Rekor Systems Inc

NOTE1 – 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") and Southern Traffic Services, Inc. ("STS") (collectively, the “Company”). The Company stands at the forefront of the roadway intelligence sector, revolutionizing 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.

On* December 6, 2022,the Company divested its Automated Traffic Safety and Enforcement ("ATSE") business, a non-core business unit. As of December 31, 2022,*the Company determined that the ATSE business unit met the criteria to be presented as discontinued operations.

On* June 17, 2022**,* the Company completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS, which is now a wholly-owned subsidiary of the Company.

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 assets, 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 arenot apparent from other sources. Actual results* may*differ from those estimates under different assumptions or conditions.

59

Liquidity and Going Concern

Management has assessed going concern uncertainty to determine whether there is sufficient cash on hand, together with expected capital raises and working capital, to assure operations for a period of at leastone 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. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services. As of and for the year ended* December 31, 2023,*the Company had working capital from continuing operations of $8,100,000 and a loss from continuing operations of $45,685,000.

Our cash increased by $13,245,000 for the year ended* December 31, 2023*primarily due to net cash provided by financing acti vities of$45,602,000 which was offset by the net cash used in operating activities of$32,627,000.

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 nexttwelve 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'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.

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 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 statement of operations. The currency transaction gain for the year ended* December 31, 2023and2022* was $55,000 and $306,000, respectively.

60

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 account. As of* December 31, 2023*, and2022, the Company had deposits, including restricted cash, totaling $15,713,000 and $2,468,000, respectively, in multiple U.S. financial institutions andone Israeli financial institution.

For the year ended* December 31, 2023*, Customer A accounted for 18% of the Company's total revenues. For the year ended* December 31, 2022* no customer accounted for more than10% of the Company's total revenue.

As of* December 31, 2023* Customer A and Customer B accounted for 22% and 13%, respectively, of the Company's consolidated accounts receivable balance. As of* December 31, 2022*,no single customer accounted for more than10% of the Company's consolidated accounts receivable balance.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments to be cash equivalents.

Cash subject to contractual restrictions andnot readily available for use is classified as restricted cash and cash equivalents. The Company’s restricted cash balances are primarily made up of cash collected on behalf of certain client jurisdictions. Restricted cash and cash equivalents for these client jurisdictions as of* December 31, 2023and2022* were $328,000 and $254,000, respectively, and correspond to equal amounts of related liabilities.

Accounts Receivable and Allowance for 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 doesnot 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 within60 to120 days but typicallyno longer than over the nexttwelve months. Unbilled accounts receivables of $946,000 and$935,000 were included in accounts receivable, net, in the consolidated balance sheets as of* December 31, 2023and December 31, 2022*, 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 the receivables. The Company estimates losses on receivables based on expected losses, including our historical experience of actual losses. Receivables are considered impaired and written-off when it is probable that all contractual payments due willnot 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 specific customer collection issues and 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.

61

Note Receivables

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 due December 2025,that carries an interest rate of 4% and is secured by afirst* priority security interest in the shares of TeamGlobal. Monthly principal payments on the promissory note began in2021. 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 remaining balance due from TeamGlobal as of* December 31, 2023and2022*, was $822,000 and $1,162,000, 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 thefirst-in,first-out (“FIFO”) method.

Accounts Payable, Accrued****and Other Current Liabilities

As of* December 31, 2023and2022*, amounts owed to related parties of $105,000 and $253,000 were presented as part of accounts payable and accrued expenses on the consolidated balance sheets.

A summary of other current liabilities isas follows (in thousands):

62

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:

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 by comparing the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows.

As of* December 31,*2023 and2022, the Company didnot 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 hasnot yet received.

Research and Development Costs

Research and development costs to develop software to be sold, leased or marketed are expensed as incurred up to the point of technological feasibility for the related software product. There wereno capitalized internally developed software costsnot yet placed in service as of* December 31, 2023and2022*, respectively.

63

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, other than software development costs, 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. As of* December 31,*2023 and2022, the Company didnot recognize an impairment loss on its intangible assets.

Leases

The Company accounts for its leases in accordance with Accounting Standard Codification (“ASC”) Topic842, Leases ("ASC842"). 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 Companynot to reassess the Company’s previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. ASU2016-02 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 oftwelve months or less, the Company willnot 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 tonot 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 generallynot 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 willnot exercise the option.

Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

64

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* maybe up toone* 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 allocates 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 isnot amortized but rather subject to a periodic impairment testing on an annual basis. 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 will perform a qualitative assessment, to determine its fair value which includes an evaluation of relevant events and circumstances, including macroeconomic, industry and market conditions, the Company's overall financial performance, and trends in the value of the Company's common stock. During the year ended* December 31, 2023,*the Company didnot recognize any impairment to goodwill.

During thethird quarter of2022, the Company experienced a significant decline in its market capitalization, which management deemed a triggering event related to goodwill. As a result, the Company performed an interim impairment assessment as of* September**30,* 2022, and determined that as of the reporting date the Company had an impairment related to its goodwill in the amount of $34,835,000. As of* December 31, 2022,the Company didnot* identify any events that would cause it to assess goodwill for further impairment.

The Company utilized a weighted combination of the income-based approach and market-based approach to determine the fair value of the reporting unit. Key assumptions used in the income-based approach included forecasts of revenue, operating income, depreciation and amortization expense, capital expenditures and future working capital requirements, terminal growth rates, and discount rates based upon the reporting unit's weighted-average cost of capital adjusted for the risk associated with the operations at the time of the assessment. The income-based approach largely relied on inputs that werenot observable to active markets, which would be deemed “Level3” fair value measurements, as defined in the Fair Value of Financial Instruments section below. Key assumptions used in the market-based approach included the selection of appropriate peer group companies and the associated valuation multiples. Changes in the estimates and assumptions used to estimate fair value could materially affect the determination of fair value and the impairment test result.

65

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 ASC606, the Company performs the followingfive steps:

66

The following table presents a summary of revenue (dollars in thousands):

Information about the Company’s revenue in different geographic regions, which is attributable to the Company’s operations located primarily in the United States and other countries is as follows (dollars in thousands):

For the year ended* December 31, 2023*, except for the United States, total revenue in any single country was less than10% of consolidated revenue.

67

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* mayvary at the customer’s discretion. The contracts with customers are generally for a term ofone* tofive 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 bundled hardware 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 donot 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 donot 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 which can be purchased online and activated through a digital key. The Company's contracts with customers are generally for a term ofone month with automatic renewal each month. The Company invoices and receives fees from its customers monthly.

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 isnot 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.

68

Product and service revenue

Product and service revenue is defined as the Company’s implementation revenue, perpetual license sales, hardware sales, engineering services and contactless compliance revenue.

Implementation revenue is recognized when the Company provides implementation or construction services to its customers. These services involve a fee for the implementation services 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 aone-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.

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 fromone tosix 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.

69

Revenue by Customer Type

The following table presents a summary of revenue by revenue type (dollars in thousands):

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 Company initiated this platform in* Juneof2022* and is in the process of deploying it for its existing customers as well as initiating deployments for new customers. 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 asone-time hardware sales.

70

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 arenot 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, 2023* the Company had approximately $26,390,000 of remaining performance obligationsnot yet satisfied or partially satisfied related to continuing operations. The Company expects to recognize approximately 71% of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the nexttwo tofour 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 tofive 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, 2023*, werenot materially impacted by any other factors. Contract liabilities as of* December 31, 2023and December 31, 2022*, were $5,053,000 and $4,049,000, respectively. All contract liabilities as of* December 31, 2023and December 31, 2022*, were attributable to continuing operations. During the year ended* December 31, 2023*,$2,930,000 of the contract liabilities balance as of* December 31, 2022*, was recognized as revenue.

The contract liabilities as of* December 31, 2023*, are expected to be recognized as revenue during the following years ended* December 31, (*dollars in thousands):

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 beenone year or less. As of* December 31, 2023*, and2022, costs incurred to obtain contracts in excess ofone year have been immaterial to date.

71

Advertising

The Company expenses all non-direct response advertising costs as incurred. Advertising costs for the years ended* December 31, 2023and2022* were $231,000 and $588,000, respectively, and are included in selling and marketing expenses in the consolidated statement of operations.

Segment Information

The Company operates asone operating segment as its chief executive officer, who is our chief operating decision maker ("CODM"), reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Income Taxes

Provision (benefit) 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 isnot more likely thannot 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 thannot to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely thannot threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than50% likelihood of being realized. It is the Company’s accounting policy to account for ASC740-10 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, 2023*, and2022, the Company’s evaluation revealedno uncertain tax positions that would have a material impact on the 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.

72

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, 2023and December 31, 2022*, 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, 2023and December 31, 2022*, 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 Topic820, Fair Value Measurements and Disclosures (“ASC820”). 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. ASC820 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 establishesthree 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 Level1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot 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 orno 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 Level3 inputs.

The Company considers its contingent consideration to be Level3 investments and that the fair value approximates the carrying value.

There wereno changes in levels during the year ended* December 31, 2023*.

Earnings (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 whichno 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 using the if-converted method.

The Company calculates basic and diluted loss per common share using thetwo-class method. Under thetwo-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.

N

ew Accounting Pronouncements Effective in the Current Period

In* June 2016,the FASB issued Accounting Standards Update ("ASU")2016-13 Financial Instruments-Credit Losses (Topic326*): Measurement of Credit Losses on Financial Instruments (“ASU2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after* December 15, 2022.Upon adoption of the new standard, the Company began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to the Company’s financial assets. Due to the nature and extent of the Company’s financial instruments (primarily accounts receivable and a note receivable) currently within the scope of ASU2016*-13 and based on the Company’s analysis of ASU2016-13 and the historical, current and expected credit quality of the Company’s customers, ASU2016-13 didnot have a material impact on its consolidated statements of operations and balance sheets.

Recently Issued Accounting Pronouncements

In* November 2023,FASB issued ASU2023*-07 - Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources. The guidance is effective for our annual period beginning* January 1, 2025,*and interim periods thereafter, applied retrospectively with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

In* December 2023,the FASB issued ASU2023*-09 - Income Taxes (Topic740): 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 is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

73

NOTE2 – BUSINESS ACQUISITIONS

STS Acquisition

On* June 17, 2022,*the Company completed its acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS. The acquisition included total consideration of $12,799,000 including; cash consideration of $6,500,000, $1,001,000 related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $1,298,000 contingent on the closing of a future contract ("STS Contingent Consideration"),798,666 shares of the Company’s common stock, valued at $2,000,000, and a $2,000,000 note. As a result of the transaction, STS has become a wholly-owned subsidiary of the Company.

The STS Contingent Consideration in the amount of*$2,000,000* will be paid in cash if on or prior to* October 30, 2024,the Company enters into a multi-year extension of the Georgia Department of Transportation Contract on substantially similar terms and conditions as the contract being extended. The STS Contingent Consideration shall be payable within30* days of the effectiveness of the extension of the Georgia Department of Transportation Contract. STS Contingent Consideration is presented as part of other non-current liabilities on the consolidated balance sheets and is remeasured on a quarterly basis. In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Contingent Consideration at the time of acquisition and determined the fair value to be $1,298,000. For the year ended* December 31, 2023and2022* the Company recognized $384,000 and $118,000, respectively, in expense related to the remeasurement of the STS Contingent Consideration whichis presented with general and administrative expenses on the consolidated statement of operations.

The Company was to pay the STS Earnout payment, up to $2,000,000, within60 days of* December 31, 2022based on the STS EBITDA for thetwelve* month period ended* December 31, 2022.In connection with the Company's purchase price accounting, it evaluated the fair value of the STS Earnout at the time of acquisition and determined the fair value to be $1,001,000. As of December 31, 2022,it was determined that the STS Earnout wasnot* achieved and thus the Company recognized a gain related to the remeasurement of the STS Earnout of $1,001,000. The gain related to the remeasurement of the STS Earnout is presented with general and administrative expenses on the consolidated statement of operations.

74

The purchase price has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date. Since the acquisition of STS occurred on* June**17,* 2022, the results of operations for STS from the date of acquisition have been included in the Company’s consolidated statement of operations for the years ended* December 31, 2023and2022.* The table below shows the breakdown related to the purchase price allocation for the acquisition (dollars in thousands):

The customer relationships and tradename acquired by the Company as part of the acquisition has an estimated useful life of 15 andfive years, respectively, and are presented as part of intangible assets, net on the consolidated balance sheets.

75

Operations of Combined Entities

The following unaudited pro forma combined financial information gives effect to the acquisition of STS as if it were consummated as of* January 1, 2022.This unaudited pro forma financial information is presented for information purposes only and isnot* intended to present actual results that would have been attained had the acquisition been completed as of* January 1, 2022 (*the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

ATD Acquisition

On* January 2, 2024the Company acquired All Traffic Data Services, LLC, a Colorado limited liability company (“ATD”), pursuant to that certain Interest Purchase Agreement (the “Purchase Agreement”), dated as of the January 2, 2024,by and among the Company, ATD and All Traffic Holdings, LLC. ATD is engaged in the business of advanced traffic data collection. Under the terms of the Purchase Agreement, the Company acquired all of the issued and outstanding limited liability company interests of ATD (the “ATD Acquisition”). SeeNOTE17 – SUBSEQUENT EVENTS* for additional information on the ATD Acquisition.

76

NOTE3 – INVESTMENTS

Investments in Unconsolidated Companies

In2017, the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business to Global Public Safety (the “GPS Closing”). After the GPS Closing, the Company continues to own 19.9% of the units of Global Public Safety. This equity investment doesnot have a readily determinable fair value and the Company reports this investment at cost, less impairment. As of* December 31, 2023and2022* the investment in Global Public Safety had a value of $0.

There wereno distributions or earnings received from this investment in the year ended* December 31, 2023and2022*.

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 thethird* quarter of2020 and thefirst quarter of2021, 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, 2023and2022* the investment in Roker had a value of $0.

In2021, in exchange for $1,250,000 the Company entered into a Simple Agreement for Future Equity with Roker (the “Roker SAFE”). In2022, the Company invested an additional $755,000 in the Roker SAFE. The Roker SAFE allows the Company to participate in future equity financings of Roker, through a share-settled redemption of the amount invested (such notional being the “invested amount”). Alternatively, upon the occurrence of a change of control or an initial public offering (other than a qualified financing), the Company has the option to receive either (i) cash payment equal to the invested amount under the Roker SAFE, or (ii) a number of shares of common stock equal to the invested amount divided by the liquidity price set forth in the Roker SAFE. The Company’s investment in the Roker SAFE was recorded on the cost method of accounting and included under the Roker SAFE investment on the consolidated balance sheets and is shown as long-term, as it wasnot readily convertible into cash.

During the year ended* December 31, 2023,*the Company recognized an impairment of $101,000 related to the Roker SAFE that is presented as part of general and administrative expenses in the consolidated statements of operations.

During the year ended* December 31,2023, 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 includes $423,000 that was held in escrow as of December 31,2023 and was presented as part of other current assets, net and deposits on the consolidated balance sheets. The Company will receive 50% of the amount held in escrow on July 25, 2024and the other 50% of the amount held in escrow on July 25, 2025.*

77

NOTE4 – DISCONTINUED OPERATIONS

ATSE Sale

On* December 8, 2022,the Company sold its ATSE business, a non-core component, for approximately $3,390,000. The buyer agreed to certain assets and liabilities of the ATSE component for a purchase price of $3,390,000, comprising (i) $3,390,000 in cash of which includes $339,000 that was held in escrow as of December 31, 2022*and was presented as part of other current assets on the consolidated balance sheets.

The table below shows the breakdown related to the sale of ATSE (dollars in thousands):

The disposition of ATSE is the result of the Company’s strategic decision to prioritize its core data services business and will result in material changes in the Company’s operations and financial results. As a consequence, the Company is reporting the operating results and cash flows of ATSE as discontinued operations, including for all prior periods reflected in the consolidated financial statements and these notes.

78

Results of Discontinued Operations

Pursuant to ASC Topic205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations from ATSE for the years ended* December 31, 2023and2022* have been classified as discontinued operations and presented as part of net income from discontinued operations in the accompanying consolidated statements of operations presented herein. The assets and liabilities also have been classified as discontinued operations under the line captions of current and long term assets, net of discontinued operations and current and long term liabilities of discontinued operations in the accompanying consolidated balance sheets as of* December 31, 2023and December 31, 2022*.

There wasno balance sheet information related to our discontinued operations as of* December 31, 2023*. The assets and liabilities classified as discontinued operations in the Company's consolidated financial statements as of* December 31, 2022* are shown below (dollars in thousands):

There wereno operations related to our discontinued operations for the year ended* December 31, 2023*. The major components of the discontinued operations, net of tax, are presented in the consolidated statements of operations for the year ended* December 31, 2022* are shown below (dollars in thousands):

79

NOTE5 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the years ended* December 31, 2023and2022* were as follows (dollars in thousands):

80

NOTE6 – INVENTORY

As of* December 31, 2023and2022*, inventory consisted entirely of the following (dollars in thousands):

81

NOTE7 – PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following (dollars in thousands):

Depreciation related to property and equipment, net for the years ended* December 31, 2023and2022* was $3,517,000 and $2,359,000, 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):

82

NOTE8 – 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 ofone tonine 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.

Lease cost recognized in our consolidated statements of operations is summarized as follows (dollars in thousands):

For the year ended* December**31,* 2023, the Company had $469,000 in cash payments related to its financing leases prior to the lease commencement date.

Other information about lease amounts recognized in our consolidated financial statements is as follows:

83

Maturities of operating and financing lease liabilities for continuing operations at* December 31, 2023* were as follows (dollars in thousands):

84

**NOTE9 **–INTANGIBLE ASSETS

Goodwill

There wereno changes to goodwill during the year ended* December 31, 2023*. The following summarizes the change in goodwill from* December 31, 2021to December 31, 2022 (*dollars in thousands):

Intangible Assets Subject to Amortization

The following summarizes the change in intangible assets from* December 31, 2021to December 31, 2023* (dollars in thousands):

85

The following provides a breakdown of identifiable intangible assets as of* December 31, 2023* and2022 (dollars in thousands):

These intangible assets are being amortized on a straight-line basis over their weighted average remaining estimated useful life of 5.6 years. Amortization expense attributable to continuing operations for the year ended* December 31, 2023and2022* was $4,060,000 and $4,063,000, respectively, and is presented as part of depreciation and amortization in the accompanying consolidated statements of operations.

As of* December 31, 2023*, the estimated annual amortization expense from continuing operations for each of the nextfive fiscal years and thereafter is as follows (dollars in thousands):

86

NOTE10 – 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 oftwo* 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. The notes mature on* June 14, 2024and June 17,2025, respectively. The aggregate balance of these notes payable was $2,000,000 as of December 31, 2022* and is included in notes payable long-term, in the consolidated balance sheets. As of* December 31, 2023*, the aggregate balance of these notes payable was $2,000,000 of which $1,000,000 was included in notes payable current portion and $1,000,000 was included in notes payable long-term, respectively, in the consolidated balance sheets.

Loans Payable

As part of its operations the Company enters loans related to purchases of its vehicles. These loans have maturities between2024 and2028 and carry interest rates ranging from 0% to 6.99%. These loans primarily have equal monthly payments over the life of the respective loan. The loans are presented as part of loans payable, current portion and loans payable long-term on the consolidated balance sheet.

2022 Promissory Notes

On* December 20, 2022,the Company entered into a Promissory Note Agreement (the“2022* Promissory Notes”) with (i) Robert A. Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 10.3% holder of Common Stock of the Company based on its Schedule13G filed with the Securities and Exchange Commission on* May 20, 2022,pursuant to which the lenders loaned $1,000,000 to the Company. During thefirst* quarter of2023, Robert A. Berman invested an additional $400,000 under the same terms as the2022 Promissory Notes. The lenders were determined to be related parties.No 2022 Promissory Notes remain outstanding, as all2022 Promissory Notes were exchanged in connection with the private placement of2023 Promissory Notes described below.

2023 Promissory Notes

On* January 18, 2023,the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $15,000,000 in aggregate principal amount of senior secured promissory notes (the“2023* Promissory Notes”), and (ii) warrants to purchase, for an exercise price of $2.00 per share, up to an aggregate of 7,500,000 shares of common stock of the Company, par value $0.0001 per share. In connection with the initial closing on* January 18, 2023,the Company issued $12,500,000 in aggregate principal amount of2023* Promissory Notes and warrants to purchase 6,250,000 shares of Common Stock, resulting in proceeds to the Company of $12,500,000 before reimbursement of expenses. SeeNOTE * 14* –* STOCKHOLDERS' EQUITY* for additional information related to the warrants. Pursuant to the terms of the Securities Purchase Agreement, the2022 Promissory Notes were exchanged for equal principal amounts of the2023 Promissory Notes which are included in the proceeds of $12,500,000. As a result, the2022 Promissory Notes were exchanged withno further force and effect as of the effective date of the Securities Purchase Agreement.

The2023 Promissory Notes are a senior secured obligation of the Company and rank senior to all indebtedness of the Company, subject to certain exceptions. The2023 Promissory Notes have a maturity date of* July 18, 2025 (the “Maturity Date”), at which time all remaining outstanding principal and accrued but unpaid interest will be due. The2023* Promissory Notes bear an interest rate of 12% per annum, and the Company will be required to pay interest quarterly during each calendar year through and including the Maturity Date.

At any time, the Company* mayprepay all, or any portion of, the2023* Promissory Notes by redemption at a price equal to (i)120% of the then-outstanding principal amount under the2023 Promissory Notes plus any accrued interest thereon, if redeemed on or prior to thefirst anniversary of issuance, (ii)115% of the then-outstanding principal amount under the2023 Promissory Notes plus any accrued interest thereon, if redeemed after thefirst anniversary of issuance and on or prior to thesecond anniversary of issuance, or (iii)110% of the then-outstanding principal amount under the2023 Promissory Notes plus any accrued interest thereon, if redeemed after thesecond anniversary of issuance and prior to the Maturity Date (the “Early Redemption Schedule”). The Investors will also have the option of requiring the Company to redeem the2023 Promissory Notes in accordance with the Early Redemption Schedule if the Company undergoes a fundamental change.

The Company determined that the holder redemption and mandatory redemption options would qualify as derivatives and be subject to accounting under ASC Topic815, Derivatives and Hedging. The Company believes that the fair value associated with the embedded derivatives related to the holder and mandatory redemption rights are inconsequential.

The Securities Purchase Agreement contains customary representations and warranties of the Company and the investors. The Company has a material relationship withtwo of the investors, (i) Robert A. Berman, the Company’s Chief Executive Officer and Executive Chairman, and (ii) Arctis Global Master Fund Limited (“Arctis”), an affiliate of Arctis Global, LLC, a 11.64% holder of Common Stock of the Company based on its Schedule13G/A filed with the Securities and Exchange Commission on* February 14, 2024.Mr. Berman and Arctis invested $2,000,000 and $6,500,000, respectively, in connection with the $12,500,000 initial closing of the private placement. These lenders were determined to be related parties. Mr. Berman had the option, upon request of the Company made withinsix months of the initial closing, to invest up to an additional $2,500,000 in a subsequent closing, or series of closings, on the same terms. In aggregate, such subsequent closings would have resulted in the issuance of senior secured notes in the original principal amount of up to $2,500,000 and warrants to purchase up to 1,250,000 shares of Common Stock. This option wasnot* exercised and has expired as of* December 31, 2023*.

The Securities Purchase Agreement further provides Arctis with the right to designate a director to be seated on the Company’s board of directors (the “Board”) for a term expiring at the Company’s2023 annual meeting of stockholders, at which meeting such director shall be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders. Arctis has a right to a Board designee for so long as it holds the2023 Promissory Notes, and such right* may**not* be sold or transferred to any partynot affiliated with Arctis. As a result of this right, on* September 14, 2023,a director designated by Arctis was elected by the Company’s stockholders at the Company’s2023* annual meeting of stockholders.

The2023 Promissory Notes impose certain financial covenants upon the Company, as well as covenants that restrict the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, and restrict the declaration of any dividends or other distributions, subject to specified exceptions. In connection with the Series A Prime Revenue Sharing Notes, the holders of the2023 Promissory Notes signed a waiver to allow for the issuance of additional debt by the Company. If an event of default under the2023 Promissory Notes occurs, the investors can elect to redeem the2023 Promissory Notes for cash in accordance with the Early Redemption Schedule, plus default interest, which accrues at a rate per annum equal to 14% from the date of an event of default.

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 offive years from the date of issuance and are exercisable on a cash or cashless basis at the election of the holder.

Subsequent to year-end all of the2023 Promissory Notes were fully redeemed. SeeNOTE * 17* –* SUBSEQUENT EVENTS* for additional information related to the redemption of the2023 Promissory Notes.

87

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 material relationship with Arctis, 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 infive states, each of which has been rated at or above AAA/AA+/Aal 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, 2023with Argent Institutional Trust Company, as trustee. The Indenture creates afirst* 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 tonot less thanthree times the next monthly interest payment. Additionally, there is a sinking fund requirement which states if thethree year value of eligible contracts is less than 170% of the aggregate outstanding principal amount of Series A Prime Revenue Sharing Notes the Company must maintain a cash balance sufficient to amortize the principal amount due on the Series A Prime Revenue Sharing Notes in equal monthly installments by the respective due dates of such series. The amount related to the interest reserve and sinking fund was $500,000 as of* December 31, 2023and is held by athird* party and is presented as part of deposits on the consolidated balance sheets. The Company isnot in default of any requirements as they relate to the Series A Prime Revenue Sharing Notes.

The Company* mayprepay the Series A Prime Revenue Sharing Notes at anytime up until December 15, 2026by paying a premium ranging from 103% to 106%. Thereafter, the Series A Prime Revenue Sharing Notes maybe prepaid by the Company at par value; provided, however, 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, mayalso be accelerated by the noteholder upon a change in control or event of default. As of the year ended December 31, 2023,*the Company recognized $83,000 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):

Schedule of Principal Amounts Due on Debt

The principal amounts due for notes payable and loans payable are shown below as of* December 31, 2023* (dollars in thousands):

88

NOTE11 – INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic740. 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 Topic740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business.

The provision (benefit) for income taxes for the years ended* December 31, 2023and2022* consists of the following (dollars in thousands):

89

The components of deferred income tax assets and liabilities are as follows on* December 31, 2023and2022* (dollars in thousands):

90

The difference between the income tax provision (benefit) computed at the U.S. Federal statutory rate and the effective tax rate is as follows for the years ended* December 31, 2023and2022*:

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, 2023*.

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 isnot more likely thannot 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.

As of* December 31, 2023*, the Company had gross federal and state net operating loss carryforwards of$156,392,000 and$149,122,000, respectively. The gross NOLs generated in the years ended* December 31, 2023and2022* of$31,599,000 and $54,495,000, respectively, will be carried forward indefinitely and are subject to the annual80 percent limitation. As of* December 31, 2023*, Rekor had net federal and state net operating loss (“NOL”) carryforwards of$33,063,000 and$7,298,000, respectively. The net federal and state NOLs of$33,063,000 and$7,298,000, respectively, are scheduled to begin to expire in2035 and are grandfathered under the Tax Cuts and Jobs Act; thus, these NOLs arenot subject to the80 percent limitation.

As of* December 31, 2022*, Rekor had gross federal and state net operating loss carryforwards of $114,742,000 and $106,866,000, respectively. As of* December 31, 2022*, Rekor had net federal and state net operating loss carryforwards of $24,096,000 and $5,306,000, respectively.

The federal and state net operating loss and credit carryforwards* maybe subject to significant limitations under Sections382* and383 of the Internal Revenue Code ("Code") and similar provisions of state law. These Code sections limit the federal net operating loss and credit carryforwards that* maybe used in any year in the event of an “ownership change”. A Section382* “ownership change” generally occurs ifone or more shareholders or groups of shareholders, who own at least5% of the Company’s stock, increase their ownership by more than50 percentage points over their lowest ownership percentage within a rollingthree-year period. The Company* mayhave previously experienced, and mayin the future experience,one or more Section382* “ownership changes”. If so, the Company* maylose some or all of the tax benefits of its NOLs and tax credits. The extent of such limitations for prior years, if any, hasnot* been determined.

For the years ended* December 31, 2023and2022*, the Company didnot 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.

As a result of the acquisition of STS in2022, the Company recognized identified definite-lived tangible and intangible asset related to customer relationships, trade names, property and equipment for which the Company receivedno tax basis due to the stock acquisition. As a result, the Company recorded a deferred tax liability of $1,001,000 which increased the Company's goodwill related to the STS acquisition. Due to the overall valuation allowance position of the Company, the deferred tax liability was used to offset the Company's deferred tax asset and thus reducing the total valuation allowance. This impact to the valuation allowance was booked as a tax benefit. The tax benefit of$1,001,000 was offset by $14,000 of deferred tax expense for the year ended* December 31, 2022.*

91

NOTE12 – EMPLOYEE BENEFIT PLAN

401 (k) Plan

In2019, Rekor established the Rekor Systems, Inc.401(k) Plan (the “Rekor401(k) Plan”), a Qualified Automatic Contribution Arrangement (QACA) safe harbor plan. Employees that satisfied the eligibility requirements became participants in the Rekor401(k) Plan. The Company contributes an amount equal to the sum of 100% of a participant’s elective deferrals that donot exceed1% of participant’s compensation, plus 50% of the participant’s elective deferrals that exceed1% of the participants compensation, but donot exceed 6% of the participant’s compensation. Employee contributions are fully vested, and matching contributions are subject to atwo-year service vesting schedule.

Employee Severance Benefits

In accordance with the current employment terms with all its employees (Section14 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 such 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, arenot reflected on the Company’s consolidated balance sheet, as the amounts funded arenot 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, 2023and2022* were $1,270,000 and$1,338,000, respectively.

92

NOTE13 – 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.

Firestorm Principals

On* August 19, 2019,we filed suit in the United States District Court for the Southern District of New York againstthree* former executives of the Company who were founders oftwo related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc. v. Suzanne Loughlin, et al., Caseno. 1:19-cv-07767-VEC. The Firestorm Principals answered together with counterclaims on* February 28, 2020.In2020,* the Firestorm Principals filed various suits in New York, Delaware and Virginia against directors and officers of the Company, alleging breach of fiduciary duty and libel.

On* March 22, 2023,*the Company entered into a settlement agreement with the Firestorm Principals. Pursuant to the terms of the settlement agreement, the parties have mutually released and discharged all existing and potential actions, causes of action, suits, proceedings, debts, dues, contracts, damages or claims against each other, including certain claims for officer indemnification of the Firestorm Principals. In exchange for the mutual releases, the Company will transfer certain Firestorm assets to CrisisRisk Strategies, LLC, make a payment of $175,000, and the Firestorm Principals have agreed to the extinguishment of all rights to enforce their claims for payment with respect to principal and interest on the promissory notes issued in connection with the Company’s acquisition of Firestorm, and are giving up their rights to exercise the warrants issued in connection with the same.

As a result of the settlement agreement, the Company recorded a reduction to notes payable, the related accrued interest and other assets and liabilities that was presented as discontinued operations. The Company also cancelled warrants to purchase 631,254 shares of common stock, which were issued in connection with the acquisition of Firestorm.

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 previous capital raise the Company completed in March 2023.That letter agreement contained provisions for both a “tail” fee due to HCW for any subsequent transactions the Company mayenter 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 offirst* 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 withintwelve months from the consummation of a transaction pursuant to the engagement letter.

In* July 2023,subsequent to the announcement of an agreement the Company entered into withone* of its stockholders in connection with the exercise of warrants held by the stockholder, which the Company refers to as 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 Company's stockholder. 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 this transaction.

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 JulyWarrant 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 a 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. HCW alleges that Rekor breached its engagement letter with HCW by failing to give Rekor notice of this offering and failing to provide HCW with the opportunity to exercise the ROFR with respect to this transaction.

Occupational Safety and Health Administration (“OSHA”) Claim

In2023 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. On February 28, 2024,the OALJ issued an Order setting forth a revised schedule governing the case with the start of the hearing scheduled for December 2, 2024.*

93

NOTE14 – STOCKHOLDERS’EQUITY

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. 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 donot* 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 willnot alter current stockholders’ relative rights and limitations.

2023 Registered Direct Offering

On* March23,* 2023, the Company entered into a securities purchase agreement with a single institutional investor that provided for the sale and issuance by the Company in a registered direct offering of an aggregate of: (i)6,100,000 shares of the Company’s common stock, (ii) pre-funded warrants exercisable for up to an aggregate of 772,853 shares of common stock, and (iii) warrants to purchase up to 6,872,853 shares of common stock (the "Registered Direct Warrants"). The offering price per share of common stock and associated warrant was $1.455 and the offering price per pre-funded warrant and associated warrant was $1.454. Each pre-funded warrant is exercisable forone share of common stock at an exercise price of $0.001 per share and will expire when exercised in full. The warrants to purchase common stock are exercisable immediately upon issuance, will expire five years following the issuance date and have an exercise price of $1.60 per share. The Company received gross proceeds from the2023 Registered Direct Offering of approximately $10,000,000. The Offering closed on* March27,* 2023.

The Company entered into an engagement letter with H.C. Wainwright & Co., LLC to serve as exclusive placement agent, on a reasonable best-efforts basis, in connection with the offering. The Company paid the placement agent an aggregate cash fee equal to7.5% of the gross proceeds of the offering. The Company also paid the placement agent $75,000 for non-accountable expenses and $16,000 for clearing fees. Additionally, the Company issued designees of the placement agent, as compensation, warrants to purchase up to 481,100 shares of common stock, equal to7.0% of the aggregate number of shares of common stock and pre-funded warrants placed in the offering. The warrants issued to the placement agent have a term offive years and an exercise price of $1.8188 per share of common stock.

During the year ended* December 31,*2023, 772,853 of the pre-funded warrants were exercised for 772,853 shares of the Company's common stock.

2023 Letter Agreement

On* July25,* 2023, the Company entered into a letter agreement (the*“2023* Letter Agreement”) with the same institutional investor connected to the2023 Registered Direct Offering, pursuant to which the investor and the Company agreed that the investor would exercise all its Register Direct Warrants for shares of common stock underlying the Registered Direct Warrants at $1.60 per share of common stock. In consideration for exercising the Registered Direct Warrants and in exchange for the imposition of volume and trading restrictions on the 6,872,853 shares of common stock issued to the institutional investor in connection with exercise of the Registered Direct Warrants, the2023 Letter Agreement provided for the issuance of unregistered warrants to purchase up to an aggregate of 2,850,000 shares of common stock (the*“2023* Private Warrants”). The shares of common stock underlying the2023 Private Warrants have been registered for resale on a registration statement declared effective by the SEC on* September 29, 2023.The2023* Private Warrants will expire on* January25,* 2029 and have an exercise price of $3.25.

The2023 Private Warrants were valued using the Black-Scholes pricing model at a total of $6,757,000 based on afive year term, volatility of 115%, a risk-free of 4.15%, and stock price of $2.85. The fair value of the2023 Private Warrants were treated as an equity financing cost and recorded as part of the Company’s additional paid-in capital. This resulted in a netzero impact within the Company’s additional paid-in capital.

2023 Warrants

In connection with the initial closing of the2023 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 offive years from the date of issuance and are exercisable on a cash or cashless basis at the election of the holder. The2023* Warrants were valued at $5,125,000, based on the relative fair value basis, compared to the total proceeds received.

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:

The Company treats the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as interest expense, net in the consolidated statements of operations.

94

At-the-Market Offering

Under the S-3 registration filed in* September 2021,on February**24,* 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the*“2022* Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”) to create an at the market equity program under which the Company from time to time* mayoffer and sell shares of its common stock, par value$0.0001* per share, having an aggregate offering price of up to $50,000,000 (the “Shares”) through or to the Agent. The Agent is entitled to a commission equal to 3.0% of the gross proceeds from each sale. The Company incurred issuance costs of approximately $174,000 related to legal, accounting, and other fees in connection with the2022 Sales Agreement. These costs were charged against the gross proceeds of the2022 Sales Agreement and presented as a reduction to additional paid-in capital on the accompanying consolidated balance sheets.

For the year ended* December 31, 2022,the Company sold 9,019,062 shares of common stock at a weighted-average selling price of $2.62 per share in accordance with the2022* Sales Agreement. Net cash provided from the2022 Sales Agreement was $22,754,000 after paying $174,000 related to the issuance cost, as well as 3.0% or $709,000 related to cash commissions provided to the Agent.

In* Decemberof2022* the Company terminated the2022 Sales Agreement.

STS Acquisition

In connection with the acquisition as described inNOTE2* – ACQUISITIONS*, the Company issued 798,666 shares of the Company’s common stock as part of the consideration.

2024 Public Offering

On* February 9, 2024,the Company issued and sold 10,000,000 shares of its common stock and the underwriters exercised an option to purchase an additional 1,500,000 shares of its common stock (the“2024* Public Offering”). The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $26,463,000. SeeNOTE17* – SUBSEQUENT EVENTSfor additional information on the2024* Public Offering.

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* maybe 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 maybe divided into, and issued in, designated series from time to time byone* 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, 2023and2022,* there areno 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 in the accompanying consolidated balance sheets.

Series B Cumulative Convertible Preferred Stock

Of the 2,000,000 authorized shares of preferred stock,240,861 shares were designated as $0.0001 par value Rekor Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”). As part of the TeamGlobal Merger, the Company issued 240,861 shares of $0.0001 par value Series B Preferred Stock. All Series B Preferred Stock was issued at a price of $10.00 per share as part of the acquisition of TeamGlobal. The Series B Preferred Stock had a conversion price of $5.00 per share. Each Series B Preferred Stock had an automatic conversion feature based on the share price of Rekor. As of* December 31, 2023and2022,* there areno outstanding shares of the Company's Series B Preferred Stock.

95

Warrants

A summary of the warrant activity for the Company for the period ended* December 31, 2023* and* December 31, 2022* is as follows:

96

NOTE15 – EQUITY INCENTIVE PLAN

In2017, the Company approved and adopted the2017 Equity Award Plan (the*“2017* Plan”) which replaced the2016 Equity Award Plan (the*“2016* Plan”). The2017 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 the2017 Plan were initially set at 3,000,000 shares.

In2021, the Company filed a registration statement on Form S-8 solely to register an additional 4,368,733 shares of its common stock available for issuance under the2017 Plan. This increase was approved by the Company’s Board of Directors on* May 7, 2021,and by the Company’s stockholders on September 14, 2021*at the Company’s annual meeting.

Stock-based compensation expense included in the consolidated statements of operations was as follows(dollars in thousands):

Stock Options

Stock options granted under the2017 Plan* maybe either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs maybe 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 often years.

Stock compensation expense related to stock options for the years ended* December 31, 2023and2022* was $0 and $43,000, respectively, and is presented as part of general and administrative expenses in the accompanying consolidated statements of operations.

97

A summary of stock option activity under the Company’s2017 Plan for the years ended* December 31, 2023and2022* is as follows:

There wereno options granted in the years ended* December 31, 2023and2022*. The total fair value of shares that became vested after grant during the years ended* December 31, 2023and2022* was $0 and $113,000, respectively.

As of* December 31, 2023*, there wasno unrecognized stock compensation expense related to stock options granted under the2017 Plan.

98

Restricted Stock Units

Stock compensation expense related to RSU’s for the years ended* December 31, 2023and2022* was$4,352,000 and $6,573,000, respectively, and was presented as part of operating expenses in the accompanying consolidated statements of operations.

A summary of RSU activity under the Company’s2017 Plan for years ended* December 31, 2023and2022* is as follows:

All RSUs granted vest upon the satisfaction of a service-based vesting condition.

As of* December 31, 2023*, therewas $4,077,000 ofunrecognized stock compensation expense related to unvested RSUs granted under the2017 Plan that will be recognized over an average remaining periodof 1.39 years.

99

NOTE16 – LOSS PER SHARE

The following table provides information relating to the calculation of loss per common share (dollars in thousands, except per share data):

As the Company had a net loss for the year ended* December 31, 2023*, the following 12,017,399 potentially dilutive securities were excluded from diluted loss per share:9,581,100 for outstanding warrants,688,841 related to outstanding options and 1,747,458 related to outstanding RSUs.

As the Company had a net loss for the year ended* December 31, 2022*, the following 3,494,951 potentially dilutive securities were excluded from diluted loss per share:692,311 for outstanding warrants,862,380 related to outstanding options and 1,940,260 related to outstanding RSUs.

100

NOTE17 – SUBSEQUENT EVENTS

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 aggregate purchase price for the interests of ATD was approximately $19,750,000, subject to a customary working capital adjustment. The purchase price comprises approximately $9,750,000 in cash which included closing adjustments and 3,496,463 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 athirty consecutive trading day period prior to the date of the ATD Purchase Agreement, which was $2.86.662,329 of the3,496,463 shares of the Stock Consideration will be issued and delivered to the Seller on thetwelve-month anniversary of the Closing Date, subject to cutback for working capital adjustments and/or indemnification claims favoring the Company, if any. As a result of the transaction, ATD is a wholly-owned subsidiary of the Company and ATD’s key employees have agreed to continue employment with the Company orone of its affiliates.

ATD Preliminary Purchase Price Allocation

The table below summarizes the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on management’s preliminary estimates of their respective fair values for purposes of the pro forma financial information as of the acquisition date,* January 2, 2024 (*dollars in thousands):

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma operations of combined entities below. Due to the recent completion of the acquisition, the determination of the purchase price and the allocation of the purchase price used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up toone year from the acquisition date) as the Company finalizes the valuations of the assets acquired and liabilities assumed, including, butnot limited accounts receivable, property and equipment, intangible assets and accounts payable. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.

ATD 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 as if they were consummated as of* January 1, 2022.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 pro forma financial information. This unaudited pro forma financial information is presented for information purposes only and isnot* 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, 2022 (*the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

101

2024 Public Offering

In thefirst quarter of2024, 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* February9,* 2024, the Underwriters exercised in-full their option to purchase up to 1,500,000 additional shares of common stock at the2024 Public Offering Price (the “Underwriters’ Option”). The exercise closed on* February13,* 2024. The net proceeds to the Company for the exercise of the Underwriters’ Option, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, was expected to be approximately $2,287,000, or approximately $26,463,000 in aggregate for the2024 Public Offering including the exercise of the Underwriters’ Option.

Retirement of the2023 Promissory Notes

On* March 4, 2024,the Company completed the redemption of all its outstanding2023* Promissory Notes. The2023 Promissory Notes were redeemed at the redemption price of 115% of the $12,500,000 aggregate principal amount of the2023 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.

Board Election's

Pursuant to the terms of the ATD Acquisition, the Seller was granted the right to designate a director to be seated on the Company’s board of directors (the “Board”) for a term expiring at the Company’s2024 annual meeting of stockholders, at which meeting such director shall be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders. The Seller has a right to a Board designee for so long as it holds at least50% of the Stock Consideration.

On* January 2, 2024,at the designation of Seller, the Board appointed Andrew (Drew) Meyers as a member of the Board, with such appointment to take effect immediately. In connection with Mr. Meyer’s appointment, the Board voted to increase the size of the Board toeight* members, and appointed Mr. Meyers to fill the resulting vacancy.

On* March 1, 2024,the Board of the Company approved an increase to the size of the Board byone* seat, tonine members, and appointed Anne Townsend to fill the resulting vacancy. Ms. Townsend will serve for a term expiring at the Company’s2024 annual meeting of stockholders, at which meeting she will be nominated by the Board to stand for election by the Company’s stockholders to serve for a term to expire at the next annual meeting of the stockholders.

102