Rekor Systems, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS REKOR SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share amounts) June 30, 2026 December 31, 2025 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 9,766 $ 16,566 Restricted cash 275 297 Accounts receivable, net of allowance for credit losses of $ 580 and $ 519 , respectively 8,157 8,770 Inventory 2,770 3,072 Note receivable, current portion - 198 Other current assets 2,118 1,825 Total current assets 23,086 30,728 Long-term assets Property and equipment, net 7,397 8,632 Right-of-use operating lease assets, net 4,476 4,716 Right-of-use financing lease assets, net 1,029 1,634 Goodwill 24,313 24,313 Intangible assets, net 12,650 13,250 Deposits 1,379 2,114 Total long-term assets 51,244 54,659 Total assets $ 74,330 $ 85,387 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 4,980 $ 4,362 Series A Prime Revenue Sharing Notes, net of debt discount of $ 66 and $ 131 , respectively 9,934 9,869 Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ 33 and $ 66 , respectively 4,967 4,934 Loan payable, current portion 80 83 Lease liability operating, short-term 2,320 2,720 Lease liability financing, short-term 528 787 Contract liabilities 5,021 4,604 Other current liabilities 1,854 1,729 Total current liabilities 29,684 29,088 Long-term Liabilities Loan payable, long-term 68 112 Lease liability operating, long-term 8,225 10,570 Lease liability financing, long-term 423 665 Contract liabilities, long-term 1,121 1,402 Deferred tax liability 93 93 Other non-current liabilities 587 587 Total long-term liabilities 10,517 13,429 Total liabilities 40,201 42,517 Commitments and contingencies (Note 7) Stockholders' equity Preferred stock, $ 0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of June 30, 2026 and December 31, 2025. No preferred stock was issued or outstanding as of June 30, 2026 or December 31, 2025. - - Common stock, $ 0.0001 par value; 137,952,934 and 136,791,826 shares issued as of June 30, 2026 and December 31, 2025, respectively; 137,636,495 and 136,477,697 shares outstanding as of June 30, 2026 and December 31, 2025, respectively 13 13 Treasury stock, 316,439 and 314,129 shares as of June 30, 2026 and December 31, 2025, respectively ( 902 ) ( 900 ) Additional paid-in capital 336,483 335,310 Accumulated deficit ( 301,465 ) ( 291,553 ) Total stockholders’ equity 34,129 42,870 Total liabilities and stockholders’ equity $ 74,330 $ 85,387 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share and per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Revenue $ 12,662 $ 12,359 $ 22,925 $ 21,557 Cost of revenue, excluding depreciation and amortization 5,551 6,245 10,430 11,006 Operating expenses: General and administrative expenses 5,149 6,936 13,488 14,222 Selling and marketing expenses 686 1,700 1,601 3,457 Research and development expenses 2,435 3,652 5,921 7,629 Gain on lease remeasurement, net ( 2,753 ) - ( 2,753 ) - Depreciation and amortization 1,372 1,561 2,833 3,117 Total operating expenses 6,889 13,849 21,090 28,425 Income (loss) from operations 222 ( 7,735 ) ( 8,595 ) ( 17,874 ) Other income (expense): Interest expense, net ( 517 ) ( 586 ) ( 1,010 ) ( 1,176 ) Loss on remeasurement of ATD Holdback Shares - - - ( 120 ) Other expense ( 256 ) ( 337 ) ( 307 ) ( 362 ) Total other (expense) income, net ( 773 ) ( 923 ) ( 1,317 ) ( 1,658 ) Net loss $ ( 551 ) $ ( 8,658 ) $ ( 9,912 ) $ ( 19,532 ) Loss per common share $ ( 0.00 ) $ ( 0.07 ) $ ( 0.07 ) $ ( 0.17 ) Weighted average shares outstanding Basic and diluted 137,612,028 117,435,953 137,140,972 112,459,949 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (Dollars in thousands, except share amounts) (Unaudited) Shares of Common Stock Common Stock Shares of Treasury Stock Treasury Stock at Cost Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity Balance as of April 1, 2026 137,607,546 $ 13 316,439 $ ( 902 ) $ 336,271 $ ( 300,914 ) $ 34,468 Stock-based compensation - - - - 212 - 212 Issuance upon exercise of stock options - - - - - - - Issuance upon vesting of restricted stock units 28,949 - - - - - - Shares withheld upon vesting of restricted stock units - - - - - - - Net loss - - - - - ( 551 ) ( 551 ) Balance as of June 30, 2026 137,636,495 $ 13 316,439 $ ( 902 ) $ 336,483 $ ( 301,465 ) $ 34,129 Balance as of April 1, 2025 110,912,209 $ 11 223,747 $ ( 804 ) $ 305,119 $ ( 270,967 ) 33,359 Stock-based compensation - - - - 723 - 723 Issuance upon exercise of stock options 5,333 - - - 4 - 4 Issuance upon vesting of restricted stock units 1,630,801 - - - - - - Shares withheld upon vesting of restricted stock units ( 76,541 ) - 76,541 ( 69 ) - - ( 69 ) Issuance of common stock pursuant to the 2025 Sales Agreement 9,766,000 1 - - 10,039 - 10,040 Net loss - - - - - ( 8,658 ) ( 8,658 ) Balance as of June 30, 2025 122,237,802 $ 12 300,288 $ ( 873 ) $ 315,885 $ ( 279,625 ) $ 35,399 Balance as of January 1, 2026 136,477,697 $ 13 314,129 $ ( 900 ) $ 335,310 $ ( 291,553 ) $ 42,870 Stock-based compensation - - - - 1,134 - 1,134 Issuance upon exercise of stock options 50,000 - - - 39 - 39 Issuance upon vesting of restricted stock units 1,111,108 - - - - - - Shares withheld upon vesting of restricted stock units ( 2,310 ) - 2,310 ( 2 ) - - ( 2 ) Net loss - - - - - ( 9,912 ) ( 9,912 ) Balance as of June 30, 2026 137,636,495 $ 13 316,439 $ ( 902 ) $ 336,483 $ ( 301,465 ) $ 34,129 Balance as of January 1, 2025 104,541,073 $ 10 159,520 $ ( 711 ) $ 294,935 $ ( 260,093 ) $ 34,141 Stock-based compensation - - - - 2,093 - 2,093 Issuance upon exercise of stock options 5,333 - - - 4 - 4 Issuance upon vesting of restricted stock units 2,253,235 - - - - - - Shares withheld upon vesting of restricted stock units ( 140,768 ) - 140,768 ( 162 ) - - ( 162 ) ATD Holdback Shares 664,329 - - - 1,156 - 1,156 Issuance of common stock pursuant to the 2025 Sales Agreement 14,914,600 2 - - 17,697 - 17,699 Net loss - - - - - ( 19,532 ) ( 19,532 ) Balance as of June 30, 2025 122,237,802 $ 12 300,288 $ ( 873 ) $ 315,885 $ ( 279,625 ) $ 35,399 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2026 2025 Cash Flows from Operating Activities: Net loss $ ( 9,912 ) $ ( 19,532 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debt expense 199 103 Depreciation 1,644 1,911 Amortization of right-of-use financing lease asset 589 606 Non-cash operating lease expense 274 515 Share-based compensation 1,134 2,093 Amortization of debt discount 98 99 Amortization of intangible assets 600 600 Loss on remeasurement of ATD Holdback Shares - 120 (Gain) loss on sale of property and equipment ( 18 ) 13 Gain on remeasurement of operating lease liability ( 2,753 ) - Loss on operating lease abandonment 117 - Loss on financing lease abandonment 2 4 Changes in operating assets and liabilities: Accounts receivable 414 ( 847 ) Inventory 299 ( 78 ) Other current assets and deposits 442 ( 519 ) Accounts payable, accrued expenses and other current liabilities 696 ( 745 ) Contract liabilities 136 367 Lease liability ( 93 ) ( 444 ) Net cash used in operating activities ( 6,132 ) ( 15,734 ) Cash Flows from Investing Activities: Capital expenditures ( 393 ) ( 650 ) Proceeds from the sale of property and equipment 2 20 Proceeds from notes receivable 198 170 Net cash used in investing activities ( 193 ) ( 460 ) Cash Flows from Financing Activities: Proceeds from 2025 Sales Agreement, net - 17,699 Net proceeds from exercise of options 39 4 Payments related to financing leases ( 487 ) ( 468 ) Repayments of loans payable ( 47 ) ( 38 ) Repurchases of common stock ( 2 ) ( 162 ) Repayment of STS Notes - ( 1,000 ) Net cash (used in) provided by financing activities ( 497 ) 16,035 Net decrease in cash, cash equivalents and restricted cash ( 6,822 ) ( 159 ) Cash, cash equivalents and restricted cash at beginning of period 16,863 5,329 Cash, cash equivalents and restricted cash at end of period $ 10,041 $ 5,170 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents at end of period $ 9,766 $ 4,830 Restricted cash and cash equivalents at end of period 275 340 Cash, cash equivalents and restricted cash at end of period $ 10,041 $ 5,170 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rekor Systems, Inc. (“Rekor”) was formed in February 2017. The consolidated financial statements include the accounts of Rekor, the parent company, and its wholly-owned subsidiaries Rekor Recognition Systems, Inc., Waycare Technologies Inc. and Waycare Technologies Ltd. (collectively, “Waycare”), Southern Traffic Services, Inc. (“STS”) All Traffic Data Services, LLC (“ATD”) and Rekor Labs, LLC (collectively, the “Company”). Rekor is a technology company developing trusted-data, privacy, security, and intelligence solutions for real-world transportation, public-safety, video, and sensor networks. We work to modernize public safety, urban mobility, and transportation management through cutting-edge solutions, with a focus on protecting the security and reliability of data and appropriate privacy protections. By collaborating closely with public and private sector customers, we deliver services and solutions that enable them to improve the reliability, efficiency, accountability and security of their operations. Our vision is to create safer, smarter, and more sustainable roadways and communities, improving the lives of citizens and the world around them. Our products and services collect, connect, and organize mobility data, making it more useful and accessible, while providing actionable real-time insights to enable better decision-making. This provides our customers with both enhanced real time and historical data and the tools to manage and use it efficiently, securely and responsibly. Our products and services support improved planning and provide significantly enhanced situational awareness, rapid response capabilities, risk mitigation strategies, and predictive analytics. In our efforts to safeguard privacy and ensure the reliability of data, we have developed proprietary techniques for anonymization of data and verification of video and audio records, which we believe have broad applicability to the media, insurance and other markets beyond our traditional client bases. These unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial statements as of and for the periods ended June 30, 2026 and 2025 . The financial data and other information disclosed in these notes are unaudited. The results for the three and six months ended June 30, 2026 , are not necessarily indicative of the results to be expected for the year ending December 31, 2026 . These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the full year ended December 31, 2025 . The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Dollar amounts, except per share data, in the notes to these unaudited condensed consolidated financial statements are rounded to the nearest $1,000. 8 Table of Contents Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the extensive use of management’s estimates. Management uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to the collectability of accounts receivable, the fair value of intangible and long-lived assets, the fair value of goodwill, the fair value of debt and equity instruments, income taxes and the determination of standalone selling prices in contracts with customers that contain multiple performance obligations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. Reclassifications Certain prior-period amounts have been reclassified to conform with the current-period presentation. Most notably, proceeds from notes receivable, which were previously presented within net cash provided by financing activities, are now presented within net cash used in investing activities on the unaudited condensed consolidated statements of cash flows. Other reclassifications relate to the aggregation or disaggregation of certain captions within the financial statements. These reclassifications had no effect on previously reported net loss, total stockholders' equity, or net cash flows in the aggregate. Liquidity and Going Concern Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these unaudited condensed consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management has considered various scenarios, forecasts, projections and estimates and will make certain key assumptions. These assumptions include, among other factors, its ability to raise additional capital, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period. The Company has generated losses and negative operating cash flows since its inception and has relied on external sources of financing to support cash flow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these products and services. As of and for the six months ended June 30, 2026 , the Company had a working capital deficit of $ 6,598,000 and a net loss of $ 9,912,000 . Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months following the issuance of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company is actively monitoring its operations, cash on hand and working capital. The Company continuously reviews and explores external financing options in order to sustain its operations. If additional financing is not available, the Company also has contingency plans to continue to reduce or defer expenses and cash outlays in the look-forward period. Segment Information The Company operates as a single operating and reportable segment. Rekor offers a variety of platforms that collect, connect and organize mobility data, making it accessible and useful to its customers for real-time insights and decision-making. The Company’s chief operating decision maker (“CODM”) is the president and chief executive officer. The Company does not report balance sheet information by segment since balance sheet information by segment is not reviewed by the CODM. The CODM uses net income to assess segment performance. The significant expenses regularly reviewed by the CODM are cost of revenues, excluding depreciation and amortization and the Company’s operating expenses. The presentation of these items to the CODM is consistent with the Company’s presentation of these items on the unaudited condensed consolidated statement of operations. Goodwill The excess purchase consideration over the fair value of acquired assets and assumed liabilities is recorded as goodwill. Goodwill is subject to impairment testing on an annual basis. The Company will assess goodwill for impairment annually on October 1st of each year, or more often if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. The Company will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock. As of June 30, 2026 , the Company did not identify any events that would cause it to assess goodwill for impairment. 9 Table of Contents Fair Value of Financial Instruments The carrying amounts reported in the condensed consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of June 30, 2026 and December 31, 2025 due to the short-term maturity of these instruments. The carrying amounts reported for long-term debt and long-term receivables also approximate fair value as of June 30, 2026 and December 31, 2025 , based on management’s evaluation of current rates compared to market rates of interest and other relevant factors. The Company applies the fair value framework established by ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820" ). Refer to the Company's 2025 Annual Report on Form 10 -K for additional information regarding the Company's fair value measurement policies, including the Level 1, Level 2 and Level 3 input hierarchy. The Company’s goodwill and other intangible assets are measured at fair value upon acquisition and assessed for impairment on a recurring and non-recurring basis, respectively, using Level 3 inputs. As of June 30, 2026 and December 31, 2025, the Company had no Level 1, Level 2 or Level 3 assets or liabilities outstanding. The Company historically considered its STS Contingent Consideration and ATD Holdback Shares to be Level 3 instruments. The STS Contingent Consideration was remeasured to zero during the year ended December 31, 2025, and the ATD Holdback Shares were settled on January 2, 2025 through the issuance of 664,329 shares of the Company's common stock. There were no transfers between fair value hierarchy levels during the six months ended June 30, 2026 . Refer to the Company's 2025 Annual Report on Form 10 -K for additional information regarding the changes in fair value of these instruments during the year ended December 31, 2025. 10 Table of Contents Revenue Recognition The Company derives its revenues primarily from the licensing and sale of its roadway data and traffic management product and service offerings. These offerings include a mixture of data collection, implementation, engineering, customer support and maintenance services, as well as software and hardware. ASC 606 is a framework developed by the Financial Accounting Standards Board to improve consistency in revenue reporting under GAAP. It requires revenue to be recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: ● Identification of the contract, or contracts, with a customer ● Identification of the performance obligations in the contract ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of revenue when, or as, performance obligations are satisfied The following table presents a summary of revenue (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Recurring revenue $ 6,733 $ 5,911 $ 13,292 $ 11,017 Product and service revenue 5,929 6,448 9,633 10,540 Total revenue $ 12,662 $ 12,359 $ 22,925 $ 21,557 Revenues Recurring revenue Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue by a combination of direct sales, partner-assisted sales, and eCommerce sales. These sales involve both long-term contracts with customers that provide for periodic payments and short-term contracts that are automatically invoiced on a monthly basis. Where recurring revenue is generated through the Company’s Software-as-a-Service ("SaaS") model, the Company provides customers with the right to access the Company’s software solutions for a fee. These services are made available to the customer continuously throughout the contractual period. However, the extent to which the customer uses the services may vary at the customer’s discretion. The contracts with customers are generally for a term of one to five years. The payments for SaaS solutions may be received either at the inception of the arrangement or over the term of the arrangement. These SaaS solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such, we recognize revenue for these arrangements ratably over the term of the contractual agreement. The Company also currently receives recurring revenue under contracts entered into using a subscription model for data collection services and software over a period. Payments for these services and subscriptions are received periodically over the term of the agreement and revenue is recognized ratably over the term of the agreement. In addition, some of our subscription revenue includes providing, through a web server, access to the Company’s software solutions, a self-managed database, and a cross-platform application programming interface. The subscription arrangements with these customers typically do not provide the customer with the right to take possession of the Company’s software at any time. Instead, customers are granted continuous access to the Company’s solutions over the contractual period. The Company’s subscription services arrangements are non-cancelable and do not contain refund-type provisions. Accordingly, any fixed consideration related to the arrangement is generally recognized as recurring revenue on a straight-line basis over the contract term beginning on the date access to the Company’s software is provided. eCommerce revenue is defined by the Company as revenue obtained through direct sales on the Company’s eCommerce platform. The Company’s eCommerce revenue generally includes subscriptions to the Company’s vehicle recognition software that can be purchased online and activated through a digital key. The Company's contracts with eCommerce customers are generally for a term of one month with automatic renewal each month. The Company invoices and receives fees from its customers monthly. Revenue is recognized ratably over the term of the contract. 11 Table of Contents Product and service revenue Implementation revenue is recognized when the Company provides installation, construction and other implementation services to its customers. These services involve a fee and are typically associated with the sale of the Company’s data collection services, software and hardware. The Company’s implementation revenue is recognized over time as the implementation is completed. In addition to recurring revenue from software sales, the Company recognizes point-in-time revenue related to the sale of perpetual software licenses. The Company sells perpetual licenses that provide customers the right to use software for an indefinite period in exchange for a one -time license fee, which is generally paid at contract inception. The Company’s perpetual licenses provide a right to use intellectual property (“IP”) that is functional in nature and has significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when the customer has access to the software, which normally occurs once software activation keys have been made available to the customer. Customer support revenue is associated with perpetual licenses and long-term subscription arrangements and consists primarily of technical support and product updates. The Company’s customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them. As customer support is not critical to the customers' ability to derive benefit from their right to use the Company’s software, customer support is considered a distinct performance obligation when sold together with a long-term license for software. Customer support for perpetual and term licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for subscription licenses is renewable concurrently with such licenses for the same duration of time. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the customer support obligation, in line with how the Company believes services are provided. The Company also generates revenue through the sale of hardware through its partner program and internal sales force distribution channels. The Company satisfies its performance obligation upon the transfer of control of hardware to its customers. The Company invoices end-user customers upon transfer of control of the hardware to its customers. The Company provides hardware installation services to customers which range from one to six months. The revenue related to the installation component is recognized over time as the implementation is completed. Contactless compliance revenues reflect arrangements to provide hardware systems and services that identify uninsured motor vehicles, notify owners of non-compliance through a diversion citation, and assist them in obtaining the required insurance as an alternative to traditional enforcement methods. Revenue is recognized monthly based on the number of diversion citations collected by the relevant jurisdiction. The Company also generates revenue through its engineering services. These services are provided at the request of its customers and the revenue related to these services is recognized over time as the service is completed. Revenue by Customer Type The following table presents a summary of revenue by customer type (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Urban Mobility $ 8,861 $ 8,422 $ 15,072 $ 13,951 Transportation Management 433 408 958 831 Public Safety 3,368 3,529 6,895 6,775 Total revenue $ 12,662 $ 12,359 $ 22,925 $ 21,557 Urban Mobility Urban mobility revenue consists of revenue derived from the Company's roadway data aggregation activities. These activities can include the use of software applications that are part of the Rekor Discover® platform, the primary application being Rekor’s count, class & speed application. The application fully automates the aggregation of Federal Highway Administration (“FHWA”) 13 -bin vehicle classification, speed, and volume data. Revenues associated with the deployment of other traffic sensors, traffic studies, or construction associated with traffic data collection are also part of data aggregation revenue, which is generated through both recurring pay-for-data contracts and hardware sales with a recurring software maintenance component. Transportation Management Transportation management revenue is associated with the Rekor Command® platform and the associated applications underneath the platform. These provide traffic operations and traffic management centers with support through actionable, real-time incident reports integrated into a cross-agency communication and response system. Revenue is generated through contracts that include an upfront as well as recurring component. Public Safety Public safety revenue consists of licensing of the Rekor Scout® platform, licensing of Rekor CarCheck™ API, licensing of Rekor’s vehicle recognition software, as well as systems deployed for security, contactless compliance and public safety. Revenue is generated through recurring and perpetual license sales as well as one -time hardware sales. Performance obligations The Company contracts with customers in a variety of ways, including contracts that obligate the Company to provide services over time. Some contracts include performance obligations for several distinct services. For those contracts that have multiple distinct performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price, which is determined based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors. This may result in a deferral or acceleration of revenue recognized relative to cash received for each distinct performance obligation. Where performance obligations for the remaining term of a contract with a customer 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 June 30, 2026 , the unsatisfied portion of the remaining performance obligation was approximately $ 23,709,000 . The Company expects to recognize approximately 88 % of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized within the next five years thereafter. 12 Table of Contents Unbilled accounts receivable The timing of revenue recognition, billings and cash collections result in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the unaudited condensed consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the unaudited condensed consolidated balance sheets. When billing occurs after services have been provided, such unbilled amounts will generally be billed and collected within 60 to 120 days, but typically no longer than over the next twelve months. Unbilled accounts receivables of $ 1,523,000 and $ 1,993,000 were included in accounts receivable, net, in the unaudited condensed consolidated balance sheets as of June 30, 2026 and December 31, 2025 , respectively. Contract liabilities When the Company advance bills clients prior to providing services, generally such amounts will be earned and recognized in revenue within the next six months to five years, depending on the length of the period during which services are to be provided. This revenue and the corresponding decrease in liabilities are recognized on a contract-by-contract basis at the end of each reporting period and reflected on the unaudited condensed consolidated balance sheet for such period. During the six months ended June 30, 2026 , $ 3,210,000 of the contract liabilities balance as of December 31, 2025 was recognized as revenue. The services due for contract liabilities described above are shown below as of June 30, 2026 (dollars in thousands): 2026, remaining $ 3,613 2027 1,821 2028 459 2029 185 2030 59 Thereafter 5 Total $ 6,142 Cash and Cash Equivalents, and Restricted Cash The Company considers all highly-liquid debt instruments that are readily convertible into cash and have an original maturity of three months or less at the time of purchase to be cash equivalents Cash subject to contractual restrictions and not readily available for use is classified as restricted cash. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash for these client jurisdictions as of June 30, 2026 and December 31, 2025 were $ 275,000 and $ 297,000 , respectively, and correspond to equal amounts of related liabilities. 13 Table of Contents Concentrations of Credit Risk The Company deposits its temporary cash investments with highly rated quality financial institutions that are located in the United States and Israel. The United States deposits are federally insured up to $250,000 per insured bank, for each account ownership category. As of June 30, 2026 and December 31, 2025 , the Company had deposits totaling $ 10,041,000 and $ 16,863,000 , respectively, in multiple U.S. financial institutions and one Israeli financial institution. Customer A accounted for 11 % and 13 % of the unaudited condensed consolidated revenue for the three and six months ended June 30, 2026 , respectively. No single customer accounted for more than 10% of the Company’s unaudited condensed consolidated revenues for the three and six months ended June 30, 2025 . As of June 30, 2026 and December 31, 2025 , Customer A accounted for 11 % and 15 % of the Company's unaudited condensed consolidated accounts receivable balance, respectively. Accounts Payable and Other Current Liabilities As of June 30, 2026 and December 31, 2025 , amounts owed to board members of $ 100,000 and $ 75,000 were presented as part of accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets. A summary of other current liabilities is as follows (in thousands): June 30, 2026 December 31, 2025 Payroll and payroll related expense $ 1,491 $ 1,343 Right of offset to restricted cash 275 297 Other 88 89 Other current liabilities $ 1,854 $ 1,729 New Accounting Pronouncements Effective in Current Period In March 2025, the FASB issued ASU 2025 - 05 - Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which clarifies the measurement of expected credit losses for accounts receivable and contract assets arising from revenue transactions within the scope of Topic 606. The amendments require entities to measure expected credit losses for these financial assets using a methodology consistent with the current expected credit loss model while clarifying the interaction between the guidance in Topic 326 and Topic 606. The guidance in this ASU is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal years of adoption. The Company adopted ASU 2025 - 05 effective January 1, 2026 on a modified retrospective basis. The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements or related disclosures for the three and six months ended June 30, 2026 . Recently Issued Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024 - 03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of operations. The guidance in this ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either ( 1 ) prospectively to 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 related disclosures. In December 2025, the FASB issued ASU 2025 - 11 - Interim Reporting (Topic 270 ): Improvements to Interim Reporting Guidance, which is intended to improve the clarity and organization of the interim reporting guidance in Topic 270. The amendments clarify the scope and presentation requirements for interim financial statements and introduce a general disclosure principle requiring entities to disclose events or transactions occurring since the end of the last annual reporting period that have a material impact on the entity. The guidance also incorporates certain interim disclosure requirements from other Topics into Topic 270 to improve accessibility of the interim reporting guidance. The amendments in this ASU are effective for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2025 - 11 will have on its consolidated financial statements and related disclosures. The Company does not believe that any recently issued, but not yet effective, accounting standards, other than the standards discussed above, could have a material effect on the accompanying unaudited condensed consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. Additional significant accounting policies of the Company are also described in Note 1 of the Company’s Annual Report on Form 10 -K for the year ended December 31, 2025 . 14 Table of Contents NOTE 2 - LEASES The Company has operating leases for office facilities in various locations throughout the United States and Israel. Additionally, the Company has financing leases for vehicles it uses for its operations throughout the United States. The Company’s leases have remaining terms of one to eight years. Certain of the Company’s leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining total future lease payments. During the first quarter of 2025, the Company entered into a lease amendment that modified the timing of contractual lease payments related to its lease in Columbia, Maryland. Based on the Company's evaluation, the amendment qualified as a lease modification under ASC 842. As a result of the modification, the Company recognized a decrease of $ 1,344,000 in both its operating lease liability and the corresponding operating lease right-of-use asset ("ROU asset"). In December 2025, the Company determined that the operations of its wholly owned subsidiary, Waycare Technologies LTD ("Waycare"), located in Tel Aviv, Israel, were no longer sustainable given the entity's operating cost structure. The Company initiated a plan to wind down the Tel Aviv operations and consolidate all engineering functions into its U.S. facilities. The plan was announced to employees on February 23, 2026, and Tel Aviv operations substantially ceased on February 24, 2026. As a result of the decision, the Company identified a triggering event requiring an impairment assessment of the related long-lived assets, including the operating lease ROU asset associated with the Tel Aviv office lease. The Company determined that the undiscounted future cash flows expected from the use and eventual disposition of the operating lease ROU asset were less than its carrying amount and, accordingly, the asset was written down to its estimated fair value. The Company estimated the fair value of the operating lease ROU asset to be approximately $0, based on the expected abandonment of the asset with no material residual or sublease value (a Level 3 fair value measurement). As a result, the Company recognized an impairment charge of $ 2,708,000 related to the operating lease ROU asset associated with the Tel Aviv facility during the year ended December 31, 2025. This impairment charge was included in asset impairment charges in the consolidated statements of operations for the year ended December 31, 2025. Refer to the Company's Annual Report on Form 10 -K for the year ended December 31, 2025 for additional information regarding the wind-down of operations in Tel Aviv. No impairment charges related to the Company's right-of-use assets were recognized during the six months ended June 30, 2026 . As part of the Company’s ongoing efforts to optimize operations and improve efficiency, the Company evaluated its lease portfolio and related renewal options. In connection with this review, the Company took certain actions with respect to its leased locations, including communicating with landlords where appropriate. In relation to the Tel Aviv lease, the Company notified the landlord of its intent to vacate the premises during the second quarter of 2026, which resulted in a remeasurement of the related lease liability. Because the right-of-use asset associated with the Tel Aviv office had previously been fully impaired, the reduction in the lease liability resulted in the recognition of an approximately $ 2,753,000 gain on lease remeasurement during the second quarter of 2026. The gain was recorded within gain on lease remeasurement, net in the unaudited condensed consolidated statements of operations. Losses associated with lease abandonments and terminations are recorded within general and administrative expenses in the unaudited condensed consolidated statements of operations. In January 2026, the Company entered into an amendment to the lease for its corporate headquarters in Columbia, Maryland that revised the timing of monthly base rent payments through the remaining lease term. The Company accounted for the amendment as a lease modification that is not a separate contract under ASC 842. As a result of the modification, the Company recognized a decrease of approximately $ 224,000 in both its operating lease liability and the corresponding ROU asset. The modification did not result in a gain or loss. During the six months ended June 30, 2026 , the Company exercised its option to terminate its lease for office space in Plano, Texas, effective December 31, 2026. The Company recognized a loss on lease termination of approximately $ 117,000 , which is included in general and administrative expenses in the unaudited condensed consolidated statements of operations. As a result of the lease termination, the Company recognized a $ 50,000 early termination liability, reduced its operating lease liability by approximately $ 77,000 , and reduced the corresponding right-of-use asset by approximately $ 144,000 . Lease cost recognized in our unaudited condensed consolidated statements of operations is summarized as follows (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Operating lease cost $ 623 $ 701 $ 1,332 $ 1,411 Finance lease cost Amortization of right-of-use assets 284 301 589 606 Interest on lease liabilities 25 41 55 89 Finance lease cost 309 342 644 695 Total lease cost $ 932 $ 1,043 $ 1,976 $ 2,106 Other information about lease amounts recognized in our condensed consolidated financial statements is as follows: June 30, 2026 December 31, 2025 Weighted-average remaining lease term (years) Operating leases 5.57 6.35 Financing leases 2.61 2.54 Weighted-average discount rate Operating leases 13.2 % 12.1 % Financing leases 9.2 % 9.1 % Maturities of operating and financing lease liabilities for continuing operations on June 30, 2026 were as follows (dollars in thousands): Operating Leases Financing Leases 2026, remaining $ 1,013 $ 329 2027 4,905 382 2028 1,974 166 2029 1,780 133 2030 1,784 40 Thereafter 3,017 19 Total lease payments 14,473 1,069 Less imputed interest 3,928 118 Maturities of lease liabilities $ 10,545 $ 951 NOTE 3 – SUPPLEMENTAL NON-CASH DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information for the six months ended June 30, 2026 and 2025 were as follows (dollars in thousands): Six Months Ended June 30, 2026 2025 Cash paid for interest $ 1,166 $ 1,122 Cash paid for taxes 51 93 Decrease in accounts payable and accrued expenses related to purchases of inventory ( 3 ) 250 Decrease in deposits related to Inventory received - 45 Abandonment of financing lease 14 31 Contract modification resulting in a measurement of an operating lease 224 1,344 Contract termination resulting in a measurement of an operating lease 144 - Non-cash financing activities: Settlement of ATD Holdback Shares with common stock - 1,156 New Leases under ASC-842: Right-of-use assets obtained in exchange for new finance lease liabilities - 524 Right-of-use assets obtained in exchange for new operating lease liabilities 402 205 15 Table of Contents NOTE 4 – INTANGIBLE ASSETS Intangible Assets Subject to Amortization The following provides a breakdown of identifiable intangible assets, net as of June 30, 2026 and December 31, 2025 (dollars in thousands): June 30, 2026 December 31, 2025 Customer relationships $ 15,300 $ 15,300 Marketing related 900 900 Total 16,200 16,200 Less: accumulated amortization ( 3,550 ) ( 2,950 ) Identifiable intangible assets, net $ 12,650 $ 13,250 These intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended June 30, 2026 and 2025 was $ 300,000 in each period, and for the six months ended June 30, 2026 and 2025 was $ 600,000 in each period, respectively, and is presented as part of depreciation and amortization in the unaudited condensed consolidated statements of operations. During the current period there have been no events that would cause the Company to evaluate its intangible assets for impairment. 16 Table of Contents As of June 30, 2026 , the estimated impact from annual amortization from intangible assets for each of the next five fiscal years and thereafter is as follows (dollars in thousands): 2026, remaining $ 600 2027 1,130 2028 1,060 2029 1,020 2030 1,020 Thereafter 7,820 Total $ 12,650 NOTE 5 – DEBT STS Notes On June 17, 2022, pursuant to the terms of the Company’s acquisition of STS, the Company issued an aggregate of $ 2,000,000 of notes payable in the form of two unsecured, subordinated promissory notes, each in the principal amount of $ 1,000,000 and bearing an interest rate of 3.0 % per annum, payable quarterly. These notes matured and were fully paid on September 30, 2024, and June 17, 2025, respectively. As of June 30, 2026 , the aggregate balance of these notes payable was fully satisfied. 17 Table of Contents Series A Prime Revenue Sharing Notes On December 15, 2023, the Company issued $ 15,000,000 in Series A Prime Revenue Sharing Notes. Interest accrues on the Series A Prime Revenue Sharing Notes at a fixed annual rate of 13.25 % and is paid monthly. The entire outstanding principal balance, together with all interest accrued and unpaid is due and payable on the maturity date of December 15, 2026. Debt issuance costs paid in connection with the Series A Prime Revenue Sharing Notes were $ 670,000 and are being amortized as interest expense using a straight-line method over the term of the Series A Prime Revenue Sharing Notes. The Company has a related party relationship with Arctis Global, LLC, which invested $ 5,000,000 in connection with the $ 15,000,000 initial closing of the Series A Prime Revenue Sharing Notes. The Series A Prime Revenue Sharing Notes are payable from a pool of revenues received from contracts with transportation agencies in five states, each of which has been highly rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies. In connection with the issuance of the Series A Prime Revenue Sharing Notes, the Company entered into a base Indenture (the Indenture), dated December 15, 2023 with Argent Institutional Trust Company, as trustee. The Indenture creates a first priority security interest in the contract revenues for the benefit of the holders of the Series A Prime Revenue Sharing Notes and all subsequent notes issued under the Indenture. The Series A Prime Revenue Sharing Notes rank senior to the Company’s existing and future secured and unsecured debt with respect to the pool of revenue securing the Series A Prime Revenue Sharing Notes. Under the terms of the Indenture, the Company is required to maintain an interest reserve related to not less than three times the next monthly interest payment. Additionally, there is a sinking fund requirement which takes effect if the three year value of eligible contracts is less than 170 % of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes. If the sinking fund requirement takes effect, the Company is required to maintain a cash balance sufficient to amortize the principal amount due on all series of Prime Revenue Sharing Notes outstanding under the Indenture in equal monthly installments by the respective due dates of each such series. The amount related to the interest reserve was $ 500,000 as of June 30, 2026 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 June 30, 2026 . 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%. Repayment of the Series A Prime Revenue Sharing Notes consisting of all principal, plus any unpaid accrued interest, may also be accelerated by the note holder upon a change in control or event of default. Interest expense related to the Series A Prime Revenue Sharing Notes was $ 497,000 for each of the three months ended June 30, 2026 and 2025 , and $ 994,000 for each of the six months ended June 30, 2026 and 2025 . Interest Expense The following table presents the interest expense net of interest income related to the contractual interest and the amortization of debt issuance costs for the Company’s debt arrangements (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Contractual interest expense $ 536 $ 561 $ 1,075 $ 1,126 Amortization of debt issuance costs 49 50 98 99 Total interest expense 585 611 1,173 1,225 Less: interest income 68 25 163 49 Total interest expense, net $ 517 $ 586 $ 1,010 $ 1,176 18 Table of Contents Schedule of Principal Amounts Due of Debt The principal amounts due for loans and notes payable are shown below as of June 30, 2026 (dollars in thousands): 2026, remaining $ 15,037 2027 86 2028 25 2029 - Total 15,148 Less unamortized debt discount ( 99 ) Total notes payable $ 15,049 NOTE 6 – INCOME TAXES The Company maintains a full valuation allowance against its net deferred taxes, outside of the deferred tax liability related to the indefinite lived intangibles, through June 30, 2026 . The Company files income tax returns in Israel, the United States and in various states. No U.S. Federal, state or foreign income tax audits were in process as of June 30, 2026 . The Company evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, the Company fully reserved for its net deferred tax assets, outside of the deferred tax liability related to the indefinite lived intangibles, because the Company does not believe that it is more likely than not that their benefits will be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly. For the six months ended June 30, 2026 and 2025, the Company did not record any interest or penalties related to unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax expense. The 2019 through 2024 tax years remain subject to examination by the Internal Revenue Service. As of June 30, 2026 and December 31, 2025 , our evaluation revealed no uncertain tax positions that would have a material impact on the unaudited condensed consolidated financial statements. For the three and six months ended June 30, 2026 and 2025 , the Company did not record any expense or benefit related to income tax. 19 Table of Contents NOTE 7 – COMMITMENTS AND CONTINGENCIES From time to time, the Company may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, infringement of proprietary rights, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated. H.C. Wainwright & Co., LLC In March 2023, the Company entered into an engagement letter with H.C. Wainwright & Co., LLC, ("HCW"), related to a capital raise. That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company 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 the engagement letter. On or about October 23, 2023, HCW filed a complaint in New York State Supreme Court asserting a claim for breach of contract against the Company relating to purported fees owed as a result of the July Warrant Exercise Transaction. HCW sought to recover compensatory and consequential damages and certain warrants under its letter agreement with Rekor and other fees, not less than a cash fee of $ 825,000 and the value of warrants to purchase an aggregate of up to 481,100 shares of common stock of the company at an exercise price of $ 2.00 per share as well as attorneys’ fees. On February 29, 2024, HCW filed a notice of discontinuance without prejudice and advised the court that it intended to commence a new proceeding by filing a new complaint that would address the claim in this lawsuit and subsequent events. On March 4, 2024, the court discontinued this lawsuit without prejudice. On February 29, 2024, HCW initiated the new action with the filing of a complaint in New York State Supreme Court. In the new action, HCW advances the same breach of contract theory and seeks to recover the same damages as sought in the prior now-dismissed lawsuit. In addition, HCW seeks to recover an additional $ 2,156,000 in damages plus the value of warrants to purchase an aggregate of up to 805,000 shares of common stock at an exercise price of $ 3.125 per share in connection with Rekor’s February 2024 offering, which we refer to as the 2024 Public Offering. HCW alleges that Rekor breached its engagement letter with HCW by failing to give HCW notice of this offering and failing to provide HCW with the opportunity to exercise the ROFR with respect to this transaction. On May 3, 2024, Rekor answered HCW’s complaint and filed counterclaims against HCW and Armistice Capital LLC ("Armistice") relating to Rekor’s March 2023 Registered Direct Offering, Armistice’s trading activity in Rekor common stock, and Rekor’s 2024 Public Offering. After HCW and Armistice moved to dismiss Rekor’s counterclaims, Rekor filed amended counterclaims on October 1, 2024. During the third quarter of 2025, Rekor resolved its claims with Armistice pursuant to a settlement agreement. The proceeds from the settlement were presented as part of other expense (income) in the condensed consolidated statement of operations in the Company's Annual Report on Form 10 -K for the year ended December 31, 2025. Rekor now seeks to recover damages from HCW and HCW moved to dismiss the amended counterclaims. The Court granted HCW’s motion to dismiss Rekor’s counterclaims. The Company believes HCW's claims are without merit and intends to vigorously defend itself in this lawsuit. Occupational Safety and Health Administration ( “ OSHA ” ) Claim In 2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints. On November 30, 2023, OSHA issued its determination that, based on the information gathered thus far in its investigation, OSHA was unable to conclude that there was reasonable cause to believe that a violation of the statute occurred. OSHA thereby dismissed the complaint. Thereafter, Claimants appealed the determination by filing objections and requesting a hearing before an Administrative Law Judge. The Company likewise filed a request for an award of attorneys’ fees. On January 4, 2024, the Office of Administrative Law Judges (“OALJ”) processed the appeals and issued its Notice of Docketing and Order of Consolidation. The parties were able to settle the claim filed by one employee in advance of a March 3, 2025 hearing scheduled by the OALJ. After the hearing, at the Court's request, the parties submitted post-hearing briefs in April 2025. On September 30, 2025, the OALJ issued an Order in Rekor’s favor, dismissing all aspects of Claimant’s Complaint. On November 24, 2025, the Appellate Review Board ("ARB") served a Notice of Appeal Acceptance and indicated they accepted the matter for review. They subsequently set a briefing schedule for the parties. Complainant's brief was filed on January 22, 2026. The Company's response brief was filed on March 31, 2026. Complainant filed his reply brief on April 14, 2026. The matter has now been fully briefed before the ARB and the Company is awaiting findings from the ARB. The Company does not know when the ARB will issue its finding. The Company believes these claims are without merit. The Company intends to vigorously defend itself in this lawsuit. 20 Table of Contents NOTE 8 – STOCKHOLDERS ’ EQUITY Authorized Common Stock The Company is authorized to issue 300,000,000 shares of common stock, par value $ 0.0001 per share, and 2,000,000 shares of preferred stock, par value $ 0.0001 per share. 2025 Sales Agreement On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the "2025 Sales Agreement") with Northland Securities, Inc., pursuant to which the Company could, from time to time, offer and sell shares of common stock having an aggregate offering price of up to $ 25,000,000 . On August 12, 2025, the Company elected to voluntarily terminate the 2025 Sales Agreement. During the term of the 2025 Sales Agreement, the Company issued an aggregate of 18,888,832 shares of common stock at a weighted average selling price of $ 1.23 per share, generating net proceeds of approximately $ 22,350,000 . ATD Acquisition On January 2, 2025, 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. 2025 Underwriting Agreement On December 13, 2025, the Company entered into an underwriting agreement with William Blair & Company, L.L.C., as representative of the several underwriters, relating to an underwritten registered direct offering of 8,571,428 units at a public offering price of $ 1.75 per unit (the "2025 Underwriting Agreement"). Each unit consisted of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $ 2.40 per share. The warrants are immediately exercisable and expire on December 16, 2032. The offering closed on December 16, 2025. Gross proceeds from the offering were approximately $ 15.0 million. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company were approximately $ 13.9 million. In connection with the offering, the Company entered into a Side Letter Agreement with Anson Advisors Inc. that, among other things, restricts the Company from entering into Variable Rate Transactions (as defined therein) while any December 2025 warrants issued under the 2025 Underwriting Agreement remain outstanding. 21 Table of Contents Warrants There was no activity related to the Company warrants during the period ended June 30, 2026 . The table below shows the Company's outstanding warrants as of June 30, 2026 : 2023 Promissory Notes (1) 2023 Registered Direct Offering (2) 2023 Private Warrants (3) 2025 Underwriting Agreement (4) Total Outstanding warrants as of June 30, 2026 1,000,000 481,100 2,850,000 8,571,428 12,902,528 Weighted average strike price of outstanding warrants as of June 30, 2026 $ 2.00 $ 1.82 $ 3.25 $ 2.40 $ 2.54 Intrinsic value of outstanding warrants as of June 30, 2026 $ - $ - $ - $ - $ - ( 1 ) On January 18, 2023, in connection with the 2023 Promissory Notes, the Company issued the investors warrants to purchase 6,250,000 shares of its common stock, exercisable over a period of five years, at an exercise price of $ 2.00 per share. Of the original 6,250,000 warrants, 3,675,000 have been exercised and 1,575,000 were cancelled. The remaining warrants were exercisable commencing January 18, 2023 and expire on January 18, 2028. The 2023 Promissory Notes were redeemed in March 2024; the warrants remain outstanding in accordance with their original terms. ( 2 ) On March 23, 2023, in connection with the 2023 Registered Direct Offering the Company issued warrants to the placement agent to purchase up to 481,100 shares of common stock. Each warrant for the placement agent is exercisable for one share of common stock at an exercise price of $1.8188 per share. These warrants were exercisable commencing March 27, 2023 and expire on March 27, 2028. ( 3 ) On July 25, 2023, in connection with the 2023 Letter Agreement, the Company issued warrants to purchase 2,850,000 shares of its common stock, exercisable over a period of five and half years, at an exercise price of $ 3.25 per share. These warrants were exercisable commencing July 25, 2023 and expire on January 25, 2029. ( 4 ) On December 16, 2025, in connection with the 2025 Underwriting Agreement, the Company issued warrants to purchase 8,571,428 shares of its common stock. The warrants have an exercise price of $ 2.40 per share, are immediately exercisable and have a term of seven years from the date of issuance. These warrants expire on December 16, 2032. NOTE 9 – EQUITY INCENTIVE 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. As of June 30, 2026 , an aggregate of 15,280,949 shares of common stock were authorized for issuance under the 2017 Plan. Stock Options Stock options granted under the 2017 Plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. Stock options are granted at exercise prices as determined by the Board of Directors. The vesting period is generally three years with a contractual term of ten years. For the three and six months ended June 30, 2026 and 2025 there was no stock compensation expense related to stock options. 22 Table of Contents A summary of stock option activity under the Company’s 2017 Plan during the period ended June 30, 2026 is as follows: Number of Shares Subject to Option Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding balance as of January 1, 2026 423,034 $ 1.12 2.63 $ 180,000 Exercised ( 50,000 ) 0.78 Expired ( 8,833 ) 0.80 Outstanding and exercisable balance as of June 30, 2026 364,201 $ 1.18 2.45 $ - As of June 30, 2026 , there was $ 0 of unrecognized stock compensation expense related to unvested stock options granted under the 2017 Plan. Restricted Stock Units Stock compensation expense related to Restricted Stock Units ("RSUs") for the three months ended June 30, 2026 and 2025 was $ 212,000 and $ 723,000 , respectively, and for the six months ended June 30, 2026 and 2025 was $ 1,134,000 and $ 2,093,000 , respectively, and is presented based on the awardees' operating department, as general administrative, selling and marketing and research and development expenses in the unaudited condensed consolidated statements of operations. On March 20, 2026, in connection with the Company's amended and restated employment agreement with Robert A. Berman, the Company's President and Chief Executive Officer, the Company granted 1,000,000 fully vested shares of common stock to Mr. Berman, with a grant date fair value of $ 0.88 per share, resulting in $ 880,000 of stock-based compensation expense recorded during the six months ended June 30, 2026 . These shares were issued to Mr. Berman in April 2026. A summary of RSU activity under the Company’s 2017 Plan for the six months ended June 30, 2026 is as follows: Number of Shares Weighted Average Unit Price Weighted Average Remaining Contractual Term (Years) Outstanding balance as of January 1, 2026 654,140 $ 1.57 1.53 Granted 3,213,833 0.87 0.98 Vested ( 1,111,108 ) 0.97 0.05 Forfeited ( 375,047 ) 1.33 1.48 Outstanding balance as of June 30, 2026 2,381,818 $ 0.95 1.40 All RSUs granted vest upon the satisfaction of a service-based vesting condition. As of June 30, 2026 , there was $ 1,927,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.40 years. Rekor Labs Profit Interests On March 25, 2026, Rekor Labs, LLC (“Rekor Labs”), a consolidated subsidiary of the Company, adopted an amended and restated limited liability company agreement and authorized the issuance of profits interests to certain service providers. In connection with that authorization, Rekor Labs granted profits interests to certain service providers representing 3.5 % of Rekor Labs’ fully diluted equity as of the grant date, subject to the terms and conditions of the applicable grant agreements and the amended and restated limited liability company agreement. The profits interests vest in full upon the consummation of a Fundamental Transaction, as defined in the amended and restated limited liability company agreement, within six months following the grant date, subject to the applicable participant’s continued service through the applicable vesting date. The Company accounts for the profits interest awards as share-based compensation arrangements under ASC 718, Compensation — Stock Compensation. Because vesting of the awards is contingent upon the occurrence of a Fundamental Transaction within six months following the grant date, the Company evaluated whether the vesting condition was probable as of June 30, 2026. As of June 30, 2026, the Company determined that the vesting condition remained not probable and, accordingly, no additional compensation expense was recognized related to the awards during the three and six months ended June 30, 2026. The Company will continue to reassess the probability of vesting at each reporting date. If the vesting condition becomes probable, the Company will recognize compensation expense based on the grant-date fair value of the awards over the requisite service period, including any cumulative catch-up adjustment required under ASC 718. 23 Table of Contents NOTE 10 – LOSS PER SHARE The following table provides information relating to the calculation of loss per common share: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) Basic and diluted loss per share Net loss $ ( 551 ) $ ( 8,658 ) $ ( 9,912 ) $ ( 19,532 ) Weighted average common shares outstanding - basic and diluted 137,612,028 117,435,953 137,140,972 112,459,949 Basic and diluted loss per share $ ( 0.00 ) $ ( 0.07 ) $ ( 0.07 ) $ ( 0.17 ) Potentially dilutive securities excluded due to the anti-dilutive effect 15,648,547 7,415,057 15,648,547 7,415,057 As the Company had a net loss for the three and six months ended June 30, 2026 , the following 15,648,547 potentially dilutive securities were excluded from diluted loss per share: 12,902,528 for outstanding warrants, 364,201 related to outstanding options, and 2,381,818 related to outstanding RSUs. As the Company had a net loss for the three and six months ended June 30, 2025 , the following 7,415,057 potentially dilutive securities were excluded from diluted loss per share: 4,331,100 for outstanding warrants, 481,533 related to outstanding options, and 2,602,424 related to outstanding RSUs. NOTE 11 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued and has determined that there are no events requiring disclosure. 24 Table of Contents ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties including particularly statements regarding our future results of operations and financial position, business strategy, prospective products and services, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products and services. These statements involve uncertainties, such as known and unknown risks, and are dependent on other important factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements we express or imply. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties, and assumptions described under the sections in our Annual Report on Form 10-K for the year ended December 31, 2025, entitled “Risk Factors” and elsewhere in this Quarterly Report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of this filing. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. We undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise. Specific factors that might cause actual results to differ from our expectations include, but are not limited to: ● operating risks, including supply chain, equipment or system failures, cyber and other malicious attacks on international, national, local and Company information infrastructure by rogue businesses or criminal elements or by agents of governments engaged in asymmetric disruptions for competitive, economic, or military reasons, wars and local conflicts and other events that could affect our operations and the amounts and timing of revenues and expenses; ● reputational risks affecting customer confidence or willingness to do business with us; ● financial market conditions, including the continuation of significant national and global uncertainties that may affect these conditions, and the results of financing efforts; ● our continued ability to successfully access the public markets for debt or equity capital; ● our ability to regain and maintain compliance with Nasdaq's continued listing requirements; ● political, legal, regulatory, administrative, military and economic conditions and developments in the United States (“U.S.”) and other countries in which we operate and, in particular, the impact of ongoing hostilities in the Middle East and recent and future federal, state and local regulatory proceedings and changes, including legislative and regulatory initiatives associated with our products; ● current and future litigation; ● competition from other companies with an established position in the markets we have recently entered or are seeking to enter or from other companies who are seeking to enter markets we already serve; ● our failure to successfully develop products using our technology that are accepted by the markets we serve or intend to serve or the development of new technologies that change the nature of our business or provide our customers with products or services superior to or less expensive than ours; ● the inability of our strategic plans and goals to expand our geographic markets, customer base and product and service offerings; ● risks associated with pandemics and other global health emergencies, and their impact on U.S. and international markets and economies; and ● Other significant risks, uncertainties and other considerations discussed in this report. Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Other than as required by law, we undertake no obligation to update forward-looking statements even though our situation may change in the future. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC. 25 Table of Contents General Overview Rekor is a technology company developing trusted-data, privacy, security, and intelligence solutions for real-world transportation, public-safety, video, and sensor networks. We work to modernize public safety, urban mobility, and transportation management through cutting-edge solutions , with a focus on protecting the security and reliability of data and appropriate privacy protections. By collaborating closely with public and private sector customers, we deliver services and solutions that enable them to improve the reliability, efficiency, accountability and security of their operations. Our vision is to create safer, smarter, and more sustainable roadways and communities, improving the lives of citizens and the world around them. To implement this vision, we have developed a suite of interconnected AI-driven hardware and purpose-built software platforms. Powered by vast and diverse multi-modal datasets and proprietary AI technologies, these solutions deliver advanced roadway intelligence, enabling clients to more effectively monitor, manage, and optimize the movement of vehicles, traffic, and activities in and around roadways and communities with precision and sensitivity to privacy and environmental concerns. Our products and services collect, connect, and organize mobility data, making it more useful, and accessible, while providing actionable real-time insights to enable better decision-making. This provides our customers with both enhanced real time and historical data and the tools to manage and use it efficiently, securely and responsibly. Our products and services support improved planning and provide significantly enhanced situational awareness, rapid response capabilities, risk mitigation strategies, and predictive analytics. We are also focused on developing privacy and evidence architecture for responsible vehicle recognition. This approach is designed to protect non-relevant information by default, apply purpose-based retention, provide auditable access controls, and verify the integrity of video evidence, while preserving authorized public-safety and transportation uses. In our efforts to safeguard privacy and ensure the reliability of data, we have developed proprietary techniques for anonymization of data and verification of video and audio records, which we believe have broad applicability to the media, insurance and other markets beyond our traditional client bases. Our operations are conducted primarily by our wholly-owned subsidiaries, Rekor Recognition Systems, Inc. (“Rekor Recognition”), Waycare Technologies, Ltd. and Waycare Technologies, Inc. (combined “Waycare”), Southern Traffic Services, Inc. (“STS”), and All Traffic Data Services, LLC (“ATD”). We also have a separate subsidiary, Rekor Labs LLC ("Rekor Labs"), which develops media-authentication and data-security technologies, including Go-Secure.Video, a technology designed to authenticate video at the point of capture and support later verification of whether the video has been altered. Although developed in response to public-safety requirements, we believe this technology has broader applicability. A New Operating System for U.S. Roadways Over the past decade, the United States of America has begun to implement a critical turning point in the evolution of its transportation and roadway infrastructure. After many years of reliance on analog technologies and manual methodologies that have resulted in rising costs, and have involved inefficiencies and safety hazards that are now preventable, Federal, state and local transportation agencies are now looking to exploit innovations like sensor technology, Internet of Things (“IoT”), AI, cloud computing and autonomous vehicles. These technologies are advancing rapidly and can address fundamental challenges such as poor roadway quality, traffic congestion, and driver safety. Since 2018, Rekor has worked to deserve a place at the forefront of this wave of transformation and modernization actively designing, building, and deploying AI solutions and other advanced complementary technologies through public-private collaborations with departments of transportation (“DOTs”), public safety agencies, and private sector partners. Rekor is committed to helping lay the foundation of a groundbreaking new digital infrastructure operating system for roadways—and has already delivered proven value across multiple domains: ● Enhanced Roadway Safety: Real-time AI monitoring systems detect hazards and reduce roadway fatalities. ● Optimized Traffic Flow: Intelligent analytics alleviate congestion, improve commute times, and boost productivity. ● Cost Savings & Efficiency: AI automation streamlines operations, maximizing resource allocation for agencies. ● Improved Data Accuracy & Insights: Precise, real-time traffic data drives smarter decision-making and better resource planning. ● Border & Freight Management: AI-driven vehicle identification enhances security while minimizing bottlenecks. ● Uninsured Driver Reduction: Automated enforcement ensures compliance, improving public safety and reducing costs for all. By providing advanced AI-driven insights to assist forward-thinking infrastructure managers, Rekor is helping to reshape how transportation systems operate. Its solutions empower public agencies and public sector clients to prevent accidents, reduce inefficiencies, and optimize resources, driving smarter, safer, and more efficient roadways across the nation. 26 Table of Contents Roadway Intelligence Roadway intelligence involves harnessing vast amounts and varieties of data from roadways, vehicles, transportation systems, and hundreds of external elements like weather, special events, and work zones, transforming it into actionable insights. Rekor is committed to revolutionizing transportation systems by collecting, connecting, and organizing mobility data. Through our Rekor One® roadway intelligence engine, we aggregate datasets from diverse sources and securely deliver insights to government agencies and private-sector clients, driving smarter, more effective decision-making across transportation management, urban mobility, and public safety ecosystems. Our mission extends beyond connectivity—we are working toward building a dynamic, AI-driven network to modernize traffic management, public safety, and emergency services. By applying a digital layer to existing physical infrastructure and roadways, Rekor is creating a next-generation digital operating system for roadways, delivering real-time intelligence that powers economic growth, operational excellence, and improved quality of life for communities. While doing so, Rekor has been mindful of the challenges to personal privacy and the risks of malicious security breaches, developing proprietary processes for anonymizing data and ensuring its security and responsible transmission and use. Roadway Intelligence Powered by Rekor Rekor has been continuously working on better ways to transform transportation and mobility data into actionable insights. Powered by advanced AI and fueled by diverse data sources, Rekor delivers historical and real-time, as well as predictive alerts that can be used to enhance mobility, safety, and operational efficiency across public and private sectors. Our platforms aggregate and analyze trillions of data points from roadway sensors and other IoT devices, enabling customers to make proactive, informed decisions and optimize resources, and enabling us to deliver tailored solutions for government and commercial customers in public safety, urban mobility, and transportation management. Rekor’s solutions support a variety of use cases, including: ● Traffic Analysis o Comprehensive traffic reports, including Federal Highway Administration (“FHWA”) mandated vehicle classification, count and speed analytics. o Analytics on bicycles, pedestrians, and other micro-mobility modes. o Identification of patterns and hot spots for emissions and traffic impacts. ● Traffic Operations & Management o Data-driven traffic operations for improved efficiency. o Real-time incident detection and response for proactive problem-solving. o Proactive traffic calming around events to minimize congestion and enhance safety. o Intelligent analytics to alleviate congestion, shorten commute times, and boost productivity. ● High-Definition Video Monitoring o Traffic monitoring to assist law enforcement. o Support for intelligence-based policing to improve crime prevention. o Contactless compliance and enforcement solutions for safety and legal adherence. ● Enhanced Roadway Safety o Real-time AI monitoring systems to detect hazards and reduce roadway fatalities. o Predictive analytics to anticipate and address potential safety risks. ● Optimized Resource Allocation o AI automation to streamline operations and maximize resource allocation. o Improved data accuracy to support better decision-making and strategic planning. ● Border & Freight Management o AI-based vehicle identification to enhance national security and minimize bottlenecks at borders and ports. o Weigh-in-Motion (“WIM”) systems for real-time commercial trucking analytics ● Insurance Compliance & Public Safety o Automated enforcement systems to reduce uninsured drivers and improve overall public safety. By combining advanced technology, domain expertise, and implementation capacity, Rekor can offer end-to-end roadway intelligence solutions for public agencies and private sector clients. Using our solutions, we are able to generate unique and deep insights that enable proactive and data-driven decision-making, enabling governments and businesses to unlock the full potential of their infrastructure, and foster safer, smarter, and more efficient roadways. 27 Table of Contents Opportunities, Trends and Uncertainties We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time. Although there are many that we may not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following: ● Growing Smart City Market – According to a United Nations report, about two-thirds of the world population will live in urban areas by 2050. The world’s cities are getting larger, with longer commutes and the resulting impact on the environment and the quality of life. This trend requires forward-thinking officials to manage assets and resources more efficiently. We believe that advancements in “big data” connected devices and artificial intelligence can provide Intelligent Transportation System (“ITS”) solutions that can be used to reduce congestion, keep travelers safe, improve transportation, protect the environment, respond to climate change, and enhance the quality of life. We believe our data-driven, artificial intelligence-aided solutions provide useful tools that can effectively tackle the challenges cities and communities are facing today and will face over the coming decades. ● AI for Infrastructure – We believe that the application of AI to the analysis of conditions on roadways and other transportation infrastructure can significantly improve the safety and efficiency of travel in the future. As vehicles move towards full automation, there is a need for real-time data and actionable insights around traffic flow, identification of anomalous and unsafe movements – e.g. wrong way vehicles, stopped vehicles, or/and pedestrians on the roadway. Marketers and drive-thru retailers with loyalty programs can also benefit from rapid, lower cost identification of existing and potential customers in streamlining and accelerating local vehicular flow as well as data about the vehicles on the roadway. ● Connected Vehicle Data – Today’s new vehicles are equipped with dozens of sensors, collecting information about internal systems, external hazards, and driving behaviors. This data is a resource that transportation and other agencies are beginning to find valuable uses for. Connected vehicle sensors can provide important information related to hazardous conditions, speed variations, intersection performance, and more. Notably, the data from these vehicles represent a virtual network that is independent of the infrastructure maintained and operated by public agencies. Giving them the tools to efficiently and intelligently collect and use this data can help them gain more visibility about conditions on their roads, supplementing data from existing infrastructure and allowing transportation information from rural areas that are not served by ITS infrastructure to be integrated into the overall analysis. ● New and Expanded Uses for Vehicle Recognition Systems – We believe that reductions in the cost of vehicle recognition products and services have significantly broadened the market for these systems. We also expect the availability of faster, higher-accuracy, lower-cost systems to dramatically increase the ability of crowded urban areas to manage traffic congestion and implement smart city programs. We currently serve many users who could not afford the cost, or adapt to the restrictions of, conventional vehicle recognition systems. As larger agencies implement the new systems, we have seen and responded to increased familiarity and awareness among smaller agencies. ● Adaptability of the Market – We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy, affordability and ability to capture additional vehicle data will allow them to compete effectively with existing providers. Based on published benchmarks, our software currently outperforms competitors. However, large users of existing technology, such as toll road operators, have long-term contracts with service providers that have made considerable investments in their existing technologies and may not consider the improvements in accuracy or reductions in cost sufficient to justify abandoning their current systems in the near future. In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop their own systems or secure advanced systems from others who are also working to develop them. As a result, our success in establishing a major position in these markets will depend on being able to effectively communicate our presence, develop strong customer relationships, and maintain leadership in providing the capabilities that customers want. As with any large market, this will require considerable effort and resources. ● Increasing Concerns Regarding Personal Privacy and Authenticity of Data. Rekor has conscientiously developed its products and services with sensitivity to concerns about privacy and security, incurring higher costs to develop proprietary methods and process to support responsible security and privacy protections. These have included processes that allow vehicle data to be anonymized, aggregated and used responsibly and video and audio content to be verified as original from the point of capture as well as identify content that has been altered. Serious concerns about these issues have increasingly been recognized. We believe the processes we have developed can play a role in addressing these issues and will continue to pursue their adoption. ● Expansion of Automated Enforcement of Motor Vehicle Laws – We expect contactless compliance programs to be expanded as the types of vehicle related violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where it is and is not beneficial. We believe that future legislation will increasingly allow for automated enforcement of weight requirements for trucks and regulations such as motor vehicle insurance and registration requirements. Communities are currently searching for better means of achieving compliance with minor vehicle offenses, such as lapsed registrations, and safety issues such as motorists who fail to stop for school buses or incursions into restricted lanes. For example, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states have considered authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road. To the extent that legislative implementation is required, a deliberative and necessarily time-consuming process is involved. However, as states expand auto-enforcement, the market for these products and services should broaden in the public safety market. 28 Table of Contents ● Graphic Processing Unit ( “ GPU ” ) Improvements – The roadway intelligence market has benefited from more powerful and affordable GPU hardware that has recently been developed. These GPUs are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central processing units (“CPUs”) for algorithms that process large blocks of data, such as those produced by video streams. GPUs also provide superior memory bandwidth and efficiencies as compared to their CPU counterparts. The most recent versions of our software have been designed to use the increased GPU speeds to accelerate image recognition. The GPU market is predicted to grow as a result of a surge in the adoption of the Internet of Things (“IoT”) by the industrial and automotive sectors. If GPU manufacturers are able to increase production volume, we hope to benefit from the reduced cost to manufacture the hardware included in our products or available to others using our services. ● Edge Processing – Demand for actionable roadway information continues to grow in parallel with sensor improvements, such as increasingly sophisticated internal software and optical and other hardware adapted to the use of this software. Over the last several decades, sensors have evolved and unlocked new capabilities with each advancement. Further, cellular networks have been optimized for downloading data rather than uploading data. As a result, while download speeds have improved significantly due to large investments in cellular infrastructure, this has resulted in relatively small improvements to cellular upload speeds. With roadside deployments experiencing explosive growth in count and density, scalability, latency and bandwidth have become aspects of competition in the market. Our systems have been designed to address these issues through the use of more effective edge processing, enabled both by incorporating the increasingly effective new GPUs into our systems and continual improvements in the efficiency of our AI algorithms. Our edge processing systems ingest local HD video streams at the source and convert the raw video data to text data, dramatically reducing the volume of data that needs to be uploaded and transferred through the network. Edge processing allows us to scale a network dramatically without the bandwidth, cost, latency and dependability limitations that are experienced by other networks where raw video needs to be streamed to the cloud for processing. ● Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy. If Rekor is unable to successfully implement and execute its plans, there could be a material and adverse effect on the Company’s business, results of operations, and financial condition. ● Inability to Achieve Profitability - Rekor has not yet achieved sustained profitability and continues to incur losses, notwithstanding the decreases in its operating expenses during the first half of 2026 resulting from its cost-containment initiatives. As a result, if the Company is unable to generate additional revenue or achieve planned efficiencies in operations, or if its revenue declines significantly, Rekor may not be able to achieve profitability in the future, which would materially and adversely affect the Company’s business. ● Inability to Retain Qualified Personnel – Rekor’s success depends on the continued efforts and abilities of the senior management team and key engineering and marketing specialists. Although Rekor has employment agreements with these employees, they may not choose to remain employed by Rekor. Should one or more key personnel leave the Company or join a competitor, the Company’s business, operating results, and financial condition can be adversely affected. ● Inability to Compete Effectively - Competition and technological advancements by others may erode the Company’s business and result in inability to capture new business and revenue. Each business line faces significant competitive pressures within the markets in which they operate. While Rekor continues to work to develop and strengthen its competitive advantages, many factors such as market and technology changes may erode or prevent this. If the Company is unable to successfully maintain its competitive advantage, the Company’s business, operating results, and financial condition can be adversely affected. ● Cyber Security Risks - Rekor relies on information technology in all aspects of its business. A significant disruption or failure in the systems used in the information technology sector could result in services interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, and other operational difficulties. This could result in the loss of assets and critical information and expose the Company to remediation costs and reputational damage. Although Rekor takes reasonable steps intended to mitigate these risks, a significant disruption or cyber intrusion could lead to misappropriation of assets or data corruption and could adversely affect the Company’s results of operations, financial condition, and liquidity. ● Intellectual Property Claims - Third parties that have been issued patents or have filed for patent applications similar to those used by the Company’s operating subsidiaries may result in intellectual property claims against the Company. Rekor cannot determine with certainty whether existing third-party patents or the issuance of any future third party patents would require any of its operating subsidiaries to alter their respective technologies, obtain licenses or cease certain activities. Should the Company be unable to defend against such claims, the Company’s business, operating results, and financial condition can be adversely affected. 29 Table of Contents Components of Operating Results Revenues The Company derives its revenues primarily from the sale of its roadway data aggregation, traffic management, public safety and licensing offerings. These offerings include a mixture of data collection, implementation, engineering, customer support and maintenance services as well as software and hardware. Revenue is recognized upon transfer of control of promised products and services to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Costs of revenues, excluding depreciation and amortization Direct costs of revenues consist primarily of the portion of technical and non-technical salaries and wages and payroll-related costs incurred in connection with revenue-generating activities. Direct costs of revenues also include production expenses, data subscriptions, sub-consultant services and other expenses that are incurred in connection with our revenue-generating activities. Direct costs of revenues exclude the portion of technical and non-technical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. We expense direct costs of revenues when they are incurred. Operating Expenses Our operating expenses consist of general and administrative expenses, sales and marketing, research and development and depreciation and amortization. Personnel costs have been the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expenses. General and Administrative General and administrative expenses consist of personnel costs for our executive, finance, legal, human resources, and administrative departments, office leases, professional fees, insurance and related expenses. We expect our general and administrative expenses to continue to reflect actions taken to align our cost structure with current revenue levels, while continuing to include the costs associated with operating as a public company, including accounting, compliance, legal, insurance and investor relations. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. Sales and Marketing Sales and marketing expenses consist of personnel costs, marketing programs, travel and entertainment associated with sales and marketing personnel, expenses for conferences and trade shows. We will require significant investments in our sales and marketing expenses to continue the rate of growth in our revenues, further penetrate existing markets and expand our customer base into new markets. Research and Development Research and development expenses consist of personnel costs, software used to develop our products and consulting and professional fees for third-party development resources. Our research and development expenses support our efforts to continue to add capabilities to and improve the value of our existing products and services, as well as develop new products and services. Depreciation and Amortization Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs. Other Income (Expense) Other income (expense) consists primarily of interest expense incurred on our debt arrangements, partially offset by interest income earned on cash and cash equivalents and notes receivable, as well as other items that may include legal settlements, legal judgements, gains or losses on the sale of fixed assets, and gains or losses on the change in fair value of our liabilities. Income Tax Provision Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets will not be realized based on our history of losses. 30 Table of Contents Critical Accounting Estimates and Assumptions A comprehensive discussion of our critical accounting estimates and assumptions is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended December 31, 2025. New Accounting Pronouncements See Note 1 to our unaudited condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements. Results of Operations Our historical operating results in dollars are presented below. Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2026 2025 2026 2025 Revenue $ 12,662 $ 12,359 $ 22,925 $ 21,557 Cost of revenue, excluding depreciation and amortization 5,551 6,245 10,430 11,006 Operating expenses: General and administrative expenses 5,149 6,936 13,488 14,222 Selling and marketing expenses 686 1,700 1,601 3,457 Research and development expenses 2,435 3,652 5,921 7,629 Gain on lease remeasurement, net (2,753 ) - (2,753 ) - Depreciation and amortization 1,372 1,561 2,833 3,117 Total operating expenses 6,889 13,849 21,090 28,425 Income (loss) from operations 222 (7,735 ) (8,595 ) (17,874 ) Other income (expense): Interest expense, net (517 ) (586 ) (1,010 ) (1,176 ) Gain (loss) on remeasurement of ATD Holdback Shares - - - (120 ) Other expense (256 ) (337 ) (307 ) (362 ) Total other (expense) income, net (773 ) (923 ) (1,317 ) (1,658 ) Net loss $ (551 ) $ (8,658 ) $ (9,912 ) $ (19,532 ) 31 Table of Contents Comparison of the Three and Six Months Ended June 30, 2026 and the Three and Six Months Ended June 30, 2025 Total Revenue Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in thousands) 2026 2025 $ % 2026 2025 $ % Revenue $ 12,662 $ 12,359 $ 303 2 % $ 22,925 $ 21,557 $ 1,368 6 % The increase in revenue for the three and six months ended June 30, 2026, compared with the corresponding periods in 2025, reflected growth across our revenue streams, led by our Discover product line. Growth was supported by continued expansion within our existing customer base, including increased deployments and adoption of recurring services, which contributed to the growth in our recurring revenue base. Cost of Revenue, Excluding Depreciation and Amortization Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in thousands) 2026 2025 $ % 2026 2025 $ % Cost of revenue, excluding depreciation and amortization $ 5,551 $ 6,245 $ (694 ) -11 % $ 10,430 $ 11,006 $ (576 ) -5 % Cost of revenue, excluding depreciation and amortization, decreased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, primarily due to a favorable revenue mix of software versus hardware, which resulted in higher margins from increased software license sales. Operating Expenses Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in thousands) 2026 2025 $ % 2026 2025 $ % Operating expenses: General and administrative expenses $ 5,149 $ 6,936 $ (1,787 ) -26 % $ 13,488 $ 14,222 $ (734 ) -5 % Selling and marketing expenses 686 1,700 (1,014 ) -60 % 1,601 3,457 (1,856 ) -54 % Research and development expenses 2,435 3,652 (1,217 ) -33 % 5,921 7,629 (1,708 ) -22 % Gain on lease remeasurement, net (2,753 ) - (2,753 ) -100 % (2,753 ) - (2,753 ) -100 % Depreciation and amortization 1,372 1,561 (189 ) -12 % 2,833 3,117 (284 ) -9 % Total operating expenses $ 6,889 $ 13,849 $ (6,960 ) -50 % $ 21,090 $ 28,425 $ (7,335 ) -26 % General and Administrative Expenses General and administrative expenses decreased by 26% and 5% for the three and six months ended June 30, 2026 , compared to the three and six months ended June 30, 2025, respectively. The decrease was primarily driven by reductions in payroll and related expenses of $903,000 and $448,000, respectively, as a result of cost-containment initiatives implemented to better align with our strategic priorities. Selling and Marketing Expenses Selling and marketing expenses decreased by 60% and 54% for the three and six months ended June 30, 2026 , compared to the three and six months ended June 30, 2025, respectively. The decrease was primarily due to a reduction in payroll and related expenses of approximately $872,000 and $1,544,000, respectively, resulting from cost-containment initiatives implemented to better align operations with our strategic priorities. Research and Development Expense Research and development expenses decreased by 33% and 22% for the three and six months ended June 30, 2026 , compared to the three and six months ended June 30, 2025, respectively. The decrease was primarily driven by reductions in payroll and related expenses of $1,451,000 and $2,072,000, respectively, as a result of cost-containment initiatives implemented to better align with our strategic priorities. Gain on Lease Remeasurement, Net In the second quarter of 2026 the Company remeasured its lease in Tel Aviv. Because the associated right-of-use asset had previously been fully impaired, the reduction in the lease liability resulted in the recognition of an approximately $2,753,000 gain on lease remeasurement during the second quarter of 2026. Depreciation and Amortization The decrease in depreciation and amortization during the period is attributable to a reduction in the depreciation base resulting from the impairment of property and equipment recognized during the year ended December 31, 2025 . 32 Table of Contents Other Expense Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in thousands) 2026 2025 $ % 2026 2025 $ % Other income (expense): Interest expense, net $ (517 ) $ (586 ) $ 69 12 % $ (1,010 ) $ (1,176 ) $ 166 14 % Gain (loss) on remeasurement of ATD Holdback Shares - - - - - (120 ) 120 100 % Other expense (256 ) (337 ) 81 24 % (307 ) (362 ) 55 15 % Total other (expense) income, net $ (773 ) $ (923 ) $ 150 16 % $ (1,317 ) $ (1,658 ) $ 341 21 % For the three and six months ended June 30, 2026, interest expense, net decreased by 12% and 14%, compared to the three and six months ended June 30, 2025, respectively, due to higher interest income from interest-bearing accounts . Non-GAAP Measures (Unaudited) EBITDA and Adjusted EBITDA We calculate EBITDA as net loss before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses or gains on sales of subsidiaries, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs and (vii) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should not be considered as an alternative to net earnings or cash flow from operating activities as indicators of our operating performance or as a measure of liquidity or any other measures of performance derived in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of a company’s ability to service and/or incur debt. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net loss $ (551 ) $ (8,658 ) $ (9,912 ) $ (19,532 ) Interest, net 517 586 1,010 1,176 Depreciation and amortization 1,372 1,561 2,833 3,117 EBITDA 1,338 (6,511 ) (6,069 ) (15,239 ) Share-based compensation 212 723 1,134 2,093 Gain on lease remeasurement, net (2,753 ) - (2,753 ) - Adjusted EBITDA $ (1,203 ) $ (5,788 ) $ (7,688 ) $ (13,146 ) Adjusted Gross Profit and Adjusted Gross Margin Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross Margin to continue to improve over time to the extent that we can gain efficiencies through the adoption of our technology and successfully cross-sell and upsell our current and future offerings. However, our ability to improve Adjusted Gross Margin over time is not guaranteed and could be impacted by the factors affecting our performance. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors, as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses. 33 Table of Contents The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (Dollars in thousands, except percentages) (Dollars in thousands, except percentages) Revenue $ 12,662 $ 12,359 $ 22,925 $ 21,557 Cost of revenue, excluding depreciation and amortization 5,551 6,245 10,430 11,006 Adjusted Gross Profit $ 7,111 $ 6,114 $ 12,495 $ 10,551 Adjusted Gross Margin 56.2 % 49.5 % 54.5 % 48.9 % Adjusted Gross Margin for the three and six months ended June 30, 2026 increased compared to the three and six months ended June 30, 2025. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work. Typically our software sales carry a higher Adjusted Gross Margin. Key Performance Indicators We regularly review several indicators, including the following key indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Recurring Revenue Growth As part of the ongoing development of our selling strategy, we have been focusing on sales that employ contracts with recurring revenue. We expect these contracts to provide a more predictable stream of revenues, compared to one-time sales of hardware and software licenses which are generally more difficult to predict. Our recurring revenue provides significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. The following table sets forth our recurring revenue for the periods included (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % Recurring revenue $ 6,733 $ 5,911 $ 822 14 % $ 13,292 $ 11,017 $ 2,275 21 % Recurring revenue increased by 14% and 21% for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, respectively. We expect to continue to focus on long-term contracts with recurring revenue as part of our business model, which is intended to cause recurring revenue growth in future periods to continue to increase. However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate. In addition, there may be an increase in one-time sales as a result of initial installations related to the development of recurring revenue. Performance Obligations As of June 30, 2026, we had approximately $23,709,000 of contracts that were closed prior to June 30, 2026 but have a contractual period beyond June 30, 2026. These contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term. Performance obligations for large contracts gradually decrease as they approach the renewal stage and increase if and when renewed. We currently expect to recognize approximately 88% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance. 34 Table of Contents Lease Obligations As of June 30, 2026, our principal leased facility was our corporate headquarters in Columbia, Maryland. We also leased office space in Plano, Texas. As described in Note 2 — Leases, we ceased operations at our previously-occupied office space in Tel Aviv, Israel during the six months ended June 30, 2026. In January 2026, we entered into an amendment to the lease for our corporate headquarters in Columbia, Maryland that revised the timing of monthly base rent payments through the remaining lease term. During the six months ended June 30, 2026, we exercised our option to terminate our lease for office space in Plano, Texas, effective December 31, 2026. In December 2025, we initiated a plan to wind down the operations of our wholly owned subsidiary, Waycare Technologies LTD subsidiary in Tel Aviv, Israel, and consolidate all engineering functions into our U.S. facilities. Tel Aviv operations substantially ceased on February 24, 2026. In connection with this initiative, during the six months ended June 30, 2026, we incurred employee-related separation costs of approximately $278,000, which are reflected within general and administrative expenses and research and development expenses in our unaudited condensed consolidated statements of operations. Additionally, during the three months ended June 30, 2026, we notified the landlord of our intent to vacate the Tel Aviv premises, which resulted in a remeasurement of the related operating lease liability. Because the right-of-use asset associated with the Tel Aviv office had previously been fully impaired, this remeasurement resulted in a gain of approximately $2,753,000, which is reflected within gain on lease remeasurement, net in our unaudited condensed consolidated statements of operations. Liquidity and Capital Resources The following table sets forth the components of our cash flows for the periods included (dollars in thousands): Six Months Ended June 30, 2026 2025 Change $ % Net cash used in operating activities $ (6,132 ) $ (15,734 ) $ 9,602 61 % Net cash used in investing activities (193 ) (460 ) 267 58 % Net cash (used in) provided by financing activities (497 ) 16,035 (16,532 ) -103 % Net decrease in cash, cash equivalents and restricted cash $ (6,822 ) $ (159 ) $ (6,663 ) -4191 % Net cash used in operating activities for the six months ended June 30, 2026 decreased by $9,602,000 compared to the six months ended June 30, 2025. The decrease was primarily attributable to a reduction in our net loss of approximately $9,620,000 resulting from the realignment of the business operations. Net cash used in investing activities for the six months ended June 30, 2026 decreased by $267,000 compared to the six months ended June 30, 2025, primarily due to lower capital expenditures. Net cash (used in) provided by financing activities for the six months ended June 30, 2026 decreased by $16,532,000 compared to the six months ended June 30, 2025. During the six months ended June 30, 2025, we received net proceeds of approximately $17,699,000 from the 2025 Sales Agreement, which was terminated in August 2025. We received no proceeds from the 2025 Sales Agreement during the six months ended June 30, 2026. Cash outflows during the six months ended June 30, 2026 included scheduled payments related to financing leases. For the three and six months ended June 30, 2026 and 2025, we funded our operations primarily through cash from operating activities and the sale of equity. As of June 30, 2026, we had cash and cash equivalents and restricted cash of $10,041,000 and working capital deficit of $6,598,000, as compared to cash and cash equivalents and restricted cash of $16,863,000 and working capital of $1,640,000 as of December 31, 2025. 35 Table of Contents Liquidity Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at least one year from the date these consolidated financial statements are issued, which is referred to as the “look-forward period”, as defined in U.S. GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management has considered various scenarios, forecasts, projections, and estimates and will make certain key assumptions. These assumptions include, among other factors, its ability to raise additional capital, the expected timing and nature of the Company’s programs and projected cash expenditures and its ability to delay or curtail these programs or expenditures to the extent management has the proper authority to do so and considers it probable that those implementations can be achieved within the look-forward period. We have generated losses since our inception and have relied on cash on hand and external sources of financing to support cash flow from operations. We attribute losses to non-capital expenditures related to the scaling of existing products, development of new products and service offerings and marketing efforts associated with these products and services. As of and for the six months ended June 30, 2026, we had working capital deficit of $6,598,000 and a net loss of $9,912,000. Our cash and cash equivalents and restricted cash decreased by $6,822,000 for the six months ended June 30, 2026 primarily due to the net loss of $9,912,000, this amount was partially offset by non-cash expenses which are highlighted in our unaudited condensed consolidated statements of cash flows and favorable working capital movements. In February 2025, we entered into an At Market Issuance Sales Agreement (the "2025 Sales Agreement") with Northland Securities, Inc. for the offer and sale of shares of our common stock having an aggregate offering price of up to $25,000,000. The 2025 Sales Agreement was terminated on August 12, 2025. We did not receive any proceeds from the 2025 Sales Agreement during the six months ended June 30, 2026, and the agreement is no longer available as a financing source. See Note 8 — Stockholders' Equity for additional information. In January 2026, we entered into an amendment to the lease for our corporate headquarters in Columbia, Maryland that revised the timing of monthly base rent payments through the remaining lease term. The amendment defers a portion of the base rent payments otherwise due during 2026 into 2027, reducing our near-term cash payment obligations. Total contractual lease payments under the lease were not significantly changed by the amendment. During the six months ended June 30, 2026, we exercised our option to terminate our lease for office space in Plano, Texas, effective December 31, 2026. In connection with the termination, we expect to pay a termination fee of approximately $50,000 in 2026, in addition to monthly rent payments through the December 31, 2026 effective date. Refer to Note 2 — Leases for additional information. As of June 30, 2026, we had $15.0 million aggregate principal amount of Series A Prime Revenue Sharing Notes outstanding, all of which, together with accrued and unpaid interest, matures on December 15, 2026. We are evaluating refinancing alternatives with respect to the Series A Prime Revenue Sharing Notes. Based on our current liquidity and expected operating requirements, we expect that satisfaction of the Series A Prime Revenue Sharing Notes at maturity will require refinancing, restructuring or other additional sources of capital, and there can be no assurance that we will be able to refinance, restructure or otherwise satisfy the notes on acceptable terms, or at all. See Note 5 — Debt. Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next twelve months following the issuance of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 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. As of June 30, 2026, we did not have any material commitments for capital expenditures. 36 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, Rekor is not required to provide the information required by Item 3.