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. Rekor has filed a notice of appeal of that ruling.

The Company believes HCW's claims are without merit and intends to vigorously defend itself in this lawsuit.

Occupational Safety and Health Administration (“OSHA”) Claim

In 2023 two previous employees of the Company (the “Claimants”) filed a complaint with OSHA (the “OSHA Complaints”) against the Company. Shortly after the OSHA Complaints were filed against the Company, the Company filed a position statement to address the OSHA Complaints. On November 30, 2023, OSHA issued its determination that, based on the information gathered thus far in its investigation, OSHA was unable to conclude that there was reasonable cause to believe that a violation of the statute occurred. OSHA thereby dismissed the complaint.

Thereafter, Claimants appealed the determination by filing objections and requesting a hearing before an Administrative Law Judge. The Company likewise filed a request for an award of attorneys’ fees. On January 4, 2024, the Office of Administrative Law Judges (“OALJ”) processed the appeals and issued its Notice of Docketing and Order of Consolidation. The parties were able to settle the claim filed by one employee in advance of a March 3, 2025 hearing scheduled by the OALJ. After the hearing, at the Court's request, the parties submitted post-hearing briefs in April 2025.

On September 30, 2025, the OALJ issued an Order in Rekor’s favor, dismissing all aspects of Claimant’s Complaint. On November 24, 2025, the Appellate Review Board ("ARB") served a Notice of Appeal Acceptance and indicated they accepted the matter for review. They subsequently set a briefing schedule for the parties. Complainant's brief was filed on January 22, 2026. 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.