Rekor Systems, Inc. Debt Disclosure

NOTE 9 – 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 December 31, 2025, the aggregate balance of these notes payable was fully satisfied.

 

Loans Payable

 

As part of its operations the Company enters loans related to purchases of its vehicles. These loans have maturities between 2025 and 2028 and carry interest rates ranging from 0% to 6.99%. These loans primarily have equal monthly payments over the term of the respective loans. The loans are presented as part of loans payable, current portion and loans payable long-term on the consolidated balance sheet. 

 

2023 Promissory Notes

 

In January 2023, the Company issued $12,500,000 aggregate principal amount of senior secured promissory notes. The notes were fully redeemed in March 2024, and no amounts were outstanding as of December 31, 2025 or 2024.

 

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.

 

Interest will be paid based on revenue received from an initial pool of “prime” accounts which are related to contracts from customers in five states, each of which has been rated for their respective unsecured general obligation debt by nationally recognized credit rating agencies. The Company entered into a base Indenture for the Series A Prime Revenue Sharing Notes as of  December 15, 2023 with Argent Institutional Trust Company, as trustee. The Indenture creates a first priority security interest for the benefit of the holders of 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.

 

As part of the terms of the Series A Prime Revenue Sharing Notes the Company is required to maintain an interest reserve related to not less than three times the next monthly interest payment. Additionally, there is a sinking fund requirement which takes effect if the three year value of eligible contracts is less than 170% of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes. If the sinking fund requirement takes effect, the Company is required to maintain a cash balance sufficient to amortize the principal amount due on all series of Prime Revenue Sharing Notes outstanding under the Indenture in equal monthly installments by the respective due dates of each such series. The amount related to the interest reserve was $500,000 as of  December 31, 2025 and is held by a third party and is presented as part of deposits on the consolidated balance sheets. The Company is not in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes and the sinking fund requirement has not been triggered as of  December 31, 2025.

 

The Company may prepay the Series A Prime Revenue Sharing Notes at any time through December 15, 2026 at a premium ranging from 103% to 106%; provided that the Series A Prime Revenue Sharing Notes may not be redeemed prior to December 15, 2024. Repayment of the Series A Prime Revenue Sharing Notes consisting of all principal, plus any unpaid accrued interest, may also be accelerated by the noteholder upon a change in control or event of default. For the years ended  December 31, 2025 and 2024, the Company recognized $1,988,000 in interest expense related to the Series A Prime Revenue Sharing Notes.

 

Interest Expense, net

 

The following table presents the interest expense and interest income related to the contractual interest and the amortization of debt issuance costs for the Company’s debt arrangements (dollars in thousands):

 

		Year ended December 31,
		2025				2024
Contractual interest		$	2,219				2,469
Amortization of debt issuance costs			198				541
Total interest expense, net			2,417				3,010
Less: interest income			120				365
Total interest expense, net		$	2,297			$	2,645

 

Schedule of Principal Amounts Due on Debt

 

The principal amounts due for notes payable and loans payable are shown below as of December 31, 2025 (dollars in thousands):

 

2026		$	15,084
2027			86
2028			25
Thereafter			-
Total			15,195
Less: unamortized financing costs			(197	)
Total notes payable		$	14,998