twelve-month anniversary of the Closing Date. The ATD Holdback Shares were deemed to be liability based and are measured at fair value each reporting period. The shares issued and issuable 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.

2023 Promissory Notes Redemption

On March 4, 2024, the Company completed the redemption of all the 2023 Promissory Notes. The 2023 Promissory Notes at the redemption price of 115% of the $12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000, (the “Redemption Payment”). 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 paid in cash. On July 19, 2024, the Company filed a registration statement on Form S-3 to register these shares, which was declared effective by the SEC on July 30, 2024.

Warrant Exercise Agreements

On June 20, 2024, the Company entered into various Warrant Exercise Agreements with certain holders of the 2023 Warrants (each an “Exercising Holder” and collectively, the “Exercising Holders”), pursuant to which the Company reduced the strike price of the 2023 Warrants from $2.00 per warrant to $1.40 per warrant to induce their exercise. In June 2024, all but one of the Exercising Holders subsequently exercised 1,400,000 warrants for common stock in exchange for $1,960,000. In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $3,185,000.

In consideration for the Company’s agreement to reduce the exercise price, the Exercising Holders agreed to a concomitant reduction in the number of shares into which the 2023 Warrants are exercisable, from 5,250,000 to 3,675,000. This modification resulted in a decrease in the overall fair value of the equity classified warrants and since no incremental value was given to the Exercising Holders, nothing was recorded in the consolidated financial statements related to the modification. The shares issued in connection with the Warrant Exercise Agreement have been registered on a resale registration statement on Form S-3 filed with the SEC on July 19, 2024, and declared effective by the SEC on July 30, 2024.

December 2025 Underwriting Agreement Warrants

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 direct offering of 8,571,428 units at a public offering price of $1.75 per unit (the "2025 Underwriting Agreement"). Each unit consisted of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock. The shares the Company's common stock and warrants comprising the units were immediately separable and were issued separately. The offering closed on December 16, 2025.

Each warrant has an exercise price of $2.40 per share, is immediately exercisable, and expires on December 16, 2032 (seven years from the date of issuance). The warrants are subject to a 9.99% beneficial ownership limitation and contain standard adjustment provisions for stock dividends, splits and similar events. The warrants may be exercised on a cashless basis if, at the time of exercise, there is no effective registration statement registering the shares of common stock underlying the warrants.

The shares the Company's common stock included in the units that were offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-280913), as supplemented by a prospectus supplement dated December 15, 2025. The warrants were issued in a private placement to a single institutional investor in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering. The Company did not register the warrants under the Securities Act, and the warrants may not be offered or sold absent registration or an applicable exemption from registration. The shares the Company's common stock issuable upon exercise of the warrants have been registered for resale pursuant to a registration statement on Form S-3.

In connection with the offering, the Company also entered into a Side Letter Agreement with Anson Advisors Inc. (the “Side Letter”), which includes, among other things, a restriction prohibiting the Company from effecting or entering into any Variable Rate Transaction (as defined in the Side Letter) while any December 2025 warrants remain outstanding. The Side Letter also provides the investor with participation rights in future firm-commitment underwritten offerings, subject to customary exceptions.

The gross proceeds to the Company 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.

ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report and the historical financial statements of Rekor Systems, Inc., and the related notes thereto.

Overview

Rekor is working to revolutionize public safety, urban mobility, and transportation management using AI-powered solutions designed to meet the distinct demands of each market we serve. We work hand-in-hand with our customers to deliver mission-critical traffic and engineering services that assist them in achieving their goals. Our vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities. We work towards this by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to our customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

General

The information provided in this discussion and analysis of Rekor’s financial condition, and results of operations covers the years ended December 31, 2025 and 2024. In 2024, we completed the acquisition of 100% of the issued and outstanding limited liability company interests of All Traffic Data Services, LLC (“ATD”).

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Acquisitions and Dispositions

In 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $20,576,000. See Note 2 to our consolidated financial statements for additional information related to our acquisition of ATD.

Opportunities, Trends and Uncertainties

We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time. Although there are many that we may not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following:

	●	Growing Smart City Market – According to a United Nations report, about two-thirds of the world population will live in urban areas by 2050. The world’s cities are getting larger, with longer commutes and the resulting impact on the environment and the quality of life. This trend requires forward-thinking officials to manage assets and resources more efficiently. We believe that advancements in “big data” connected devices and artificial intelligence can provide Intelligent Transportation System (“ITS”) solutions that can be used to reduce congestion, keep travelers safe, improve transportation, protect the environment, respond to climate change, and enhance the quality of life. We believe our data-driven, artificial intelligence-aided solutions provide useful tools that can effectively tackle the challenges cities and communities are facing today and will face over the coming decades.
	●	AI for Infrastructure – We believe that the application of AI to the analysis of conditions on roadways and other transportation infrastructure can significantly affect the safety and efficiency of travel in the future. As vehicles move towards full automation, there is a need for real-time data and actionable insights around traffic flow, identification of anomalous and unsafe movements – e.g. wrong way vehicles, stopped vehicles, or/and pedestrians on the roadway. Marketers and drive-thru retailers with loyalty programs can also benefit from rapid, lower cost identification of existing and potential customers in streamlining and accelerating local vehicular flow as well as data about the vehicles on the roadway.
	●	Connected Vehicle Data – Today’s new vehicles are equipped with dozens of sensors, collecting information about internal systems, external hazards, and driving behaviors. This data is a resource that transportation and other agencies are beginning to find valuable uses for. Notably, the data from these vehicles represent a virtual network that is independent of the infrastructure which is maintained and operated by the public agencies. Connected vehicle sensors can provide important information related to hazardous conditions, speed variations, intersection performance, and more. This data can help agencies and municipalities gain more visibility about conditions on their roads, supplementing data from existing infrastructure and allowing transportation information from rural areas that are not served by ITS infrastructure to be integrated into the overall analysis.
	●	New and Expanded Uses for Vehicle Recognition Systems – We believe that reductions in the cost of vehicle recognition products and services will significantly broaden the market for these systems. We currently serve many users who could not afford the cost, or adapt to the restrictions of, conventional vehicle recognition systems. These include smaller municipalities, homeowners’ associations, and organizations finding new applications such as innovative customer loyalty programs. We have seen and responded to an increase in the number of smaller jurisdictions that are testing vehicle recognition systems or that issued requests for proposals to install a network of vehicle recognition sensors. We also expect the availability of faster, higher-accuracy, lower-cost systems to dramatically increase the ability of crowded urban areas to manage traffic congestion and implement smart city programs.
	●	Adaptability of the Market – We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy, affordability and ability to capture additional vehicle data will allow them to compete effectively with existing providers. Based on published benchmarks, our software currently outperforms competitors. However, large users of existing technology, such as toll road operators, have long-term contracts with service providers that have made considerable investments in their existing technologies and may not consider the improvements in accuracy or reductions in cost sufficient to justify abandoning their current systems in the near future. In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop their own systems or secure advanced systems from others who are also working to develop them. As a result, our success in establishing a major position in these markets will depend on being able to effectively communicate our presence, develop strong customer relationships, and maintain leadership in providing the capabilities that customers want. As with any large market, this will require considerable effort and resources.
	●	Expansion of Automated Enforcement of Motor Vehicle Laws – We expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial. We believe that future legislation will increasingly allow for automated enforcement of regulations such as motor vehicle insurance and registration requirements. Communities are currently searching for better means of achieving compliance with minor vehicle offenses, such as lapsed registrations, and safety issues such as motorists who fail to stop for school buses. For example, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states are considering authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road. To the extent that legislative implementation is required, a deliberative and necessarily time-consuming process is involved. However, as states expand auto-enforcement, the market for these products and services should broaden in the public safety market.
	●	Graphic Processing Unit (“GPU”) Improvements – We expect our business to benefit from more powerful and affordable GPU hardware that has recently been developed. These GPUs are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central processing units (“CPUs”) for algorithms that process large blocks of data, such as those produced by video streams. GPUs also provide superior memory bandwidth and efficiencies as compared to their CPU counterparts. The most recent versions of our software have been designed to use the increased GPU speeds to accelerate image recognition. The GPU market is predicted to grow as a result of a surge in the adoption of the Internet of Things (“IoT”) by the industrial and automotive sectors. As GPU manufacturers increase production volume, we hope to benefit from the reduced cost to manufacture the hardware included in our products or available to others using our services.
	●	Edge Processing – Demand for actionable roadway information continues to grow in parallel with sensor improvements, such as increasingly sophisticated internal software and optical and other hardware adapted to the use of this software. Over the last several decades, sensors have evolved and unlocked new capabilities with each advancement. Further, cellular networks have been optimized for downloading data rather than uploading data. As a result, while download speeds have improved significantly due to large investments in cellular infrastructure, this has resulted in relatively small improvements to cellular upload speeds. With roadside deployments experiencing explosive growth in count and density, scalability, latency and bandwidth have become aspects of competition in the market. Our systems have been designed to address these issues through the use of more effective edge processing, enabled both by incorporating the increasingly effective new GPUs into our systems and continual improvements in the efficiency of our AI algorithms. Our edge processing systems ingest local HD video streams at the source and convert the raw video data to text data, dramatically reducing the volume of data that needs to be transferred through the network. Edge processing allows us to scale a network dramatically without the bandwidth, cost, latency and dependability limitations that are experienced by other networks where raw video needs to be streamed to the cloud for processing.

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	●	Accelerated Business Development and Marketing – Our ability to compete in a large, competitive and rapidly evolving industry will require us to achieve and maintain a visible leadership position. As a result, we have made significant investments in our business development, marketing and eCommerce activities to increase awareness and market adoption of our products and services within key markets. If we are able to maintain a sustained presence in the market, the continued development of strategic partnerships and other economies of scale will reduce the level of costs necessary to support sales of our products and services. However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain.
	●	Infrastructure Investment and Jobs Act (“IIJA”) and the Bipartisan Infrastructure Law (“BIL”) - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems. We believe that there will continue to be bi-partisan support for these programs and that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for roadway intelligence that will benefit from this legislation. We have identified opportunities to access federal funding streams, and we are working to implement a program that capitalizes on this unprecedented U.S. federal investment in public safety, homeland security, and transportation infrastructure and ensures that our customers are positioned to capture as much of this extraordinary government spending as possible. Beyond the many recurring federal grant programs that could support customer purchases, and the $350 billion in American Rescue Plan Act allocations that public agencies are receiving now, we are particularly excited about the prospect of benefitting from the following new grant sources that are contained in the IIJA: $200 million annually for a “Safe Streets and Roads for All” program that would make competitive grants for state projects that significantly reduce or eliminate transportation-related fatalities. $150 million for the current administration to establish a grant program to modernize state data collection systems $500 million for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety.
	●	Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy. If Rekor is unable to successfully implement and execute its plans, there could be a material and adverse effect on the Company’s business, results of operations, and financial condition.
	●	Inability to Achieve Profitability - Rekor continues to grow its business, its operating expenses and capital expenditures have increased, and it has not yet achieved the level of sustaining profitability. As a result, if the Company is unable to generate additional revenue or achieve planned efficiencies in operations, or if its revenue declines significantly, Rekor may not be able to achieve profitability in the future, which would materially and adversely affect the Company’s business.
	●	Inability to Retain Qualified Personnel – Rekor’s success depends on the continued efforts and abilities of the senior management team and key engineering and marketing specialists. Although Rekor has employment agreements with these employees, they may not choose to remain employed by Rekor. Should one or more key personnel leave the Company or join a competitor, the Company’s business, operating results, and financial condition can be adversely affected.
	●	Inability to Compete Effectively - Competition and technological advancements by others may erode the Company’s business and result in inability to capture new business and revenue. Each business line faces significant competitive pressures within the markets in which they operate. While Rekor continues to work to develop and strengthen its competitive advantages, many factors such as market and technology changes may erode or prevent this. If the Company is unable to successfully maintain its competitive advantage, the Company’s business, operating results, and financial condition can be adversely affected.
	●	Cyber Security Risks - Rekor relies on information technology in all aspects of its business. A significant disruption or failure in the information technology systems could result in services interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, and other operational difficulties. This could result in the loss of assets and critical information and expose the Company to remediation costs and reputational damage. Although Rekor takes reasonable steps intended to mitigate these risks, a significant disruption or cyber intrusion could lead to misappropriation of assets or data corruption and could adversely affect the Company’s results of operations, financial condition, and liquidity.
	●	Intellectual Property Claims - Third parties that have been issued patents or have filed for patent applications similar to those used by the Company’s operating subsidiaries may result in intellectual property claims against the Company. Rekor cannot determine with certainty whether existing third-party patents or the issuance of any future third party patents would require any of its operating subsidiaries to alter their respective technologies, obtain licenses or cease certain activities. Should the Company be unable to defend against such claims, the Company’s business, operating results, and financial condition can be adversely affected.
	●	Strategic Consolidation of Engineering Operations - Subsequent to year end, we announced a strategic consolidation of our global engineering operations, including transitioning engineering activities from Israel to our United States-based teams and consolidating key product development and technology functions in the United States. This initiative is intended to improve operational efficiency, enhance coordination across product development, delivery and customer-facing teams, and better align our cost structure with current revenue levels. We expect to incur one-time costs in connection with the transition, including employee-related separation costs and other exit-related costs, and the timing and amount of realized savings and incurred costs may differ from our current expectations. This initiative could impact the timing of certain longer-range product development initiatives and may not achieve the anticipated savings.
	●	Video Verification - In 2024, we developed and applied for a patent on a procedure to identify the time, place and device on which a video was recorded and provide the means to verify whether it had been altered. Although initially developed to support public safety clients, we believe there may be significant demand for such a product in the insurance and news media markets, as well as others. Pending the approval of our patent applications relating to the product, we have developed an application that can be installed on certain cameras and a companion website. This product is sufficiently different in its potential end user market and functionality that we believe it should be pursued as a separate venture. Consequently, the intellectual property for this technology has been transferred to Rekor Labs, LLC. ("Rekor Labs") and we have established a separate board of managers to concentrate on the commercialization of the product.

Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition. Subsequent to year end, we announced certain actions intended to further align our cost structure with current revenue levels, as discussed above under "Opportunities, Trends and Uncertainties."

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Components of Operating Results

Revenues

The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management and licensing 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.

Costs of revenues, excluding depreciation and amortization

Direct costs of revenues consist primarily of the portion of technical and non-technical salaries and wages and payroll-related costs incurred in connection with revenue-generating activities. Direct costs of revenues also include production expenses, data subscriptions, sub-consultant services and other expenses that are incurred in connection with our revenue-generating activities. Direct costs of revenues exclude the portion of technical and non-technical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. We expense direct costs of revenues when they incur.

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Operating Expenses

Our operating expenses consist of general and administrative expenses, sales and marketing, research and development and depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses. Operating expenses also include impairment of assets.

General and Administrative

General and administrative expenses consist of personnel costs for our executive, finance, legal, human resources, and administrative departments. Additional expenses include office leases, professional fees, and insurance.

We expect our general and administrative expenses to continue to reflect actions taken to align our cost structure with current revenue levels, while continuing to include the costs associated with operating as a public company, including accounting, compliance, legal, insurance and investor relations. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. However, our general and administrative expenses have decreased as a percentage of our revenue and, to the extent we continue to generate increased revenue and realize efficiencies from these actions, we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term.

Sales and Marketing

Sales and marketing expenses consist of personnel costs, marketing programs, travel and entertainment associated with sales and marketing personnel, expenses for conferences and trade shows. We will require significant investments in our sales and marketing expenses to continue the rate of growth in our revenues, further penetrate existing markets and expand our customer base into new markets.

Research and Development

Research and development expenses consist of personnel costs, software used to develop our products and consulting and professional fees for third-party development resources. Our research and development expenses support our efforts to continue to add capabilities to and improve the value of our existing products and services, as well as develop new products and services.

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have finite lives, and amortization of capitalized internal-use software costs.

Other Income (Expense)

Other income (expense) consists primarily of legal settlements, legal judgements, interest income and expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains on the sale of subsidiaries, gains or losses on the sale of fixed assets, interest income earned on cash and cash equivalents, short-term investments and note receivables.

Income Tax Provision

Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that those deferred tax assets may not be realized based on our history of losses.

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Results of Operations

Our historical operating results in dollars are presented below. The following selected consolidated financial data should be read in conjunction with the foregoing information contained in this Item 7 and with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data.” Only historical operating results are presented below. Historical results are not necessarily indicative of future results.

	Year ended December 31,
(Dollars in thousands)		2025			2024
Revenue	$	48,450		$	46,028
Cost of revenue, excluding depreciation and amortization		21,379			23,344

Operating expenses:
General and administrative expenses		25,177			30,676
Selling and marketing expenses		6,172			7,858
Research and development expenses		14,596			18,766
Asset impairment charges		3,754			10,214
Depreciation and amortization		6,258			9,493
Total operating expenses		55,957			77,007

Loss from continuing operations		(28,886	)		(54,323	)
Other income (expense):
Loss on extinguishment of debt		-			(4,693	)
Interest expense, net		(2,297	)		(2,645	)
(Loss) gain on remeasurement of ATD Holdback Shares		(120	)		599
Loss on offering costs - Prepaid Advance		-			(888	)
Loss on settlement of Prepaid Advance		-			(900	)
Gain on the sale of Global Public Safety		-			1,500
Other expense, net		(115	)		(15	)
Total other expense, net		(2,532	)		(7,042	)
Loss before income taxes		(31,418	)		(61,365	)
Provision for income taxes		42			45
Net loss	$	(31,460	)	$	(61,410	)

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Comparison of the Years Ended December 31, 2025 and 2024

Revenue

	Year ended December 31,				Change
(Dollars in thousands)	2025		2024		$		%
Revenue	$	48,450	$	46,028	$	2,422		5	%

The increase in revenue for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily attributable to our Public Safety product line. During the year ended December 31, 2025, revenue attributable to our Public Safety product line was $17,401,000 compared to $14,807,000 for the year ended December 31, 2024. This increase was primarily due to higher perpetual license sales in 2025.

Cost of Revenue, Excluding Depreciation and Amortization

	Year ended December 31,				Change
(Dollars in thousands)	2025		2024		$			%
Cost of revenue, excluding depreciation and amortization	$	21,379	$	23,344	$	(1,965	)		-8	%

For the year ended December 31, 2025, cost of revenue, excluding depreciation and amortization decreased compared to prior year primarily due to a favorable revenue mix of software versus hardware, which resulted in higher margins from increased software license sales.

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Operating Expenses

	Year ended December 31,				Change
(Dollars in thousands)	2025		2024		$			%
Operating expenses:
General and administrative expenses	$	25,177	$	30,676	$	(5,499	)		-18	%
Selling and marketing expenses		6,172		7,858		(1,686	)		-21	%
Research and development expenses		14,596		18,766		(4,170	)		-22	%
Asset impairment charges		3,754		10,214		(6,460	)		-63	%
Depreciation and amortization		6,258		9,493		(3,235	)		-34	%
Total operating expenses	$	55,957	$	77,007	$	(21,050	)		-27	%

General and Administrative Expenses

For the year ended December 31, 2025, the decrease in general and administrative expenses compared to the year ended December 31, 2024, was primarily due to:

●	a $2,960,000 decrease in payroll and payroll related expenses primarily due to cost-efficiency initiatives implemented to better align with operations.
●	a $1,900,000 decrease in expense attributable to the remeasurement of the contingent consideration associated with the acquisition of STS.
●	a $594,000 decrease in bad debt expense attributable to the absence of a significant, nonrecurring write-off recorded in the prior year. There was no comparable charge recognized in 2025.
●	a $289,000 decrease in professional fees due to the absence of higher accounting fees such as those associated with the acquisition of ATD in 2024.
●	a $332,000 decrease in board fees, including lower share-based compensation as part of cost-efficiency initiatives.

Selling and Marketing Expenses

The decrease in selling and marketing expenses during the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to a $1,670,000 decrease in payroll and payroll related expenses driven by cost-efficiency initiatives implemented to better align with operations.

Research and Development Expense

Research and development expenses during the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to a $3,774,000 decrease in payroll and payroll related expenses driven by cost-efficiency initiatives implemented to better align with operations.

Asset impairment charges

In December 2025, the Company determined that the operations of its wholly owned subsidiary, Waycare Technologies LTD, located in Tel Aviv, Israel, were no 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. As a result, the Company recognized total impairment charges of $3,754,000 during the year ended December 31, 2025, consisting of $1,046,000 related to property and equipment and $2,708,000 related to the operating lease ROU asset.

During 2024, sales performance was below expectations, driven in part by slower customer adoption, extended sales cycles and market conditions. As a result, we identified a triggering event and performed an analysis of its intangible assets. As a result of that analysis and updated projections on future cash flows, we recognized an impairment charge of $10,214,000 as of December 31, 2024.

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Depreciation and Amortization

The decrease in depreciation and amortization during the year ended December 31, 2025, is attributable to an impairment that we recognized as of December 31, 2024, following the identification of a triggering event.

Other Income (Expense)

	Year ended December 31,						Change
(Dollars in thousands)	2025			2024			$			%
Other income (expense):
Loss on extinguishment of debt	$	-		$	(4,693	)	$	4,693			100	%
Interest expense, net		(2,297	)		(2,645	)		348			13	%
(Loss) gain on remeasurement of ATD Holdback Shares		(120	)		599			(719	)		-120	%
Loss on offering costs - Prepaid Advance		-			(888	)		888			-100	%
Loss on settlement of Prepaid Advance		-			(900	)		900			-100	%
Gain on the sale of Global Public Safety		-			1,500			(1,500	)		100	%
Other expense, net		(115	)		(15	)		(100	)		-667	%
Total other expense, net	$	(2,532	)	$	(7,042	)	$	4,510			64	%

For the year ended December 31, 2025. the decrease in other expense, net compared to the year ended December 31, 2024, was primarily due to:

●	The absence of a $4,693,000 loss on extinguishment of debt recorded during 2024 in connection with the early redemption of the 2023 Promissory Notes.
●	The absence of non-operating charges recorded during 2024 related to the Prepaid Advance Agreement.
●	Partially offset by the absence of a $1,500,000 gain recognized during 2024 related to the sale of Global Public Safety.
●	Partially offset by a $719,000 unfavorable change related to the remeasurement of ATD Holdback Shares and a $348,000 decrease in net interest expense in 2025 compared to 2024.

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Non-GAAP Measures

EBITDA and Adjusted EBITDA

We calculate EBITDA as net loss before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs and (vii) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should not be considered as an alternative to net earnings or cash flow from operating activities as indicators of our operating performance or as a measure of liquidity or any other measures of performance derived in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of a company’s ability to service and/or incur debt. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do.

The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands):

	Year ended December 31,
	2025			2024
Net loss	$	(31,460	)	$	(61,410	)
Provision for income taxes		42			45
Interest expense, net		2,297			2,645
Depreciation and amortization		6,258			9,493
EBITDA	$	(22,863	)	$	(49,227	)

Share-based compensation		2,908			4,829
Loss on extinguishment of debt		-			4,693
Asset impairment charges		3,754			10,214
Loss on offering costs - Prepaid Advance		-			888
Loss on settlement of Prepaid Advance		-			900
Gain on the sale of Global Public Safety		-			(1,500	)
(Gain) loss due to the remeasurement of the STS Earnout and Contingent Consideration, net		(1,900	)		100
Adjusted EBITDA	$	(18,101	)	$	(29,103	)

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Adjusted Gross Profit and Adjusted Gross Margin

Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross Margin to continue to improve over time to the extent that we can gain efficiencies through the adoption of our technology and successfully cross-sell and upsell our current and future offerings. However, our ability to improve Adjusted Gross Margin over time is not guaranteed and could be impacted by the factors affecting our performance. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors, as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other nonrecurring operating expenses.

The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included (dollars in thousands):

	Year ended December 31,
	2025			2024
	(Dollars in thousands, except percentages)
Revenue	$	48,450		$	46,028
Cost of revenue, excluding depreciation and amortization		21,379			23,344
Adjusted Gross Profit	$	27,071		$	22,684
Adjusted Gross Margin		55.9	%		49.3	%

Adjusted Gross Margin for the year ended December 31, 2025 increased from 49.3% to 55.9% compared to the year ended December 31, 2024. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work. Typically our software sales carry a higher Adjusted Gross Margin.

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Key Performance Indicators

We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

Recurring Revenue

As part of the ongoing development of our selling strategy, we have been focusing on sales that employ contracts with recurring revenue. We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict. Our recurring revenue model and revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. The following table sets forth our recurring revenue for the periods included (dollars in thousands):

	Year ended December 31,
	2025		2024		Change
					$		%
Recurring revenue	$	23,865	$	22,590	$	1,275		6	%

We expect to continue efforts to secure long-term contracts with recurring revenue as part of our business model, which is intended to cause recurring revenue growth in future periods to continue to increase. However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate. In addition, there may be an increase in one time sales as a result of initial installations related to the development of recurring revenue.

Performance Obligations

While a portion of the total contract value won in a particular period represents revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues. As of December 31, 2025, we had approximately $25,921,000 of performance obligations with respect to contracts that were closed prior to December 31, 2025 but have a contractual period beyond December 31, 2025. These contracts generally cover a term of one to five years, during which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately $17,701,000 of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance. Performance obligations may decline or increase significantly as large contracts approach their expiration date and are then renewed.

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Lease Obligations

As of December 31, 2025, we had significant leased building space at the following locations:

	●	Columbia, Maryland – The corporate headquarters
	●	Tel Aviv, Israel

We believe our facilities are in good condition and adequate for their current use, although we have consolidated engineering operations in the United States and are no longer using our Tel Aviv office. We expect to improve, replace and increase facilities as considered appropriate to meet the needs of our planned operations.

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Liquidity and Capital Resources

The net cash flows from operating, investing and financing activities for the periods below were as follows (dollars in thousands):

	Year ended December 31,
	2025			2024			Change
							$		%
Net cash used in operating activities	$	(20,372	)	$	(32,469	)	$	12,097		37	%
Net cash used in investing activities		(2,172	)		(9,030	)		6,858		76	%
Net cash provided by financing activities		34,078			31,115			2,963		10	%
Net increase (decrease) in cash, cash equivalents and restricted cash	$	11,534		$	(10,384	)	$	21,918		211	%

Net cash used in operating activities for the year ended December 31, 2025, decreased by $12,097,000, which was primarily attributable to a lower net loss, partially offset by lower non-cash adjustments during the year, primarily a $6,460,000 decrease in impairment charges, $4,693,000 loss on extinguishment of debt, and $900,000 loss on settlement of prepaid advance recognized in the prior year, as well as lower amortization of intangible assets and share-based compensation, and changes in working capital.

Net cash used in investing activities for the year ended December 31, 2025, decreased by $6,858,000, which was primarily attributable to the absence of the $9,222,000 net cash outflow related to the acquisition of ATD in the prior year, partially offset by higher capital expenditures during the year.

Net cash provided by financing activities for the year ended December 31, 2025 increased by $2,963,000 from the year ended December 31, 2024. During the year ended December 31, 2025, we received net proceeds of $22,350,000 from the At Market Issuance Sales Agreement (the "2025 Sales Agreement") and $13,891,000 from the underwriting agreement with William Blair & Company, L.L.C., that we entered into in December 2025 relating to an underwritten direct offering (the "2025 Underwriting Agreement"). During the year ended December 31, 2024, we received net proceeds of $26,362,000 from our public offering and net proceeds of $14,100,000 from the Prepaid Advance Agreement, which were partially offset by the repayment of $12,500,000 of our 2023 Promissory Notes. These activities were partially offset by scheduled repayments of our STS Notes and payments related to financing leases in both periods.

For the years ended December 31, 2025 and 2024, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity. As of December 31, 2025, we had restricted cash of $297,000, cash and cash equivalents of $16,566,000 and working capital of $1,640,000, as compared to restricted cash of $316,000 cash, cash and cash equivalents of $5,013,000 and working capital of $1,707,000 as of December 31, 2024.

Liquidity and Going Concern

Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. 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.

We have generated losses and negative operating cashflows since our inception and have relied on external sources of financing to support our cash flow from operations. We attribute losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services. As of and for the year ended December 31, 2025, we had working capital of $1,640,000 and a net loss of $31,460,000.

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 for the next twelve months following the issuance of these consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

On February 10, 2025, we entered into an At Market Issuance Sales Agreement (the "Sales Agreement") with Northland Securities, Inc. (the "Agent"), pursuant to which we could, from time to time, offer and sell shares of our common stock, par value $0.0001 per share ("Common Stock"), having an aggregate offering price of up to $25,000,000. The Agent was entitled to receive from us a commission in an amount equal to (i) 3.0% of the gross sales prices 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. We 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.

On August 12, 2025, we elected to voluntarily terminate our Sales Agreement.

As of December 31, 2025, we issued 18,888,832 shares of our common stock at a weighted average selling price of $1.23 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $22,350,000 after paying $245,000 in issuance costs, as well as 3.0%, or $699,000 related to cash commissions provided to the Agent.

On December 13, 2025, we entered into the 2025 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. Each unit consisted of one share of our common stock and one warrant to purchase one share of our 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 were approximately $13.9 million. We intend to use the net proceeds for working capital, capital expenditures and general corporate purposes. The December 2025 offering, together with the proceeds from the Sales Agreement, contributed to the increase in our cash and cash equivalents from $5,013,000 as of December 31, 2024 to $16,566,000 as of December 31, 2025.

In connection with the December 2025 offering, we entered into a Side Letter Agreement with Anson Advisors Inc. (the “Side Letter”). Among other things, the Side Letter prohibits us from effecting or entering into any “Variable Rate Transaction” (as defined in the Side Letter) while the investor holds any of the December 2025 warrants, which expire on December 16, 2032. A “Variable Rate Transaction” generally includes any transaction in which we issue or sell securities that are convertible into, exchangeable for, or represent the right to receive shares of common stock at a price that is subject to being reset at a future date based on trading prices or volumes, or upon the occurrence of specified events. This restriction may limit the types of financing instruments available to us during the period in which the warrants remain outstanding. The Side Letter also provides the investor with participation rights in future firm-commitment underwritten offerings, subject to customary exceptions.

Our ability to generate positive operating results and execute our business strategy will depend on (i) our ability to continue the growth of our customer base, (ii) our ability to continue to improve our quarterly financial metrics such as net loss and cash used from operating activities (iii) the continued performance of our contractors, subcontractors and vendors, (iv) our ability to maintain and build good relationships with investors, lenders and other financial intermediaries, (v) our ability to maintain timely collections from existing customers, and (vi) the ability to scale our business processes. To the extent that events outside of our control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, our ability to continue to secure and implement new business, raise capital, and otherwise, depending on the severity of such impact, materially adversely affect our operating results.

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Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

As of the date of this Annual Report on Form 10-K, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

We have certain contractual obligations for future payments. See Note 7 to our consolidated financial statements for our required operating and financing lease payments and Note 9 for our required debt payments.

Recent Developments

Effective January 14, 2026, Timothy Davenport and Viraj Mehta each resigned from the Board of Directors. Mr. Davenport had served on the Board since January 2023, and Mr. Mehta had served on the Board since May 2024. The resignations were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

Effective March 25, 2026, Prof. Sanjay Sarma resigned from the Board of Directors. Prof. Sarma had served on the Board since January 2023. The resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

Following these departures, the Board of Directors consists of six members: Robert A. Berman (Chairman), Paul A. de Bary (Lead Director), Glenn Goord, David P. Hanlon, Steven D. Croxton, and Andrew Meyers.

The Board of Directors set March 25, 2026 as the record date for the Company's 2026 Annual Meeting of Stockholders, to be held on May 15, 2026.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2025 and 2024, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions.

We believe the application of the estimates inherently required therein, are reasonable. These estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Rekor bases its estimates on historical experience and on various other assumptions that the management of Rekor believes to be reasonable under the circumstances, the results of which form management’s basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates.

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Valuation of long lived assets

Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if the carrying amount of the asset is recoverable. If impairment is determined to exist, the charge is calculated based on estimated fair value.

Our analysis requires a blend of judgment and estimation, relying on both quantitative data and qualitative insights to assess our ability to sustain our operations over the forward-looking period. Management’s analysis involves a comprehensive evaluation of numerous factors to determine whether we can continue our operations during the look-forward period.

We evaluate our recent financial performance and our ability to meet our projected financial performance. Factors such as financial projections, profitability and cash flow require estimation and are examined to gauge our financial health.

Conducting a fair value analysis is an exercise in judgment, requiring us to evaluate data points, forecasts, and qualitative insights to arrive at a comprehensive assessment of our ability to derive value from our assets during the look-forward period. In this process, we must exercise caution, recognizing the inherent uncertainties and limitations of our estimations and financial analysis while striving to provide a feasible plan.

New Accounting Pronouncements

See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Business and Significant Accounting Policies”.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms (CBIZ CPAs P.C., PCAOB ID 199, and Marcum LLP, PCAOB ID 688)	49
Consolidated Balance Sheets as of December 31, 2025 and 2024	52
Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024	53
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2025 and 2024	54
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024	55
Notes to Consolidated Financial Statements	56

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Rekor Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Rekor Systems, Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

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Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ CBIZ CPAs P.C.

CBIZ CPAs P.C.

We have served as the Company’s auditor since 2019 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024).

Morristown, New Jersey

March 31, 2026

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Rekor Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Rekor Systems, Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of operations, stockholders equity, and cash flows for the year ended December 31, 2024 and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and will need to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor from 2019 to 2025.

Morristown, New Jersey

March 31, 2025

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REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	*December 31, 2025*			*December 31, 2024*
ASSETS
Current assets
Cash and cash equivalents	$	16,566		$	5,013
Restricted cash		297			316
Accounts receivable, net		8,770			7,232
Inventory		3,072			4,297
Note receivable, current portion		198			340
Other current assets		1,825			2,732
Total current assets		30,728			19,930
Long-term assets
Property and equipment, net		8,632			11,048
Right-of-use operating lease assets, net		4,716			9,348
Right-of-use financing lease assets, net		1,634			2,317
Goodwill		24,313			24,313
Intangible assets, net		13,250			14,450
Note receivable, long-term		-			142
Deposits		2,114			927
Total long-term assets		54,659			62,545
Total assets	$	85,387		$	82,475
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses		4,362			4,330
Notes payable, current portion		-			1,000
Series A Prime Revenue Sharing Notes, net of debt discount of $131 and $0, respectively		9,869			-
Series A Prime Revenue Sharing Notes - related party, net of debt discount of $66 and $0, respectively		4,934			-
Loans payable, current portion		83			79
Lease liability operating, short-term		2,720			2,310
Lease liability financing, short-term		787			900
Contract liabilities		4,604			3,439
Liability for ATD Holdback Shares		-			1,036
Other current liabilities		1,729			5,129
Total current liabilities		29,088			18,223
Long-term liabilities
Series A Prime Revenue Sharing Notes, net of debt discount of $0 and $263, respectively		-			9,737
Series A Prime Revenue Sharing Notes - related party, net of debt discount of $0 and $132, respectively		-			4,868
Loans payable, long-term		112			194
Lease liability operating, long-term		10,570			12,371
Lease liability financing, long-term		665			977
Contract liabilities, long-term		1,402			1,298
Deferred tax liability		93			79
Other long-term liabilities		587			587
Total long-term liabilities		13,429			30,111
Total liabilities		42,517			48,334
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of December 31, 2025 and December 31, 2024, respectively. No preferred stock was issued or outstanding as of December 31, 2025 or 2024, respectively.		-			-
Common stock, $0.0001 par value; authorized; 300,000,000 shares; issued: 136,791,826 shares at December 31, 2025 and 104,700,593 at December 31, 2024; outstanding: 136,477,697 shares at December 31, 2025 and 104,541,073 at December 31, 2024		13			10
Treasury stock - at cost, 314,129 and 159,520 shares as of December 31, 2025 and 2024, respectively		(900	)		(711	)
Additional paid-in capital		335,310			294,935
Accumulated deficit		(291,553	)		(260,093	)
Total stockholders’ equity		42,870			34,141
Total liabilities and stockholders’ equity	$	85,387		$	82,475

The accompanying notes are an integral part of these consolidated financial statements.

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REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share data)

	*Year ended December 31,*
	*2025*			*2024*
Revenue	$	48,450		$	46,028
Cost of revenue, excluding depreciation and amortization		21,379			23,344

Operating expenses:
General and administrative expenses		25,177			30,676
Selling and marketing expenses		6,172			7,858
Research and development expenses		14,596			18,766
Asset impairment charges		3,754			10,214
Depreciation and amortization		6,258			9,493
Total operating expenses		55,957			77,007

Loss from operations		(28,886	)		(54,323	)
Other income (expense):
Loss on extinguishment of debt		-			(4,693	)
Interest expense, net		(2,297	)		(2,645	)
(Loss) gain on remeasurement of ATD Holdback Shares		(120	)		599
Loss on offering costs - Prepaid Advance		-			(888	)
Loss on settlement of Prepaid Advance		-			(900	)
Gain on the sale of Global Public Safety		-			1,500
Other expense, net		(115	)		(15	)
Total other expense, net		(2,532	)		(7,042	)
Loss before income taxes		(31,418	)		(61,365	)
Provision for income taxes		42			45
Net loss	$	(31,460	)	$	(61,410	)
Loss per common share - basic and diluted	$	(0.26	)	$	(0.71	)
Weighted average shares outstanding
Basic and diluted		119,667,774			86,717,724

The accompanying notes are an integral part of these consolidated financial statements.

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REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share data)

	*Shares of Common Stock*			*Common Stock*		*Shares of Treasury Stock*		*Treasury Stock at Cost*			*Additional Paid-In Capital*		*Accumulated Deficit*			*Total Stockholders’ Equity*
Balance as of December 31, 2023		69,176,826		$	7		96,508	$	(522	)	$	232,568	$	(198,683	)	$	33,370
Stock-based compensation		-			-		-		-			4,829		-			4,829
Issuance upon exercise of stock options		198,095			-		-		-			266		-			266
Issuance upon vesting of restricted stock units		1,044,280			-		-		-			-		-			-
Shares withheld upon vesting of restricted stock units		(63,012	)		-		63,012		(189	)		-		-			(189	)
Shares issued as part of the ATD Acquisition		2,832,135			-		-		-			8,893		-			8,893
Retirement of the 2023 Promissory Notes		750,000			-		-		-			1,875		-			1,875
2024 Public Offering		11,500,000			1		-		-			26,361		-			26,362
Issuance of warrants		3,675,000			1		-		-			5,144		-			5,145
Prepaid Advance Agreement		15,427,749			1		-		-			14,999		-			15,000
Net loss		-			-		-		-			-		(61,410	)		(61,410	)
Balance as of December 31, 2024		104,541,073		$	10		159,520	$	(711	)	$	294,935	$	(260,093	)	$	34,141
Stock-based compensation		-			-		-		-			2,908		-			2,908
Issuance upon exercise of stock options		63,832			-		-		-			73		-			73
Issuance upon vesting of restricted stock units		3,902,812			-		-		-			-		-			-
Shares withheld upon vesting of restricted stock units		(154,609	)		-		154,609		(189	)		-		-			(189	)
ATD Holdback Shares		664,329			-		-		-			1,156		-			1,156
At Market Issuance Sales Agreement		18,888,832			2		-		-			22,348		-			22,350
2025 Underwriting Agreement		8,571,428			1		-		-			13,890		-			13,891
Net loss		-			-		-		-			-		(31,460	)		(31,460	)
Balance as of December 31, 2025		136,477,697		$	13		314,129	$	(900	)	$	335,310	$	(291,553	)	$	42,870

The accompanying notes are an integral part of these consolidated financial statements.

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REKOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	*Year ended December 31,*
	*2025*			*2024*
Cash Flows from Operating Activities:
Net loss	$	(31,460	)	$	(61,410	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Bad debt expense		132			686
Depreciation		3,835			3,879
Amortization of right-of-use financing lease asset		1,223			939
Non-cash operating lease expense		980			1,087
Provision for deferred income taxes		14			14
Share-based compensation		2,908			4,829
Asset impairment charges		3,754			10,214
Amortization of debt discount		198			541
Amortization of intangible assets		1,200			4,675
Adjustment to inventory to net realizable value		-			120
(Gain) loss due to the remeasurement of the STS Earnout and Contingent Consideration, net		(1,900	)		100
Loss (gain) on remeasurement of ATD Holdback Shares		120			(599	)
Gain on sale of property and equipment		(9	)		(27	)
Gain on the sale of Global Public Safety		-			(1,500	)
Loss on extinguishment of debt		-			4,693
Loss on settlement of Prepaid Advance		-			900
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(1,670	)		220
Inventory		1,255			1,159
Other current assets and deposits		(288	)		522
Accounts payable, accrued expenses and other current liabilities		(1,490	)		(2,319	)
Contract liabilities		1,269			(316	)
Lease liabilities		(443	)		(876	)
Net cash used in operating activities		(20,372	)		(32,469	)
Cash Flows from Investing Activities:
Capital expenditures		(2,531	)		(1,682	)
Proceeds from the sale of property and equipment		75			34
Proceeds from notes receivable		284			340
Proceeds from the sale of Global Public Safety		-			1,500
Cash paid for ATD acquisition, net		-			(9,222	)
Net cash used in investing activities		(2,172	)		(9,030	)
Cash Flows from Financing Activities:
Proceeds from 2025 Sales Agreement, net		22,350			-
Proceeds from 2025 Underwriting Agreement, net		13,891			-
Repayment of STS Notes		(1,000	)		(1,000	)
Proceeds from the public offering		-			26,362
Net proceeds from the Prepaid Advance Agreement		-			14,100
Net proceeds from exercise of options		73			266
Net proceeds from exercise of warrants		-			5,145
Payments related to financing leases		(969	)		(994	)
Repayments of loans payable		(78	)		(75	)
Repurchases of common stock		(189	)		(189	)
Repayment of 2023 Promissory Notes		-			(12,500	)
Net cash provided by financing activities		34,078			31,115
Net increase (decrease) in cash, cash equivalents and restricted cash		11,534			(10,384	)
Cash, cash equivalents and restricted cash at beginning of the year		5,329			15,713
Cash, cash equivalents and restricted cash at end of the year	$	16,863		$	5,329

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents at end of the year	$	16,566		$	5,013
Restricted cash and cash equivalents at end of the year		297			316
Cash, cash equivalents and restricted cash at end of the year	$	16,863		$	5,329

The accompanying notes are an integral part of these consolidated financial statements.

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REKOR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND 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”).

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.

Basis of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the accounting rules under Regulation S-X, as promulgated by the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions have been eliminated in consolidation.

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 are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.

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Liquidity and Going Concern

Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected financings and working capital, to assure operations for a period of at least one year from the date these consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. 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 the cash flow from operations. As of and for the year ended December 31, 2025, the Company had working capital of $1,640,000 and a net loss of $31,460,000.

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 for the next twelve months following the issuance of these consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company received net proceeds of approximately $13,891,000 from the December 2025 Underwriting Agreement (see Note 13).

The Company's ability to generate positive operating results and execute its business strategy will depend on (i) its ability to continue the growth of its customer base, (ii) its ability to continue to improve its quarterly financial metrics such as net loss and cash used from operating activities (iii) the continued performance of its contractors, subcontractors and vendors, (iv) its ability to maintain and build good relationships with investors, lenders and other financial intermediaries, (v) its ability to maintain timely collections from existing customers, and (vi) the ability to scale its business processes. To the extent that events outside of the Company's control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, its ability to continue to secure and implement new business, raise capital, and otherwise, depending on the severity of such impact, materially adversely affect its operating results.

Segment Information

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

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

The Company does not report balance sheet information by segment since it is not reviewed by the CODM.

The CODM uses net loss in assessing segment performance. The significant expense regularly reviewed by the CODM is 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 Consolidated Statement of Operations.

Rounding

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

Functional Currency

The U.S. dollar (“U.S. dollar” or “$”) is the currency of the primary economic environment in which the operations of the Company is conducted. Substantial revenues and a substantial portion of the operational costs are denominated in U.S. dollars. Accordingly, the functional currency of the Company is the U.S. dollar.

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. For non-U.S. dollar transactions and other items in the consolidated financial statements, the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) – historical exchange rates. Currency transaction gains and losses are presented in other expense, net on the consolidated statements of operations. The currency transaction losses for the years ended December 31, 2025 and 2024 were $499,000 and $10,000, respectively.

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Concentration of 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 December 31, 2025, and 2024, the Company had deposits, including restricted cash, totaling $16,863,000 and $5,329,000 respectively, in multiple U.S. financial institutions and one Israeli financial institution.

Customer A accounted for 10% of the consolidated revenue for the year ended December 31, 2025. No other single customer accounted for more than 10% of the Company's total revenues for the years ended December 31, 2025 and 2024.

As of December 31, 2025 and December 31, 2024, Customer A accounted for 15% and 12% of the Company's consolidated accounts receivable balance. No other single customer accounted for more than 10% of the Company's total accounts receivable balance as of December 31, 2025 and 2024.

Cash and Cash Equivalents

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

Cash subject to contractual restrictions and not 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 December 31, 2025 and 2024 were $297,000 and $316,000, respectively, and correspond to equal amounts of related liabilities.

Accounts Receivable and Credit Losses

Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its clients’ financial condition, and the Company generally does not require collateral.

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the consolidated balance sheets. When billing occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. Unbilled accounts receivables of $1,993,000 and $1,623,000 were included in accounts receivable, net, in the consolidated balance sheets as of December 31, 2025 and December 31, 2024, respectively. Write-offs of accounts receivable during the years ended December 31, 2025 and 2024 were $132,000 and $686,000, respectively.

The Company maintains an allowance for credit losses at an amount estimated to be sufficient to cover the risk of collecting less than full payment of financial assets measured at amortized cost, including receivables. The Company estimates expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. The Company considers factors such as customer-specific risk characteristics, aging, historical write-off trends, and other relevant economic and environmental conditions in developing the estimate. The Company estimates losses on receivables based on expected losses, including our historical experience of actual losses. Receivables are written off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. At each balance sheet date, the Company evaluates its receivables and will assess the allowance for credit losses based on historical write-off trends. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. As of December 31, 2025 and 2024, the Company's allowance for credit losses was $519,000 and $486,000, respectively.

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Notes Receivable

In connection with the sale of its former TeamGlobal subsidiaries in June 2020, the Company received a $1,700,000, five-and-a-half year promissory note originally due December 2025, which was amended in 2022 to extend the maturity date to May 2026 and revise the related payment schedule, that carries an interest rate of 4% and is collateralized by a first priority security interest in the shares of TeamGlobal. Monthly principal payments on the promissory note began in 2021 and continue pursuant to the amended payment terms. Based on the general market conditions, the security interest held by the Company and the credit quality of the buyer at the time of the sale, the Company determined that the fixed interest rate approximated the current market rate. The Company also evaluates notes receivable for expected credit losses in accordance with ASC 326. The remaining balance due from TeamGlobal as of December 31, 2025 and 2024, was $198,000 and $482,000, respectively and is presented as part of notes receivable, current portion and note receivable, long-term on the consolidated balance sheets.

Inventory

Inventory principally consists of parts and finished goods held temporarily until installed for service. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated current and future market values and new product introductions. Inventory is valued at the lower of cost or net realizable value. The cost is determined by the first-in, first-out method.

Accounts Payable, Accrued and Other Current Liabilities

As of December 31, 2025 and 2024, amounts owed to related parties of $75,000 and $104,000 were presented as part of accounts payable and accrued expenses on the consolidated balance sheets.

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

	*December 31, 2025*		*December 31, 2024*
Payroll and payroll related	$	1,343	$	2,674
Right of offset to restricted cash		297		316
STS Contingent Consideration		-		1,900
Other		89		239
Total	$	1,729	$	5,129

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Property and Equipment

Property and equipment are stated at cost or fair value at acquisition date for assets obtained through business combinations, less accumulated depreciation. Depreciation expense is presented as part of depreciation and amortization on the consolidated statements of operations.

Depreciation is recorded on a straight-line basis over the following estimated lives:

Class of assets	*Useful life (in years)*
Furniture and fixtures		2 - 10
Office equipment		2 - 5
Leasehold improvements	Shorter of asset life or lease term
Automobiles		3 - 5
Roadway monitoring systems		3 - 5

Repairs and maintenance are expensed as incurred. Expenditures for additions, improvements and replacements are capitalized.

The Company tests its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of property and equipment is measured using a market approach by comparing the carrying amount of the asset to its estimated fair market value. If the fair market value is less than the carrying amount, the Company recognizes an impairment loss equal to the excess of the carrying amount over the asset's fair market value.

As of December 31, 2025, the Company recognized an impairment loss on its property and equipment of $1,046,000. See Note 6 for additional information. As of December 31, 2024, the Company did not recognize an impairment loss on its property and equipment.

Deposits

Deposits consist of cash payments made by the Company related to security deposits for leased assets and deposits on property and equipment which the Company has not yet received.

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Intangible Assets

Intangible assets include capitalized internally developed software and amounts recognized in connection with acquisitions, including customer relationships, technology and marketing related assets. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Amortization expense related to intangible assets is presented as part of depreciation and amortization on the consolidated statements of operations. Undiscounted cash flow analyses are used to determine if the carrying amount of the asset is recoverable. If impairment is determined to exist, the charge is calculated based on estimated fair value. As of December 31, 2025, the Company did not recognize any impairment on its intangible assets. As of December 31, 2024, the Company recognized an impairment loss on its intangible assets of $10,214,000. See Note 8 for additional information.

Leases

The Company accounts for its leases in accordance with Accounting Standard Codification (“ASC”) Topic 842, Leases ("ASC 842"). The standard provides several optional practical expedients for use in transition. The Company elected to use what the Financial Accounting Standard Board (“FASB”) has deemed the “package of practical expedients,” which allows the Company not to reassess the Company’s previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. ASU 2016-02 also provided several optional practical expedients for the ongoing accounting for leases. The Company has elected the short-term lease recognition exemption for all leases that qualify, meaning that for leases with terms of twelve months or less, the Company will not recognize right-of-use ("ROU") assets or lease liabilities on the Company’s consolidated balance sheets. Additionally, the Company has elected to use the practical expedient to not separate lease and non-lease components for leases of real estate, meaning that for these leases, the non-lease components are included in the associated ROU asset and lease liability balances on the Company’s consolidated balance sheets.

The Company determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. Operating leases are included in right-of-use operating lease assets, net, lease liabilities operating, short-term and lease liabilities operating, long-term, in the consolidated balance sheets. Financing leases are included in right-of-use financing lease assets, net, lease liabilities financing, short-term and lease liabilities financing, long-term, in the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments under the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determined the incremental borrowing rate for each lease using the Company’s current borrowing rate, adjusted for various factors including level of collateralization and term to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain the Company will exercise that option. An option to terminate is considered unless it is reasonably certain the Company will not exercise the option.

Lease expense for lease payments is recognized on a straight-line basis over the terms of the leases.

As of December 31, 2025, the Company recognized a loss on its operating lease ROU assets of $2,708,000. See Note 7 for additional information.

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Business Combination

Management conducts a valuation analysis on the tangible and intangible assets acquired and liabilities assumed at the acquisition date thereof. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The Company allocated a portion of the purchase price to the fair value of identifiable intangible assets. The fair value of identifiable intangible assets is based on a detailed valuation that uses information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.

Goodwill

The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill. Goodwill is not amortized but rather subject to annual impairment testing. 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 decided to bypass the qualitative assessment and proceed directly to the quantitative assessment of the goodwill impairment analysis. As part of the quantitative assessment of goodwill, the Company evaluated its carrying value compared to its market value based on the share price and outstanding shares of the reporting date. During the years ended December 31, 2025 and 2024, the Company did not recognize any impairment to goodwill.

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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 ASC 606, the Company performs the following five steps:

	●	Identification of the contract, or contracts, with a customer
	●	Identification of the performance obligations in the contract
	●	Determination of the transaction price
	●	Allocation of the transaction price to the performance obligations in the contract
	●	Recognition of revenue when, or as, performance obligations are satisfied

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

	*Year ended December 31,*
	*2025*		*2024*
Recurring revenue	$	23,865	$	22,590
Product and service revenue		24,585		23,438
Total revenue	$	48,450	$	46,028

For the years ended December 31, 2025 and 2024 except for the United States, total revenue in any single country was less than 10% of consolidated revenue.

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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 may vary at the customer’s discretion. The contracts with customers are generally for a term of one to five 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 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 do not 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 do not 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 of one 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 a one-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 is not 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 from one to six 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.

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Revenue by Customer Type

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

	*Year ended December 31,*
	*2025*		*2024*
Urban mobility	$	29,304	$	28,688
Transportation management		1,745		2,533
Public safety		17,401		14,807
Total revenue	$	48,450	$	46,028

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 as one-time hardware sales.

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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 a contract with a customer are not 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 December 31, 2025 the Company had approximately $25,921,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately $17,701,000 of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

Contract liabilities

When the Company advance bills clients prior to providing services, revenue will generally be earned and recognized within the next month to five years, depending on the subscription or licensing period. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the year ended December 31, 2025, were not materially impacted by any other factors. Contract liabilities as of December 31, 2025 and December 31, 2024, were $6,006,000 and $4,737,000, respectively. During the year ended December 31, 2025, $3,350,000 of the contract liabilities balance as of December 31, 2024, was recognized as revenue.

The contract liabilities as of December 31, 2025, are expected to be recognized as revenue during the following years ended December 31 (dollars in thousands):

2026	$	4,604
2027		900
2028		307
2029		138
2030		55
Thereafter		2
Total	$	6,006

Practical Expedients Election ‒ Costs to Obtain and Fulfill a Contract

The Company’s incremental costs to obtain a contract consist of sales commissions. The Company elected to use the practical expedient to expense costs to obtain a contract as incurred when the amortization period would have been one year or less. As of December 31, 2025, and 2024, costs incurred to obtain contracts in excess of one year have been immaterial.

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Advertising

The Company expenses all non-direct response advertising costs as incurred. Advertising costs for the years ended December 31, 2025 and 2024 were $9,000 and $244,000, respectively, and are included in selling and marketing expenses in the consolidated statements of operations.

Income Taxes

Provision for income tax consists of U.S. federal and state income taxes. The Company is required to pay income taxes in certain state jurisdictions.

The Company uses the liability method of accounting for income taxes as set forth in the authoritative guidance for accounting for income taxes. This method requires an asset and liability approach for the recognition of deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company evaluates 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 intangible, because management believes that it is not more likely than not that their benefits will be realized in future periods. The Company will continue to evaluate its net 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.

The tax effects of uncertain tax positions are recognized in the consolidated financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized. It is the Company’s accounting policy to account for ASC 740-10 related penalties and interest as a component of the income tax provision in the consolidated statements of operations and comprehensive loss.

As of December 31, 2025, and 2024, the Company’s evaluation revealed no uncertain tax positions that would have a material impact on the consolidated financial statements.

Equity-Based Compensation

The Company recognizes equity-based compensation costs related to all share-based payments, including stock options and restricted stock units (“RSUs”), based on the grant-date fair value of the award on a straight-line basis over the requisite service period, net of actual forfeitures. The fair value of RSUs is measured on the grant date based on the closing fair market value of the Company’s common stock. The Company accounts for forfeitures as they occur.

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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 December 31, 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 December 31, 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 Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). 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. ASC 820 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 establishes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not 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.

Level 3 – Unobservable inputs that are supported by little or no 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 Level 3 inputs.

The Company does not have any Level 1 or Level 2 assets or liabilities. The Company considers its contingent consideration, ATD Holdback Shares and the Prepaid Advance to be Level 3 securities as the fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 fair value measurement.

There were no changes in levels during the period ended December 31, 2025

The following is a rollforward of the company’s contingent consideration, ATD Holdback Shares and the Prepaid Advance liabilities:

	*STS Contingent Consideration*
Balance as of January 1, 2024	$	1,800
Loss due to the remeasurement of the STS Earnout and Contingent Consideration		100
Balance as of December 31, 2024		1,900
Gain due to the remeasurement of the STS Earnout and Contingent Consideration		(1,900	)
Balance as of December 31, 2025	$	-

	*ATD Holdback Shares*
Acquisition of ATD January 2, 2024	$	1,635
Gain on remeasurement of ATD Holdback Shares		(599	)
Balance as of December 31, 2024		1,036
Loss on remeasurement of ATD Holdback Shares		120
Issuance of common stock to settle ATD Holdback Shares		(1,156	)
Balance as of December 31, 2025	$	-

	*Prepaid Advance*
Execution of Prepaid Advance August 14, 2024	$	14,100
Issuance of common stock to settle Prepaid Advance		(15,000	)
Loss on settlement of Prepaid Advance		900
Balance as of December 31, 2024		-
Balance as of December 31, 2025	$	-

The estimated fair value of the Prepaid Advance was computed using a Monte Carlo simulation of the Company’s common shares, using the assumptions below. The following are the inputs in Company’s ATD Holdback Shares and Prepaid Advance:

ATD Holdback Shares	January 2, 2024			December 31, 2024		January 2, 2025
Closing stock price	$	3.14		$	1.56	$	1.74
Discount for marketability	$	(0.68	)	$	-	$	-

Prepaid Advance	*August 14, 2024*			*December 31, 2024*
Closing stock price	$	1.39		$	-
Volatility		96	%		-
Risk-free rate		4.4	%		-
Indicated yield		14.2	%		-

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Loss per Share

Basic loss per share or earnings per share (“EPS”), is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and potentially dilutive securities outstanding during the period, except for periods of net loss for which no potentially dilutive securities are included because their effect would be anti-dilutive. Potentially dilutive securities consist of common stock issuable upon exercise of stock options or warrants using the treasury stock method. Potentially dilutive securities issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

The Company calculates basic and diluted loss per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed.

Treasury shares are presented as a reduction of equity, at their cost to the Company.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity ("ASC 480"), and ASC 815, Derivatives and Hedging ("ASC 815"). Management's assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meets all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company's own common stock and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgement, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding.

Issued or modified warrants that meet all of the criteria for equity classification are recorded as a component of additional paid-in-capital at the time of issuance. Issued or modified warrants that do not meet all the criteria for equity classification are recorded as a liability at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the consolidated statements of operations. Cost associated with issuing the warrants accounted for as liabilities are charged to consolidated statements of operations when warrants are issued. As of December 31, 2025, all outstanding warrants meet equity classification guidance and are classified as such.

New Accounting Pronouncements Effective in the Current Period

In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic 740): 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 adopted ASU 2023-09 on a prospective basis effective January 1, 2025. Accordingly, the enhanced income tax disclosures are presented in the income taxes footnote (Note 10) beginning in fiscal year 2025, and prior period disclosures have not been recast.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): 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 may be applied either (1) prospectively to consolidated 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 ASU 2024-03 will have on its consolidated financial statements and disclosures.

In March 2025, the FASB issued ASU 2025-05 - Financial Instruments - Credit Losses (Topic 326): 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 Topic 606. 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 Topic 326 and Topic 606. 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 is currently evaluating the impact that the adoption of ASU 2025-05 will have on its consolidated financial statements and disclosures.

In December 2025, the FASB issued ASU 2025-11 - Interim Reporting (Topic 270): Improvements to Interim Reporting Guidance, which is intended to improve the clarity and organization of the interim reporting guidance in Topic 270. 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 Topic 270 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 ASU 2025-11 will have on its consolidated financial statements and disclosures.

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NOTE 2 – BUSINESS 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 ASC 805, Business Combinations (“ASC 805”). 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 is not 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 a thirty 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. See Note 13 for additional information. As the total number of ATD Holdback Shares to be issued to the Seller was not 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 or one 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. Since the acquisition of ATD occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s consolidated statement of operations for the year ended December 31, 2024. The table below shows the breakdown related to the purchase price allocation for the acquisition (dollars in thousands):

Cash paid	$	10,048
Liability classified holdback shares (664,329 shares measured at fair value as of the Closing Date)		1,635
Common stock issued (2,832,135 shares at closing price of $3.14 per share)		8,893
Total Consideration	$	20,576
Recognized amounts of identifiable assets acquired and liabilities assumed
Assets
Cash and cash equivalents	$	826
Accounts receivable		3,183
Property and equipment		1,565
Right-of-use operating lease assets		269
Other current assets		154
Intangible assets		12,100
Total assets acquired	$	18,097
Liabilities
Accounts payable and accrued expenses	$	715
Lease liability operating, short-term		269
Other current liabilities		257
Total liabilities assumed	$	1,241
Fair value of identifiable net assets acquired		16,856
Purchase price consideration		20,576
Goodwill	$	3,720

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Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of ATD and the Series A Prime Revenue Sharing Notes interest expense, as if they were consummated as of January 1, 2024. A portion of the proceeds from the Series A Prime Revenue Sharing Notes was used to fund the acquisition of ATD and therefore the Company has included the impact of the issuance of the debt in its unaudited pro forma financial information. This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition and the issuance of the Series A Prime Revenue Sharing Notes been completed as of January 1, 2024 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

	Year ended December 31, 2024
	(Dollars in thousands, except per share data)
Total revenue	$	46,028
Net loss	$	(61,410	)
Basic and diluted loss per share	$	(0.71	)
Basic and diluted number of shares		86,717,724

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NOTE 3 – INVESTMENTS

Global Public Safety

In February 2017, the Company contributed substantially all the assets and certain liabilities related to its vehicle services business to Global Public Safety (the “GPS Closing”). After the GPS Closing, the Company continued to own 19.9% of the units of Global Public Safety. This equity investment did not have a readily determinable fair value and the Company reported this investment at cost, less impairment. Prior to the sale of Global Public Safety the readily determinable fair value was $0.

On July 1, 2024, the Company sold its remaining 19.9% ownership of Global Public Safety to LB&B Associates Inc. for $1,500,000, which was paid in two cash installments of $750,000 at closing and $750,000 on August 1, 2024. As a result of the sale, the Company recognized a gain of $1,500,000 during 2024 which is presented within other income (expense) in the accompanying 2024 consolidated statement of operations.

Roker

In June 2020, the Company announced a joint venture in which the Company would have a 50% equity interest in Roker Inc. (“Roker”). In the third quarter of 2020 and the first quarter of 2021, the Company contributed $75,000 for its 50% equity interest for a total investment of $150,000. This investment is accounted for under the equity method. As of December 31, 2025 and 2024 the investment in Roker had a carrying value of $0.

In 2023, the Company entered into an agreement to sell substantially all of the assets of Roker, which initiated a triggering event related to the Company's Roker SAFE agreements. As result of the triggering event the Company received cash proceeds of $1,904,000, of which the remaining escrow of $211,000 was released from escrow in 2025.

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NOTE 4 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the years ended December 31, 2025 and 2024 were as follows (dollars in thousands):

	*Year ended December 31,*
	*2025*			*2024*
Cash paid for interest	$	2,411		$	2,518
Cash paid for taxes		58			61
Increase in accounts payable and accrued expenses related to purchases of inventory		21			34
Decrease in inventory related to the transfer of property and equipment		-			(1,501	)
Change in deposits related to inventory		(8	)		983
Abandonment of financing lease		31			-
Contract modification resulting in a measurement of an operating lease		1,344			-
Non-cash financing activities:
Settlement of ATD Holdback Shares with common stock		1,156			-
Fair value of shares issued in connection with the acquisition of ATD		-			8,893
Fair value of ATD Holdback Shares at the acquisition date		-			1,635
2023 Promissory Note redemption premium settled in shares of the Company’s common stock		-			1,875
Conversion of Prepaid Advance to common stock		-			14,100
New Leases under ASC-842
Right-of-use assets obtained in exchange for new finance lease liabilities		575			1,267
Right-of-use assets obtained in exchange for new operating lease liabilities		396			453

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NOTE 5 – INVENTORY

As of December 31, 2025 and 2024, inventory consisted entirely of the following (dollars in thousands):

	*December 31,*
	*2025*		*2024*
Parts and cameras	$	2,795	$	4,136
Finished goods		277		161
Total inventory	$	3,072	$	4,297

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NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following (dollars in thousands):

	*December 31,*
	*2025*			*2024*
Furniture and fixtures	$	1,778		$	1,966
Office equipment		7,306			7,022
Roadway monitoring systems placed in service		6,359			4,824
Vehicles		2,839			2,758
Leasehold improvements		3,254			4,513
Roadway monitoring systems not yet placed in service		252			185
Total	$	21,788		$	21,268
Less: accumulated depreciation		(13,156	)		(10,220	)
Property and equipment, net	$	8,632		$	11,048

Depreciation related to property and equipment, net for the years ended December 31, 2025 and 2024 was $3,835,000 and $3,879,000, respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

Information about the Company’s total assets in different geographic regions is as follows (dollars in thousands):

	*December 31,*
	*2025*			*2024*
United States	$	21,788		$	19,589
Other		-			1,679
Accumulated depreciation		(13,156	)		(10,220	)
Total property and equipment, net	$	8,632		$	11,048

In December 2025, the Company determined that the operations of its wholly owned subsidiary, Waycare Technologies LTD, located in Tel Aviv, Israel, were no 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 closure was announced to employees on February 23, 2026, and Tel Aviv operations ceased on February 24, 2026. The Command product line and all associated intellectual property, customer relationships, and operations continue in the United States. The closure does not qualify for discontinued operations reporting under ASC 205-20.

As a result of the decision to close the Tel Aviv office, the Company identified a triggering event requiring an impairment assessment of the related long-lived assets, consisting of property and equipment (primarily leasehold improvements, furniture, and equipment) and 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 these assets were less than their carrying amounts, and accordingly, the assets were written down to their estimated fair values. The Company estimated that the fair values of the property and equipment and the ROU asset were approximately $0, based on the expected abandonment of these assets with no material residual or sublease value (a Level 3 fair value measurement).

The Company recognized total impairment charges of $3,754,000 during the year ended December 31, 2025, consisting of $1,046,000 related to property and equipment and $2,708,000 related to the operating lease ROU asset. These impairment charges are included in asset impairment charges in the consolidated statements of operations.

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NOTE 7 – 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 of one to nine 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 the first quarter of 2025, 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 ASC 842. 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.

As noted in Note 6, in December 2025 the Company determined to cease the operations of its wholly owned subsidiary, Waycare Technologies Ltd., located in Tel Aviv, Israel. As a result of this decision, the Company recognized an impairment charge of $2,708,000 related to the operating lease ROU asset associated with the Tel Aviv facility.

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

	*Year ended December 31,*
	*2025*		*2024*
Operating lease cost	$	2,454	$	2,309
Finance lease cost
Amortization of right-of-use assets		1,223		939
Interest on lease liabilities		167		156
Finance lease cost		1,390		1,095
Total lease cost	$	3,844	$	3,404

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

	*Year ended December 31,*
	*2025*			*2024*
Weighted-average remaining lease term (years) - operating leases		6.35			7.56
Weighted-average remaining lease term (years) - financing leases		2.54			2.19
Weighted-average discount rate - operating leases		12.1	%		9.2	%
Weighted-average discount rate - financing leases		9.1	%		9.0	%

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Maturities of operating and financing lease liabilities for continuing operations at December 31, 2025 were as follows (dollars in thousands):

	*Operating Leases*		*Financing Leases*
2026	$	4,142	$	887
2027		2,739		383
2028		2,544		166
2029		2,480		133
Thereafter		6,607		57
Total lease payments		18,512		1,626
Less imputed interest		5,222		174
Present value of lease liabilities	$	13,290	$	1,452

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NOTE 8 – INTANGIBLE ASSETS

Goodwill

There were no changes to goodwill during the year ended December 31, 2025. The following summarizes the change in goodwill from December 31, 2023 to December 31, 2025 (in thousands):

		December 31, 2023				ATD Acquisition				Impairment				December 31, 2024				Impairment				December 31, 2025
Goodwill		$	20,593			$	3,720			$	-			$	24,313			$	-			$	24,313

Intangible Assets Subject to Amortization

The following summarizes the changes in intangible assets, net of accumulated amortization and impairment, from December 31, 2023 to December 31, 2025 (dollars in thousands):

	*December 31, 2023*		*Additions*		*Amortization*			*Impairment*			*December 31, 2024*		*Additions*		*Amortization*			*Impairment*		*December 31, 2025*
Intangible assets subject to amortization
Customer relationships	$	3,321	$	11,900	$	(1,054	)	$	(227	)	$	13,940	$	-	$	(1,020	)	$	-	$	12,920
Marketing related		499		200		(189	)		-			510		-		(180	)		-		330
Technology based		13,419		-		(3,432	)		(9,987	)		-		-		-			-		-
Intangible assets subject to amortization	$	17,239	$	12,100	$	(4,675	)	$	(10,214	)	$	14,450	$	-	$	(1,200	)	$	-	$	13,250

During the fourth quarter of 2024, as a result of sales performance being below expectation in part due to slower customer adoption, longer sales cycles and market conditions, the Company identified a triggering event and performed an analysis of its intangible assets. As a result of the forementioned factors and their potential future impact, the Company recognized an impairment charge of $10,214,000 as of December 31, 2024. The impairment charges were recorded in operating expenses in the consolidated statement of operations. No impairment charges were recognized during 2025.

The estimates of future cash flows used in determining the fair value of intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions.

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

	*December 31,*
	*2025*			*2024*
Customer relationships	$	15,300		$	15,300
Marketing related		900			900
Total		16,200			16,200
Less: accumulated amortization		(2,950	)		(1,750	)
Identifiable intangible assets, net	$	13,250		$	14,450

These intangible assets are being amortized on a straight-line basis over their weighted average remaining estimated useful life of 12.4 years. Amortization expense for the year ended December 31, 2025 and 2024 was $1,200,000 and $4,675,000, respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

As of December 31, 2025, the estimated annual amortization expense for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

2026	$	1,200
2027		1,130
2028		1,060
2029		1,020
2030		1,020
Thereafter		7,820
Total	$	13,250

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NOTE 9 – 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 of two 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 December 31, 2025, the aggregate balance of these notes payable was fully satisfied.

Loans Payable

As part of its operations the Company enters loans related to purchases of its vehicles. These loans have maturities between 2025 and 2028 and carry interest rates ranging from 0% to 6.99%. These loans primarily have equal monthly payments over the term of the respective loans. The loans are presented as part of loans payable, current portion and loans payable long-term on the consolidated balance sheet.

2023 Promissory Notes

In January 2023, the Company issued $12,500,000 aggregate principal amount of senior secured promissory notes. The notes were fully redeemed in March 2024, and no amounts were outstanding as of December 31, 2025 or 2024.

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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 will be paid based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers in five 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, 2023 with Argent Institutional Trust Company, as trustee. The Indenture creates a first 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 to not less than three times the next monthly interest payment. Additionally, there is a sinking fund requirement which takes effect if the three 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 December 31, 2025 and is held by a third party and is presented as part of deposits on the consolidated balance sheets. The Company is not in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes and the sinking fund requirement has not been triggered as of December 31, 2025.

The Company may prepay the Series A Prime Revenue Sharing Notes at any time through December 15, 2026 at a premium ranging from 103% to 106%; provided that the Series A Prime Revenue Sharing Notes may not be redeemed prior to December 15, 2024. Repayment of the Series A Prime Revenue Sharing Notes consisting of all principal, plus any unpaid accrued interest, may also be accelerated by the noteholder upon a change in control or event of default. For the years ended December 31, 2025 and 2024, the Company recognized $1,988,000 in interest expense related to the Series A Prime Revenue Sharing Notes.

Interest Expense, net

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

	*Year ended December 31,*
	*2025*		*2024*
Contractual interest	$	2,219		2,469
Amortization of debt issuance costs		198		541
Total interest expense, net		2,417		3,010
Less: interest income		120		365
Total interest expense, net	$	2,297	$	2,645

Schedule of Principal Amounts Due on Debt

The principal amounts due for notes payable and loans payable are shown below as of December 31, 2025 (dollars in thousands):

2026	$	15,084
2027		86
2028		25
Thereafter		-
Total		15,195
Less: unamortized financing costs		(197	)
Total notes payable	$	14,998

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NOTE 10 – INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company reviewed both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business.

The provision for income taxes for the years ended December 31, 2025 and 2024 consists of the following (dollars in thousands):

	*Year ended December 31,*
	*2025*		*2024*
Federal:
Deferred	$	14	$	14
Total federal		14		14
State:
Current		28		31
Total state		28		31
Provision for income taxes	$	42	$	45

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The components of deferred income tax assets and liabilities are as follows on December 31, 2025 and 2024 (dollars in thousands):

	*Year ended December 31,*
Deferred tax assets	*2025*			*2024*
Net operating loss	$	59,524		$	49,376
163(j) limitation		2,802			2,179
Lease liabilities		3,794			4,286
Research and development		2,336			6,042
Fixed assets		422			196
Other		2,090			1,678
Total gross deferred tax assets		70,968			63,757

Valuation allowance for deferred tax assets		(68,693	)		(60,805	)
Net deferred tax assets	$	2,275		$	2,952

Deferred tax liabilities:
Right-of-use asset		(2,261	)		(2,939	)
Goodwill and intangibles		(106	)		(92	)
Total gross deferred tax liabilities		(2,367	)		(3,031	)
Net deferred tax liabilities	$	(92	)	$	(79	)

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The items accounting for the difference between income taxes computed at the federal statutory rate and our effective tax rate after the adoption of ASU 2023-09 were as follows:

	*Year Ended December 31, 2025*
	*(in thousands)*			*Percent*
U.S. statutory federal rate	$	(6,598	)		21.00	%
State income tax rate, net of U.S. Federal benefit		28			(0.09	)%
Foreign tax effects – Israel		2,072			(6.59	)%
Change in valuation allowance		4,621			(14.71	)%
Nontaxable or nondeductible items
Remeasurement of the STS Earnout and Contingent Consideration		(399	)		1.27	%
Other		318			(1.01	)%
Effective tax rate	$	42			(0.13	)%

The items accounting for the difference between income taxes computed at the federal statutory rate and our effective tax rate were as follows for years prior to our adoption of ASU 2023-09:

	Year ended December 31, 2024
U.S. statutory federal rate		21.00	%
(Decrease) increase in taxes resulting from:
State income tax rate, net of U.S. Federal benefit		5.09	%
True-ups		0.00	%
Other		(3.59	)%
Valuation allowance		(22.57	)%
Effective tax rate		(0.07	)%

The Company files income tax returns in the United States and various state and foreign jurisdictions. No U.S. federal, state or foreign income tax audits were in process as of December 31, 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 goodwill, because the Company believes that it is not more likely than not 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. During the year ended December 31, 2025, the Company’s valuation allowance increased by $7,888,000, which was primarily driven by an increase in the Company’s deferred tax assets.

As of December 31, 2025, the Company had gross U.S. Federal and state net operating loss (“NOL”) carryforwards of $176,630,000 and $168,197,000, respectively. The gross U.S. NOL generated in the years ended December 31, 2025 and 2024 of $19,679,000 and $26,369,000 respectively, will be carried forward indefinitely and are subject to the annual 80 percent limitation. As of December 31, 2025, the Company had net U.S. federal and state NOL carryforwards of $37,547,000 and $9,959,000, respectively. As of December 31, 2025, the Company had gross U.S. federal NOL carryforwards of approximately $3,826,000 that were generated prior to the Tax Cuts and Jobs Act that are scheduled to begin to expire in 2034, and are not subject to the annual 80 percent limitation. The Company had gross foreign federal and state operating loss carryforwards of $53,264,000 and $52,056,000, respectively, which are carried forward indefinitely and are not subject to any limitation. The net foreign carryforwards are $11,185,000 and $833,000, respectively. The gross foreign NOL generated in the years ended December 31, 2025 and 2024 are $5,054,000 and $4,151,000 , respectively.

As of December 31, 2024, the Company had U.S. gross federal and state NOL carryforwards of $142,415,000 and $133,857,000, respectively. As of December 31, 2024, the Company had U.S. net federal and state NOL carryforwards of $30,336,000 and $8,164,000, respectively. As of December 31, 2024, the Company had foreign gross federal and state NOL carryforwards of $48,209,000 and $47,002,000, respectively. As of December 31, 2024, the Company had foreign net federal and state NOL carryforwards of $10,124,000 and $752,000, respectively.

The federal and state NOL and credit carryforwards may be subject to significant limitations under Sections 382 and 383 of the Internal Revenue Code ("Code") and similar provisions of state law. These Code sections limit the federal NOL and credit carryforwards that may be used in any year in the event of an “ownership change”. A Section 382 “ownership change” generally occurs if one or more shareholders or groups of shareholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Company may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes”. If so, the Company may lose some or all of the tax benefits of its NOLs and tax credits. The extent of such limitations for prior years, if any, has not been determined.

For the years ended December 31, 2025 and 2024, the Company did not record any interest or penalties related to unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax benefit.

The amount of cash income taxes paid, net of refunds received were as follows:

Amount (in thousands)	*Year Ended December 31, 2025*
U.S. federal taxes	$	-
State and local taxes (various)		58
Foreign taxes – Israel		-
Total income taxes paid	$	58

Recent Tax Legislation

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law in the United States. This comprehensive tax legislation contains a broad range of tax reforms, including provisions that allow for the immediate expensing of domestic research and development expenses, restore and make permanent 100% bonus depreciation for qualifying assets, and ease limitations on the deductibility of interest expense. The legislation has multiple effective dates, with certain provisions taking effect in 2025 and others being implemented through various future years. The Company has accounted for the provisions of the OBBBA in its consolidated financial statements. The Company will continue to monitor the impact of this legislation in future periods.

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NOTE 11 – EMPLOYEE BENEFIT PLAN

401(k) Plan

In 2019, Rekor established the Rekor Systems, Inc. 401(k) Plan (the “Rekor 401(k) Plan”), a Qualified Automatic Contribution Arrangement (QACA) safe harbor plan. Employees that satisfied the eligibility requirements became participants in the Rekor 401(k) Plan. The Company contributes an amount equal to the sum of 100% of a participant’s elective deferrals that do not exceed 1% of participant’s compensation, plus 50% of the participant’s elective deferrals that exceed 1% of the participants compensation, but do not exceed 6% of the participant’s compensation. Employee contributions are fully vested, and matching contributions are subject to a two-year service vesting schedule.

Employee Severance Benefits

In accordance with the current employment terms with all its employees (Section 14 of the Israeli Severance Pay Law, 1963) located in Israel, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s full retirement benefit and severance obligation. The Company is relieved from any severance pay liability with respect to each employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s consolidated balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies.

The amount of contributions recorded by the Company under these plans during the years ended December 31, 2025 and 2024 were $1,190,000 and $1,415,000, respectively.

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NOTE 12 – 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 (see NOTE 13 – STOCKHOLDERS’ EQUITY). That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company may enter into during the specified tail period with investors introduced to the Company by HCW during the term of the letter, as well as a right of first refusal ("ROFR") to act as the Company's exclusive underwriter or placement agent on any subsequent financing transactions utilizing an underwriter or placement agent occurring within twelve months from the consummation of a transaction pursuant to the engagement letter.

In July 2023, the Company entered into an agreement with one of its warrant holders in connection with the exercise of warrants, which the Company refers to as the July Warrant Exercise Transaction. Subsequent to the July Warrant Exercise Transaction, the Company received a letter from HCW claiming entitlement to certain “tail” fees and warrant consideration stemming from the agreement with the warrant holder. 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 2023 Registered Direct Offering.

On or about October 23, 2023, HCW filed a complaint in New York State Supreme Court asserting a claim for breach of contract against the Company relating to the July Warrant Exercise Transaction. 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 2024 offering, which we refer to as the 2024 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 2023 Registered Direct Offering, Armistice’s trading activity in Rekor common stock, and Rekor’s 2024 Public Offering. After HCW and Armistice moved to dismiss Rekor’s counterclaims, Rekor filed amended counterclaims on October 1, 2024. In Q3 2025, Rekor resolved its claims with Armistice. The proceeds are presented as part of other expense (income) in the condensed consolidated statement of operations. 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. Rekor has filed a notice of appeal of that ruling.

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

In 2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints. 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 by one employee in advance of a March 3, 2025 hearing 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. Our brief is due on March 31, 2026. Complainant then has fourteen (14) days from the submission of our brief to file a reply.

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

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NOTE 13 – STOCKHOLDERS’ EQUITY

Authorized Common Stock

Effective March 18, 2020, the Company adopted and approved an amendment to increase the number of authorized shares of common stock from 30,000,000 to 100,000,000, $0.0001 par value. 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 was not affected by this amendment and remained unchanged at 2,000,000 shares.

The rights and privileges terms of the additional authorized shares of common stock are identical to those of the currently outstanding shares of common stock. However, because the holders of common stock do not have preemptive rights to purchase or subscribe for any new issuances of common stock, the subsequent potential issuance of additional shares of common stock will reduce the current stockholders’ percentage ownership interest in the total outstanding shares of common stock. The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’ relative rights and limitations.

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 could, 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 was entitled to receive from the Company a commission in an amount equal to (i) 3.0% of the gross sales prices 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.

On August 12, 2025, the Company elected to voluntarily terminate its Sales Agreement.

As of December 31, 2025, the Company issued 18,888,832 shares of its common stock at a weighted average selling price of $1.23 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $22,350,000 after paying $245,000 in issuance costs, as well as 3.0%, or $699,000 related to cash commissions provided to the Agent.

ATD Acquisition

In connection with the acquisition as described in Note 2, the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration. Additionally, 664,329 shares were issued and delivered to the Seller on the twelve-month anniversary of the Closing Date. The ATD Holdback Shares were deemed to be liability based and are measured at fair value each reporting period. The shares issued and issuable 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. On January 2, 2025, all of the ATD Holdback Shares were issued to the Seller.

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 of one share of the Company's common stock and one warrant to purchase one 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 2025 warrants remain outstanding.

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 February 9, 2024, the Underwriters exercised in-full their option to purchase up to 1,500,000 additional shares of common stock at the 2024 Public Offering Price (the “Underwriters’ Option”). The exercise closed on February 13, 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 the 2024 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, within one 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 Amendment No.1 to the Prepaid Advance Agreement (the “Amendment”) to eliminate the option for additional advances.

The Investor, at its sole discretion, could elect to purchase the Company’s common stock, $0.0001 par value per share, in exchange for any amount up to the total principal and interest of the balance due under the Prepaid Advance, provided that none of the following limitations existed: (i) the conversion did not cause the aggregate number of common shares beneficially owned by the Investor and its affiliates to exceed 4.99% of the then-outstanding voting power or number of common shares, (ii) the issuance of common stock did not exceed a certain cap (unless the Company obtained stockholder consent or obtained a written legal opinion that stockholder approval is not required), and (iii) the amount of the advances converted may not exceed $2,625,000 in any month. However, the Investor was permitted to convert principal advances in excess of $2,625,000 each month upon an Event of Default, if the Purchase Price exceeds $2.50 per share, or upon the Company’s consent. If and when requested by the Investor, amounts outstanding under the Prepaid Advance could be correspondingly reduced upon the issuance by the Company of its common stock, par value $0.0001 per share, to the Investor at a price per share equal to the lower of: (a) $2.50 (the “Fixed Price”) or (b) 93% of the lowest daily volume weighted average price (as reported during regular trading hours by Bloomberg) (“VWAP”) of the shares during the five trading days immediately prior to each purchase notice, subject a floor price of $0.28 per share (the “Floor Price”). There was no interest related to the Prepaid Advance, however, interest would accrue at 18% upon events of default. The Prepaid Advance had a final maturity date of August 28, 2025.

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 ASC 825. See Note 1 for further discussion of the key inputs to determine the fair value of the Prepaid Advance.

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 of 2023 Promissory Notes

On March 4, 2024, the Company elected to prepay the outstanding 2023 Promissory Notes. The 2023 Promissory Notes were redeemed at the redemption price of 115% of the $12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000 (the “Redemption Payment”). 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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2023 Warrants

In connection with the initial closing of the 2023 Promissory Notes on January 18, 2023, the Company issued warrants to purchase 6,250,000 shares of common stock. The warrants issued in connection with the initial closing have an exercise price of $2.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, are immediately exercisable, have a term of five years from the date of issuance and are exercisable on a cash or cashless basis at the election of the holder. The 2023 Warrants were valued at $5,125,000, based on the relative fair value basis, compared to the total proceeds received.

On June 20, 2024, the Company entered into various Warrant Exercise Agreements (the “Agreements”) with certain holders of the 2023 Warrants (each an “Exercising Holder” and collectively, the “Exercising Holders”), pursuant to which the Company reduced the strike price of the 2023 Warrants from $2.00 per warrant to $1.40 per warrant to induce their exercise. In June 2024, all but one of the Exercising Holders exercised 1,400,000 warrants for common stock in exchange for $1,960,000. In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $3,185,000.

In consideration for the Company’s agreement to reduce the exercise price, the Exercising Holders agreed to a concomitant reduction in the number of shares into which the 2023 Warrants are exercisable, from 5,250,000 to 3,675,000. This modification resulted in a decrease in the overall fair value of the equity classified warrants and since no incremental value was given to the Exercising Holders, nothing was recorded in the consolidated financial statements related to the modification. The shares issued in connection with the Warrant Exercise Agreements have been registered on a resale registration statement on Form S-3, declared effective by the SEC on July 30, 2024.

The Company estimated the fair value of the warrants using the Black-Scholes pricing model. The use of the Black-Scholes pricing model requires the use of subjective assumptions, including the fair value and projected volatility of the underlying common stock and the expected term of the award. The fair value of each warrant granted has been estimated as of the date of the grant using the Black-Scholes pricing model with the following assumptions:

Risk-free interest rate	3.42	%
Expected term (in years)	5
Volatility	113	%
Dividend yield	0	%
Estimated annual forfeiture rate at the time of grant	0	%

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Preferred Stock

The Company is authorized to issue up to 2,000,000 shares of preferred stock, $0.0001 par value. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of the winding-up of its affairs. The authorized but unissued shares of the preferred stock may be divided into, and issued in, designated series from time to time by one or more resolutions adopted by the Board of Directors of the Company. The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock.

Series A Cumulative Convertible Redeemable Preferred Stock

Of the 2,000,000 authorized shares of preferred stock, 505,000 shares were designated as $0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”). The holders of Series A Preferred Stock were entitled to quarterly dividends of 7.0% per annum per share. As of December 31, 2025 and 2024, there are no outstanding shares of the Company's Series A Preferred Stock.

Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity.

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Warrants

A summary of the warrant activity for the Company for the period ended December 31, 2025 and December 31, 2024 is as follows:

	*2023 Promissory Notes (1)*			*2023 Registered Direct Offering (2)*		*2023 Private Warrants (3)*		*2025 Underwriting Agreement (4)*		*Total*
Active warrants January 1, 2024		6,250,000			481,100		2,850,000		-		9,581,100
Issued warrants		-			-		-		-		-
Exercised warrants		(3,675,000	)		-		-		-		(3,675,000	)

Rekor Systems, Inc. 10-K