Rekor Systems Inc

ITEM 1A. RISK FACTORS

Tariffs and Trade Policy Changes Could Adversely Affect Our Supply Chain and Financial Performance

We depend on international suppliers for certain hardware components, such as cameras and sensors, used in our AI-driven roadway intelligence solutions. Recent U.S. tariffs on imports, from trading partners, could significantly increase our component costs. If we are unable to pass these increased costs to customers due to competitive pressures, our gross margins could decline, further straining our financial condition. Moreover, ongoing trade policy uncertainty could hinder our ability to plan effectively, adversely affecting our business, operating results, and financial condition.

Other than the risk factor An extended U.S. Government Shutdown Could Adversely Affect Our Ability to Execute Contracts, Receive Payments, and Secure New Awards.

A portion of our revenue is derived, directly or indirectly, from contracts with U.S. federal, state, and local government agencies. As a result, our business is subject to risks associated with changes in government funding priorities, budgetary constraints, and administrative disruptions.

During a shutdown or delay in the passage of appropriations bills, government agencies may experience interruptions in procurement, contracting, and payment activities. Consequently, agencies may be unable to issue new awards, exercise contract options, or obligate additional funding under existing contracts. Ongoing projects could be delayed or suspended, and payments to us may be deferred due to the unavailability of appropriated funds or furloughs of government personnel responsible for contract administration and approvals. These disruptions could negatively impact our cash flows, the timing of revenue recognition, and our overall financial results.

Even short-term shutdowns or funding delays can create uncertainty for our customers and partners, lengthen sales and contracting cycles, and affect our ability to forecast and close new business. There can be no assurance as to when a U.S. government shutdown would end or how quickly our customers and partners could resume normal operations and payment activities. Prolonged or repeated shutdowns, or material delays in government appropriations, could have a material adverse effect on our business, results of operations, liquidity, and financial condition.

Other than the risk factor discussed above, there have been no material changes to the risk factors disclosed in Risk Factors in our Annual Report on Form 10-K as filed with the SEC on JuneSeptember 30, 2025. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as supplement by this Form 10-Q, as well as those contained in Part 1, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, above.