Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The objective of this Management’s
Discussion and Analysis is to allow investors to view the Company from management’s perspective, considering items that would have
a material impact on future operations. The following discussion and analysis summarizes the significant factors affecting our results
of operations and financial condition as of and during the years ended December 31, 2025 and 2024 and should be read in conjunction with
our consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking
statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing
of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several
factors, including those discussed in the section captioned “Risk Factors” included under Part I, Item 1A and elsewhere in
this Annual Report. See also the section captioned “Forward-Looking Statements” in this Annual Report.
Overview
We are an autonomous vehicle
technology company that is focused on addressing industrial uses for autonomous vehicles. We believe that technological innovation is
needed to enable adoption of autonomous industrial vehicles that will address the substantial industry challenges that exist today. These
challenges include labor shortages, lagging technological advancements from incumbent vehicle manufacturers, and high upfront investment
commitment.
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Industrial sites are typically
rigid environments with consistent standards as opposed to city streets that have more variable environmental and situational conditions
and diverse regulations. These differences in operational design domains will be major factors that make proliferation of industrial AVs
in private settings achievable with less time and resources than AVs on public roadways. Namely, safety and infrastructure challenges
are cited as roadblocks that have delayed AVs from operating on public roadways at scale. Our focus on industrial AVs simplifies these
challenges because industrial facilities (especially those belonging to a single end customer that operates similarly at different sites)
share much more in common than different cities do. Furthermore, our end customers own their infrastructure and can make changes more
easily than governments can on public roadways.
With these challenges in mind,
we are developing an Enterprise Autonomy Suite (“EAS”) that leverages advanced in-vehicle autonomous driving technology and
incorporates leading supporting technologies like data analytics, asset tracking, fleet management, cloud, and connectivity. EAS provides
a differentiated solution that we believe will drive pervasive proliferation of industrial autonomy and create value for customers at
every stage of their journey towards full automation and the adoption of Industry 4.0.
EAS is a suite of technologies
and tools that we divide into three complementary categories:
1. DriveMod, our modular industrial vehicle autonomous driving software;
Legacy automation providers
manufacture specialized industrial vehicles with integrated robotics software for rigid tasks, limiting automation to narrow uses. Unlike
these specialized vehicles, EAS can be compatible with the existing vehicle assets in addition to new vehicles that have been purpose
built for autonomy by vehicle manufacturers. EAS is operationally expansive, vehicle agnostic, and compatible with indoor and outdoor
environments. By offering flexible autonomous services, we aim to remove barriers to industry adoption.
We understand that scaling
of autonomy solutions will require an ecosystem made up of different technologies and services that are enablers for AVs. Our approach
is to forge strategic collaborations with complementary technology providers that accelerate AV development and deployment, provide access
to new markets, and create new capabilities. Our focus on designing DriveMod to be modular will combine with our experience deploying
AV technology on diverse industrial vehicle form factors, which will be difficult for competitors to replicate.
We expect our technology to
generate revenue through two main methods: deployment and EAS subscriptions. Deploying our EAS requires us and our integration partners
to work with a new client to map the facility, gather data, and install our AV technology within their fleet and site. These deployments
typically result in revenue based on the overall scope of the project and the integrated solution delivered.
Following deployment, we continue
to generate revenue through ongoing access to and use of our Enterprise Autonomy Suite (“EAS”), which includes software-enabled
functionality, monitoring, updates, and support. These arrangements provide customers with continuous access to our evolving autonomous
vehicle capabilities and are generally structured over a contractual term during which the customer receives and consumes the benefits
of the integrated solution.
We will seek to achieve sustained
revenue growth largely from ongoing SaaS-style EAS subscriptions that enable companies to tap into our ever-expanding suite of AV and
AI capabilities as organizations transition into full industrial autonomy.
Although both the components
and the combined solutions of EAS are still under development, we have EAS licenses with paying customers and have piloted EAS for paid
customer trial and pilot deployments. We expect EAS to continually be developed and enhanced according to evolving customer needs, which
will take place concurrently while other completed features of EAS are commercialized. We expect annual R&D expenditures in the foreseeable
future to exceed that of 2025. We also had limited paid deployments in 2025 that offset some of the ongoing R&D costs of continually
developing EAS.
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Our go-to-market strategy
is to acquire new customers that use industrial vehicles in their mission-critical and daily operations by (a) leveraging the relationships
and existing customers of our network of strategic partners, (b) bringing AV capabilities to industrial vehicles as a software service
provider, and (c) executing a robust in-house sales and marketing effort to nurture a pipeline of industrial organizations. Our focus
is on acquiring new customers who are either looking (a) to embed our technology into their vehicle product roadmaps or (b) to apply autonomy
to existing fleets with our vehicle retrofits. In turn, our customers are any organizations that could utilize our EAS solution, including
OEMs that supply industrial vehicles, end customers that operate their own industrial vehicles, or service providers that operate industrial
vehicles for end customers.
As OEMs and leading industrial
vehicle users seek to increase productivity, reinforce safer working environments, and scale their operations, we believe we are uniquely
positioned to deliver a dynamic autonomy solution via our EAS to a wide variety of industrial uses. Our long-term vision is for EAS to
become a universal autonomous driving solution with minimal marginal cost for companies to adopt new vehicles and expand their autonomous
fleets across new deployments. We have already deployed DriveMod software on more than 10 different vehicle form factors that range from
stockchasers and forklifts to 14-seat shuttles and 5-meter-long cargo vehicles demonstrating the extensibility of our AV building blocks.
Our strategy upon establishing
a customer relationship with an OEM, is to seek to embed our technology into their vehicle roadmap and expand our services to their many
clients. Once we solidify an initial AV deployment with a customer, we intend to seek to expand within the site to additional vehicle
platforms and/or expand the use of similar vehicles to other sites operated by the customer. This “land and expand” strategy
can repeat iteratively across new vehicles and sites and is at the heart of why we believe industrial AVs that operate in geo-fenced,
constrained environments are poised to create value.
Critical Accounting Policies and Estimates
and Judgements
Our consolidated financial
statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent
liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting
period. We continually evaluate our estimates and judgments. We base our estimates and judgments on historical experience and other factors
that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional
information becomes known. Besides the estimates identified below that are considered critical, we make many other accounting estimates
in preparing our consolidated financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported
amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent liabilities. These estimates and judgments
are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different
results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed
critical.
The Company considers costs
to develop software, warrants and share-based compensation to be critical accounting estimates and believes the associated assumptions
and estimates to have the greatest potential impact on our consolidated financial statements.
Costs to Develop Software
The Company incurs costs related
to internally developed software. Based on the nature of the software the Company capitalizes software costs under the following guidance.
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Internal-Use Software
The Company capitalizes certain
costs related to internal-use software, primarily consisting of direct labor and third-party vendor costs associated with creating the
software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred),
the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation/operation
stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs related to the design
and implementation of the selected software components, software build and configuration infrastructure, and software interfaces. Capitalization
of costs requires judgment in determining when a project has reached the application development stage, the proportion of time spent
in the application development stage, and the period over which the Company expects to benefit from the use of that software. Once the
software is placed in service, these costs are amortized on the straight-line method over the estimated useful life of the software,
which is generally three to five years. There is judgment involved in the determination of the useful life. Internal-use software is
classified as property and equipment in accordance with ASC 350, Intangibles - Goodwill and Other.
Costs to Develop Software to be Sold, Leased
or Otherwise Marketed
The Company accounts for research
costs of computer software to be sold, leased or otherwise marketed as expense until technological feasibility has been established for
the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general
release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined
that technological feasibility for our software products is reached shortly after a working prototype is complete and meets or exceeds
design specifications including functions, features, and technical performance requirements. After technological feasibility is established,
judgment is required to determine the amount of payroll and stock-based compensation costs to be capitalized on the remaining development
efforts. These costs will continue to be capitalized until such time as when the product or enhancement is available for general release
to customers.
Computer software to be sold,
leased or otherwise marketed is classified as an intangible asset. Capitalized software development costs are amortized using the greater
of (a) the amount computed using the ratio that current gross revenue for a product bear to total of current and anticipated future gross
revenue for that product or (b) the straight-line method, beginning upon commercial release of the product, and continuing over the remaining
estimated economic life of the product, not to exceed three years to five years and recorded as cost of revenue. Amortization will begin
when the product or enhancement is available for general release to customers. No amortization has begun for externally sold software,
as the software enhancement is still in development. Management evaluates the useful lives of these assets on a quarterly basis and tests
for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. No impairment charges
were associated with the Company’s sold, leased or otherwise marketed software for the year ended December 31, 2025.
During the year ended December
31, 2025, management completed a review of the Company’s capitalized software development projects. Based on this review, management
determined that projects previously capitalized as developed software no longer met the criteria for capitalization under ASC 985-20,
External-Use Software, resulting from new technical development issues that did not exist and could not have been reasonably anticipated
in prior periods.
As a result, the Company revised its estimate regarding the point at which technological feasibility is achieved
for software development activities. This change in estimate was made to reflect management’s current expectations about the timing
and certainty of future technological milestones.
The change in estimate
was accounted for prospectively in accordance with ASC 250, Accounting Changes and Error Corrections, and did not
require restatement of prior-period financial statements. For the year ended December 31, 2025, the Company recognized a total of
$1.4 million related to costs originally capitalized in 2024 and $1.2 million related to costs capitalized during the first two
quarters of 2025 as research and development expense resulting from this change.
Common Stock Warrants
The Company issued to its
lead underwriter in the Company’s initial public offering consummated in October 2021, (the “IPO”), warrants to purchase
up to 9 shares of its common stock, exercisable at a price per share of $40,650 and expiring on October 19, 2026. Additionally, in connection
with the Private Placement offering completed on April 29, 2022, the Company issued warrants to purchase 426 shares of its common stock,
exercisable at a price per share of $140,625 and expiring on April 29, 2027. The Company accounts for warrants in accordance with ASC
480, Distinguishing Liabilities from Equity, depending on the specific terms of the warrant agreement. The Company determined the fair
value of the warrants using the Black-Scholes pricing model and treated the valuation as equity instruments in consideration of the cashless
settlement provisions in the warrant agreements.
41
The Company also applied
the guidance in ASC 340-10-S99-1, Other Assets and Deferred Costs, that states specific incremental costs directly attributable to a
proposed or actual offering of equity securities may properly be deferred and charged against the gross proceeds of the offering. The
Company treated the valuation of the warrants as directly attributable to the issuance of an equity contract and, accordingly, classified
the warrants as additional paid-in capital.
The Company issued Series
A warrants and Series B warrants in connection with securities purchase agreement on December 20, 2024. The Company accounts for warrants
in accordance with ASC 480, Distinguishing Liabilities from Equity, depending on the specific terms of the warrant agreement. The estimated
fair value of the Company’s warrant agreements has been determined to be Level 3 measurement, as certain inputs used to determine
the fair value of these agreements are unobservable. The Company determined the fair value of the warrants using the Monte Carlo pricing
model and treated the valuation as a liability in consideration of the variable number of the issuer’s equity shares in the warrant
agreements. The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change
in fair value is recognized in the Company’s consolidated statements of operations under other income (expense). After shareholder
approval on January 30, 2025, the strike price and the number of equity shares are now fixed. Therefore, in accordance with ASC 815-40-35-8,
Derivatives and Hedging Reclassification of Contracts, the Series A warrants were re-measured utilizing the Black Scholes model and reclassified
into equity. The Series A warrants are included in equity in the consolidated balance sheet as of December 31, 2025. The Series B warrants
were re-measured utilizing the Black Scholes model immediately before exercise and were fully exercised in February 2025.
Stock-based Compensation
The Company recognizes the
cost of share-based awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized
on a straight-line basis over the service period, which is generally the vesting period of the award. The Company recognizes stock-based
compensation cost and reverses previously recognized costs for unvested awards in the period forfeitures occur, if any. The Company determines
the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the fair value of the Company’s
common stock, expected price volatility of the common stock, expected term, risk-free interest rates, and expected dividend yield.
Results of Operations
Revenue
We derive revenue from EAS
subscriptions with relative add-on offerings such as hardware revenue and other revenue (i.e., deployment costs). Revenue from these subscriptions
and add-ons are recognized monthly over the service contract life, beginning at the time that a customer acknowledges acceptance of the
service.
During 2025, the Company recognized
$0.2 million of revenue, substantially all related to EAS subscriptions and hardware revenue. During 2024, the Company recognized $0.4
million of revenue, substantially all related to EAS subscriptions and hardware revenue.
Cost of Revenue
Cost of revenues consists
primarily of direct labor and related fringe benefits for internal engineering resources costs incurred for the completion of the contracts
and hardware costs.
During 2025, the Company reported
cost of revenue of $0.1 million consisting primarily of deployment costs related to personnel costs and travel expenses. During 2024,
the Company reported cost of revenue of $0.5 million consisting primarily of deployment costs, related to personnel costs, travel expenses
and associated hardware costs to specific customers.
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Research and Development
Research and development expense
consist primarily of internal engineering and development expenses, materials, labor and stock-based compensation and outsourced engineering
services related to development of the Company’s products and services. Research and development costs incurred during deployments
are capitalized and expensed when the associated contract revenue is recognized. All other research and development costs are expensed
as incurred.
Research and development expense
for the year ended December 31, 2025 increased by $1.2 million or 10.7% to $12.5 million from $11.3 million for the year ended December
31, 2024. The increase is primarily attributable to personnel related costs and expanded leased space.
General and Administrative
General, and administrative
expense consist primarily of personnel costs, facilities expenses, depreciation and amortization, travel, and advertising costs.
General and administrative
expenses increased by approximately $1.9 million or 16.7% to $13.3 million for the year ended December 31, 2025 from $11.4 million for
the year ended December 31, 2024. The increase primarily relates to additional executive bonuses and advertising.
Interest income (Expenses), net
Interest income (expense),
net increased by $1.3 million to $0.2 million for the year ended December 31, 2025 from ($1.1 million) for the year ended December 31,
2024. Interest income consists primarily of interest earned of $0.2 million from the Company’s interest-bearing bank accounts.
Other Income (Expenses), net
Other income (expense), net
increased by $12.7 million to $2.2 million for the year ended December 31, 2025 from ($10.5 million) for the year ended December 31, 2024.
Other income consists primarily of fair value remeasurement of $1.1 million and realized gains earned on the Company’s short-term
investments of $0.9 million.
Liquidity and Capital Resources
The Company’s principal
source of liquidity is its cash and current maturities of short-term investments. Short-term investments consist of placements in U.S.
government securities with original maturities between three to nine months. As of December 31, 2025, the Company had unrestricted cash
of approximately $0.1 million and short-terms investments of $33.7 million. As of December 31, 2024, the Company had unrestricted cash
of approximately $23.6 million and no short-terms investments.
On April 23, 2024, the Company
entered into an underwritten agreement with Aegis Capital Corp. (“Aegis”), pursuant to which Aegis acted as the Company’s
underwriter on a firm commitment basis in connection with the sale by the Company of an aggregate of 3,333 shares of common stock in a
public offering, which included: (i) 1,320 shares of common stock, and (ii) pre-funded warrants to purchase 2,013 shares of common stock.
The pre-funded warrants had a nominal exercise price of $0.0015. Each share of common stock was sold at an offering price of $1,500, and
each pre-funded warrant was sold at an offering price of $1,499.85. The pre-funded warrants are classified as a component of permanent
stockholders’ equity within additional paid-in capital and were recorded at the issuance date concluding the purchase price approximated
the fair value. The offering closed on April 25, 2024. On May 3 2024, the Company closed on the sale of an additional 136 shares of common
stock, upon exercise by the underwriter of the over-allotment option. The Company received net proceeds of approximately $4.6 million,
after deducting the estimated offering expenses payable by the Company, including the placement agent fees.
On November 12, 2024, the
Company entered into a securities purchase agreement with certain investors pursuant to which we sold, in a private placement, senior
notes with an aggregate principal amount of $4,375,000 (the “Notes”), and received proceeds before expenses of $3,500,000.
As consideration for entering into the agreement, we issued a total of 2,701 shares of common stock of the Company to the Purchasers on
November 13, 2024. The principal amount of the Notes were repaid on December 23, 2024.
43
On November 12, 2024, the
Company implemented a cost reduction plan in order to reduce its average monthly cash burn from approximately $1.8 million per month to
approximately $1 million per month for 90 days. This included reducing staff from approximately 80 people to approximately 60 people,
temporarily suspending certain non-essential operations and reducing or eliminating all discretionary expenses. With the additional capital
raised in December 2024, the Company has resumed normal operations.
On December 20, 2024, the
Company entered into a securities purchase agreement for the sale and issuance of (i) 20,507 units at a public offering price per Unit
of $241.50 with each Unit consisting of one share of common stock, par value $0.00001 per share, one Series A warrant to purchase one
share of Common Stock at an exercise price of $301.875 per share and one Series B warrant to purchase one share of Common Stock at an
exercise price of $301.875 and (ii) 62,309 pre-funded units at a public offering price of $241.485 per Pre-Funded Unit, with each Pre-Funded
Unit consisting of one pre-funded warrant exercisable for one share of Common Stock at an exercise price of $0.015 per share, one Series
A Warrant and one Series B Warrant. The net proceeds to the Company from the Offering were approximately $18.2 million, after deducting
placement agent’s fees and the payment of other offering expenses associated with the offering that were payable by the Company.
On December 30, 2024, the
“Company entered into a securities purchase agreement pursuant to which the Company agreed to sell and issue, in a registered direct
offering, 44,333 shares of its common stock, par value $0.015 per share at a purchase price of $90 per share and 55,667 pre-funded warrants
to purchase shares of Common Stock, at a purchase price of $89.985 per Pre-Funded Warrant. The Company received net proceeds of approximately
$8.1 million from the offering, after deducting the estimated offering expenses payable by the Company, including the placement agent
fees.
On June 26, 2025, the
Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to sell and issue,
in a registered direct offering, 192,496 shares of its common stock, par value $0.00001 per share, at a purchase price of $5.01 per
share and 2,801,516 pre-funded warrants to purchase shares of common stock, at a purchase price of $5.00999 per pre-funded warrant.
The Company received net proceeds of approximately $15.9 million from the offering, after deducting the estimated offering expenses
payable by the Company of $1.3 million, including the placement agent fees.
On June 27, 2025, the
Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to sell and issue,
in a registered direct offering, 313,564 shares of its common stock, par value $0.00001 per share, at a purchase price of $7.50 per
share and 1,979,769 pre-funded warrants to purchase shares of common stock, at a purchase price of $7.49999 per pre-funded warrant.
The Company received net proceeds of approximately $13.7 million from the offering, after deducting the estimated offering expenses
payable by the Company of $1.3 million, including the placement agent fees.
On September 5, 2025, the
Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis Capital Corp. (the “Agent”),
under which the Company may, from time to time, sell shares of the Company’s common stock having an aggregate offering price of
up to $100,000,000 in “at the market” offerings through or to the Agent, as sales agent or principal. Sales of the shares
of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent
will receive a commission from the Company of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement.
In October 2025, the Company
sold an aggregate of 935,114 shares of common stock pursuant to the Sales Agreement for gross proceeds of $5,778,031. The Company paid
a commission of $173,341 to Aegis Capital Corp., representing 3% of the gross proceeds, and $131,990 in issuance costs resulting in net
proceeds of approximately $5,472,691. The shares were issued at a par value of $0.00001 per share. The par value of the shares issued
was recorded as common stock, with the excess of net proceeds over par value recorded as additional paid-in capital.
44
The Company’s liquidity
is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow
funds to fund its general operations, research and development activities and capital expenditures.
Based on cash flow projections
from operating, investing and financing activities and the existing balance of cash and short-term investments, management is of the opinion
that the Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations
and related commitments for the 12 months following the date these consolidated financial statements were issued.
Cash Flows
Operating activities
Net cash used in operating
activities for the year ended December 31, 2025 was $23.6 million, an increase of approximately $4.4 million or 22.8% compared to $19.2
million for the year ended December 31, 2024. The increase is primarily attributed to an increase in inventory related to tuggers, the
fair value remeasurement of the warranty liabilities, and the security deposit for the new office location.
Investing activities
Net cash used in investing
activities for the year ended December 31, 2025 was $34.1 million, an increase of approximately $37.1 million compared to net cash provided
by investing activities of $2.9 million for the year ended December 31, 2024. The increase consists of short-term investment maturities
of $54.5 million, which were offset by short-term investment purchases of approximately $87.4 million, R&D-related hardware equipment
purchases of approximately $1.2 million, and approximately $0.03 million in acquisition of intangible assets.
Financing activities
Net cash provided by financing
activities for the year ended December 31, 2025 was $35.1 million, a decrease of approximately $1.2 million compared to $36.3 million
for the year ended December 31, 2024. The decrease is due to the following net proceeds received in each year:
Placement agent agreement, December 8, 2023 - -
Proceeds from issuance of warrants - 18,260,852
Proceeds from the Notes, net of issuance costs - 1,801,265
Repayment of the Notes - (4,375,000 )
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Emerging Growth Company Status
We are an “emerging-growth
company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage
of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including,
but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. As an emerging growth company we can also delay adopting
new or revised accounting standards until such time as those standards apply to private companies. We intend to avail ourselves of these
options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company.
We will cease to be an emerging
growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the initial public offering; (ii)
the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year
period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value
of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict
if investors will find our common stock less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce
future disclosure, investors find our common shares less attractive, there may be a less active trading market for our common shares and
the price of our common shares may be more volatile.
We are also a “smaller
reporting company”, meaning that the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds
to us as a result of the IPO is less than $700 million and our annual revenue was less than $100 million during the most recently completed
fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less
than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market
value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be
an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting
companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial
statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure
obligations regarding executive compensation.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
As a “Smaller Reporting
Company”, this Item and the related disclosure is not required.
Item
8. Financial Statements and Supplementary Data
46
Report of Independent Registered Public Accounting
Firm
To the Stockholders and Board of Directors of
CYNGN Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of CYNGN Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations, stockholders’
equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ CBIZ
CPAs P.C.
CBIZ CPAs P.C.
We have served as the Company’s auditor
since 2021 (such date takes into account the acquisition of the attest business of Marcum llp
by CBIZ CPAs P.C. effective November 1, 2024).
San Francisco, California
March 26, 2026
PCAOB ID NUMBER 199
F-1
Report of Independent Registered Public Accounting
Firm
To the Stockholders and Board of Directors of
CYNGN Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of CYNGN Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of operations, stockholders’
deficit and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).
In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with
accounting principles generally accepted in the United States of America.
Restatement of 2024 Financial Statements
As discussed in Note 15 to the financial
statements, the accompanying financial statements as of December 31, 2024 and for the year then ended, have been restated to correct misstatements
surrounding the Company’s accounting for warrant liabilities.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses
and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor
from 2021 through 2025.
San Francisco, CA
March 6, 2025 except for the effects of the restatement discussed in Note 15 to the consolidated financial statements, as to which
the date is November 14, 2025
PCAOB ID NUMBER 688
F-2
CYNGN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
CURRENT ASSETS
NON-CURRENT ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Non-current operating lease liability 6,495,256 ‒
Commitments and contingencies (Note 12)
STOCKHOLDERS’ EQUITY (DEFICIT)
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
CYNGN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
COSTS AND EXPENSES
OTHER INCOME (EXPENSE), NET
Warrant liability issuance costs ‒ (1,739,148 )
Loss on issuance of warrants ‒ (2,344,147 )
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
CYNGN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY (DEFICIT)
Preferred Stock Common Stock Additional Paid-in Accumulated Total Stockholders’
Shares Amount Shares Amount Capital Deficit Equity
Exercise of stock options and vesting of restricted stock units – – 15 – – – –
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
CYNGN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on short-term investments (85,117 ) ‒
Loss on disposed assets 16,607 ‒
Change in estimate of capitalized software 1,425,689 ‒
Warrant liability issuance costs ‒ 1,739,148
Loss on issuance of warrants ‒ 2,344,147
Accretion of interest and amortization of debt issuance costs ‒ 1,177,174
Changes in operating assets and liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of warrants ‒ 18,260,852
Proceeds from the Notes, net of issuance costs ‒ 1,801,265
Repayment of the Notes ‒ (4,375,000 )
Issuance costs for stock dividend and restricted stock units ‒ (597 )
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid during the period for interest and taxes $ ‒ $ ‒
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
CYNGN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of Business
Cyngn Inc., together with its subsidiary (collectively,
“Cyngn” or the “Company”), was incorporated in Delaware in 2013. Our wholly owned subsidiary, Cyngn Singapore
PTE. LTD., is a Singaporean limited company organized in 2015. The Company is headquartered in Mountain View, CA.
Cyngn develops and deploys scalable, differentiated
autonomous vehicle technology for industrial organizations. Our full-stack autonomous driving software, (“DriveMod”), can
be integrated onto vehicles manufactured by Original Equipment Manufacturers (“OEM”) by integration directly into vehicle
assembly. The Enterprise Autonomy Suite (“EAS”) is designed to be compatible with sensors and components from leading hardware
technology providers and integrate our proprietary Autonomous Vehicle (“AV”) software to produce differentiated autonomous
vehicles.
The Company has been operating autonomous vehicles
in production environments and in 2023 began licensing EAS commercially. Built and tested in difficult and diverse real-world environments,
DriveMod, the fleet management system and our proprietary Software Development Kit (“DriveMod Kit”) combine to create a full-stack
advanced autonomy solution designed to be modular, extendable, and safe. The Company operates in one business segment.
On June 25, 2024, the Company’s stockholders
voted to authorize the Company’s Board of Directors to effect a reverse stock split of the outstanding shares of common stock within
a range of 1-for-5 to 1-for-100. On June 25, 2024, the Company’s Board of Directors determined to effect the reverse stock split
of the common stock at a 1-for-100 ratio, which reverse split became effective in the market on July 5, 2024. On January 30, 2025, the
Company’s stockholders voted to authorize the Company’s Board of Directors to effect a reverse stock split of the outstanding
shares of common stock within a range of 1-for-5 to 1-for-150. On January 30, 2025, the Company’s Board of Directors determined
to effect the reverse stock split of the common stock at a 1-for-150 ratio, which reverse split became effective in the market on February
18, 2025.
All share and per share amounts and exercise prices
of stock options and warrants in the accompanying consolidated financial statements and notes to the consolidated financial statements
have been retroactively adjusted to reflect the reverse stock splits for all periods presented.
Liquidity
The Company has incurred losses from operations
since inception. The Company incurred net losses of approximately $23.5 million and $33.3 million for the years ended December 31, 2025
and 2024, respectively. Accumulated deficit amounted to approximately $216.8 million and $193.4 million as of December 31, 2025 and December
31, 2024, respectively. Net cash used in operating activities was approximately $23.6 million and $19.2 million for the year ended December
31, 2025 and 2024, respectively.
The Company’s liquidity is based on its
ability to increase its operating cash flow position, obtain capital financing from equity interest investors and borrow money to fund
its general operations, research and development activities, and capital expenditures. As of December 31, 2025, the Company’s unrestricted
cash and cash equivalents balance was approximately $1.0 million and short-term investments of approximately $33.7 million. As of December
31, 2024, the Company’s cash and cash equivalents balance was approximately $23.6 million and no short-terms investments.
Based on cash flow projections from operating,
investing and financing activities and the existing balance of cash and short-term investments, management is of the opinion that the
Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations and related
commitments for the 12 months following the date these consolidated financial statements were issued.
F-7
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements
as of and for the years ended December 31, 2025 and 2024 have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) and pursuant to applicable rules and regulations of the Securities and Exchange Commission (“SEC”).
The consolidated financial statements include all normal adjustments necessary for a fair presentation of the Company’s financial
position at December 31, 2025 and 2024, and operating results and cash flows for the periods presented.
Principles of Consolidation
The consolidated financial statements include
the accounts of Cyngn Inc. and its wholly owned subsidiary. Intercompany accounts and transactions have been eliminated upon consolidation.
Foreign Currency Translation
The functional and reporting currency for Cyngn
is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than U.S. dollar are translated into the U.S. dollar
at period end rates, income and expenses are translated at the weighted average exchange rates for the period and equity is translated
at the historical exchange rates. Foreign currency translation adjustments and transactional gains and losses are immaterial to the consolidated
financial statements.
Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported
amounts of revenue and expenses during the reporting period. The Company’s significant estimates and judgments include but are not
limited to internal-use software, warrants and share-based compensation. Management bases its estimates on historical experience and on
various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results could differ from those estimates.
Reclassifications
Certain prior period balances for the consolidated
financial statement for December 31, 2024 have been reclassified to conform with the current year presentation. These reclassifications
relate to inventory and accounts and other receivables that were previously presented as prepaid expenses and other current assets, as
well as deferred revenue that was previously presented as accrued expenses and other current liabilities. These reclassifications had
no impact on previously reported net loss, total assets, or total shareholders’ equity.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash, which is placed with high-credit-quality financial institutions and at times
exceeds federally insured limits.
Cash maintained with domestic financial institutions
generally exceed the Federal Deposit Insurance Corporation insurable limit. To date, the Company has not experienced any losses on its
deposits of cash. Cyngn invests in U.S. Treasury securities and carries these at amortized cost and recognizes gains and losses when realized.
Concentration of Supplier Risk
The Company generally utilizes suppliers for outside
development and engineering support. The Company does not believe that there is any significant supplier concentration risk as of December
31, 2025 and December 31, 2024.
Cash and Short-term Investments
The Company considers its bank accounts and all highly liquid investments
that are both readily convertible to cash with minimal risk of changes in value due to changes in interest rates, to be cash. As of December
31, 2025 and December 31, 2024, the Company had approximately $1.0 million of cash and $33.7 million in short-term investments and $23.6
million of cash and no short-term investments, respectively.
The Company considers short-term investments to include marketable
U.S. government securities that it intends to hold until maturity and redeem within one year. The Company treated its U.S. government
treasury bill placements as held-to-maturity securities in accordance with the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification Topic (“ASC”) 320, Investments - Debt and Equity Securities, and recorded these securities
at amortized cost on the accompanying consolidated balance sheets as of December 31, 2025 and December 31, 2024.
F-8
Accounts and Other Receivable
Accounts receivables are recorded at the invoiced
amount and do not bear interest. The Company provides for probable uncollectible amounts based upon its assessment of the current status
of the individual receivables and after using reasonable collection efforts. The allowance for credit losses was zero as of December 31,
2025 and December 31, 2024. In addition, the Company utilizes current and historical collection data as well as assesses current economic
conditions in order to determine expected trade credit losses on a prospective basis. No credit losses were recorded as of December 31,
2025 and December 31, 2024. Other receivables primarily consist of Employee Retention Credit (“ERC”) claims related to 2020
and 2021.
Fair Value Measurements
The accounting guidance under ASC Topic 820, Fair