Rekor Systems, Inc.: Form 10-Q for the period ended Jun 30, 2026

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.

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.

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

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.

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• 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.

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Components of Operating Results

Revenues

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

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.

(Dollars in thousands)

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Comparison of the Three and Six Months Ended June 30, 2026 and the Three and Six Months Ended June 30, 2025

Total Revenue

(Dollars in thousands)

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

(Dollars in thousands)

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

(Dollars in thousands)

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 .

Other Expense

(Dollars in thousands)

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):

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.

The following table sets forth the components of the Adjusted Gross Profit and Adjusted Gross Margin for the periods included:

(Dollars in thousands, except percentages)

(Dollars in thousands, except percentages)

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):

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.

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):

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.

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.

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.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Based on management’s review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2026.

Changes to Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 31, 2026. The risk factor set forth below should be read in conjunction with, and supplements, the risk factors disclosed in our Annual Report on Form 10-K. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as supplemented by this Form 10-Q, as well as those contained in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.

Our common stock may be delisted from The Nasdaq Capital Market if we are unable to regain compliance with Nasdaq’s minimum bid price requirement.

On April 27, 2026, we received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that we are not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of at least $1.00 per share. The notice was based on the closing bid price of our common stock for the 30 consecutive business days from March 13, 2026 through April 24, 2026. The notice has no immediate effect on the listing or trading of our common stock, which continues to trade on The Nasdaq Capital Market under the symbol "REKR."

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until October 26, 2026, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days during the compliance period, unless Nasdaq exercises its discretion to extend that period. If we choose to implement a reverse stock split to regain compliance, we must complete the split no later than ten business days prior to the expiration of the compliance period.

There can be no assurance that we will regain compliance within the initial compliance period, that we will be eligible for an additional compliance period, or that Nasdaq will grant us additional time to regain compliance. If we are unable to regain compliance, or otherwise fail to maintain compliance with Nasdaq’s continued listing standards, Nasdaq may determine to delist our common stock. Any such delisting could materially adversely affect the liquidity and market price of our common stock, impair our ability to raise additional capital on acceptable terms, reduce investor confidence, decrease analyst coverage, and have other adverse effects on our business, financial condition and results of operations.

We intend to monitor the closing bid price of our common stock and consider available options to regain compliance, which may include seeking stockholder approval to effect a reverse stock split. Our 2026 Annual Meeting of Stockholders, convened on May 15, 2026, was adjourned for lack of a quorum and is scheduled to reconvene on September 11, 2026. Any reverse stock split would require stockholder approval, and there can be no assurance that we will be able to obtain a quorum or the requisite stockholder approval in time to complete a reverse stock split within the compliance period. There can be no assurance that any action taken by us would be successful or would result in a sustained increase in the market price of our common stock. Even if we regain compliance with the minimum bid price requirement, there can be no assurance that the market price of our common stock will not again fall below $1.00 per share, which could result in our receipt of one or more additional deficiency notices and ultimately in the delisting of our common stock from The Nasdaq Capital Market.

We may be unable to refinance or repay our Series A Prime Revenue Sharing Notes at their maturity on December 15, 2026.

As of June 30, 2026, $15.0 million aggregate principal amount of our Series A Prime Revenue Sharing Notes was outstanding, all of which is due and payable on December 15, 2026. As of June 30, 2026, we had cash and cash equivalents of $9.8 million, and, as discussed under “Liquidity and Capital Resources,” our existing cash is insufficient to fund our current level of operations. We are evaluating refinancing alternatives with respect to the notes. There can be no assurance that we will be able to refinance, restructure or repay the notes on acceptable terms, or at all. Any refinancing may be on terms less favorable to us, may increase our financing costs, may impose additional restrictions on our business, or may involve the issuance of equity or equity-linked securities that dilute existing stockholders. If we are unable to refinance or otherwise satisfy the notes at maturity, our liquidity, financial condition and ability to continue as a going concern would be materially adversely affected.