Rekor Systems, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms (CBIZ CPAs P.C., PCAOB ID 199, and Marcum LLP, PCAOB ID 688 ) 49 Consolidated Balance Sheets as of December 31, 2025 and 2024 52 Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 53 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2025 and 2024 54 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 55 Notes to Consolidated Financial Statements 56 48 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Rekor Systems, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Rekor Systems, Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 49 Table of Contents Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ CBIZ CPAs P.C. CBIZ CPAs P.C. We have served as the Company’s auditor since 2019 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024). Morristown, New Jersey March 31, 2026 50 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Rekor Systems, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Rekor Systems, Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of operations, stockholders equity, and cash flows for the year ended December 31, 2024 and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and will need to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor from 2019 to 2025. Morristown, New Jersey March 31, 2025 51 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) December 31, 2025 December 31, 2024 ASSETS Current assets Cash and cash equivalents $ 16,566 $ 5,013 Restricted cash 297 316 Accounts receivable, net 8,770 7,232 Inventory 3,072 4,297 Note receivable, current portion 198 340 Other current assets 1,825 2,732 Total current assets 30,728 19,930 Long-term assets Property and equipment, net 8,632 11,048 Right-of-use operating lease assets, net 4,716 9,348 Right-of-use financing lease assets, net 1,634 2,317 Goodwill 24,313 24,313 Intangible assets, net 13,250 14,450 Note receivable, long-term - 142 Deposits 2,114 927 Total long-term assets 54,659 62,545 Total assets $ 85,387 $ 82,475 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses 4,362 4,330 Notes payable, current portion - 1,000 Series A Prime Revenue Sharing Notes, net of debt discount of $ 131 and $ 0 , respectively 9,869 - Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ 66 and $ 0 , respectively 4,934 - Loans payable, current portion 83 79 Lease liability operating, short-term 2,720 2,310 Lease liability financing, short-term 787 900 Contract liabilities 4,604 3,439 Liability for ATD Holdback Shares - 1,036 Other current liabilities 1,729 5,129 Total current liabilities 29,088 18,223 Long-term liabilities Series A Prime Revenue Sharing Notes, net of debt discount of $ 0 and $ 263 , respectively - 9,737 Series A Prime Revenue Sharing Notes - related party, net of debt discount of $ 0 and $ 132 , respectively - 4,868 Loans payable, long-term 112 194 Lease liability operating, long-term 10,570 12,371 Lease liability financing, long-term 665 977 Contract liabilities, long-term 1,402 1,298 Deferred tax liability 93 79 Other long-term liabilities 587 587 Total long-term liabilities 13,429 30,111 Total liabilities 42,517 48,334 Commitments and contingencies (Note 12) 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 December 31, 2025 and December 31, 2024, respectively. No preferred stock was issued or outstanding as of December 31, 2025 or 2024, respectively. - - Common stock, $ 0.0001 par value; authorized; 300,000,000 shares; issued: 136,791,826 shares at December 31, 2025 and 104,700,593 at December 31, 2024; outstanding: 136,477,697 shares at December 31, 2025 and 104,541,073 at December 31, 2024 13 10 Treasury stock - at cost, 314,129 and 159,520 shares as of December 31, 2025 and 2024, respectively ( 900 ) ( 711 ) Additional paid-in capital 335,310 294,935 Accumulated deficit ( 291,553 ) ( 260,093 ) Total stockholders’ equity 42,870 34,141 Total liabilities and stockholders’ equity $ 85,387 $ 82,475 The accompanying notes are an integral part of these consolidated financial statements. 52 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share data) Year ended December 31, 2025 2024 Revenue $ 48,450 $ 46,028 Cost of revenue, excluding depreciation and amortization 21,379 23,344 Operating expenses: General and administrative expenses 25,177 30,676 Selling and marketing expenses 6,172 7,858 Research and development expenses 14,596 18,766 Asset impairment charges 3,754 10,214 Depreciation and amortization 6,258 9,493 Total operating expenses 55,957 77,007 Loss from operations ( 28,886 ) ( 54,323 ) Other income (expense): Loss on extinguishment of debt - ( 4,693 ) Interest expense, net ( 2,297 ) ( 2,645 ) (Loss) gain on remeasurement of ATD Holdback Shares ( 120 ) 599 Loss on offering costs - Prepaid Advance - ( 888 ) Loss on settlement of Prepaid Advance - ( 900 ) Gain on the sale of Global Public Safety - 1,500 Other expense, net ( 115 ) ( 15 ) Total other expense, net ( 2,532 ) ( 7,042 ) Loss before income taxes ( 31,418 ) ( 61,365 ) Provision for income taxes 42 45 Net loss $ ( 31,460 ) $ ( 61,410 ) Loss per common share - basic and diluted $ ( 0.26 ) $ ( 0.71 ) Weighted average shares outstanding Basic and diluted 119,667,774 86,717,724 The accompanying notes are an integral part of these consolidated financial statements. 53 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY (Dollars in thousands, except share data) 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 December 31, 2023 69,176,826 $ 7 96,508 $ ( 522 ) $ 232,568 $ ( 198,683 ) $ 33,370 Stock-based compensation - - - - 4,829 - 4,829 Issuance upon exercise of stock options 198,095 - - - 266 - 266 Issuance upon vesting of restricted stock units 1,044,280 - - - - - - Shares withheld upon vesting of restricted stock units ( 63,012 ) - 63,012 ( 189 ) - - ( 189 ) Shares issued as part of the ATD Acquisition 2,832,135 - - - 8,893 - 8,893 Retirement of the 2023 Promissory Notes 750,000 - - - 1,875 - 1,875 2024 Public Offering 11,500,000 1 - - 26,361 - 26,362 Issuance of warrants 3,675,000 1 - - 5,144 - 5,145 Prepaid Advance Agreement 15,427,749 1 - - 14,999 - 15,000 Net loss - - - - - ( 61,410 ) ( 61,410 ) Balance as of December 31, 2024 104,541,073 $ 10 159,520 $ ( 711 ) $ 294,935 $ ( 260,093 ) $ 34,141 Stock-based compensation - - - - 2,908 - 2,908 Issuance upon exercise of stock options 63,832 - - - 73 - 73 Issuance upon vesting of restricted stock units 3,902,812 - - - - - - Shares withheld upon vesting of restricted stock units ( 154,609 ) - 154,609 ( 189 ) - - ( 189 ) ATD Holdback Shares 664,329 - - - 1,156 - 1,156 At Market Issuance Sales Agreement 18,888,832 2 - - 22,348 - 22,350 2025 Underwriting Agreement 8,571,428 1 - - 13,890 - 13,891 Net loss - - - - - ( 31,460 ) ( 31,460 ) Balance as of December 31, 2025 136,477,697 $ 13 314,129 $ ( 900 ) $ 335,310 $ ( 291,553 ) $ 42,870 The accompanying notes are an integral part of these consolidated financial statements. 54 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year ended December 31, 2025 2024 Cash Flows from Operating Activities: Net loss $ ( 31,460 ) $ ( 61,410 ) Adjustments required to reconcile net loss to net cash used in operating activities: Bad debt expense 132 686 Depreciation 3,835 3,879 Amortization of right-of-use financing lease asset 1,223 939 Non-cash operating lease expense 980 1,087 Provision for deferred income taxes 14 14 Share-based compensation 2,908 4,829 Asset impairment charges 3,754 10,214 Amortization of debt discount 198 541 Amortization of intangible assets 1,200 4,675 Adjustment to inventory to net realizable value - 120 (Gain) loss due to the remeasurement of the STS Earnout and Contingent Consideration, net ( 1,900 ) 100 Loss (gain) on remeasurement of ATD Holdback Shares 120 ( 599 ) Gain on sale of property and equipment ( 9 ) ( 27 ) Gain on the sale of Global Public Safety - ( 1,500 ) Loss on extinguishment of debt - 4,693 Loss on settlement of Prepaid Advance - 900 Changes in operating assets and liabilities, net of acquisition: Accounts receivable ( 1,670 ) 220 Inventory 1,255 1,159 Other current assets and deposits ( 288 ) 522 Accounts payable, accrued expenses and other current liabilities ( 1,490 ) ( 2,319 ) Contract liabilities 1,269 ( 316 ) Lease liabilities ( 443 ) ( 876 ) Net cash used in operating activities ( 20,372 ) ( 32,469 ) Cash Flows from Investing Activities: Capital expenditures ( 2,531 ) ( 1,682 ) Proceeds from the sale of property and equipment 75 34 Proceeds from notes receivable 284 340 Proceeds from the sale of Global Public Safety - 1,500 Cash paid for ATD acquisition, net - ( 9,222 ) Net cash used in investing activities ( 2,172 ) ( 9,030 ) Cash Flows from Financing Activities: Proceeds from 2025 Sales Agreement, net 22,350 - Proceeds from 2025 Underwriting Agreement, net 13,891 - Repayment of STS Notes ( 1,000 ) ( 1,000 ) Proceeds from the public offering - 26,362 Net proceeds from the Prepaid Advance Agreement - 14,100 Net proceeds from exercise of options 73 266 Net proceeds from exercise of warrants - 5,145 Payments related to financing leases ( 969 ) ( 994 ) Repayments of loans payable ( 78 ) ( 75 ) Repurchases of common stock ( 189 ) ( 189 ) Repayment of 2023 Promissory Notes - ( 12,500 ) Net cash provided by financing activities 34,078 31,115 Net increase (decrease) in cash, cash equivalents and restricted cash 11,534 ( 10,384 ) Cash, cash equivalents and restricted cash at beginning of the year 5,329 15,713 Cash, cash equivalents and restricted cash at end of the year $ 16,863 $ 5,329 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents at end of the year $ 16,566 $ 5,013 Restricted cash and cash equivalents at end of the year 297 316 Cash, cash equivalents and restricted cash at end of the year $ 16,863 $ 5,329 The accompanying notes are an integral part of these consolidated financial statements. 55 Table of Contents REKOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – BUSINESS AND 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”). The Company stands at the forefront of the roadway intelligence sector, working to revolutionize public safety, urban mobility, and transportation management on a global scale. The Company's vision is to improve the lives of citizens and the world around them by enabling safer, smarter, and greener roadways and communities. The Company works towards this vision by collecting, connecting, and organizing the world’s mobility data, and making it accessible and useful to its customers for real-time insights and decisioning for situational awareness, rapid response, risk mitigation, and predictive analytics for resource and infrastructure planning and reporting. Basis of Consolidation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the accounting rules under Regulation S- X, as promulgated by the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions have been eliminated in consolidation. 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 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. 56 Table of Contents Liquidity and Going Concern Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected financings 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. The Company has generated losses and negative operating cashflows since its inception and has relied on external sources of financing to support the cash flow from operations. As of and for the year ended December 31, 2025 , the Company had working capital of $ 1,640,000 and a net loss of $ 31,460,000 . 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 for the next twelve months following the issuance of these consolidated financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company received net proceeds of approximately $ 13,891,000 from the December 2025 Underwriting Agreement (see Note 13 ). 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. Segment Information The Company operates as one operating and reportable segment. Rekor has a variety of platforms that collect, connect and organize mobility data, making it accessible and useful to its customers for real-time insights and decisioning. 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 it is not reviewed by the CODM. The CODM uses net loss in assessing segment performance. The significant expense regularly reviewed by the CODM is 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 Consolidated Statement of Operations. Rounding Dollar amounts, except per share data, in the notes to these consolidated financial statements are rounded to the closest $1,000. Functional Currency The U.S. dollar (“U.S. dollar” or “$”) is the currency of the primary economic environment in which the operations of the Company is conducted. Substantial revenues and a substantial portion of the operational costs are denominated in U.S. dollars. Accordingly, the functional currency of the Company is the U.S. dollar. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. For non-U.S. dollar transactions and other items in the consolidated financial statements, the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) – historical exchange rates. Currency transaction gains and losses are presented in other expense, net on the consolidated statements of operations. The currency transaction losses for the years ended December 31, 2025 and 2024 were $ 499,000 and $ 10,000 , respectively. 57 Table of Contents Concentration of 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 December 31, 2025 , and 2024 , the Company had deposits, including restricted cash, totalin g $ 16,863,000 and $ 5,329,000 respective ly, in multiple U.S. financial institutions and one Israeli financial institution. Customer A accounted for 10 % of the consolidated revenue for the year ended December 31, 2025 . N o other single customer accounted for more than 10% of the Company's total revenues f or the years ended December 31, 2025 and 2024 . As of December 31, 2025 and December 31, 2024 , Customer A accounted for 15 % and 12 % of the Company's consolidated accounts receivable balance. N o other single customer accounted for more than 10% of the Company's total accounts receivable balance as of December 31, 2025 and 2024 . Cash and Cash Equivalents The Company considers all highly-liquid debt instruments 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 December 31, 2025 and 2024 were $ 297,000 and $ 316,000 , respectively, and correspond to equal amounts of related liabilities. Accounts Receivable and Credit Losses Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its clients’ financial condition, and the Company generally does not require collateral. The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled accounts receivables, and contract liabilities on the consolidated balance sheets. Billed and unbilled accounts receivable are presented as part of accounts receivable, net, on the 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 $ 1,993,000 and $ 1,623,000 were included in accounts receivable, net, in the consolidated balance sheets as of December 31, 2025 and December 31, 2024 , respectively. Write-offs of accounts receivable during the years ended December 31, 2025 and 2024 were $ 132,000 and $ 686,000 , respectively. The Company maintains an allowance for credit losses at an amount estimated to be sufficient to cover the risk of collecting less than full payment of financial assets measured at amortized cost, including receivables. The Company estimates expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. The Company considers factors such as customer-specific risk characteristics, aging, historical write-off trends, and other relevant economic and environmental conditions in developing the estimate. The Company estimates losses on receivables based on expected losses, including our historical experience of actual losses. Receivables are written off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. At each balance sheet date, the Company evaluates its receivables and will assess the allowance for credit losses based on historical write-off trends. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. As of December 31, 2025 and 2024, the Company's allowance for credit losses was $ 519,000 and $ 486,000 , respectively. 58 Table of Contents Notes Receivable In connection with the sale of its former TeamGlobal subsidiaries in June 2020, the Company received a $1,700,000, five -and-a-half year promissory note originally due December 2025, which was amended in 2022 to extend the maturity date to May 2026 and revise the related payment schedule, that carries an interest rate of 4 % and is collateralized by a first priority security interest in the shares of TeamGlobal. Monthly principal payments on the promissory note began in 2021 and continue pursuant to the amended payment terms. Based on the general market conditions, the security interest held by the Company and the credit quality of the buyer at the time of the sale, the Company determined that the fixed interest rate approximated the current market rate. The Company also evaluates notes receivable for expected credit losses in accordance with ASC 326. The remaining balance due from TeamGlobal as of December 31, 2025 and 2024 , was $ 198,000 and $ 482,000 , respectively and is presented as part of notes receivable, current portion and note receivable, long-term on the consolidated balance sheets. Inventory Inventory principally consists of parts and finished goods held temporarily until installed for service. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated current and future market values and new product introductions. Inventory is valued at the lower of cost or net realizable value. The cost is determined by the first -in, first -out method. Accounts Payable, Accrued and Other Current Liabilities As of December 31, 2025 and 2024 , amounts owed to related parties of $ 75,000 and $ 104,000 were presented as part of accounts payable and accrued expenses on the consolidated balance sheets. A summary of other current liabilities is as follows (in thousands): December 31, 2025 December 31, 2024 Payroll and payroll related $ 1,343 $ 2,674 Right of offset to restricted cash 297 316 STS Contingent Consideration - 1,900 Other 89 239 Total $ 1,729 $ 5,129 59 Table of Contents Property and Equipment Property and equipment are stated at cost or fair value at acquisition date for assets obtained through business combinations, less accumulated depreciation. Depreciation expense is presented as part of depreciation and amortization on the consolidated statements of operations. Depreciation is recorded on a straight-line basis over the following estimated lives: Class of assets Useful life (in years) Furniture and fixtures 2 - 10 Office equipment 2 - 5 Leasehold improvements Shorter of asset life or lease term Automobiles 3 - 5 Roadway monitoring systems 3 - 5 Repairs and maintenance are expensed as incurred. Expenditures for additions, improvements and replacements are capitalized. The Company tests its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of property and equipment is measured using a market approach by comparing the carrying amount of the asset to its estimated fair market value. If the fair market value is less than the carrying amount, the Company recognizes an impairment loss equal to the excess of the carrying amount over the asset's fair market value. As of December 31, 2025, the Company recognized an impairment loss on its property and equipment of $ 1,046,000 . See Note 6 for additional information . As of December 31, 2024 , the Company did not recognize an impairment loss on its property and equipment. Deposits Deposits consist of cash payments made by the Company related to security deposits for leased assets and deposits on property and equipment which the Company has not yet received. 60 Table of Contents Intangible Assets Intangible assets include capitalized internally developed software and amounts recognized in connection with acquisitions, including customer relationships, technology and marketing related assets. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Amortization expense related to intangible assets is presented as part of depreciation and amortization on the consolidated statements of operations. Undiscounted cash flow analyses are used to determine if the carrying amount of the asset is recoverable. If impairment is determined to exist, the charge is calculated based on estimated fair value. As of December 31, 2025, the Company did not recognize any impairment on its intangible assets. As of December 31, 2024, the Company recognized an impairment loss on its intangible assets of $ 10,214,000 . See Note 8 for additional information . Leases The Company accounts for its leases in accordance with Accounting Standard Codification (“ASC”) Topic 842, Leases ("ASC 842" ). The standard provides several optional practical expedients for use in transition. The Company elected to use what the Financial Accounting Standard Board (“FASB”) has deemed the “package of practical expedients,” which allows the Company not to reassess the Company’s previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. ASU 2016 - 02 also provided several optional practical expedients for the ongoing accounting for leases. The Company has elected the short-term lease recognition exemption for all leases that qualify, meaning that for leases with terms of twelve months or less, the Company will not recognize right-of-use ("ROU") assets or lease liabilities on the Company’s consolidated balance sheets. Additionally, the Company has elected to use the practical expedient to not separate lease and non-lease components for leases of real estate, meaning that for these leases, the non-lease components are included in the associated ROU asset and lease liability balances on the Company’s consolidated balance sheets. The Company determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. Operating leases are included in right-of-use operating lease assets, net, lease liabilities operating, short-term and lease liabilities operating, long-term, in the consolidated balance sheets. Financing leases are included in right-of-use financing lease assets, net, lease liabilities financing, short-term and lease liabilities financing, long-term, in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments under the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determined the incremental borrowing rate for each lease using the Company’s current borrowing rate, adjusted for various factors including level of collateralization and term to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain the Company will exercise that option. An option to terminate is considered unless it is reasonably certain the Company will not exercise the option. Lease expense for lease payments is recognized on a straight-line basis over the terms of the leases. As of December 31, 2025, the Company recognized a loss on its operating lease ROU assets of $ 2,708,000 . See Note 7 for additional information. 61 Table of Contents Business Combination Management conducts a valuation analysis on the tangible and intangible assets acquired and liabilities assumed at the acquisition date thereof. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations. Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The Company allocated a portion of the purchase price to the fair value of identifiable intangible assets. The fair value of identifiable intangible assets is based on a detailed valuation that uses information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. Goodwill The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill. Goodwill is not amortized but rather subject to annual impairment testing. 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 decided to bypass the qualitative assessment and proceed directly to the quantitative assessment of the goodwill impairment analysis. As part of the quantitative assessment of goodwill, the Company evaluated its carrying value compared to its market value based on the share price and outstanding shares of the reporting date. During the years ended December 31, 2025 and 2024, the Company did not recognize any impairment to goodwill. 62 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. 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. 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 63 Table of Contents The following table presents a summary of revenue (dollars in thousands): Year ended December 31, 2025 2024 Recurring revenue $ 23,865 $ 22,590 Product and service revenue 24,585 23,438 Total revenue $ 48,450 $ 46,028 For the years ended December 31, 2025 and 2024 except for the United States, total revenue in any single country was less than 10% of consolidated revenue. 64 Table of Contents Revenues Recurring revenue Recurring revenue includes the Company’s SaaS revenue, subscription revenue, eCommerce revenue and customer support revenue. The Company generates recurring revenue both from long-term contracts with customers that provide for periodic payments and from short-term contracts that are automatically invoiced on a monthly basis. The Company’s recurring revenue is generated by a combination of direct sales, partner-assisted sales, and eCommerce sales. Recurring revenues are generated through the Company’s Software-as-a-Service ("SaaS") model, where 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 revenues 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. 65 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. 66 Table of Contents Revenue by Customer Type The following table presents a summary of revenue by revenue type (dollars in thousands): Year ended December 31, 2025 2024 Urban mobility $ 29,304 $ 28,688 Transportation management 1,745 2,533 Public safety 17,401 14,807 Total revenue $ 48,450 $ 46,028 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. 67 Table of Contents 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 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 December 31, 2025 the Company had approximately $ 25,921,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately $ 17,701,000 of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter. Contract liabilities When the Company advance bills clients prior to providing services, revenue will generally be earned and recognized within the next month to five years, depending on the subscription or licensing period. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the year ended December 31, 2025 , were not materially impacted by any other factors. Contract liabilities as of December 31, 2025 and December 31, 2024 , were $ 6,006,000 and $ 4,737,000 , respectively. During the year ended December 31, 2025 , $ 3,350,000 o f the contract liabilities balance as of December 31, 2024 , was recognized as revenue. The contract liabilities as of December 31, 2025 , are expected to be recognized as revenue during the following years ended December 31 ( dollars in thousands): 2026 $ 4,604 2027 900 2028 307 2029 138 2030 55 Thereafter 2 Total $ 6,006 Practical Expedients Election ‒ Costs to Obtain and Fulfill a Contract The Company’s incremental costs to obtain a contract consist of sales commissions. The Company elected to use the practical expedient to expense costs to obtain a contract as incurred when the amortization period would have been one year or less. As of December 31, 2025 , and 2024 , costs incurred to obtain contracts in excess of one year have been immaterial. 68 Table of Contents Advertising The Company expenses all non-direct response advertising costs as incurred. Advertising costs for the years ended December 31, 2025 and 2024 we re $ 9,000 and $ 244,000 , respectively, and are included in selling and marketing expenses in the consolidated statements of operations. Income Taxes Provision for income tax consists of U.S. federal and state income taxes. The Company is required to pay income taxes in certain state jurisdictions. The Company uses the liability method of accounting for income taxes as set forth in the authoritative guidance for accounting for income taxes. This method requires an asset and liability approach for the recognition of deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates 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 intangible, because management believes that it is not more likely than not that their benefits will be realized in future periods. The Company will continue to evaluate its net 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. The tax effects of uncertain tax positions are recognized in the consolidated financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized. It is the Company’s accounting policy to account for ASC 740 - 10 related penalties and interest as a component of the income tax provision in the consolidated statements of operations and comprehensive loss. As of December 31, 2025 , and 2024 , the Company’s evaluation revealed no uncertain tax positions that would have a material impact on the consolidated financial statements. Equity-Based Compensation The Company recognizes equity-based compensation costs related to all share-based payments, including stock options and restricted stock units (“RSUs”), based on the grant-date fair value of the award on a straight-line basis over the requisite service period, net of actual forfeitures. The fair value of RSUs is measured on the grant date based on the closing fair market value of the Company’s common stock. The Company accounts for forfeitures as they occur. 69 Table of Contents Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable and accounts payable approximate fair value as of December 31, 2025 and December 31, 2024 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt and long-term receivables approximates fair value as of December 31, 2025 and December 31, 2024, given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors. The determination of fair value is based upon the fair value framework established by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820” ). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s goodwill and other intangible assets are measured at fair value at the time of acquisition and analyzed on a recurring and non-recurring basis for impairment, respectively, using Level 3 inputs. The Company does not have any Level 1 or Level 2 assets or liabilities. The Company considers its contingent consideration, ATD Holdback Shares and the Prepaid Advance to be Level 3 securities as the fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 fair value measurement. There were no changes in levels during the period ended December 31, 2025 The following is a rollforward of the company’s contingent consideration, ATD Holdback Shares and the Prepaid Advance liabilities: STS Contingent Consideration Balance as of January 1, 2024 $ 1,800 Loss due to the remeasurement of the STS Earnout and Contingent Consideration 100 Balance as of December 31, 2024 1,900 Gain due to the remeasurement of the STS Earnout and Contingent Consideration ( 1,900 ) Balance as of December 31, 2025 $ - ATD Holdback Shares Acquisition of ATD January 2, 2024 $ 1,635 Gain on remeasurement of ATD Holdback Shares ( 599 ) Balance as of December 31, 2024 1,036 Loss on remeasurement of ATD Holdback Shares 120 Issuance of common stock to settle ATD Holdback Shares ( 1,156 ) Balance as of December 31, 2025 $ - Prepaid Advance Execution of Prepaid Advance August 14, 2024 $ 14,100 Issuance of common stock to settle Prepaid Advance ( 15,000 ) Loss on settlement of Prepaid Advance 900 Balance as of December 31, 2024 - Balance as of December 31, 2025 $ - The estimated fair value of the Prepaid Advance was computed using a Monte Carlo simulation of the Company’s common shares, using the assumptions below. The following are the inputs in Company’s ATD Holdback Shares and Prepaid Advance: ATD Holdback Shares January 2, 2024 December 31, 2024 January 2, 2025 Closing stock price $ 3.14 $ 1.56 $ 1.74 Discount for marketability $ ( 0.68 ) $ - $ - Prepaid Advance August 14, 2024 December 31, 2024 Closing stock price $ 1.39 $ - Volatility 96 % - Risk-free rate 4.4 % - Indicated yield 14.2 % - 70 Table of Contents Loss per Share Basic loss per share or earnings per share (“EPS”), is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and potentially dilutive securities outstanding during the period, except for periods of net loss for which no potentially dilutive securities are included because their effect would be anti-dilutive. Potentially dilutive securities consist of common stock issuable upon exercise of stock options or warrants using the treasury stock method. Potentially dilutive securities issuable upon conversion of the Series A Preferred Stock are calculated u sing the if-converted method. The Company calculates basic and diluted loss per common share using the two -class method. Under the two -class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. Treasury shares are presented as a reduction of equity, at their cost to the Company. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity ("ASC 480" ), and ASC 815, Derivatives and Hedging ("ASC 815" ). Management's assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meets all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company's own common stock and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgement, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding. Issued or modified warrants that meet all of the criteria for equity classification are recorded as a component of additional paid-in-capital at the time of issuance. Issued or modified warrants that do not meet all the criteria for equity classification are recorded as a liability at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the consolidated statements of operations. Cost associated with issuing the warrants accounted for as liabilities are charged to consolidated statements of operations when warrants are issued. As of December 31, 2025, all outstanding warrants meet equity classification guidance and are classified as such. New Accounting Pronouncements Effective in the Current Period In December 2023, the FASB issued ASU 2023 - 09 - Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. The guidance is effective for the Company's annual periods beginning January 1, 2025, on a prospective basis, with a retrospective option, and early adoption is permitted. The Company adopted ASU 2023 - 09 on a prospective basis effective January 1, 2025. Accordingly, the enhanced income tax disclosures are presented in the income taxes footnote (Note 10 ) beginning in fiscal year 2025, and prior period disclosures have not been recast. 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 consolidated 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 disclosures. 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 is currently evaluating the impact that the adoption of ASU 2025 - 05 will have on its consolidated financial statements and 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 disclosures. 71 Table of Contents NOTE 2 – BUSINESS ACQUISITION ATD Acquisition On January 2, 2024 ( the “Closing Date”), the Company acquired All Traffic Data Services, LLC, a Colorado limited liability company (“ATD”), pursuant to that certain Interest Purchase Agreement (the “ATD Purchase Agreement”), dated as of the Closing Date, by and among the Company, ATD and All Traffic Holdings, LLC (the “Seller”). The Seller is a portfolio company of Seaport Capital, a private equity firm. ATD is engaged in the business of advanced traffic data collection. Under the terms of the ATD Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”). The acquisition met the criteria to be accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805” ). This method requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment. The aggregate purchase price for the interests of ATD was approximately $ 20,576,000 . The purchase price comprised approximately $ 10,048,000 in cash, which included closing adjustments and 3,496,464 unregistered shares of the Company’s common stock (the “Stock Consideration”), based on a volume weighted average trading price of the Company’s common stock over a thirty consecutive trading day period prior to the date of the ATD Purchase Agreement, which was $ 2.86 . 2,832,135 of the Stock Consideration was issued at closing, while the other 664,329 shares of the Stock Consideration were issued and delivered to the Seller on January 2, 2025. Subsequent to this transaction these shares were registered on a Form S- 3. See Note 13 for additional information. As the total number of ATD Holdback Shares to be issued to the Seller was not fixed, the ATD Holdback Shares were deemed to be liability classified and were measured at fair value each reporting period. As a result of the transaction, ATD became a wholly-owned subsidiary of the Company and ATD’s key employees have agreed to continue employment with the Company or one of its affiliates. The Company incurred $ 548,000 in legal and professional fees related to the acquisition which were expensed as incurred and recognized in general and administrative expenses in the consolidated statement of operations, during the year ended December 31, 2024. In accordance with the acquisition method of accounting for a business combination, the purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the Closing Date. Since the acquisition of ATD occurred on January 2, 2024, the results of operations for ATD from the date of acquisition have been included in the Company’s consolidated statement of operations for the year ended December 31, 2024. The table below shows the breakdown related to the purchase price allocation for the acquisition (dollars in thousands): Cash paid $ 10,048 Liability classified holdback shares ( 664,329 shares measured at fair value as of the Closing Date) 1,635 Common stock issued ( 2,832,135 shares at closing price of $ 3.14 per share) 8,893 Total Consideration $ 20,576 Recognized amounts of identifiable assets acquired and liabilities assumed Assets Cash and cash equivalents $ 826 Accounts receivable 3,183 Property and equipment 1,565 Right-of-use operating lease assets 269 Other current assets 154 Intangible assets 12,100 Total assets acquired $ 18,097 Liabilities Accounts payable and accrued expenses $ 715 Lease liability operating, short-term 269 Other current liabilities 257 Total liabilities assumed $ 1,241 Fair value of identifiable net assets acquired 16,856 Purchase price consideration 20,576 Goodwill $ 3,720 72 Table of Contents Operations of Combined Entities The following unaudited pro forma combined financial information gives effect to the acquisition of ATD and the Series A Prime Revenue Sharing Notes interest expense, as if they were consummated as of January 1, 2024. A portion of the proceeds from the Series A Prime Revenue Sharing Notes was used to fund the acquisition of ATD and therefore the Company has included the impact of the issuance of the debt in its unaudited pro forma financial information. This unaudited pro forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the acquisition and the issuance of the Series A Prime Revenue Sharing Notes been completed as of January 1, 2024 ( the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods. Year ended December 31, 2024 (Dollars in thousands, except per share data) Total revenue $ 46,028 Net loss $ ( 61,410 ) Basic and diluted loss per share $ ( 0.71 ) Basic and diluted number of shares 86,717,724 73 Table of Contents NOTE 3 – INVESTMENTS Global Public Safety In February 2017, the Company contributed substantially all the assets and certain liabilities related to its vehicle services business to Global Public Safety (the “GPS Closing”). After the GPS Closing, the Company continued to own 19.9 % of the units of Global Public Safety. This equity investment did not have a readily determinable fair value and the Company reported this investment at cost, less impairment. Prior to the sale of Global Public Safety the readily determinable fair value was $0. On July 1, 2024, the Company sold its remaining 19.9 % ownership of Global Public Safety to LB&B Associates Inc. for $ 1,500,000 , which was paid in two cash installments of $ 750,000 at closing and $ 750,000 on August 1, 2024. As a result of the sale, the Company recognized a gain of $ 1,500,000 during 2024 which is presented within other income (expense) in the accompanying 2024 consolidated statement of operations. Roker In June 2020, the Company announced a joint venture in which the Company would have a 50 % equity interest in Roker Inc. (“Roker”). In the third quarter of 2020 and the first quarter of 2021, the Company contributed $ 75,000 for its 50 % equity interest for a total investment of $ 150,000 . This investment is accounted for under the equity method. As of December 31, 2025 and 2024 the investment in Roker had a carrying value of $ 0 . In 2023, the Company entered into an agreement to sell substantially all of the assets of Roker, which initiated a triggering event related to the Company's Roker SAFE agreements. As result of the triggering event the Company received cash proceeds of $ 1,904,000 , of which the remaining escrow of $ 211,000 was released from escrow in 2025. 74 Table of Contents NOTE 4 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information for the years ended December 31, 2025 and 2024 were as follows (dollars in thousands): Year ended December 31, 2025 2024 Cash paid for interest $ 2,411 $ 2,518 Cash paid for taxes 58 61 Increase in accounts payable and accrued expenses related to purchases of inventory 21 34 Decrease in inventory related to the transfer of property and equipment - ( 1,501 ) Change in deposits related to inventory ( 8 ) 983 Abandonment of financing lease 31 - Contract modification resulting in a measurement of an operating lease 1,344 - Non-cash financing activities: Settlement of ATD Holdback Shares with common stock 1,156 - Fair value of shares issued in connection with the acquisition of ATD - 8,893 Fair value of ATD Holdback Shares at the acquisition date - 1,635 2023 Promissory Note redemption premium settled in shares of the Company’s common stock - 1,875 Conversion of Prepaid Advance to common stock - 14,100 New Leases under ASC-842 Right-of-use assets obtained in exchange for new finance lease liabilities 575 1,267 Right-of-use assets obtained in exchange for new operating lease liabilities 396 453 75 Table of Contents NOTE 5 – INVENTORY As of December 31, 2025 and 2024 , inventory consisted entirely of the following (dollars in thousands): December 31, 2025 2024 Parts and cameras $ 2,795 $ 4,136 Finished goods 277 161 Total inventory $ 3,072 $ 4,297 76 Table of Contents NOTE 6 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (dollars in thousands): December 31, 2025 2024 Furniture and fixtures $ 1,778 $ 1,966 Office equipment 7,306 7,022 Roadway monitoring systems placed in service 6,359 4,824 Vehicles 2,839 2,758 Leasehold improvements 3,254 4,513 Roadway monitoring systems not yet placed in service 252 185 Total $ 21,788 $ 21,268 Less: accumulated depreciation ( 13,156 ) ( 10,220 ) Property and equipment, net $ 8,632 $ 11,048 Depreciation related to property and equipment, net for the years ended December 31, 2025 and 2024 was $ 3,835,000 and $ 3,879,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations. Information about the Company’s total assets in different geographic regions is as follows (dollars in thousands): December 31, 2025 2024 United States $ 21,788 $ 19,589 Other - 1,679 Accumulated depreciation ( 13,156 ) ( 10,220 ) Total property and equipment, net $ 8,632 $ 11,048 In December 2025, the Company determined that the operations of its wholly owned subsidiary, Waycare Technologies LTD, 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 closure was announced to employees on February 23, 2026, and Tel Aviv operations ceased on February 24, 2026. The Command product line and all associated intellectual property, customer relationships, and operations continue in the United States. The closure does not qualify for discontinued operations reporting under ASC 205 - 20. As a result of the decision to close the Tel Aviv office, the Company identified a triggering event requiring an impairment assessment of the related long-lived assets, consisting of property and equipment (primarily leasehold improvements, furniture, and equipment) and 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 these assets were less than their carrying amounts, and accordingly, the assets were written down to their estimated fair values. The Company estimated that the fair values of the property and equipment and the ROU asset were approximately $0, based on the expected abandonment of these assets with no material residual or sublease value (a Level 3 fair value measurement). The Company recognized total impairment charges of $ 3,754,000 during the year ended December 31, 2025, consisting of $ 1,046,000 related to property and equipment and $ 2,708,000 related to the operating lease ROU asset. These impairment charges are included in asset impairment charges in the consolidated statements of operations. 77 Table of Contents NOTE 7 – 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 nine 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. As noted in Note 6, in December 2025 the Company determined to cease the operations of its wholly owned subsidiary, Waycare Technologies Ltd., located in Tel Aviv, Israel. As a result of this decision, the Company recognized an impairment charge of $ 2,708,000 related to the operating lease ROU asset associated with the Tel Aviv facility. Lease cost recognized in our consolidated statements of operations is summarized as follows (dollars in thousands): Year ended December 31, 2025 2024 Operating lease cost $ 2,454 $ 2,309 Finance lease cost Amortization of right-of-use assets 1,223 939 Interest on lease liabilities 167 156 Finance lease cost 1,390 1,095 Total lease cost $ 3,844 $ 3,404 Other information about lease amounts recognized in our consolidated financial statements is as follows: Year ended December 31, 2025 2024 Weighted-average remaining lease term (years) - operating leases 6.35 7.56 Weighted-average remaining lease term (years) - financing leases 2.54 2.19 Weighted-average discount rate - operating leases 12.1 % 9.2 % Weighted-average discount rate - financing leases 9.1 % 9.0 % 78 Table of Contents Maturities of operating and financing lease liabilities for continuing operations at December 31, 2025 were as follows (dollars in thousands): Operating Leases Financing Leases 2026 $ 4,142 $ 887 2027 2,739 383 2028 2,544 166 2029 2,480 133 Thereafter 6,607 57 Total lease payments 18,512 1,626 Less imputed interest 5,222 174 Present value of lease liabilities $ 13,290 $ 1,452 79 Table of Contents NOTE 8 – INTANGIBLE ASSETS Goodwill There were no changes to goodwill during the year ended December 31, 2025. The following summarizes the change in goodwill from December 31, 2023 to December 31, 2025 ( in thousands): December 31, 2023 ATD Acquisition Impairment December 31, 2024 Impairment December 31, 2025 Goodwill $ 20,593 $ 3,720 $ - $ 24,313 $ - $ 24,313 Intangible Assets Subject to Amortization The following summarizes the changes in intangible assets, net of accumulated amortization and impairment, from December 31, 2023 to December 31, 2025 (dollars in thousands): December 31, 2023 Additions Amortization Impairment December 31, 2024 Additions Amortization Impairment December 31, 2025 Intangible assets subject to amortization Customer relationships $ 3,321 $ 11,900 $ ( 1,054 ) $ ( 227 ) $ 13,940 $ - $ ( 1,020 ) $ - $ 12,920 Marketing related 499 200 ( 189 ) - 510 - ( 180 ) - 330 Technology based 13,419 - ( 3,432 ) ( 9,987 ) - - - - - Intangible assets subject to amortization $ 17,239 $ 12,100 $ ( 4,675 ) $ ( 10,214 ) $ 14,450 $ - $ ( 1,200 ) $ - $ 13,250 During the fourth quarter of 2024, as a result of sales performance being below expectation in part due to slower customer adoption, longer sales cycles and market conditions, the Company identified a triggering event and performed an analysis of its intangible assets. As a result of the forementioned factors and their potential future impact, the Company recognized an impairment charge of $ 10,214,000 as of December 31, 2024. The impairment charges were recorded in operating expenses in the consolidated statement of operations. No impairment charges were recognized during 2025. The estimates of future cash flows used in determining the fair value of intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions. 80 Table of Contents The following provides a breakdown of identifiable intangible assets as of December 31, 2025 and 2024 (dollars in thousands): December 31, 2025 2024 Customer relationships $ 15,300 $ 15,300 Marketing related 900 900 Total 16,200 16,200 Less: accumulated amortization ( 2,950 ) ( 1,750 ) Identifiable intangible assets, net $ 13,250 $ 14,450 These intangible assets are being amortized on a straight-line basis over their weighted average remaining estimated useful life of 12.4 years. Am ortization expense for the year ended December 31, 2025 and 2024 was $ 1,200,000 and $ 4,675,000 , respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations. As of December 31, 2025 , the estimated annual amortization expense for each of the next five fiscal years and thereafter is as follows (dollars in thousands): 2026 $ 1,200 2027 1,130 2028 1,060 2029 1,020 2030 1,020 Thereafter 7,820 Total $ 13,250 81 Table of Contents 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. 82 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. 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 83 Table of Contents NOTE 10 – INCOME TAXES The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company reviewed both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business. The provision for income taxes for the years ended December 31, 2025 and 2024 consists of the following (dollars in thousands): Year ended December 31, 2025 2024 Federal: Deferred $ 14 $ 14 Total federal 14 14 State: Current 28 31 Total state 28 31 Provision for income taxes $ 42 $ 45 84 Table of Contents The components of deferred income tax assets and liabilities are as follows on December 31, 2025 and 2024 (dollars in thousands): Year ended December 31, Deferred tax assets 2025 2024 Net operating loss $ 59,524 $ 49,376 163(j) limitation 2,802 2,179 Lease liabilities 3,794 4,286 Research and development 2,336 6,042 Fixed assets 422 196 Other 2,090 1,678 Total gross deferred tax assets 70,968 63,757 Valuation allowance for deferred tax assets ( 68,693 ) ( 60,805 ) Net deferred tax assets $ 2,275 $ 2,952 Deferred tax liabilities: Right-of-use asset ( 2,261 ) ( 2,939 ) Goodwill and intangibles ( 106 ) ( 92 ) Total gross deferred tax liabilities ( 2,367 ) ( 3,031 ) Net deferred tax liabilities $ ( 92 ) $ ( 79 ) 85 Table of Contents The items accounting for the difference between income taxes computed at the federal statutory rate and our effective tax rate after the adoption of ASU 2023 - 09 were as follows: Year Ended December 31, 2025 (in thousands) Percent U.S. statutory federal rate $ ( 6,598 ) 21.00 % State income tax rate, net of U.S. Federal benefit 28 ( 0.09 )% Foreign tax effects – Israel 2,072 ( 6.59 )% Change in valuation allowance 4,621 ( 14.71 )% Nontaxable or nondeductible items Remeasurement of the STS Earnout and Contingent Consideration ( 399 ) 1.27 % Other 318 ( 1.01 )% Effective tax rate $ 42 ( 0.13 )% The items accounting for the difference between income taxes computed at the federal statutory rate and our effective tax rate were as follows for years prior to our adoption of ASU 2023 - 09: Year ended December 31, 2024 U.S. statutory federal rate 21.00 % (Decrease) increase in taxes resulting from: State income tax rate, net of U.S. Federal benefit 5.09 % True-ups 0.00 % Other ( 3.59 )% Valuation allowance ( 22.57 )% Effective tax rate ( 0.07 )% The Company files income tax returns in the United States and various state and foreign jurisdictions. No U.S. federal, state or foreign income tax audits were in process as of December 31, 2025 . 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 goodwill, because the Company believes that it is not 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. During the year ended December 31, 2025, the Company’s valuation allowance increased by $ 7,888,000 , which was primarily driven by an increase in the Company’s deferred tax assets. As of December 31, 2025, the Company had gross U.S. Federal and state net operating loss (“NOL”) carryforwards of $ 176,630,000 and $ 168,197,000 , respectively. The gross U.S. NOL generated in the years ended December 31, 2025 and 2024 of $ 19,679,000 and $ 26,369,000 respectively, will be carried forward indefinitely and are subject to the annual 80 percent limitation. As of December 31, 2025, the Company had net U.S. federal and state NOL carryforwards of $ 37,547,000 and $ 9,959,000 , respectively. As of December 31, 2025, the Company had gross U.S. federal NOL carryforwards of approximately $ 3,826,000 that were generated prior to the Tax Cuts and Jobs Act that are scheduled to begin to expire in 2034, and are not subject to the annual 80 percent limitation. The Company had gross foreign federal and state operating loss carryforwards of $ 53,264,000 and $ 52,056,000 , respectively, which are carried forward indefinitely and are not subject to any limitation. The net foreign carryforwards are $ 11,185,000 and $ 833,000 , respectively. The gross foreign NOL generated in the years ended December 31, 2025 and 2024 are $ 5,054,000 and $ 4,151,000 , respectively. As of December 31, 2024, the Company had U.S. gross federal and state NOL carryforwards of $ 142,415,000 and $ 133,857,000 , respectively. As of December 31, 2024, the Company had U.S. net federal and state NOL carryforwards of $ 30,336,000 and $ 8,164,000 , respectively. As of December 31, 2024, the Company had foreign gross federal and state NOL carryforwards of $ 48,209,000 and $ 47,002,000 , respectively. As of December 31, 2024, the Company had foreign net federal and state NOL carryforwards of $ 10,124,000 and $ 752,000 , respectively. The federal and state NOL and credit carryforwards may be subject to significant limitations under Sections 382 and 383 of the Internal Revenue Code ("Code") and similar provisions of state law. These Code sections limit the federal NOL and credit carryforwards that may be used in any year in the event of an “ownership change”. A Section 382 “ownership change” generally occurs if one or more shareholders or groups of shareholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three -year period. The Company may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes”. If so, the Company may lose some or all of the tax benefits of its NOLs and tax credits. The extent of such limitations for prior years, if any, has not been determined. For the years ended December 31, 2025 and 2024 , 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 benefit. The amount of cash income taxes paid, net of refunds received were as follows: Amount (in thousands) Year Ended December 31, 2025 U.S. federal taxes $ - State and local taxes (various) 58 Foreign taxes – Israel - Total income taxes paid $ 58 Recent Tax Legislation On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law in the United States. This comprehensive tax legislation contains a broad range of tax reforms, including provisions that allow for the immediate expensing of domestic research and development expenses, restore and make permanent 100% bonus depreciation for qualifying assets, and ease limitations on the deductibility of interest expense. The legislation has multiple effective dates, with certain provisions taking effect in 2025 and others being implemented through various future years. The Company has accounted for the provisions of the OBBBA in its consolidated financial statements. The Company will continue to monitor the impact of this legislation in future periods. 86 Table of Contents NOTE 11 – EMPLOYEE BENEFIT PLAN 401 (k) Plan In 2019, Rekor established the Rekor Systems, Inc. 401 (k) Plan (the “Rekor 401 (k) Plan”), a Qualified Automatic Contribution Arrangement (QACA) safe harbor plan. Employees that satisfied the eligibility requirements became participants in the Rekor 401 (k) Plan. The Company contributes an amount equal to the sum of 100 % of a participant’s elective deferrals that do not exceed 1% of participant’s compensation, plus 50 % of the participant’s elective deferrals that exceed 1% of the participants compensation, but do not exceed 6 % of the participant’s compensation. Employee contributions are fully vested, and matching contributions are subject to a two -year service vesting schedule. Employee Severance Benefits In accordance with the current employment terms with all its employees (Section 14 of the Israeli Severance Pay Law, 1963 ) located in Israel, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s full retirement benefit and severance obligation. The Company is relieved from any severance pay liability with respect to each employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s consolidated balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies. The amount of contributions recorded by the Company under these plans during the years ended December 31, 2025 and 2024 we re $ 1,190,000 an d $ 1,415,000 , respectively. 87 Table of Contents NOTE 12 – 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 (see NOTE 13 – STOCKHOLDERS ’ EQUITY ). 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 agreement with the warrant holder. 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 2023 Registered Direct Offering. 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 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 complaint in New York State Supreme Court. In this lawsuit, 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. In Q3 2025, Rekor resolved its claims with Armistice. The proceeds are presented as part of other expense (income) in the condensed consolidated statement of operations. 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. Our brief is due on March 31, 2026. Complainant then has fourteen ( 14 ) days from the submission of our brief to file a reply. The Company believes these claims are without merit. The Company intends to vigorously defend itself in this lawsuit. 88 Table of Contents NOTE 13 – STOCKHOLDERS ’ EQUITY Authorized Common Stock Effective March 18, 2020, the Company adopted and approved an amendment to increase the number of authorized shares of common stock from 30,000,000 to 100,000,000 , $ 0.0001 par value. On April 22, 2024 , following approval by the Company's stockholders, the Company amended its charter to increase the number of authorized shares of common stock from 100,000,000 to 300,000,000 . The number of authorized shares of the Company’s preferred stock was not affected by this amendment and remained unchanged at 2,000,000 shares. The rights and privileges terms of the additional authorized shares of common stock are identical to those of the currently outstanding shares of common stock. However, because the holders of common stock do not have preemptive rights to purchase or subscribe for any new issuances of common stock, the subsequent potential issuance of additional shares of common stock will reduce the current stockholders’ percentage ownership interest in the total outstanding shares of common stock. The Amendment and the creation of additional shares of authorized common stock will not alter current stockholders’ relative rights and limitations. At Market Issuance Sales Agreement On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the "Sales Agreement") with Northland Securities, Inc. (the "Agent"), pursuant to which the Company could, from time to time, offer and sell shares of the Company's common stock, par value $ 0.0001 per share ("Common Stock"), having an aggregate offering price of up to $ 25,000,000 . The Agent was entitled to receive from the Company a commission in an amount equal to (i) 3.0 % of the gross sales prices per share sold through it as agent in agency transactions and (ii) 6.0 % of the purchase price per share sold to the Agent, as principal in principal transactions. The Company incurred issuance costs of approximately $ 245,000 related to legal, accounting, and other fees in connection with the Sales Agreement. These costs were charged against the gross proceeds of the Sales Agreement and presented as a reduction to additional paid-in-capital on the accompanying consolidated balance sheets. On August 12, 2025, the Company elected to voluntarily terminate its Sales Agreement. As of December 31, 2025, the Company issued 18,888,832 shares of its common stock at a weighted average selling price of $ 1.23 per share in accordance with the Sales Agreement. Net cash provided from the Sales Agreement was $ 22,350,000 after paying $ 245,000 in issuance costs, as well as 3.0 %, or $ 699,000 related to cash commissions provided to the Agent. ATD Acquisition In connection with the acquisition as described in Note 2, the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration. Additionally, 664,329 shares were issued and delivered to the Seller on the twelve -month anniversary of the Closing Date. The ATD Holdback Shares were deemed to be liability based and are measured at fair value each reporting period. The shares issued and issuable in connection with the ATD Acquisition have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on June 17, 2024. On January 2, 2025, all of the ATD Holdback Shares were issued to the Seller. 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 remain outstanding. 2024 Public Offering On February 9, 2024, the Company issued and sold 10,000,000 shares of its common stock, at an offering price of $ 2.50 per share of common stock (the “2024 Public Offering Price”) in a registered public offering by the Company (the “ 2024 Public Offering”), pursuant to an underwriting agreement with William Blair & Company, L.L.C., as representative of the several underwriters named therein (collectively, the “Underwriters”). On February 9, 2024, the Underwriters exercised in-full their option to purchase up to 1,500,000 additional shares of common stock at the 2024 Public Offering Price (the “Underwriters’ Option”). The exercise closed on February 13, 2024. The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and offering expenses payable by the Company of $ 2,388,000 was approximately $ 26,362,000 in aggregate for the 2024 Public Offering including the exercise of the Underwriters’ Option. Prepaid Advance On August 14, 2024, the Company entered into a Prepaid Advance Agreement (the “Prepaid Advance”) with YA II PN, Ltd., a Cayman Islands exempt limited company (the “Investor”), an affiliate of Yorkville Advisors Global, LP. In accordance with the terms of the Prepaid Advance, the Investor advanced $ 15,000,000 to the Company. After giving effect to the purchase price discount of 6 % provided for in the Prepaid Advance, net proceeds to the Company were $ 14,100,000 . Pursuant to the terms of the Prepaid Advance, within one year the Company could have received an additional $ 20,000,000 on the same terms as the initial Prepaid Advance, subject to satisfaction of certain conditions. On October 22, 2024, the Company and the Investor entered into Amendment No.1 to the Prepaid Advance Agreement (the “Amendment”) to eliminate the option for additional advances. The Investor, at its sole discretion, could elect to purchase the Company’s common stock, $ 0.0001 par value per share, in exchange for any amount up to the total principal and interest of the balance due under the Prepaid Advance, provided that none of the following limitations existed: (i) the conversion did not cause the aggregate number of common shares beneficially owned by the Investor and its affiliates to exceed 4.99% of the then-outstanding voting power or number of common shares, (ii) the issuance of common stock did not exceed a certain cap (unless the Company obtained stockholder consent or obtained a written legal opinion that stockholder approval is not required), and (iii) the amount of the advances converted may not exceed $ 2,625,000 in any month. However, the Investor was permitted to convert principal advances in excess of $ 2,625,000 each month upon an Event of Default, if the Purchase Price exceeds $ 2.50 per share, or upon the Company’s consent. If and when requested by the Investor, amounts outstanding under the Prepaid Advance could be correspondingly reduced upon the issuance by the Company of its common stock, par value $ 0.0001 per share, to the Investor at a price per share equal to the lower of: (a) $ 2.50 (the “Fixed Price”) or (b) 93 % of the lowest daily volume weighted average price (as reported during regular trading hours by Bloomberg) (“VWAP”) of the shares during the five trading days immediately prior to each purchase notice, subject a floor price of $ 0.28 per share (the “Floor Price”). There was no interest related to the Prepaid Advance, however, interest would accrue at 18 % upon events of default. The Prepaid Advance had a final maturity date of August 28, 2025. The Company incurred issuance costs and original issuance discounts totaling approximately $ 888,000 associated with the issuance of the Prepaid Advance, which were expensed as incurred as a component of other income (expense) in the consolidated statements of operations for the year ended December 31, 2024. Due to the various embedded derivatives that would otherwise require separate valuation and bifurcation as derivative liabilities, the Company elected to account for the Prepaid Advance under the fair value option as prescribed by ASC 825. See Note 1 for further discussion of the key inputs to determine the fair value of the Prepaid Advance. As of December 31, 2024, the Company has terminated and fully satisfied the outstanding balance of $ 15,000,000 under the Prepaid Advance. During the year ended December 31, 2024, the Company recorded $ 900,000 in charges related to the settlement of the Prepaid Advance liability. Redemption of 2023 Promissory Notes On March 4, 2024, the Company elected to prepay the outstanding 2023 Promissory Notes. The 2023 Promissory Notes were redeemed at the redemption price of 115 % of the $ 12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $ 14,375,000 , plus accrued and unpaid interest to the redemption date of approximately $ 263,000 (the “Redemption Payment”). The noteholders elected to accept $ 1,875,000 of the Redemption Payment in the form of 750,000 unregistered shares of the Company’s common stock, par value $ 0.0001 per share, having a value of $ 2.50 per share, with the remainder of the Redemption Payment to be paid in cash. As a result of the Redemption Payment, the Company recognized a loss on extinguishment of debt of $ 4,693,000 , which included $ 1,875,000 related to the early termination payment and $ 2,818,000 related to unamortized issuance costs. The shares of common stock issued in connection with the Redemption payment have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on July 30, 2024. 89 Table of Contents 2023 Warrants In connection with the initial closing of the 2023 Promissory Notes on January 18, 2023, the Company issued warrants to purchase 6,250,000 shares of common stock. The warrants issued in connection with the initial closing have an exercise price of $ 2.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, are immediately exercisable, have a term of five years from the date of issuance and are exercisable on a cash or cashless basis at the election of the holder. The 2023 Warrants were valued at $ 5,125,000 , based on the relative fair value basis, compared to the total proceeds received. On June 20, 2024, the Company entered into various Warrant Exercise Agreements (the “Agreements”) with certain holders of the 2023 Warrants (each an “Exercising Holder” and collectively, the “Exercising Holders”), pursuant to which the Company reduced the strike price of the 2023 Warrants from $ 2.00 per warrant to $ 1.40 per warrant to induce their exercise. In June 2024, all but one of the Exercising Holders exercised 1,400,000 warrants for common stock in exchange for $ 1,960,000 . In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $ 3,185,000 . In consideration for the Company’s agreement to reduce the exercise price, the Exercising Holders agreed to a concomitant reduction in the number of shares into which the 2023 Warrants are exercisable, from 5,250,000 to 3,675,000 . This modification resulted in a decrease in the overall fair value of the equity classified warrants and since no incremental value was given to the Exercising Holders, nothing was recorded in the consolidated financial statements related to the modification. The shares issued in connection with the Warrant Exercise Agreements have been registered on a resale registration statement on Form S- 3, declared effective by the SEC on July 30, 2024. The Company estimated the fair value of the warrants using the Black-Scholes pricing model. The use of the Black-Scholes pricing model requires the use of subjective assumptions, including the fair value and projected volatility of the underlying common stock and the expected term of the award. The fair value of each warrant granted has been estimated as of the date of the grant using the Black-Scholes pricing model with the following assumptions: Risk-free interest rate 3.42 % Expected term (in years) 5 Volatility 113 % Dividend yield 0 % Estimated annual forfeiture rate at the time of grant 0 % 90 Table of Contents Preferred Stock The Company is authorized to issue up to 2,000,000 shares of preferred stock, $ 0.0001 par value. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of the winding-up of its affairs. The authorized but unissued shares of the preferred stock may be divided into, and issued in, designated series from time to time by one or more resolutions adopted by the Board of Directors of the Company. The Board of Directors of the Company, in its sole discretion, has the power to determine the relative powers, preferences and rights of each series of preferred stock. Series A Cumulative Convertible Redeemable Preferred Stock Of the 2,000,000 authorized shares of preferred stock, 505,000 shares were designated as $ 0.0001 par value Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”). The holders of Series A Preferred Stock were entitled to quarterly dividends of 7.0 % per annum per share. As of December 31, 2025 and 2024, there are no outstanding shares of the Company's Series A Preferred Stock. Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity. 91 Table of Contents Warrants A summary of the warrant activity for the Company for the period ended December 31, 2025 and December 31, 2024 is as follows: 2023 Promissory Notes (1) 2023 Registered Direct Offering (2) 2023 Private Warrants (3) 2025 Underwriting Agreement (4) Total Active warrants January 1, 2024 6,250,000 481,100 2,850,000 - 9,581,100 Issued warrants - - - - - Exercised warrants ( 3,675,000 ) - - - ( 3,675,000 ) Expired warrants - - - - - Cancelled warrants ( 1,575,000 ) - - - ( 1,575,000 ) Outstanding warrants December 31, 2024 1,000,000 481,100 2,850,000 - 4,331,100 Weighted average strike price of outstanding warrants as of December 31, 2024 $ 2.00 $ 1.82 $ 3.25 $ - $ 2.80 Intrinsic value of outstanding warrants as of December 31, 2024 $ - $ - $ - $ - $ - Shares of common stock issued for warrant exercises during the year ended December 31, 2024 3,675,000 - - - 3,675,000 Active warrants January 1, 2025 1,000,000 481,100 2,850,000 - 4,331,100 Issued warrants - - - 8,571,428 8,571,428 Exercised warrants - - - - - Expired warrants - - - - - Cancelled warrants - - - - - Outstanding warrants December 31, 2025 1,000,000 481,100 2,850,000 8,571,428 12,902,528 Weighted average strike price of outstanding warrants as of December 31, 2025 $ 2.00 $ 1.82 $ 3.25 $ 2.40 $ 2.54 Intrinsic value of outstanding warrants as of December 31, 2025 $ - $ - $ - $ - $ - Shares of common stock issued for warrant exercises during the year ended December 31, 2025 - - - - - ( 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. These warrants were exercisable commencing January 18, 2023 and expire on January 18, 2028. ( 2 ) On March 23, 2023, in connection with the 2023 Registered Direct Offering the Company issued (i) pre-funded warrants exercisable for up to an aggregate of 772,853 shares of common stock, (ii) warrants to purchase up to 6,872,853 shares of common stock, and (iii) warrants to the placement agent to purchase up to 481,100 shares of common stock. The exercise price per share of the warrants was $ 1.455 and each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.001 per share and will expire when exercised in full. 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. 92 Table of Contents NOTE 14 – 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. Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares. In October 2021, the Company announced it had registered an additional 4,368,733 shares of its common stock available for issuance under the 2017 Plan. On April 29, 2024, the Company filed a registration statement on Form S- 8 solely to register an additional 7,912,216 shares of its common stock available for issuance under the 2017 Plan. This increase was approved by the Company’s Board of Directors on March 22, 2024, and by the Company’s stockholders on April 18, 2024 at the Company’s annual meeting. Stock-based compensation expense included in the consolidated statements of operations was as follows (dollars in thousands) : Year ended December 31, 2025 2024 Cost of revenue, excluding depreciation and amortization $ 5 $ 13 General and administrative expenses 1,907 3,221 Selling and marketing expenses 381 321 Research and development expenses 615 1,274 Total stock-based compensation expense $ 2,908 $ 4,829 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. There was no stock compensation expense related to stock options for the years ended December 31, 2025 and 2024 . 93 Table of Contents A summary of stock option activity under the Company’s 2017 Plan for the years ended December 31, 2025 and 2024 is as follows: Number of Shares Subject to Option Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding balance at January 1, 2024 688,841 $ 1.20 3.70 $ 1,478,000 Exercised ( 198,095 ) 1.34 Forfeited - - Expired ( 3,880 ) 3.81 Outstanding balance at December 31, 2024 486,866 $ 1.13 3.76 $ 264,000 Exercised ( 63,832 ) 1.14 Forfeited - - Expired - - Outstanding and exercisable balance at December 31, 2025 423,034 $ 1.12 2.63 $ 180,000 There were no options granted in the years ended December 31, 2025 and 2024 . No shares became vested after grant during the years ended December 31, 2025 and 2024 . As of December 31, 2025 and 2024 , there was no unrecognized stock compensation expense related to stock options granted under the 2017 Plan . 94 Table of Contents Restricted Stock Units Stock compensation expense related to RSU’s for the years ended December 31, 2025 and 2024 was $ 2,908,000 a nd $ 4,829,000 , respectively, and was presented as part of operating expenses in the accompanying consolidated statements of operations. A summary of RSU activity under the Company’s 2017 Plan for years ended December 31, 2025 and 2024 is as follows: Number of Shares Weighted Average Unit Price Weighted Average Remaining Contractual Term (Years) Outstanding balance at January 1, 2024 1,747,458 $ 3.79 1.39 Granted 5,556,649 1.17 1.15 Vested ( 1,044,280 ) 4.29 0.41 Forfeited ( 483,401 ) 1.86 1.53 Outstanding balance at December 31, 2024 5,776,426 $ 1.34 1.09 Granted 234,950 1.41 2.64 Vested ( 3,902,812 ) 1.42 0.09 Forfeited ( 1,454,424 ) 1.02 0.36 Outstanding balance at December 31, 2025 654,140 $ 1.57 1.53 All RSUs granted vest upon the satisfaction of a service-based vesting condition. As of December 31, 2025 , there was $ 753,000 of unrecognized stock compensation expense related to unvested RSUs granted under the 2017 Plan that will be recognized over an average remaining period of 1.53 years. 95 Table of Contents NOTE 15 – LOSS PER SHARE The following table provides information relating to the calculation of loss per common share (dollars in thousands, except per share data): Year ended December 31, 2025 2024 Basic and diluted loss per share Net loss applicable to common shareholders $ ( 31,460 ) $ ( 61,410 ) Weighted average common shares outstanding - basic and diluted 119,667,774 86,717,724 Basic and diluted loss per share $ ( 0.26 ) $ ( 0.71 ) Common stock equivalents excluded due to anti-dilutive effect 13,979,702 11,258,721 As the Company had a net loss for the year ended December 31, 2025 , the following 13,979,702 potentially dilutive securities were excluded from diluted loss per share: 12,902,528 for outstanding warrants, 423,034 related to outstanding options and 654,140 related to outstanding RSUs. As the Company had a net loss for the year ended December 31, 2024 , the following 11,258,721 potentially dilutive securities were excluded from diluted loss per share: 4,331,100 for outstanding warrants, 486,866 related to outstanding options, 664,329 related to the ATD Holdback Shares and 5,776,426 related to outstanding RSUs. 96 Table of Contents NOTE 16 – SUBSEQUENT EVENTS The Company evaluated subsequent events through the date the consolidated financial statements were issued. Strategic Consolidation of Engineering Operations The Company initiated a plan to wind down the Tel Aviv operations and consolidate all engineering functions into its U.S. facilities. The closure was announced to employees on February 23, 2026, and Tel Aviv operations ceased on February 24, 2026. The action is intended to improve operational efficiency and align the Company's cost structure with current revenue levels. In connection with this initiative, the Company expects to incur one -time costs consisting primarily of employee-related separation costs and other exit-related costs. The Company is continuing to evaluate the scope and financial impact of these actions; accordingly, a reasonable estimate of the total costs to be incurred cannot yet be determined. 97 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.