What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-03-25 · 439 added, 468 removed, 871 unchanged (51% of the section changed)

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Explanatory Paragraph – Going Concern

The accompanying consolidated 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 may need to raise additional funds to meet its obligations and sustain its operations.

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.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 s .

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

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.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matter – Going Concern

As part of our audit of the Company ’ s financial statements, a matter arose that was communicated to the audit committee and is considered to be a critical audit matter.

Critical audit matters are those matters that, in our professional judgment, were of most significance in our audit of the current period's financial statements and are therefore included in this report.

The following matter was identified as a critical audit matter due to the significant judgment by management in determining whether substantial doubt about the entity's ability to continue as a going concern exists.

During the course of our audit, we identified conditions and events that raise substantial doubt about the Company ’ s ability to continue as a going concern within one year after the date that the financial statements are issued.

These conditions include, but are not limited to, ongoing losses from operations, negative cash flows from operating activities, and an accumulated deficit.

The Company's financial statements disclose information about these conditions and management's plans to mitigate them, which include efforts to secure additional funding and implement strategic initiatives intended to improve the Company's operational efficiency and revenue generation.

We devoted significant audit attention to the aforementioned conditions and the related disclosures in the financial statements.

Our audit procedures included, among other things, evaluating the adequacy of the related disclosures and the application of accounting principles generally accepted in the United States of America in the assessment of the Company's ability to continue as a going concern.

We also assessed the feasibility of management's plans to mitigate the substantial doubt and the likelihood that such plans would be effectively implemented within the going concern assessment period.

The process of evaluating the impacts of these conditions and management's mitigation plans involved a high degree of auditor judgment and an increased extent of audit effort.

The conclusion regarding the existence of substantial doubt about the Company's ability to continue as a going concern has been appropriately disclosed in Note 1 to the financial statements.

The audit procedures applied in the area of management ’ s going concern assessment, relative to the Company's financial condition and prospects, were determined to be a matter of most significance in the audit and therefore is considered a critical audit matter.

Critical Audit Matters

The critical audit matters communicated below 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.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter – Auditing the Fair Value of Intangible Assets Acquired in a Business Combination

As described in Note 2 to the consolidated financial statements, the Company completed the acquisition of all of the outstanding membership interests of All Traffic Data Service, LLC (“ATD”) on January 2, 2024 for total consideration of $20.6 million.

The Company accounted for this transaction as a business combination under the acquisition method of accounting whereby the fair value of the consideration transferred was allocated to the assets acquired, including a customer relationship intangible asset of $11.9 million and trade names of $0.2 million, and liabilities assumed based upon their acquisition date fair values.

Management estimated the fair value of the customer relationship intangible asset using a multi-period excess earnings method whereby residual forecasted cash flows expected to be derived from the intangible asset over the economic life of the asset, adjusted for expected attrition, are discounted to present value.

We identified the valuation of the customer relationship intangible asset at the ATD acquisition date as a critical audit matter because of the significant assumptions management used in estimating the fair values, including forecasted cash flows and the selection of a discount rate for the customer relationship intangible asset.

Auditing management’s assumptions involved a high degree of auditor judgment and an increased audit effort, including the use of valuation specialists, due to the impact these assumptions could have on the accounting estimates.

Our audit procedures related to the valuation of the customer relationship intangible asset included the following, among others:

We reviewed the interest purchase agreement to understand and evaluate the terms of the acquisition and accounting for the acquisition.

We tested the reasonableness of management’s forecasted cash flows used in the valuation of the customer relationship intangible asset.

This testing included analyzing ATD’s historical revenue growth rates, margins, customer attrition rate, and capital expenditures and comparing them to the forecasted amounts.

Additionally, we considered the post-acquisition performance trajectory of the Company’s most recent prior business combination in order to establish a benchmark.

We utilized our valuation specialists to perform the following procedures, among others:

Evaluate the appropriateness of the valuation method used by management to estimate the fair values of the customer relationship intangible asset and test the mathematical accuracy of the model.

Assess the reasonableness of certain key inputs used to develop the fair value measurements including the discount rate and the inputs to the cost of capital assumption

Test the fair value measurement for the customer relationship intangible asset by performing an independent calculation of the value

/s/ Marcum LLP

We have served as the Company’s auditor since 2019

East Hanover, NJ

Morristown, NJ

March 31, 2025

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$ 5,013 $ 15,385

Restricted cash and cash equivalents

Accounts receivable (net of allowance for credit losses of $ 101 and $ 69 at December 31, 2023 and 2022, respectively)

Restricted cash

Accounts receivable, net

Note receivable, current portion

Other current assets

Current assets of discontinued operations

Total current assets

19,930 25,336

Long-term assets

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Note receivable, long-term

SAFE investment

Total long-term assets

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$ 82,475 $ 92,151

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

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Notes payable, current portion

Notes payable, related party

Loans payable, current portion

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Contract liabilities

Liability for ATD Holdback Shares

Other current liabilities

Current liabilities of discontinued operations

Total current liabilities

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Notes payable, long-term

2023 Promissory Notes, net of debt discount of $ 1,012

2023 Promissory Notes - related party, net of debt discount of $ 2,149

Series A Prime Revenue Sharing Notes, net of debt discount of $ 447

Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ 223

2023 Promissory Notes, net of debt discount of $ 0 and $ 1,012 , respectively

2023 Promissory Notes - related party, net of debt discount of $ 0 and $ 2,149 , respectively

Series A Prime Revenue Sharing Notes, net of debt discount of $ 263 and $ 447 , respectively

Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ 132 and $ 223 , respectively

Loans payable, long-term

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Year ended December 31,

$ 46,028 $ 34,933

Cost of revenue, excluding depreciation and amortization

23,344 16,499

Operating expenses:

General and administrative expenses

30,676 27,038

Selling and marketing expenses

Research and development expenses

18,766 18,271

Impairment of intangible assets

Depreciation and amortization

Goodwill impairment

Total operating expenses

Loss from continuing operations

77,007 60,550

Loss from operations

( 54,323 ) ( 42,116 )

Other income (expense):

Gain on extinguishment of debt

Gain on the sale of business

(Loss) gain on extinguishment of debt

( 4,693 ) 527

Interest expense, net

( 2,645 ) ( 3,596 )

Gain on remeasurement of ATD Holdback Shares

Loss on offering costs - Prepaid Advance

Loss on settlement of Prepaid Advance

Gain on the sale of Global Public Safety

Other expense, net

Total other income (expense)

( 15 ) ( 468 )

Total other expense, net

( 7,042 ) ( 3,537 )

Loss before income taxes

(Provision) benefit for income taxes

Net loss from continuing operations

Net income from discontinued operations

Loss per common share from continuing operations - basic and diluted

Earnings per common share discontinued operations - basic and diluted

( 61,365 ) ( 45,653 )

Provision for income taxes

$ ( 61,410 ) $ ( 45,685 )

Loss per common share - basic and diluted

$ ( 0.71 ) $ ( 0.72 )

Weighted average shares outstanding

Basic and diluted

86,717,724 63,168,299

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

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Balance as of December 31, 2022

Stock-based compensation

Issuance of common stock pursuant to at the market offering, net

Issuance upon exercise of stock options

Issuance upon vesting of restricted stock units

Shares withheld upon vesting of restricted stock units

Shares issued as part of the STS Acquisition

Balance as of December 31, 2022

54,405,080 $ 5 41,522 $ ( 417 ) $ 202,747 $ ( 152,998 ) $ 49,337

Stock-based compensation

- - - - 4,352 - 4,352

Issuance upon exercise of stock options

141,166 - - - 158 - 158

Issuance upon vesting of restricted stock units

903,485 - - - - - -

Fair value allocated to warrants with 2023 Promissory Notes

- - - - 5,125 - 5,125

Shares withheld upon vesting of restricted stock units

( 54,986 ) - 54,986 ( 105 ) - - ( 105 )

Issuance upon exercise of Series A warrants

36,375 - - - 32 - 32

Issuance of common stock upon exercise of pre-funded warrants

772,853 - - - 1 - 1

Net proceeds from 2023 Registered Direct Offering

6,100,000 1 - - 9,158 - 9,159

Issuance upon exercise of 2023 Registered Direct Offering Warrants

6,872,853 1 - - 10,995 - 10,996

- - - - - ( 45,685 ) ( 45,685 )

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

- - - - - ( 61,410 ) ( 61,410 )

Balance as of December 31, 2024

104,541,073 10 159,520 $ ( 711 ) $ 294,935 $ ( 260,093 ) $ 34,141

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

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Cash Flows from Operating Activities:

Net loss from continuing operations

Net income from discontinued operations

( 61,410 ) ( 45,685 )

Adjustments required to reconcile net loss to net cash used in operating activities:

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Non-cash operating lease expense

Provision (benefit) for deferred income taxes

Stock-based compensation

Provision for deferred income taxes

Share-based compensation

Impairment of intangible assets

Amortization of debt discount

Amortization of intangible assets

Goodwill impairment

Adjustment to inventory to net realizable value

Impairment of SAFE Agreement

Loss (gain) due to the remeasurement of the STS Earnout and Contingent Consideration, net

Loss due to the remeasurement of the STS Earnout and Contingent Consideration, net

Gain on remeasurement of ATD Holdback Shares

Gain on the sale of property and equipment

Gain on the sale of ATSE

Gain on extinguishment of debt

Changes in operating assets and liabilities:

( 27 ) ( 28 )

Gain on the sale of Global Public Safety

Loss (gain) on extinguishment of debt

4,693 ( 527 )

Loss on settlement of Prepaid Advance

Changes in operating assets and liabilities, net of acquisition:

Accounts receivable

220 ( 1,877 )

1,159 ( 687 )

Other current assets

( 1,308 ) 144

1,830 ( 495 )

Accounts payable, accrued expenses and other current liabilities

( 2,319 ) 1,600

Contract liabilities

Operating lease liability

( 316 ) 1,004

Lease liabilities

( 876 ) ( 1,249 )

Net cash used in operating activities - continuing operations

Net cash (used in) provided by operating activities - discontinued operations

( 32,469 ) ( 32,178 )

Net cash used in operating activities - discontinued operations

Net cash used in operating activities

( 32,469 ) ( 32,627 )

Cash Flows from Investing Activities:

SAFE Investment

Capital expenditures

Down payment on capital expenditures

( 1,682 ) ( 1,388 )

Proceeds from the sale of property and equipment

Cash paid for STS acquisition, net

Proceeds from the Roker SAFE

Proceeds from the sale of ATSE, net

Net cash provided by (used in) investing activities - continuing operations

Net cash used in investing activities - discontinued operations

Net cash provided by (used in) investing activities

Proceeds from the sale of Global Public Safety

Cash paid for ATD acquisition, net

Net cash (used in) provided by investing activities

( 9,370 ) 270

Cash Flows from Financing Activities:

Proceeds from public offering

Net proceeds from exercise of warrants

Net proceeds from the Prepaid Advance

Net proceeds 2022 Promissory Notes - related party, exchanged for 2023 Promissory Notes - related party

Payment of notes payable

Proceeds from notes receivable

Payments related to financing leases

( 994 ) ( 702 )

Net proceeds from exercise of options

Net proceeds from exercise of the warrants associated with series A preferred stock

Net proceeds from exercise of warrants associated with series A preferred stock

Net proceeds from Series A Prime Revenue Sharing Notes

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Repayments of loans payable

Net proceeds from at-the-market agreement

( 75 ) ( 107 )

Repayment of STS Notes

Repurchases of common stock

( 189 ) ( 105 )

Repayment of 2023 Promissory Notes

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents - continuing operations

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents - discontinued operations

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

Cash, cash equivalents and restricted cash and cash equivalents at beginning of the period

Cash, cash equivalents and restricted cash and cash equivalents at end of the period

31,455 45,602

Net (decrease) increase in cash, cash equivalents and restricted cash - continuing operations

( 10,384 ) 13,694

Net decrease in cash, cash equivalents and restricted cash - discontinued operations

Net (decrease) increase in cash, cash equivalents and restricted cash

( 10,384 ) 13,245

Cash, cash equivalents and restricted cash at beginning of the year

Cash, cash equivalents and restricted cash at end of the year

$ 5,329 $ 15,713

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents at end of the period - continuing operations

Restricted cash and cash equivalents at end of the period - continuing operations

Cash and cash equivalents at end of the period - discontinued operations

Cash, cash equivalents and restricted cash and cash equivalents at end of the period

Cash and cash equivalents at end of the year

$ 5,013 $ 15,385

Restricted cash and cash equivalents at end of the year

Cash, cash equivalents and restricted cash and cash equivalents at end of the year

$ 5,329 $ 15,713

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

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and Waycare Technologies Ltd.

(collectively, "Waycare") and Southern Traffic Services, Inc.

("STS") (collectively, the “Company”).

The Company stands at the forefront of the roadway intelligence sector, revolutionizing public safety, urban mobility, and transportation management on a global scale.

(collectively, “Waycare”), Southern Traffic Services, Inc.

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

The Company stands at the forefront of the roadway intelligence sector, working to revolutionize public safety, urban mobility, and transportation management on a global scale.

The Company's vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities.

The Company works towards this vision by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting.

On December 6, 2022, the Company divested its Automated Traffic Safety and Enforcement ("ATSE") business, a non-core business unit.

As of December 31, 2022, the Company determined that the ATSE business unit met the criteria to be presented as discontinued operations.

On June 17, 2022 , the Company completed the acquisition of STS by acquiring 100 % of the issued and outstanding capital stock of STS, which is now a wholly-owned subsidiary of the Company.

On January 2, 2024, the Company completed the acquisition of ATD by acquiring 100 % of the issued and outstanding limited liability company interests of ATD, which is now a wholly-owned subsidiary of the Company.

Basis of Consolidation

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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 assets, 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.

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.

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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 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.

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.

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.

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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.

The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services.

As of and for the year ended December 31, 2023, the Company had working capital from continuing operations of $ 8,100,000 and a loss from continuing operations of $ 45,685,000 .

Our cash increased by $ 13,245,000 for the year ended December 31, 2023 primarily due to net cash provided by financing acti vities of $ 45,602,000 which was offset by the net cash used in operating activities of $ 32,627,000 .

As of and for the year ended December 31, 2024 , the Company had working capital of $ 1,707,000 and a net loss of $ 61,410,000 .

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, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Northland Securities, Inc., pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $ 0.0001 per share, having an aggregate offering price of up to $ 25,000,000 .

See Note 16 to our consolidated financial statements for additional information related to the Sales Agreement.

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 interim 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 income 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.

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

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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 statement of operations.

The currency transaction gain for the year ended December 31, 2023 and 2022 was $ 55,000 and $ 306,000 , respectively.

Currency transaction gains and losses are presented in other expense, net on the consolidated statements of operations.

The currency transaction gain (loss) for the year ended December 31, 2024 and 2023 was ($ 10,000 ) and $ 55,000 , respectively.

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 account.

The United States deposits are federally insured up to $250,000 per insured bank, for each account ownership category.

As of December 31, 2024 , and 2023 , the Company had deposits, including restricted cash, totalin g $ 5,329,000 and $ 15,713,000 respective ly, in multiple U.S.

financial institutions and one Israeli financial institution.

For the year ended December 31, 2024 , no single customer accounted for more than 10% of the Company's total revenues .

For the year ended December 31, 2023 , Customer A accounted for 18 % of the Company's total revenues.

For the year ended December 31, 2022 no customer accounted for more than 10% of the Company's total revenue.

As of December 31, 2023 Customer A and Customer B accounted for 22 % and 13%, respectively, of the Company's consolidated accounts receivable balance.

As of December 31, 2022 , no single customer accounted for more than 10% of the Company's consolidated accounts receivable balance.

As of December 31, 2024 Customer A accounted for 12 % of the Company's consolidated accounts receivable balance.

A s of December 31, 2023 , Customer A and Customer B accounted for 22 % and 13%, respectively, of the Company's consolidated accounts receivable balance.

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 and 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 and cash equivalents for these client jurisdictions as of December 31, 2023 and 2022 were $ 328,000 and $ 254,000 , respectively, and correspond to equal amounts of related liabilities.

Restricted cash for these client jurisdictions as of December 31, 2024 and 2023 were $ 316,000 and $ 328,000 , respectively, and correspond to equal amounts of related liabilities.

Accounts Receivable and Allowance for Credit Losses

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The Company estimates losses on receivables based on expected losses, including our historical experience of actual losses.

Receivables are considered impaired and 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 specific customer collection issues and historical write-off trends.

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.

Note Receivables

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 due December 2025, that carries an interest rate of 4 % and is secured by a first priority security interest in the shares of TeamGlobal.

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 due December 2025, 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.

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Inventory is valued at the lower of cost or net realizable value.

The cost is determined by the first -in, first -out (“FIFO”) method.

The cost is determined by the first -in, first -out method.

Accounts Payable, Accrued and Other Current Liabilities

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Payroll and payroll related

$ 2,674 $ 2,824

Right of offset to restricted cash

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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 by comparing the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset.

If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows.

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, 2024 and 2023 , the Company did not recognize an impairment loss on its property and equipment.

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Intangible assets include capitalized internally developed software and amounts recognized in connection with acquisitions, including customer relationships, technology and marketing related assets.

Intangible assets, other than software development costs, are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset.

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.

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Amortization expense related to intangible assets is presented as part of depreciation and amortization on the consolidated statements of operations.

As of December 31, 2023 and 2022, the Company did not recognize an impairment loss on its intangible assets.

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.

In 2024, the Company recognized an impairment loss on its intangible assets of $ 10,214,000 .

See Note 8 for additional information.

The Company accounts for its leases in accordance with Accounting Standard Codification (“ASC”) Topic 842, Leases ("ASC 842" ).

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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 term of the lease.

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

Business Combination

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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 allocates a portion of the purchase price to the fair value of identifiable intangible assets.

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.

1 unchanged sentence

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 a periodic impairment testing on an annual basis.

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 will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock.

During the year ended December 31, 2023, the Company did not recognize any impairment to goodwill.

During the third quarter of 2022, the Company experienced a significant decline in its market capitalization, which management deemed a triggering event related to goodwill.

As a result, the Company performed an interim impairment assessment as of September 30, 2022, and determined that as of the reporting date the Company had an impairment related to its goodwill in the amount of $ 34,835,000 .

As of December 31, 2022, the Company did not identify any events that would cause it to assess goodwill for further impairment.

The Company utilized a weighted combination of the income-based approach and market-based approach to determine the fair value of the reporting unit.

Key assumptions used in the income-based approach included forecasts of revenue, operating income, depreciation and amortization expense, capital expenditures and future working capital requirements, terminal growth rates, and discount rates based upon the reporting unit's weighted-average cost of capital adjusted for the risk associated with the operations at the time of the assessment.

The income-based approach largely relied on inputs that were not observable to active markets, which would be deemed “Level 3” fair value measurements, as defined in the Fair Value of Financial Instruments section below.

Key assumptions used in the market-based approach included the selection of appropriate peer group companies and the associated valuation multiples.

Changes in the estimates and assumptions used to estimate fair value could materially affect the determination of fair value and the impairment test result.

In conjunction with the impairment of intangible assets goodwill was also assessed for impairment as of December 31, 2024.

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 year ended December 31, 2024 and 2023, the Company did not recognize any impairment to goodwill.

Revenue Recognition

13 unchanged sentences

Product and service revenue

Total revenue

23,438 14,178

Information about the Company’s revenue in different geographic regions, which is attributable to the Company’s operations located primarily in the United States and other countries is as follows (dollars in thousands):

Year ended December 31,

United States

$ 32,386 $ 17,889

Total revenue

$ 46,028 $ 34,933

For the year ended December 31, 2023 , except for the United States, total revenue in any single country was less than 10% of consolidated revenue.

For the years ended December 31, 2024 and 2023 except for the United States, total revenue in any single country was less than 10% of consolidated revenue.

Recurring revenue

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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 which can be purchased online and activated through a digital key.

The Company's contracts with customers are generally for a term of one month with automatic renewal each month.

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.

Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates.

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Product and service revenue

Product and service revenue is defined as the Company’s implementation revenue, perpetual license sales, hardware sales, engineering services and contactless compliance revenue.

Implementation revenue is recognized when the Company provides implementation or construction services to its customers.

These services involve a fee for the implementation services and are typically associated with the sale of the Company’s data collection services, software and hardware.

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.

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Public safety

14,807 14,874

Total revenue

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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 Company initiated this platform in June of 2022 and is in the process of deploying it for its existing customers as well as initiating deployments for new customers.

The application fully automates the aggregation of Federal Highway Administration (“FHWA”) 13 -bin vehicle classification, speed, and volume data.

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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, 2023 the Company had approximately $ 26,390,000 of remaining performance obligations not yet satisfied or partially satisfied related to continuing operations.

As of December 31, 2024 the Company had approximately $ 14,450,000 of remaining performance obligations not yet satisfied or partially satisfied.

The Company expects to recognize approximately $ 12,036,000 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.

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Contract liabilities as of December 31, 2024 and December 31, 2023 , were $ 4,737,000 and $ 5,053,000 , respectively.

All contract liabilities as of December 31, 2023 and December 31, 2022 , were attributable to continuing operations.

During the year ended December 31, 2024 , $ 3,473,000 o f the contract liabilities balance as of December 31, 2023 , was recognized as revenue.

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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, 2023 , and 2022 , costs incurred to obtain contracts in excess of one year have been immaterial to date.

As of December 31, 2024 , and 2023 , costs incurred to obtain contracts in excess of one year have been immaterial.

The Company expenses all non-direct response advertising costs as incurred.

Advertising costs for the years ended December 31, 2023 and 2022 we re $ 231,000 and $ 588,000 , respectively, and are included in selling and marketing expenses in the consolidated statement of operations.

Segment Information

The Company operates as one operating segment as its chief executive officer, who is our chief operating decision maker ("CODM"), reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Provision (benefit) for income tax consists of U.S.

Advertising costs for the years ended December 31, 2024 and 2023 we re $ 244,000 and $ 231,000 , respectively, and are included in selling and marketing expenses in the consolidated statements of operations.

Provision for income tax consists of U.S.

federal and state income taxes.

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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 considers its contingent consideration to be Level 3 investments and that the fair value approximates the carrying value.

There were no changes in levels during the year ended December 31, 2023 .

Earnings (Loss) per Share

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, 2024

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

Loss due to the remeasurement of the STS Earnout and Contingent Consideration

Balance as of December 31, 2024

ATD Holdback Shares

Acquisition of ATD January 2, 2024

Gain on remeasurement of ATD Holdback Shares

Balance as of December 31, 2024

Prepaid Advance

Execution of Prepaid Advance August 14, 2024

Issuance of common stock to settle Prepaid Advance

Loss on settlement of Prepaid Advance

Balance as of December 31, 2024

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

Closing stock price

$ 3.14 $ 1.56

Discount for marketability

$ ( 0.68 ) $ -

Prepaid Advance

August 14, 2024 December 31, 2024

Closing stock price

Risk-free rate

Indicated yield

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.

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

ew Accounting Pronouncements Effective in the Current Period

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016 - 13 Financial Instruments-Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments (“ASU 2016 - 13” ) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016 - 13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.

ASU 2016 - 13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2022.

Upon adoption of the new standard, the Company began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to the Company’s financial assets.

Due to the nature and extent of the Company’s financial instruments (primarily accounts receivable and a note receivable) currently within the scope of ASU 2016 - 13 and based on the Company’s analysis of ASU 2016 - 13 and the historical, current and expected credit quality of the Company’s customers, ASU 2016 - 13 did not have a material impact on its consolidated statements of operations and balance sheets.

New Accounting Pronouncements Effective in the Current Period

In November 2023, FASB issued Accounting Standards Update (“ASU”) 2023 - 07 - Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the CODM and included within the reported measures of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measures of a segment's profit or loss to assess performance and decide how to allocate resources.

The guidance is retrospectively applied and effective for our annual period beginning December 31, 2024 and interim periods starting in 2025.

See above in Note 1 to our consolidated financial statements for additional information related to segment reporting.

Recently Issued Accounting Pronouncements

In November 2023, FASB issued ASU 2023 - 07 - Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources.

The guidance is effective for our annual period beginning January 1, 2025, and interim periods thereafter, applied retrospectively with early adoption permitted.

The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023 - 09 - Income Taxes (Topic 740 ):

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The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

NOTE 2 – BUSINESS ACQUISITIONS

STS Acquisition

On June 17, 2022, the Company completed its acquisition of STS by acquiring 100 % of the issued and outstanding capital stock of STS.

The acquisition included total consideration of $ 12,799,000 including;

cash consideration of $ 6,500,000 , $ 1,001,000 related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $ 1,298,000 contingent on the closing of a future contract ("STS Contingent Consideration"), 798,666 shares of the Company’s common stock, valued at $ 2,000,000 , and a $ 2,000,000 note.

As a result of the transaction, STS has become a wholly-owned subsidiary of the Company.

The STS Contingent Consideration in the amount of $2,000,000 will be paid in cash if on or prior to October 30, 2024, the Company enters into a multi-year extension of the Georgia Department of Transportation Contract on substantially similar terms and conditions as the contract being extended.

The STS Contingent Consideration shall be payable within 30 days of the effectiveness of the extension of the Georgia Department of Transportation Contract.

STS Contingent Consideration is presented as part of other non-current liabilities on the consolidated balance sheets and is remeasured on a quarterly basis.

In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Contingent Consideration at the time of acquisition and determined the fair value to be $ 1,298,000 .

For the year ended December 31, 2023 and 2022 the Company recognized $ 384,000 and $ 118,000 , respectively, in expense related to the remeasurement of the STS Contingent Consideration which is presented with general and administrative expenses on the consolidated statement of operations .

The Company was to pay the STS Earnout payment, up to $ 2,000,000 , within 60 days of December 31, 2022 based on the STS EBITDA for the twelve month period ended December 31, 2022.

In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Earnout at the time of acquisition and determined the fair value to be $ 1,001,000 .

As of December 31, 2022, it was determined that the STS Earnout was not achieved and thus the Company recognized a gain related to the remeasurement of the STS Earnout of $ 1,001,000 .

The gain related to the remeasurement of the STS Earnout is presented with general and administrative expenses on the consolidated statement of operations .

The purchase price has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

Since the acquisition of STS occurred on June 17, 2022, the results of operations for STS from the date of acquisition have been included in the Company’s consolidated statement of operations for the years ended December 31, 2023 and 2022.

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 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.

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):

Common stock issued

Earnout consideration

Contingent consideration

Note consideration

Liability classified holdback shares ( 664,329 shares measured at fair value as of the Closing Date)

Common stock issued ( 2,832,135 shares at closing price of $ 3.14 per share)

Total Consideration

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents

Accounts receivable

Other current assets

Customer relationships

Property and equipment

Right-of-use assets

Right-of-use operating lease assets

Other current assets

Intangible assets

Total assets acquired

Accounts payable and accrued expenses

Contract liabilities

Other current and non-current liabilities

Lease liability

Deferred tax liability

Lease liability operating, short-term

Other current liabilities

Total liabilities assumed

Fair value of identifiable net assets acquired

The customer relationships and tradename acquired by the Company as part of the acquisition has an estimated useful life of 15 and five years, respectively, and are presented as part of intangible assets, net on the consolidated balance sheets.

Purchase price consideration

Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of STS as if it were consummated as of January 1, 2022.

This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022 ( the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

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, 2023.

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, 2023 ( 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,

(Dollars in thousands, except per share data)

Total revenue from continuing operations

Total revenue

$ 46,028 $ 44,709

Net loss from continuing operations

$ ( 61,410 ) $ ( 46,777 )

Basic and diluted loss per share continuing operations

Basic and diluted loss per share

$ ( 0.71 ) $ ( 0.70 )

1 unchanged sentence

86,717,724 66,664,762

ATD Acquisition

On January 2, 2024 the Company acquired All Traffic Data Services, LLC, a Colorado limited liability company (“ATD”), pursuant to that certain Interest Purchase Agreement (the “Purchase Agreement”), dated as of the January 2, 2024, by and among the Company, ATD and All Traffic Holdings, LLC.

ATD is engaged in the business of advanced traffic data collection.

Under the terms of the Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”).

See NOTE 17 – SUBSEQUENT EVENTS for additional information on the ATD Acquisition.

NOTE 3 – INVESTMENTS

Investments in Unconsolidated Companies

In 2017, the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business to Global Public Safety (the “GPS Closing”).

After the GPS Closing, the Company continues to own 19.9 % of the units of Global Public Safety.

This equity investment does not have a readily determinable fair value and the Company reports this investment at cost, less impairment.

As of December 31, 2023 and 2022 the investment in Global Public Safety had a value of $ 0 .

There were no distributions or earnings received from this investment in the year ended December 31, 2023 and 2022 .

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 the third quarter of 2024 which is presented within other income (expense) in the accompanying 2024 consolidated statement of operations.

In June 2020, the Company announced a joint venture in which the Company would have a 50 % equity interest in Roker Inc.

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This investment is accounted for under the equity method.

As of December 31, 2023 and 2022 the investment in Roker had a value of $ 0 .

As of December 31, 2024 and 2023 the investment in Roker had a carrying value of $ 0 .

In 2021, in exchange for $ 1,250,000 the Company entered into a Simple Agreement for Future Equity with Roker (the “Roker SAFE”).

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As result of the triggering event the Company received cash proceeds of $ 1,904,000 , of which includes $ 423,000 that was held in escrow as of December 31, 2023 and was presented as part of other current assets, net and deposits on the consolidated balance sheets.

The Company will receive 50 % of the amount held in escrow on July 25, 2024 and the other 50 % of the amount held in escrow on July 25, 2025.

NOTE 4 – DISCONTINUED OPERATIONS

On December 8, 2022, the Company sold its ATSE business, a non-core component, for approximately $ 3,390,000 .

The buyer agreed to certain assets and liabilities of the ATSE component for a purchase price of $ 3,390,000 , comprising (i) $ 3,390,000 in cash of which includes $ 339,000 that was held in escrow as of December 31, 2022 and was presented as part of other current assets on the consolidated balance sheets.

The table below shows the breakdown related to the sale of ATSE (dollars in thousands):

Total assets sold

Total liabilities assumed

Net assets sold

Closing costs

Cash received

Cash held in escrow

Total consideration

Gain on sale of ATSE

The disposition of ATSE is the result of the Company’s strategic decision to prioritize its core data services business and will result in material changes in the Company’s operations and financial results.

As a consequence, the Company is reporting the operating results and cash flows of ATSE as discontinued operations, including for all prior periods reflected in the consolidated financial statements and these notes.

Results of Discontinued Operations

Pursuant to ASC Topic 205 - 20, Presentation of Financial Statements - Discontinued Operations , the results of operations from ATSE for the years ended December 31, 2023 and 2022 have been classified as discontinued operations and presented as part of net income from discontinued operations in the accompanying consolidated statements of operations presented herein.

The assets and liabilities also have been classified as discontinued operations under the line captions of current and long term assets, net of discontinued operations and current and long term liabilities of discontinued operations in the accompanying consolidated balance sheets as of December 31, 2023 and December 31, 2022 .

There was no balance sheet information related to our discontinued operations as of December 31, 2023 .

The assets and liabilities classified as discontinued operations in the Company's consolidated financial statements as of December 31, 2022 are shown below (dollars in thousands):

December 31, 2022

Current assets

Cash and cash equivalents

Restricted cash and cash equivalents

Accounts receivable, net

Total current assets

Long-term assets

Property and equipment, net

Right-of-use lease assets, net

Intangible assets, net

Total long-term assets, net

$ - $ 331 $ 331

Current liabilities

Accounts payable and accrued expenses

$ 33 $ 68 $ 101

Lease liability, short-term

Other current liabilities

Total current liabilities

Long-Term Liabilities

Lease liability, long-term

Total liabilities

$ 132 $ 358 $ 490

There were no operations related to our discontinued operations for the year ended December 31, 2023 .

The major components of the discontinued operations, net of tax, are presented in the consolidated statements of operations for the year ended December 31, 2022 are shown below (dollars in thousands):

Year ended December 31, 2022

$ - $ 2,360 $ 2,360

Cost of revenue, excluding depreciation and amortization

- 1,645 1,645

Operating expenses:

General and administrative expenses

Depreciation and amortization

Total operating expenses

Net (loss) income from discontinued operations

$ ( 1 ) $ 340 $ 339

The Company received 50 % of the amount held in escrow on July 25, 2024 and the other 50 % of the amount will be held in escrow until July 25, 2025.

NOTE 4 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

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Cash paid for interest

$ 2,518 $ 1,648

Cash paid for taxes

Decrease in accounts payable and accrued expenses related to purchases of property and equipment

Increase (decrease) in accounts payable and accrued expenses related to purchases of property and equipment

Increase (decrease) in accounts payable and accrued expenses related to purchases of inventory

Increase in inventory related to the transfer of property and equipment

Decrease in deposits related to property and equipment received

Non-cash investing activities:

Fair market value of shares issued in connection with the acquisition of STS

Contingent Consideration in connection with the acquisition of STS

Earnout Consideration in connection with the acquisition of STS

Note Consideration in connection with the acquisition of STS

Deferred tax liabilities resulting from purchase accounting adjustments in connection with the acquisition of STS

Loans issued for property and equipment

(Decrease) increase in inventory related to the transfer of property and equipment

( 1,501 ) 935

Decrease in deposits related to inventory received

Non-cash financing activities:

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Warrants issued in connection with the 2023 Promissory Notes - related party

Fair value of shares issued in connection with the acquisition of ATD

Fair value of ATD Holdback Shares at the acquisition date

2023 Promissory Note redemption premium settled in shares of the Company’s common stock

Conversion of Prepaid Advance to common stock

New Leases under ASC-842

Right-of-use assets obtained in exchange for new finance lease liabilities

Recognition of operating lease - right-of-use lease asset

Lease incentive recognized in current assets

Recognition of operating lease - lease liability

Right-of-use assets obtained in exchange for new operating lease liabilities

NOTE 5 – INVENTORY

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Parts and cameras

$ 4,136 $ 2,633

Finished goods

Total inventory

$ 4,297 $ 3,058

NOTE 6 – PROPERTY AND EQUIPMENT, NET

35 unchanged sentences

$ 3,404 $ 2,484

For the year ended December 31, 2023, the Company had $ 469,000 in cash payments related to its financing leases prior to the lease commencement date.

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

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Less imputed interest

Maturities of lease liabilities

Present value of lease liabilities

$ 14,681 $ 1,877

3 unchanged sentences

December 31, 2023

STS Acquisition

ATD Acquisition

December 31, 2024

5 unchanged sentences

December 31, 2024

Intangible assets subject to amortization from continuing operations

Intangible assets subject to amortization

Customer relationships

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185 - ( 185 ) - - - - -

Intangible assets subject to amortization from continuing operations

Intangible assets subject to amortization

$ 21,299 $ - $ ( 4,060 ) $ 17,239 $ 12,100 $ ( 4,675 ) $ ( 10,214 ) $ 14,450

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.

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.

The following provides a breakdown of identifiable intangible assets as of December 31, 2024 and 2023 (dollars in thousands):

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Technology based

24,107 24,107

Internally capitalized software

2 unchanged sentences

( 1,997 ) ( 12,992 )

Identifiable intangible assets from continuing operations, net

Identifiable intangible assets, net

$ 14,450 $ 17,239

These intangible assets are being amortized on a straight-line basis over their weighted average remaining estimated useful life of 4.9 years.

Am ortization expense attributable to continuing operations for the year ended December 31, 2023 and 2022 was $ 4,060,000 and $ 4,063,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

As of December 31, 2023 , the estimated annual amortization expense from continuing operations for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

Am ortization expense for the year ended December 31, 2024 and 2023 was 4,675,000 and $ 4,060,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

As of December 31, 2024 , the estimated annual amortization expense for each of the next five fiscal years and thereafter is as follows (dollars in thousands):

NOTE 9 – DEBT

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.

The notes mature on June 14, 2024 and June 17, 2025, respectively.

The aggregate balance of these notes payable was $ 2,000,000 as of December 31, 2022 and is included in notes payable long-term, in the consolidated balance sheets.

As of December 31, 2023 , the aggregate balance of these notes payable was $ 2,000,000 of which $ 1,000,000 was included in notes payable current portion and $ 1,000,000 was included in notes payable long-term, respectively, in the consolidated balance sheets.

Notes in the principal amount of $ 1,000,000 matured on September 30, 2024, and $ 1,000,000 in principal amount of the notes will mature on June 17, 2025.

On September 3, 2024, the Company paid the first payment in the principal amount of $ 1,000,000 .

As of December 31, 2024, the aggregate balance of these notes payable was $ 1,000,000 which was included in notes payable current portion in the consolidated balance sheet.

Loans Payable

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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 life of the respective loan.

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

On December 20, 2022, the Company entered into a Promissory Note Agreement (the “2022 Promissory Notes”) with (i) Robert A.

Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 10.3 % holder of Common Stock of the Company based on its Schedule 13G filed with the Securities and Exchange Commission on May 20, 2022, pursuant to which the lenders loaned $ 1,000,000 to the Company.

During the first quarter of 2023, Robert A.

Berman invested an additional $ 400,000 under the same terms as the 2022 Promissory Notes.

The lenders were determined to be related parties.

No 2022 Promissory Notes remain outstanding, as all 2022 Promissory Notes were exchanged in connection with the private placement of 2023 Promissory Notes described below.

2023 Promissory Notes

On January 18, 2023, the Company entered into a Securities Purchase Agreement (the “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, for an exercise price of $ 2.00 per share, up to an aggregate of 7,500,000 shares of common stock of the Company, par value $ 0.0001 per share.

In connection with the initial closing on January 18, 2023, the Company issued $ 12,500,000 in aggregate principal amount of 2023 Promissory 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.

See NOTE 14 – STOCKHOLDERS' EQUITY for additional information related to the warrants.

Pursuant to the terms of the Securities Purchase Agreement, the 2022 Promissory Notes were exchanged for equal principal amounts of the 2023 Promissory Notes which are included in the proceeds of $ 12,500,000 .

As a result, the 2022 Promissory Notes were exchanged with no further force and effect as of the effective date of the Securities Purchase Agreement.

The 2023 Promissory Notes are a senior secured obligation of the Company and rank senior to all indebtedness of the Company, subject to certain exceptions.

The 2023 Promissory Notes have a maturity date of July 18, 2025 ( the “Maturity Date”), at which time all remaining outstanding principal and accrued but unpaid interest will be due.

The 2023 Promissory Notes bear an interest rate of 12 % per annum, and the Company will be required to pay interest quarterly during each calendar year through and including the Maturity Date.

At any time, the Company may prepay all, or any portion of, the 2023 Promissory Notes by redemption at a price equal to (i) 120 % of the then-outstanding principal amount under the 2023 Promissory Notes plus any accrued interest thereon, if redeemed on or prior to the first anniversary of issuance, (ii) 115 % of the then-outstanding principal amount under the 2023 Promissory Notes plus any accrued interest thereon, if redeemed after the first anniversary of issuance and on or prior to the second anniversary of issuance, or (iii) 110 % of the then-outstanding principal amount under the 2023 Promissory Notes plus any accrued interest thereon, if redeemed after the second anniversary of issuance and prior to the Maturity Date (the “Early Redemption Schedule”).

The Investors will also have the option of requiring the Company to redeem the 2023 Promissory Notes in accordance with the Early Redemption Schedule if the Company undergoes a fundamental change.

The Company determined that the holder redemption and mandatory redemption options would qualify as derivatives and be subject to accounting under ASC Topic 815, Derivatives and Hedging.

The Company believes that the fair value associated with the embedded derivatives related to the holder and mandatory redemption rights are inconsequential.

The Securities Purchase Agreement contains customary representations and warranties of the Company and the investors.

The Company has a material relationship with two of the investors, (i) Robert A.

Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 11.64 % holder of Common Stock of the Company based on its Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2024.

Berman and Arctis invested $ 2,000,000 and $ 6,500,000 , respectively, in connection with the $ 12,500,000 initial closing of the private placement.

These lenders were determined to be related parties.

Berman had the option, upon request of the Company made within six months of the initial closing, to invest up to an additional $ 2,500,000 in a subsequent closing, or series of closings, on the same terms.

In aggregate, such subsequent closings would have resulted in the issuance of senior secured notes in the original principal amount of up to $ 2,500,000 and warrants to purchase up to 1,250,000 shares of Common Stock.

This option was not exercised and has expired as of December 31, 2023 .

The Securities Purchase Agreement further provides Arctis with the right to designate a director to be seated on the Company’s board of directors (the “Board”) for a term expiring at the Company’s 2023 annual meeting of stockholders, at which meeting such director shall be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders.

Arctis has a right to a Board designee for so long as it holds the 2023 Promissory Notes, and such right may not be sold or transferred to any party not affiliated with Arctis.

As a result of this right, on September 14, 2023, a director designated by Arctis was elected by the Company’s stockholders at the Company’s 2023 annual meeting of stockholders.

The 2023 Promissory Notes impose certain financial covenants upon the Company, as well as covenants that restrict the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, and restrict the declaration of any dividends or other distributions, subject to specified exceptions.

In connection with the Series A Prime Revenue Sharing Notes, the holders of the 2023 Promissory Notes signed a waiver to allow for the issuance of additional debt by the Company.

If an event of default under the 2023 Promissory Notes occurs, the investors can elect to redeem the 2023 Promissory Notes for cash in accordance with the Early Redemption Schedule, plus default interest, which accrues at a rate per annum equal to 14 % from the date of an event of default.

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.

Subsequent to year-end all of the 2023 Promissory Notes were fully redeemed.

See NOTE 17 – SUBSEQUENT EVENTS for additional information related to the redemption of the 2023 Promissory Notes.

The 2023 Promissory Notes were a senior secured obligation of the Company and ranked senior to all indebtedness of the Company, had a maturity date of July 18, 2025 and bore an interest rate of 12 % per annum.

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.

Subsequent to this transaction these shares were registered on a Form S- 3.

See Note 13 for additional information.

As a result of the Redemption Payment, no 2023 Promissory Notes remained outstanding and 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.

Series A Prime Revenue Sharing Notes

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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 material relationship with Arctis, 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 at or above AAA/AA+/Aal for their respective unsecured general obligation debt by nationally recognized credit rating agencies.

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.

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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 states 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 the Company must maintain a cash balance sufficient to amortize the principal amount due on the Series A Prime Revenue Sharing Notes in equal monthly installments by the respective due dates of such series.

The amount related to the interest reserve and sinking fund was $ 500,000 as of December 31, 2023 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.

The Company may prepay the Series A Prime Revenue Sharing Notes at anytime up until December 15, 2026 by paying a premium ranging from 103 % to 106%.

Thereafter, the Series A Prime Revenue Sharing Notes may be prepaid by the Company at par value;

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, 2024 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, 2024.

The Company may prepay the Series A Prime Revenue Sharing Notes at any time up until December 15, 2026 by paying a premium ranging from 103 % to 106%;

provided, however, 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.

As of the year ended December 31, 2023, the Company recognized $ 83,000 in interest expense related to the Series A Prime Revenue Sharing Notes.

As of the year ended December 31, 2024 and 2023 , the Company recognized $ 1,988,000 and $ 83,000 respectively in interest expense related to the Series A Prime Revenue Sharing Notes.

Interest Expense, net

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Contractual interest

$ 2,469 1,648

Amortization of debt issuance costs

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Total interest expense, net

$ 2,645 $ 3,596

Schedule of Principal Amounts Due on Debt

The principal amounts due for notes payable and loans payable are shown below as of December 31, 2024 (dollars in thousands):

Less unamortized financing costs

unamortized financing costs

Total notes payable

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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 (benefit) for income taxes for the years ended December 31, 2023 and 2022 consists of the following (dollars in thousands):

The provision for income taxes for the years ended December 31, 2024 and 2023 consists of the following (dollars in thousands):

Year ended December 31,

$ 13 $ ( 987 )

Total federal

Provision (benefit) for income taxes

$ 32 $ ( 987 )

Provision for income taxes

The components of deferred income tax assets and liabilities are as follows on December 31, 2024 and 2023 (dollars in thousands):

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( 60,805 ) ( 46,531 )

Total deferred tax assets

Net deferred tax assets

$ 2,960 $ 6,638

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$ ( 79 ) $ ( 65 )

The difference between the income tax provision (benefit) computed at the U.S.

The difference between the income tax provision computed at the U.S.

Federal statutory rate and the effective tax rate is as follows for the years ended December 31, 2024 and 2023 :

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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, 2024, the Company’s valuation allowance increased by $ 14,274,000 , which was primarily driven by an increase in the Company’s deferred tax assets.

As of December 31, 2024 , the Company had gross federal and state net operating loss carryforwards of $ 190,624,000 and $ 180,859,000 , respectively.

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It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax benefit.

As a result of the acquisition of STS in 2022, the Company recognized identified definite-lived tangible and intangible asset related to customer relationships, trade names, property and equipment for which the Company received no tax basis due to the stock acquisition.

As a result, the Company recorded a deferred tax liability of $ 1,001,000 which increased the Company's goodwill related to the STS acquisition.

Due to the overall valuation allowance position of the Company, the deferred tax liability was used to offset the Company's deferred tax asset and thus reducing the total valuation allowance.

This impact to the valuation allowance was booked as a tax benefit.

The tax benefit of $ 1,001,000 was offset by $ 14,000 of deferred tax expense for the year ended December 31, 2022.

NOTE 11 – EMPLOYEE BENEFIT PLAN

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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 such employee after it makes the payments on behalf of the employee.

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.

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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.

Firestorm Principals

On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc.

Suzanne Loughlin, et al., Case no.

1:19 -cv- 07767 -VEC.

The Firestorm Principals answered together with counterclaims on February 28, 2020.

In 2020, the Firestorm Principals filed various suits in New York, Delaware and Virginia against directors and officers of the Company, alleging breach of fiduciary duty and libel.

On March 22, 2023, the Company entered into a settlement agreement with the Firestorm Principals.

Pursuant to the terms of the settlement agreement, the parties have mutually released and discharged all existing and potential actions, causes of action, suits, proceedings, debts, dues, contracts, damages or claims against each other, including certain claims for officer indemnification of the Firestorm Principals.

In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $ 175,000 , and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.

As a result of the settlement agreement, the Company recorded a reduction to notes payable, the related accrued interest and other assets and liabilities that was presented as discontinued operations.

The Company also cancelled warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.

H.C Wainwright & Co., LLC

Wainwright & Co., LLC

In March 2023, the Company entered into an engagement letter with H.C.

Wainwright & Co., LLC, ("HCW"), related to a previous capital raise the Company completed in March 2023.

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, subsequent to the announcement of an agreement the Company entered into with one of its stockholders in connection with the exercise of warrants held by the stockholder, which the Company refers to as 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 Company's stockholder.

Wainwright & Co., LLC, ("HCW"), related to a capital ra ise (see Note 13 ).

That l etter 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 July Warrant Exercise Transaction.

The Company believed then, and believes now, that this claim is without merit.

As a result of this claim and for other reasons articulated to HCW, the Company terminated its engagement letter with HCW, including for cause, which, the Company believes, eliminated both the “tail” provision and the ROFR provision with respect to this transaction.

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.

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On March 4, 2024, the court discontinued this lawsuit without prejudice.

On February 29, 2024, HCW initiated a new action with the filing of complaint in New York State Supreme Court.

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.

HCW alleges that Rekor breached its engagement letter with HCW by failing to give Rekor notice of this offering and failing to provide HCW with the opportunity to exercise the ROFR with respect to this transaction.

The Company believes these claims are without merit.

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.

Rekor seeks to recover damages from HCW and Armistice.

HCW and Armistice have now moved to dismiss the amended counterclaims.

Those motions are pending.

Discovery is ongoing in the matter.

The Company believes HCW's claims are without merit.

The Company intends to vigorously defend itself in this lawsuit.

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On January 4, 2024, the Office of Administrative Law Judges (“OALJ”) processed the appeals and issued its Notice of Docketing and Order of Consolidation.

On February 28, 2024, the OALJ issued an Order setting forth a revised schedule governing the case with the start of the hearing scheduled for December 2, 2024.

On February 28, 2024, the OALJ issued an Order setting forth a revised schedule governing the case with the start of the hearing scheduled for March 3, 2025.

In advance of the March 3, 2025 hearing, the parties agreed to bifurcate the matter into two separate hearings.

The first hearing from March 3- 5, 2025 was set to address liability and the second from April 24- 25, 2025 was set to address damages.

The parties were able to settle the claim filed by one employee in advance of the March 3, 2025 hearing.

The hearing did proceed for the claim filed by another employee.

The Court did not make a finding on liability at the hearing.

The Court has requested that the parties prepare and submit post-hearing briefs on or before April 19, 2025.

The Company does not know when the Court will make its findings after the receipt of the briefs.

The parties are next set to appear before the Court on April 24- 25, 2025 to address damages.

The Company believes these claims are without merit.

1 unchanged sentence

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.

1 unchanged sentence

The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’ relative rights and limitations.

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.

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.

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.

2023 Registered Direct Offering

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The offering price per share of common stock and associated warrant was $ 1.455 and the offering price per pre-funded warrant and associated warrant was $ 1.454 .

Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.001 per share and will expire when exercised in full.

The warrants to purchase common stock are exercisable immediately upon issuance, will expire five years following the issuance date and have an exercise price of $ 1.60 per share.

Each pre-funded warrant was exercisable for one share of common stock at an exercise price of $ 0.001 per share and expired when exercised in full.

The Registered Direct Warrants were exercisable immediately upon issuance, had an expiration date five years following the issuance date and had an exercise price of $ 1.60 per share.

The Company received gross proceeds from the 2023 Registered Direct Offering of approximately $ 10,000,000 .

6 unchanged sentences

The warrants issued to the placement agent have a term of five years and an exercise price of $ 1.8188 per share of common stock.

During the year ended December 31, 2023, 772,853 of the pre-funded warrants were exercised for 772,853 shares of the Company's common stock.

The pre-funded warrants were exercised for 772,853 shares of the Company's common stock in 2023.

2023 Letter Agreement

On July 25, 2023, the Company entered into a letter agreement (the “2023 Letter Agreement”) with the same institutional investor connected to the 2023 Registered Direct Offering, pursuant to which the investor and the Company agreed that the investor would exercise all its Register Direct Warrants for shares of common stock underlying the Registered Direct Warrants at $ 1.60 per share of common stock.

In consideration for exercising the Registered Direct Warrants and 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 Registered Direct Warrants, the 2023 Letter Agreement provided for the issuance of unregistered warrants to purchase up to an aggregate of 2,850,000 shares of common stock (the “2023 Private Warrants”).

On July 25, 2023, the Company entered into a letter agreement (the “2023 Letter Agreement”) with the purchaser of the 2023 Registered Direct Offering, pursuant to which the investor and the Company agreed that the investor would exercise all its Registered Direct Warrants for shares of common stock at $ 1.60 per share of common stock.

In consideration for the imposition of volume and trading restrictions on the 6,872,853 shares of common stock issued to the purchaser in connection with exercise of the Registered Direct Warrants, the 2023 Letter Agreement provided for the issuance of unregistered warrants to purchase up to an aggregate of 2,850,000 shares of common stock (the “2023 Private Warrants”).

The shares of common stock underlying the 2023 Private Warrants have been registered for resale on a registration statement declared effective by the SEC on September 29, 2023.

The 2023 Private Warrants will expire on January 25, 2029 and have an exercise price of $ 3.25 .

The 2023 Private Warrants expire on January 25, 2029 and have an exercise price of $ 3.25 .

The 2023 Private Warrants were valued using the Black-Scholes pricing model at a total of $ 6,757,000 based on a five -year term, volatility of 115 %, a risk-free of 4.15 %, and stock price of $ 2.85 .

5 unchanged sentences

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.

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Estimated annual forfeiture rate at the time of grant

The Company treats the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as interest expense, net in the consolidated statements of operations.

At-the-Market Offering

Under the S- 3 registration filed in September 2021, on February 24, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “2022 Sales Agreement”) with B.

Riley Securities, Inc.

(the “Agent”) to create an at the market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $ 50,000,000 (the “Shares”) through or to the Agent.

The Agent is entitled to a commission equal to 3.0 % of the gross proceeds from each sale.

The Company incurred issuance costs of approximately $ 174,000 related to legal, accounting, and other fees in connection with the 2022 Sales Agreement.

These costs were charged against the gross proceeds of the 2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

For the year ended December 31, 2022, the Company sold 9,019,062 shares of common stock at a weighted-average selling price of $ 2.62 per share in accordance with the 2022 Sales Agreement.

Net cash provided from the 2022 Sales Agreement was $ 22,754,000 after paying $ 174,000 related to the issuance cost, as well as 3.0 % or $ 709,000 related to cash commissions provided to the Agent.

In December of 2022 the Company terminated the 2022 Sales Agreement.

STS Acquisition

In connection with the acquisition as described in NOTE 2 – ACQUISITIONS , the Company issued 798,666 shares of the Company’s common stock as part of the consideration.

2024 Public Offering

On February 9, 2024, the Company issued and sold 10,000,000 shares of its common stock and the underwriters exercised an option to purchase an additional 1,500,000 shares of its common stock (the “2024 Public Offering”).

The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $ 26,463,000 .

See NOTE 17 – SUBSEQUENT EVENTS for additional information on the 2024 Public Offering.

Preferred Stock

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

Series B Cumulative Convertible Preferred Stock

Of the 2,000,000 authorized shares of preferred stock, 240,861 shares were designated as $ 0.0001 par value Rekor Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”).

As part of the TeamGlobal Merger, the Company issued 240,861 shares of $ 0.0001 par value Series B Preferred Stock.

All Series B Preferred Stock was issued at a price of $ 10.00 per share as part of the acquisition of TeamGlobal.

The Series B Preferred Stock had a conversion price of $ 5.00 per share.

Each Series B Preferred Stock had an automatic conversion feature based on the share price of Rekor.

As of December 31, 2023 and 2022, there are no outstanding shares of the Company's Series B Preferred Stock.

A summary of the warrant activity for the Company for the period ended December 31, 2024 and December 31, 2023 is as follows:

8 unchanged sentences

41,996 631,254 15,556 3,505 - - - 692,311

Issued warrants

- - - - 6,250,000 8,126,806 2,850,000 17,226,806

Exercised warrants

( 36,375 ) - - - - ( 7,645,706 ) - ( 7,682,081 )

Expired warrants

( 5,621 ) - ( 15,556 ) ( 3,505 ) - - - ( 24,682 )

Cancelled warrants

- ( 631,254 ) - - - - - ( 631,254 )

Outstanding warrants December 31, 2023

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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 ).

As part of the settlement of the Firestorm litigation, these warrants were cancelled.

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”).

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These warrants were exercisable commencing January 18, 2023 and expire on January 18, 2028.

( 6 ) On March 23, 2023, in connection with the 2023 Register Direct Offering the Company issued (i) pre-funded warrants exercisable for up to an aggregate of 772,853 shares of common stock, (ii) warrants to purchase up to 6,872,853 shares of common stock, and (iii) warrants to the placement agent to purchase up to 481,100 shares of common stock.

( 6 ) On March 23, 2023, in connection with the 2023 Registered Direct Offering the Company issued (i) pre-funded warrants exercisable for up to an aggregate of 772,853 shares of common stock, (ii) warrants to purchase up to 6,872,853 shares of common stock, and (iii) warrants to the placement agent to purchase up to 481,100 shares of common stock.

The exercise price per share of the warrants was $ 1.455 and each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.001 per share and will expire when exercised in full.

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NOTE 14 – EQUITY INCENTIVE PLAN

In 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”) which replaced the 2016 Equity Award Plan (the “2016 Plan”).

In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”).

The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants.

Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares.

In 2021, the Company filed a registration statement on Form S- 8 solely to register an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan.

This increase was approved by the Company’s Board of Directors on May 7, 2021, and by the Company’s stockholders on September 14, 2021 at the Company’s annual meeting.

In October 2021, the Company announced it had registered an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan.

On April 29, 2024, the Company filed a registration statement on Form S- 8 solely to register an additional 7,912,216 shares of its common stock available for issuance under the 2017 Plan.

This increase was approved by the Company’s Board of Directors on March 22, 2024, and by the Company’s stockholders on April 18, 2024 at the Company’s annual meeting.

Stock-based compensation expense included in the consolidated statements of operations was as follows (dollars in thousands) :

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The vesting period is generally three years with a contractual term of ten years.

Stock compensation expense related to stock options for the years ended December 31, 2023 and 2022 was $ 0 and $ 43,000 , respectively, and is presented as part of general and administrative expenses in the accompanying consolidated statements of operations.

There was no stock compensation expense related to stock options for the years ended December 31, 2024 and 2023 .

A summary of stock option activity under the Company’s 2017 Plan for the years ended December 31, 2024 and 2023 is as follows:

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( 32,373 ) 3.44

( 42,987 ) 2.25 -

Outstanding balance at December 31, 2023

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( 3,880 ) 3.81

Outstanding balance at December 31, 2023

688,841 $ 1.20 3.70 $ 1,478,000

Exercisable at December 31, 2023

Outstanding and exercisable balance at December 31, 2024

486,866 $ 1.13 3.76 $ 264,000

There were no options granted in the years ended December 31, 2024 and 2023 .

The total fair value of shares that became vested after grant during the years ended December 31, 2023 and 2022 was $ 0 and $113 ,000 , respectively.

As of December 31, 2023 , there was no unrecognized stock compensation expense related to stock options granted under the 2017 Plan .

No shares became vested after grant during the years ended December 31, 2024 and 2023 .

As of December 31, 2024 and 2023 , there was no unrecognized stock compensation expense related to stock options granted under the 2017 Plan .

Restricted Stock Units

21 unchanged sentences

Basic and diluted loss per share

Net loss from continuing operations

$ ( 45,685 ) $ ( 83,454 )

Net income attributable to shareholders from discontinued operations

Net loss attributable to common shareholders

Net loss applicable to common shareholders

$ ( 61,410 ) $ ( 45,685 )

1 unchanged sentence

86,717,724 63,168,299

Basic and diluted loss per share from continuing operations

$ ( 0.72 ) $ ( 1.68 )

Basic and diluted earnings per share from discontinued operations

Basic and diluted loss per share

3 unchanged sentences

As the Company had a net loss for the year ended December 31, 2024 , the following 11,258,721 potentially dilutive securities were excluded from diluted loss per share:

9,581,100 for outstanding warrants, 688,841 related to outstanding options and 1,747,458 related to outstanding RSUs.

4,331,100 for outstanding warrants, 486,866 related to outstanding options, 664,329 related to the ATD Holdback Shares and 5,776,426 related to outstanding RSUs.

As the Company had a net loss for the year ended December 31, 2023 , the following 12,017,399 potentially dilutive securities were excluded from diluted loss per share:

1 unchanged sentence

NOTE 16 – SUBSEQUENT EVENTS

ATD Acquisition

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 aggregate purchase price for the interests of ATD was approximately $ 19,750,000 , subject to a customary working capital adjustment.

The purchase price comprises approximately $ 9,750,000 in cash which included closing adjustments and 3,496,463 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 .

662,329 of the 3,496,463 shares of the Stock Consideration will be issued and delivered to the Seller on the twelve -month anniversary of the Closing Date, subject to cutback for working capital adjustments and/or indemnification claims favoring the Company, if any.

As a result of the transaction, ATD is 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.

ATD Preliminary Purchase Price Allocation

The table below summarizes the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on management’s preliminary estimates of their respective fair values for purposes of the pro forma financial information as of the acquisition date, January 2, 2024 ( dollars in thousands):

Common stock issued

Total Consideration

Cash and cash equivalents

Accounts receivable

Property and equipment

Right-of-use operating lease assets

Intangible assets

Total assets acquired

Accounts payable and accrued expenses

Lease liability operating, short-term

Other current liabilities

Lease liability operating, long-term

Deferred tax liability, long-term

Total liabilities assumed

Fair value of identifiable net assets acquired

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma operations of combined entities below.

Due to the recent completion of the acquisition, the determination of the purchase price and the allocation of the purchase price used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of the assets acquired and liabilities assumed, including, but not limited accounts receivable, property and equipment, intangible assets and accounts payable.

The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.

ATD 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 as if they were consummated as of January 1, 2022.

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, 2022 ( 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,

(Dollars in thousands, except per share data)

Total revenue from continuing operations

$ 44,709 $ 28,183

Net loss from continuing operations

$ ( 46,521 ) $ ( 84,115 )

Basic and diluted loss per share continuing operations

$ ( 0.70 ) $ ( 1.58 )

Basic and diluted number of shares

66,664,762 53,303,938

2024 Public Offering

In the first quarter of 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”).

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 estimated offering expenses payable by the Company, was expected to be approximately $ 2,287,000 , or approximately $ 26,463,000 in aggregate for the 2024 Public Offering including the exercise of the Underwriters’ Option.

Retirement of the 2023 Promissory Notes

On March 4, 2024, the Company completed the redemption of all its outstanding 2023 Promissory Notes.

Board Election's

Pursuant to the terms of the ATD Acquisition, the Seller was granted the right to designate a director to be seated on the Company’s board of directors (the “Board”) for a term expiring at the Company’s 2024 annual meeting of stockholders, at which meeting such director shall be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders.

The Seller has a right to a Board designee for so long as it holds at least 50% of the Stock Consideration.

On January 2, 2024, at the designation of Seller, the Board appointed Andrew (Drew) Meyers as a member of the Board, with such appointment to take effect immediately.

In connection with Mr.

Meyer’s appointment, the Board voted to increase the size of the Board to eight members, and appointed Mr.

Meyers to fill the resulting vacancy.

On March 1, 2024, the Board of the Company approved an increase to the size of the Board by one seat, to nine members, and appointed Anne Townsend to fill the resulting vacancy.

Townsend will serve for a term expiring at the Company’s 2024 annual meeting of stockholders, at which meeting she will be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders.

Release of ATD Holdback Shares

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

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., pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $ 0.0001 per share (“Common Stock”), having an aggregate offering price of up to $ 25,000,000 .

As of March 28, 2025 the Company issued 5,148,600 shares of its common stock in exchange for net cash of $ 7,895,000 under the Sales Agreement.

Departure of Chief Executive Officer

On March 12, 2025, Rekor’s President and CEO, David Desharnais, submitted his resignation, which was accepted by the Company’s Board of Directors.

The Company has begun steps to identify a new CEO.

In the interim Robert A.

Berman, the Company's Board Chairman and previous CEO, will assume the role of interim president and CEO.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data