WRAP Wrap Technologies, Inc. - 10-K

ITEM 1A. RISK FACTORS

An investment in our Company involves a high degree of risk. In addition to the other information included in this Annual Report, you should carefully consider the following risk factors in evaluating an investment in our Company. You should consider these matters in conjunction with the other information included or incorporated by reference in this Annual Report. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be negatively impacted. In that event, the market price of our Common Stock could decline, and you could lose part or all of your investment.

RISK FACTOR SUMMARY

Risk Factors Relating to Our Business and Industry

We have a history of operating losses, expect additional losses and may not achieve or sustain profitability .

We have a history of operating losses and expect to incur additional losses until we achieve sufficient revenue and operating margins to offset our operating costs. Our net loss for the years ended December 31, 2025 and 2024 was approximately $10.3 million and $5.9 million, respectively. The increase in net loss in 2025 was primarily attributable to lower non-cash income related to changes in the fair value of warrant liabilities compared to 2024, as well as continued operating losses incurred while we invested in product development, commercialization initiatives, and expansion of our technology platform, despite ongoing cost containment efforts. Our ability to achieve future profitability depends on a number of factors, many of which are outside of our control, and failure to achieve or sustain profitability may require us to raise additional capital, which could result in dilution to stockholders and have a material adverse effect on the market value of our Common Stock.

We may need additional capital to execute our business plan, and raising additional capital, if possible, by issuing additional equity securities may cause dilution to existing stockholders. In addition, raising additional capital by issuing additional debt instruments may restrict our operations.

Although we believe we have adequate financial resources to fund our operations and capital needs for at least the next twelve months, and that we may be able to generate funds from product sales during that time, existing working capital may not be sufficient to achieve profitable operations due to product introduction costs, operating losses and other factors. Principal factors affecting the availability of internally generated funds include:

failure of product sales and services to meet planned projections;

government spending levels impacting sales of our products;

working capital requirements to support business growth;

our ability to integrate acquisitions;

our ability to control spending;

our ability to collect accounts receivable; and

acceptance of our products and services in planned markets.

In the event we are required to raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be diluted significantly, and such newly issued securities may have rights, preferences or privileges senior to those of our existing stockholders. In addition, the issuance of any equity securities could be at a discount to the market price.

If we incur debt financing, the payment of principal and interest on such indebtedness may limit funds available for our business activities, and we could be subject to covenants that restrict our ability to operate our business and make distributions to our stockholders. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem stock or make investments. There is no assurance that any equity or debt financing transaction will be available on acceptable terms, if at all.

If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under the Nasdaq Capital Market ("Nasdaq Capital Market" or "Nasdaq") rules, or seek other sources of capital. The foregoing limitations on our financing approaches could have a material adverse effect on our results of operations, liquidity, and financial position.

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We expect to be dependent on sales of our BolaWrap product line for the foreseeable future, and if this product is not widely accepted, our growth prospects will be diminished.

We expect to depend on sales of the BolaWrap product line and related cassettes for the foreseeable future. A lack of demand for this product, or its failure to achieve broader market acceptance, would significantly harm our growth prospects, operating results and financial condition. To execute our business plan successfully, we will need to execute on the following objectives, either on our own or with strategic collaborators:

Grow our commercialization of the BolaWrap product, and develop additional future products and accessories for commercialization;

Maintain required regulatory approvals for our products in global market locations;

Expand, and as required, enforce our intellectual property portfolio for the BolaWrap product and other future products;

Maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities; and

Grow market acceptance for the BolaWrap product line and/or other future products.

We face risks commercializing our virtual reality training platform and may be unsuccessful in growing revenues.

We continue to invest substantial funds in further developing and commercializing our Wrap Reality product line which is highly competitive. The commercial launch of the Wrap Reality Virtual Training product is in the early stages in a new marketplace for 3D Virtual Reality training that competes with a legacy 2D virtual training environment. We expect 2D virtual training companies to either try to buy out companies like ours or choose to build 3D Virtual reality to compete with us. As one of the only companies with both on premise 3D Virtual Reality and full cloud 3D Virtual Reality we plan to compete on both fronts; however, our ability to commercialize this 3D Virtual Reality product line may be influenced by many factors, including:

our ability to continue to develop new products and new content;

our ability to obtain, set up and service new VR customers;

our ability to achieve and maintain market acceptance;

the impact of competition; and

our ability to attract and retain talent.

We face competition from companies with greater financial, technical, sales, marketing and other resources, and, if we are unable to compete effectively with these competitors, our business could be harmed .

We face competition from other established companies. A number of our competitors have longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or client requirements, more quickly develop new products or devote greater resources to the promotion and sale of their products and services than we can. Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the global public safety industry and compete more effectively on the basis of price and production. In addition, new companies may enter the markets in which we compete, further increasing competition in the global public safety solutions industry.

We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control. We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.

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We are materially dependent on the acceptance of our product by the law enforcement market. If law enforcement agencies do not purchase our product or we do not meet their expectations, our revenue will be adversely affected and we may not be able to expand into other markets, or otherwise continue as a going concern.

A substantial number of law enforcement agencies may not purchase our product. In addition, if our product is not widely accepted by the law enforcement market or we do not meet their expectations, we may not be able to expand sales of our product into other markets. Law enforcement agencies may be influenced by claims or perceptions that our product is not effective or may be used in an abusive manner. Our reputation could be damaged if we do not meet customer expectations for performance, value and quality. Sales of our product to agencies may be delayed or limited by such claims or perceptions or to any negative publicity or damage to our reputation. We now receive earned media that is often positive and helps our sales and growth and having negative earned media will create the opposite effect.

Some components of our products pose potential safety risks, and our devices and related training products may be used in inherently dangerous situations, which expose us to personal injury and other liability claims that could harm our reputation and adversely affect our sales and financial condition.

Our BolaWrap non-lethal devices and related training products including WrapTactics, WrapReady, and Wrap Reality are used by law enforcement, corrections, probation and other public-safety personnel in situations that may involve the use of force against individuals. Some of the components of our products contain elements that may pose potential safety risks. While our products are designed to provide officers with a proactive, non-lethal option to gain control of encounters earlier and reduce the risk of injury to both officers and subjects, there is always a chance that use could result in injury to those involved. In addition to these risks, there can be no assurance that accidents in the facilities that use our products will not occur. If an incident occurs in which a BolaWrap device or our training products are alleged to have malfunctioned, been defective, lacked adequate instructions or warnings or been insufficient to prevent injury, we may be subject to product liability claims, negligence claims, wrongful death claims, regulatory investigations, or other legal proceedings.

Even if we ultimately prevail, the cost of defending such claims could be substantial and could divert management attention and resources. Adverse judgments, settlements, increased insurance premiums, or negative publicity arising from such incidents could harm our reputation, reduce demand for our products and adversely affect our business, financial condition, and results of operations.

The effectiveness of our products depends on customer training, policies, and implementation practices, which we do not control.

The effectiveness of our devices and training solutions depends significantly on how customers implement our products, including the adequacy of customer policies, supervision, instructor quality, training frequency and adherence to recommended procedures. Our training offerings including WrapTactics, WrapReady and Wrap Reality are designed to support proper deployment of our products, but customers may choose not to adopt, fully implement, or consistently follow our training or policy recommendations.

If customers fail to properly train personnel, implement appropriate policies, or integrate our products into their operational workflows, outcomes may differ from expectations and may result in incidents, reduced customer satisfaction, contract disputes, or non-renewals. Negative outcomes attributed to improper use or insufficient training could nevertheless harm our reputation and adversely affect demand for our products.

Our subscription-based revenue model may result in revenue volatility, delayed recognition and customer churn.

A portion of our revenue is derived from subscription and recurring arrangements, including WrapReady, WrapTactics, Wrap Reality and certain WrapVision services. Revenue from these arrangements is generally recognized over the contract term and may not align with the timing of sales efforts, bookings, or customer deployments. Implementations may be delayed due to customer procurement processes, IT and security reviews, staffing constraints, or integration timelines.

Additionally, many of our customers are governmental entities that depend on annual appropriations, grants or discretionary funding. Contracts may be canceled, reduced, or not renewed due to budget changes or shifting priorities. Any increase in customer churn, delays in deployment, or reductions in public-sector spending could cause fluctuations in revenue and adversely affect our financial results.

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The use of certain of our solutions may be perceived as, or determined by the courts to be, in violation of privacy rights and related laws. Any such perception or determination could adversely affect our financial results and results of operations.

Because of the nature of certain of our products, including those used to access, collect, review, store, share and support digital evidence, the general public could perceive that the use of our solutions may result in violations of individual privacy rights. In addition, certain courts or regulatory authorities could determine that the use of our software solutions violates privacy laws. Any such determination or perception by potential customers, the general public, government entities or judicial authorities could harm our reputation, may result in reduced usage or adoption rates of our platforms by our customers and adversely affect our reputation, revenue, financial condition and results of operations. While we dedicate resources to ensure our compliance with applicable privacy laws, we are responsible and liable for personal data which our customers entrust in our platforms and we process as part of the services we provide. We require our customers to comply with applicable privacy laws when using our products; however we may still be held responsible and even liable for the manner in which our customer uses such data, including if the customer uses the data in a way that is a violation of privacy related laws or any of our agreements.

Contracting with government entities, including police departments, can be complex, expensive, and time-consuming.

The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties, disruptions or limitations in our ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.

Government entities often require highly specialized contract terms that may differ from our standard arrangements. Compliance with these special standards or satisfaction of such requirements could complicate our efforts to obtain business or increase the cost of doing so. Even if we do meet these special standards or requirements, the increased costs associated with providing our solutions to government customers could harm our margins. Additionally, even once we have secured a government contract, the renewal process can be lengthy and as time-consuming as the initial sale, and we may be providing our service for months past the contract expiration date without certainty if the renewal agreement will be signed or not.

Changes in the underlying regulatory conditions, political landscape or required procurement procedures that affect these types of customers could be introduced prior to the completion of our sales cycle, making it more difficult or costly to finalize a contract with a new customer or expand or renew an existing customer relationship. For example, customers may require a competitive bidding process with extended response deadlines, review or appeal periods, or customer attention may be diverted to other government matters, postponing the consideration of the purchase of our products. Such delays could harm our ability to provide our solutions efficiently and to grow or maintain our customer base.

Our recent expansion into drone and counter-UAS technologies may not be successful, and we may fail to achieve commercial adoption or generate meaningful revenue from these initiatives.

We have recently expanded beyond our core BolaWrap products into new areas such as drone payload systems, drone-first-responder technologies, and counter-unmanned aerial systems. These initiatives are in early stages, and their success depends on our ability to complete development, meet regulatory and technical standards, and achieve customer adoption. The markets for drone and C-UAS solutions are emerging, highly competitive, and subject to rapid technological change, and we face established and well-funded competitors. If our new products fail to perform as expected, experience development delays, or do not achieve meaningful market traction, our anticipated growth, brand reputation, and financial results could be materially adversely affected. There can be no assurance that our investments in these technologies will generate the expected returns or lead to sustainable revenue growth.

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Our business strategy depends heavily on government and law-enforcement customers, who are subject to lengthy procurement cycles, budget constraints, and shifting priorities.

We expect that much of the demand for our new drone and C-UAS solutions will come from U.S. and international government, defense, and law-enforcement agencies. These customers face complex approval processes, long evaluation periods, and budget limitations that can delay or reduce procurement decisions. Political and policy changes, including shifts in funding for public safety or defense, may reduce demand or delay adoption of new technologies like ours. Furthermore, changes in public perception regarding the use of drones or non-lethal force tools could impact purchasing decisions or restrict deployment. As a result, even strong interest from these customers may not translate into timely or predictable revenue, and any sustained reduction in public-sector demand could materially affect our results of operations.

Our drone and aerial-interdiction systems are subject to evolving regulatory, legal and liability risks that could restrict our operations or expose us to claims.

Our drone-based and counter-UAS technologies may be regulated by multiple federal and international authorities, including the FAA and U.S. export-control agencies. As these regulatory frameworks evolve, new restrictions, certification requirements, or licensing limitations could arise that delay product approvals, increase compliance costs or limit deployment opportunities. Because these systems are designed for public-safety and defense use, any operational incident, misuse, or unintended injury could lead to product-liability claims, investigations, or negative publicity. Any regulatory action, litigation, or reputational harm related to these risks could materially and adversely affect our business and financial condition.

We may face manufacturing and supply-chain challenges as we expand production of new technologies. To support our entry into drone-related markets, we are increasing production capacity, including at our new Virginia facility.

Scaling manufacturing for new and technically complex products requires reliable suppliers, quality control systems, and efficient production processes. We may face challenges securing critical components, many of which come from limited sources or may be subject to long lead times. Disruptions in the supply chain, cost increases, or quality issues could delay deliveries, increase expenses, and impact customer satisfaction. If we are unable to scale production effectively or control manufacturing costs, our margins, liquidity, and ability to meet demand could be adversely affected.

We may incur significant and unpredictable warranty costs as our products are produced, sold, and used.

We warrant our products to be free from defects in materials and workmanship for a period of up to one year from the date of purchase. Additional one-year warranties can be purchased by the customer. We may incur substantial and unpredictable warranty costs from post-production product or component failures. Future warranty costs could further adversely affect our financial position, results of operations and business prospects.

We could incur charges for excess or obsolete inventory and incur production costs for improvements or model changes.

While we strive to effectively manage our inventory, rapidly changing technology, and uneven customer demand may result in short product cycles and the value of our inventory may be adversely affected by changes in technology that affect our ability to sell the products in our inventory. If we do not effectively forecast and manage our inventory, we may need to write off inventory as excess or obsolete, which in turn can adversely affect cost of sales and gross profit.

We have experienced, and may in the future experience, improvement and model changes and unusual production costs associated with implementing production for our products. We currently have no reserve for slow moving or obsolete inventory but may incur future charges for obsolete or excess inventory.

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Our international operations could be harmed by factors including   natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.

We sell our products worldwide and have exported to multiple countries. We expect exports to continue to be a significant part of our future business. The risks inherent in international trade may reduce our international sales or impede growth and harm our business and the businesses of our customers and our suppliers. These risks include, among other things:

Changes in tariff regulations;

Foreign currency exchange rate fluctuations;

Establishing and maintaining relationships with local distributors, agents and dealers;

Lengthy shipping times and accounts receivable payment cycles;

Import and export control and licensing requirements;

Compliance with a variety of US laws, ATF regulations, US Department of Commerce regulations and the Foreign Corrupt Practices Act, by us or key subcontractors or agents;

Compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements;

Greater difficulty in safeguarding intellectual property abroad than in the US; and

Difficulty in staffing and managing geographically diverse operations.

These and other risks may preclude or curtail international sales or increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products. Failure to comply with US and international governmental laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or US export control regulations, could have an adverse impact on our business with the US and international governments.

Global economic weakness and uncertainty, geopolitical conflict, war, and civil unrest, could adversely affect our revenues, gross margins and expenses .

Our business may be impacted by global economic conditions, which have been volatile in recent years. Geopolitical conflict, such as the current conflict in Ukraine, and related international economic sanctions and their impact may exacerbate this volatility. Specifically, our revenues and gross margins depend significantly on global economic conditions and the demand by foreign governments and agencies for the BolaWrap and Wrap Reality in many of our target markets. Economic weakness and uncertainty in these markets have resulted, and may result in the future, in decreased revenue attributable to these markets, gross margin, earnings or growth rates, and difficulty managing inventory levels. Sustained uncertainty about global economic conditions and geopolitical events may adversely affect demand for the BolaWrap and could cause demand to differ materially from our expectations as foreign governments and agencies curtail or delay spending. Economic weakness and uncertainty also make it more difficult for us to make accurate forecasts of revenues, gross margins and expenses.

Public health crises could adversely affect our business, financial condition and results of operations.

Our business could be adversely impacted by the effects of future pandemics, epidemics or infectious disease outbreaks. The extent to which future pandemics will in the future impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the continued duration of the outbreak in the markets we target.

Substantially all our employees are located in the US. In addition to our employees, we rely on (i) distributors, agents, and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the U.S., Canada, Europe and Asia. If we, or any of these third-party partners encounter any disruptions to our or their respective operations or facilities, or if we or any of these third-party partners were to shut down for any reason, including by pandemic, fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, or other unforeseen disruption, then we or they may be prevented or delayed from effectively operating our or their business, respectively. Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected.

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We anticipate that a significant portion of our revenue in the short-term will be generated from international sales, which may adversely affect our ability to timely collect accounts receivable.

During the year ended December 31, 20 25, we generated approximately 43% of our revenue from international sales. Due principally to the longer sales cycle, procurement delays and regulatory issues associated with domestic sales versus international sales, we currently anticipate that a significant portion of our sales in the year ending December 31, 2026 will be generated from international orders .   In the event we are u nable to timely collect account receivables associated with international sales, or timing of such international sales is delayed, our financial condition could be adversely and materially affected.

If we are unable to manage our projected growth, our growth prospects may be limited, and our future profitability may be adversely affected .

We intend to continue to expand our sales and marketing and our manufacturing capability. Rapid expansion may strain our staffing, financial and other resources. If we are unable to manage our growth, our business, operating results, and financial condition could be adversely affected. Our systems, procedures, controls, and management resources may not be adequ ate to support our future growing operations, and we have started to upgrade them and will continue to do so in 2026. We are wo rking to continually improve our operational, financial, and other internal systems to manage our growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability.

We may face personal injury and other liability claims that harm our reputation and adversely affect our sales and financial condition.

Our products are designed to give officers a proactive, non-lethal option that can reduce the risk of injury to both officers and subjects in dynamic encounters. There is always a chance that use could result in injury to those involved. Our product may cause or be associated with such injuries. A person injured in a confrontation or otherwise in connection with the use of our product may bring legal action against us to recover damages based on theories including personal injury, wrongful death, negligent design, dangerous product, or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our product. If successful, personal injury, misuse, and other claims could have a material adverse effect on our operating results and financial condition. Although we carry product liability insurance, significant litigation could also result in a diversion of management’s attention and resources, negative publicity, and an award of monetary damages in excess of our insurance coverage.

The nature of our business may result in undesirable press coverage or other negative publicity .

Our solutions are used to assist law enforcement and first responders in volatile encounters. Even when our device works as intended, incidents can lead to injury, loss of life and other negative outcomes, and such events are likely to receive negative publicity even if not directly caused by BolaWrap. If our product fails to perform as intended during an encounter, related adverse outcomes may receive negative media attention. At times, body or dash camera images or other images of use of our product may become a matter of public record due to legal or other obligations (for example, because of public-records requests or subpoenas to provide information or to testify in court), and we may receive negative media attention as a result.

We may be subject to criticism and unflattering media coverage regarding the effectiveness of our non-lethal solutions and the cost of our solutions to our customers, or the appropriateness of use on persons in crisis or the mentally ill. Such negative publicity could have an adverse impact on new sales, which would adversely impact our financial results and prospects.

Our future success is dependent on our ability to expand sales, and our inability to grow our sales force or maintain and grow distributors would negatively affect our sales.

Our distribution strategy is to pursue sales through multiple channels with an emphasis on direct sales, as well as independent distributors, domestically and internationally. Our inability to recruit and retain sales personnel and maintain and add police equipment distributors who can successfully sell our products could adversely affect our sales. If we do not competitively price our products, provide high quality bug free products and solutions, meet the requirements of any end-users, provide adequate marketing support, or comply with the terms of any distribution arrangements, such distributors may fail to aggressively market our product or may terminate their relationships with us. These developments would likely have a material adverse effect on our sales. Our reliance on the sales of our products by distributors for a large portion of our sales also makes it more difficult to predict our revenue, cash flow and operating results.

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We expect to expend significant resources to generate sales due to our lengthy sales cycle, and such efforts may not result in the level of sales or revenue we expect.

Generally, law enforcement agencies consider a wide range of issues before committing to purchase a product, including product benefits, training time and costs, the cost to use our product in addition to, or in place of, other less lethal products, time in market, product reliability and budget constraints. The length of our sales cycle may range from 30 days to a year or more. We may incur substantial selling costs and expend significant effort in connection with the evaluation of our product by potential customers before they place an order if they place an order at all. If these potential customers do not purchase our product, we will have expended significant resources without corresponding revenue.

Most of our intended end-users are subject to budgetary and political constraints that may delay or prevent sales .

Most of our intended end-user customers are government agencies at all levels. These agencies often do not set their own budgets and therefore have little control over the amount of money they can spend. In addition, these agencies experience political pressure that may dictate the way they spend money. As a result, even if an agency wants to acquire our product, it may be unable to purchase our product due to budgetary or political constraints. Some government agency orders may also be canceled or substantially delayed due to budgetary, political, or other scheduling delays, which frequently occur in connection with the acquisition of products by such agencies.

Our dependence on third-party suppliers for key components of our products makes us vulnerable to price increases, inflation, recession, and supply shortages that could delay shipment of our products and reduce our sales or margins.

We depend on certain domestic and foreign suppliers for the delivery of components used in the assembly of our product . During the year ended December 31, 2025 ,   71% of our supply chain is from domestic U.S. suppliers. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or sub-assemblies and reduced control over pricing and timing of delivery of components and subassemblies. Specifically, we depend on suppliers of sub-assemblies, electronic components, injection molded plastic parts, and other miscellaneous custom parts for our product, some from sole source suppliers. We are still subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities or changes for bugs or enhancements. Delays in our suppliers’ abilities, especially any sole suppliers, to provide us with necessary materials and components may delay production or may require us to seek alternative supply sources. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

We have recently experienced, and in the future are likely to experience, disruption of the supply of some of our parts, components, and assemblies that we obtain from suppliers.

We do not have any long-term supply agreements with any suppliers. We actively monitor and attempt to mitigate supply chain risk, but there can be no assurance that our mitigation plans will be effective to prevent disruptions that may arise from shortages of materials that we use in the production of our products. Any interruption of supply for any material components of our products could significantly delay production and shipment of our products and have a material adverse effect on our revenue, profitability, and financial condition.

Market and economic conditions may negatively impact our business, financial condition and share price.

Concerns over inflation, geopolitical issues, the U.S. financial markets and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. In addition, there is a risk that one or more of our current and future service providers, manufacturers, suppliers, hospitals and other medical facilities, our third-party payors, and other partners could be negatively affected by difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives.

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We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize revenue enhancements or other synergies from such acquisitions .

In November 2022, we acquired the rights to certain software assets and services to drive the rapid enhancement of our Wrap Reality Cloud platform, and in August 2023 we acquired Intrensic, which included a Body-Worn Camera and Digital Evidence Management solution. However, our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions we may acquire in the future. We may not realize the intended benefits of the acquisition of other businesses in the future as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate any other acquired businesses, products or technologies without substantial expense, delay or other operational or financial problems. Acquisitions involve several risks, some or all of which could have a material adverse effect on our acquired businesses, products or technologies. Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition and integration strategy successfully could have a material adverse effect on our business, results of operations and financial condition. The process of integrating an acquired business involves risks, including but not limited to:

Demands on management related to changes in the size and possible locations of our businesses and employees;

Diversion of management's attention from the management of daily operations;

Difficulties in the assimilation of different corporate cultures, employees and business practices;

Retaining the loyalty and business of the employees or customers of acquired businesses;

Retaining employees that may be vital to the integration of acquired businesses or to the future prospects of the combined businesses;

Difficulties and unanticipated expense related to the integration of departments, information technology systems, including accounting systems, technologies, books and records, and procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies;

Costs and expense associated with any undisclosed or potential liabilities; and

The use of more cash or other financial resources on integration and implementation activities than we expect.

Failure to successfully integrate any acquired business in the future may result in reduced levels of revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.

In addition, the acquisition of any future businesses could result in additional debt and related interest expense, contingent liabilities, and amortization expense related to intangible assets, as well as the issuance of our Common Stock, which could have a material adverse effect on our financial condition, operating results, and cash flow.

Government regulation of our products may adversely affect sales.

Our BolaWrap device is classified as a firearm and the BolaWrap 150 is also classified as an AOW . Both firearms and explosive devices are regulated by the US Bureau of Alcohol, Tobacco, Firearms and Explosives involving substantial regulatory compliance. ATF regulations are enforced by surveillance and inspection of federal firearms licensees (“ FFLs ”). If the ATF finds a violation, it can institute a wide range of enforcement actions, ranging from warnings to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution. Any such actions could have a material adverse impact on our operations.

The federal firearms laws impose strict controls over the possession and transfers of firearms, which may impact our ability to transfer devices to customers. Because the ATF has classified our devices as AOWs, we must register our devices with the ATF at the time of manufacture. Before we may transfer our registered devices to any customer, including a government agency, we must obtain approval from the ATF. The ATF processing time for transfer applications varies significantly, depending on the prospective transferee. Applications to transfer AOWs to U.S., state or local government entities are usually processed in 1-3 weeks, while transfers to private, non-licensed individuals require a longer processing time because of the required background investigation of the transferee. These types of transfers may take 6-8 months or longer.

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The federal firearms laws prohibit interstate transfers of firearms to non-licensed persons or entities. Consequently, we are prohibited from transferring our devices directly to a non-government, non-licensed individual or entity in a different state. To accomplish such a transfer, we must first obtain ATF approval to transfer the device to another FFL dealer in the end-user’s state. After that transfer is completed, the FFL dealer must obtain ATF approval to transfer the device to the non-government, non-licensed individual. The ATF may deny any transfer application if such transfer would violate state law or when the transferee is prohibited from possessing a firearm.

Our device may face state restrictions, especially regarding sales to private security agencies. Our product sales may be significantly affected by international, federal, state and local regulations. Failure to comply with regulations could also result in the imposition of fines, penalties and other actions that could adversely impact our financial position, cash flows and operating results.

Our product is also controlled by the US Department of Commerce for exports directly from the US. Consequently, we need to obtain export licenses from the DOC for the export of our products from the US. Compliance with or future changes in US export regulations could significantly and adversely affect any future international sales.

The shipment of some of our components and our products involve conformity to regulations governing the transport of “dangerous goods.” Failure to comply with shipping regulations could result in the imposition of fines, penalties and other actions that could adversely impact our financial position, cash flows and operating results.

Certain foreign jurisdictions may restrict the importation or sale of our products, limiting our international sales opportunities.

Our products, including the BolaWrap 150, are protected by limited patent and other intellectual property protection. If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights .

Our future success depends in part upon our proprietary technology. We currently own 32-issued US patents related to the BolaWrap technology and have 8 US patents pending. We have filed foreign patent applications in the European Union (up to 39 countries) and 23 other countries and reserved our rights to file additional foreign patents. Our protective measures taken thus far, including our issued patents, pending patents, issued and pending trademarks and trade secret laws, may prove inadequate to protect our proprietary rights. To date we have a total of 84 issued domestic and international patents. During 2025 we filed 7 patent application s all  of which were US filings. We feel the significant investment in patent protection in the US and abroad creates a significant amount of IP and value in Wrap. However, there can be no assurance we will be granted any patent rights from pending patents. The scope of any possible patent rights may not prevent others from developing and selling competing products. The validity and breadth of claims covered in any possible patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, lengthy, and expensive. In addition, any patents, if granted, may be held invalid upon challenge, or others may claim rights in or ownership of our patents.

Furthermore, the issuance of a patent, while presumed valid and enforceable, is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees.

Our intellectual property may be challenged, deemed unenforceable, invalidated or circumvented. We will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that these rights (and the products and services they cover) are protected by valid and enforceable patents, copyrights or trademarks, or are effectively maintained as trade secrets.

Any patents we obtain may be challenged by re-examination or otherwise invalidated or eventually found unenforceable. A third-party may submit prior art, or we may become involved in opposition, derivation, reexamination, inter partes review, post-grant review, supplemental examination, or interference proceedings challenging our patent rights or development partners. The costs of defending or enforcing our proprietary rights in these proceedings can be substantial, and the outcome can be uncertain. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, or reduce our ability to manufacture or commercialize products. Furthermore, if the scope or strength of protection provided by our patents and patent applications is threatened, it could discourage companies from collaborating with us to license, develop or commercialize current or future products, or to settle any infringement litigation. The ownership of our proprietary rights could also be challenged.

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Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product, particularly in litigation in countries other than the U.S. that do not provide an extensive discovery procedure. Any litigation to enforce or defend our patent rights, if any, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

Both the patent application process and the process of managing patent disputes can be time consuming and expensive. If we were to initiate legal proceedings against a third party to enforce a patent relating to one of our products, the defendant in such litigation could counterclaim that the asserted patents are invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are common, as are validity challenges by the defendant against the subject patent or related patents before the U.S. Patent and Trademark Office ("USPTO"). Grounds for a validity challenge could be an alleged failure to meet any of several statutory patentability requirements, including lack of novelty, obviousness, non-enablement, failure to meet the written description requirement, indefiniteness, and/or failure to claim patentable subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected to prosecution of the patents at issue intentionally withheld material information from the USPTO or made a material misleading statement during prosecution. Additional grounds for an unenforceability assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship with deceptive intent. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The outcome of any assertion of invalidity and/or unenforceability is unpredictable. If a defendant or third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the claims of the challenged patents. Such a loss of patent protection could have a material adverse impact on our business.

We may not be able to protect our intellectual property rights throughout the world.

Patent rights are territorial, and patent protection extends only to those countries where we have issued patents. Filing, prosecuting, and defending patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. As part of ordinary course prosecution and maintenance activities, we determine whether to seek patent protection outside the U.S. and in which countries. This also applies to patents we have acquired or in-licensed from third parties. In some cases, this means that we, or our predecessors in interest or licensors of patents within our portfolio, have sought patent protection in a limited number of countries for patents covering our product candidates. Competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is generally not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents, the reproduction of our manufacturing or other know-how or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.

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In Europe, a new unitary patent system, which took effect on June 1, 2023, may significantly impact European patent enforcement actions, including those granted before the introduction of the new system. Under the new system, Applicants can, upon grant of a patent, opt for that patent to become a Unitary Patent which will be subject to the jurisdiction of a new Unitary Patent Court (UPC). Patents granted before the implementation of the new system can be opted out of UPC jurisdiction, remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC may be challenged in a single UPC-based revocation proceeding that, if successful, could invalidate the patent in all countries who are signatories to the UPC. Further, because the UPC is a fairly new court system and there is little precedent for the court’s laws, there is increased uncertainty regarding the outcome of any patent litigation. We are unable to predict what impact the new patent regime may have on our ability to exclude competitors in the European market. In addition to changes in patent laws, patent procedures, and geopolitical dynamics, such as Russia’s incursion into Ukraine, may also impact our ability to obtain and enforce patents in particular jurisdictions. If we are unable to obtain and enforce patents or other IP rights as needed in particular markets, our ability to exclude competitors or stop other violations of our IP in those markets may be reduced.

If we are unable to maintain effective proprietary rights for our technologies or commercial products, we may not be able to compete effectively in our markets.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating such trade secrets. In addition, others may independently discover our trade secrets and proprietary information.

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the U.S. and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and results of operations.

Our competitive position may be seriously damaged if our products are found to infringe on the intellectual property rights of others.

We may not have identified all patents, published applications or published literature that affect our business either by blocking our ability to commercialize our products, by preventing the patentability of one or more aspects of our products to us, or by covering the same or similar technologies that may affect our ability to market our products. For example, we may not have conducted a patent clearance search sufficient to identify potentially obstructing third party patent rights. Moreover, patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications remain confidential in the USPTO, for the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside of the United States are not typically published until at least 18 months from their first filing date. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. We cannot be certain that we were the first to invent, or the first to file, patent applications covering our products. We also may not know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent the technology that is the subject of our patent applications. Competitors may have filed patent applications or received patents and may obtain additional patents and proprietary rights that block or compete with our patents.

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Our product may infringe or may be alleged to infringe existing patents or patents that may be granted in the future. Pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products, or the use of our products. As a result, we may become party to, or threatened with, future adversarial proceedings or litigation regarding patents with respect to our products and technology. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our products. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

Furthermore, other companies and our competitors may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products. Any intellectual property infringement claims made against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business. In the event of a successful claim of infringement against us and if we are unable to license the allegedly infringed technology, our business and operating results could be adversely affected. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources. An adverse result from intellectual property litigation could force us to do one or more of the following:

Cease selling, incorporating, or using products or services that incorporate the challenged intellectual property;

Obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and

Redesign products or services that incorporate the disputed technology.

If we are forced to take any of the foregoing actions, we could face substantial costs and shipment delays, and our business could be materially harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed.

If we are sued for patent infringement, we would need to demonstrate that our products or technology either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. If we are found to infringe a third party’s patent, we could be required to obtain a license from such third party to continue developing and marketing our products and technology or we may elect to enter into such a license in order to settle litigation or in order to resolve disputes prior to litigation. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us and could require us to make substantial royalty payments. We could also be forced, including by court order, to cease commercializing the infringing technology or product. A finding of infringement could prevent us from commercializing our product or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated confidential information or trade secrets of third parties could have a similar negative impact on our business. Any such claims or infringement or misappropriation are likely to be expensive to defend, and some of our competitors may be able to sustain the costs of complex patent litigation more effectively than us if they have substantially greater resources. Moreover, even if we are successful in defending any infringement proceedings we may incur substantial costs and divert management’s time and attention. There could also be public announcements of the results of the hearing, motions or other interim proceedings or developments. If securities analysts or investors perceive those results to be negative, it could cause the price of shares of our Common Stock to decline.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigations in general, there is a risk that some of our confidential information could be compromised by disclosure during intellectual property litigation or proceeding. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex intellectual property litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property.

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In addition, it is possible that others may seek indemnity from us if our products are found or alleged to infringe the intellectual property rights of others. Any such claim for indemnity could result in substantial expense to us that could harm our operating results.

Obtaining and maintaining patent protection depends on compliance with various procedures, document submissions, fee payments and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated in case of non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid by us to the relevant patent agencies in several stages over the lifetime of the patents and/or applications. The relevant patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which the failure to comply with the relevant requirements can result in the abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to use our technologies and know-how which could have a material adverse effect on our business, prospects, financial condition and results of operations.

In addition, it is possible that others may seek indemnity from us if our products are found or alleged to infringe the intellectual property rights of others. Any such claim for indemnity could result in substantial expense to us that could harm our operating results.

Competition in the law enforcement market could reduce our sales, make our products obsolete or inferior and prevent us from achieving profitability.

The law enforcement market is highly competitive, and adoption of new policing tools and innovative training solutions may take time, Law enforcement adherence to currently used products may also slow adaptation to new policing tools. We face competition from numerous larger, better capitalized, more experienced and more widely known companies that make less-lethal weapons and other law enforcement products. One or more of our competitors may have developed or may succeed in developing technologies and products that are more effective than any of ours, rendering our technology and products obsolete or noncompetitive. Increased competition could result in reduced sales, greater pricing pressure, lower gross margins, and prevent us from achieving profitability.

Foreign currency fluctuations may reduce our competitiveness and sales in international markets.

The relative change in currency values creates fluctuations in product pricing for future potential international customers. These changes in international end-user costs may result in lost orders and reduce the competitiveness of our products in certain international markets. These changes may also negatively affect the financial condition of some international customers and reduce or eliminate their future orders of our products.

Our business is dependent on the ability to attract and retain key personnel.

We are dependent on our ability to retain and motivate our high-quality personnel, especially managers, sales and skilled engineering and manufacturing personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified managerial, sales and technical personnel in the future. The inability to attract and retain the necessary managerial, sales and technical personnel could cause our business, operating results or financial condition to suffer.

A failure in or breach of our or our operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyberattacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

Information security risks have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct operations, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. Our operations and certain of our products rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks. We rely on our digital technologies, computer and email systems, software, and networks to conduct our operations. Our technologies, systems, networks are likely to be the target of, cyberattacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations.

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We may suffer material losses relating to cyberattacks or other information security breaches. Our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats, the continued uncertain global economic environment, threats of cyberterrorism, and system and customer account conversions. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. As cyber threats continue to evolve, we may be required to expend significant additional financial, technical and operational resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third parties with which we do business or that facilitate our and our subsidiaries’ business activities. Any such failure, termination or constraint could adversely affect our and our subsidiaries’ ability to provide our services and products, service the customers, manage the exposure to risk or expand our businesses and could have an adverse impact on our liquidity, financial condition and results of operations.

Disruptions or failures in the physical infrastructure or operating systems that support our business, or cyberattacks could result in the loss of business opportunities, significant disruptions to our operations and business, misappropriation of our confidential information and/or that of our customers, or damage to our computers or systems and those of our customers and/or counterparties, and could result in violations of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.

The regulatory framework for artificial intelligence (“AI”) technologies is rapidly evolving as many federal, state and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations. In addition, existing laws and regulations may be interpreted in ways that would affect the use of AI in our business. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or market perception of their requirements may have on our business and may not always be able to anticipate how to respond to these laws or regulations.

We incorporate AI solutions into our Body Worn Camera and Digital Evidence Management solutions, services, and features, and these applications are important in our operations. The regulatory framework for AI technologies is rapidly evolving as many federal, state and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations. In addition, existing laws and regulations may be interpreted in ways that would affect the use of AI in our business. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or market perception of their requirements may have on our business and may not always be able to anticipate how to respond to these laws or regulations.

Certain existing legal regimes (e.g., relating to data privacy) regulate certain aspects of AI technologies, and new laws regulating AI technologies recently entered into force in the United States and Europe. In the United States, former Biden administration issued a broad Executive Order on the Safe, Secure and Trustworthy Development and Use of Artificial Intelligence (the “2023 AI Order”), which sets out principles intended to guide AI design and deployment for the public and private sectors and signals the increase in governmental involvement and regulation over AI technologies. This executive order was revoked by President Trump on January 23, 2025. Subsequently, on January 23, 2025, the President issued Executive Order on Removing Barriers to American Leadership in Artificial Intelligence, which directed relevant agencies to develop an action plan to assure global dominance by the United States in artificial intelligence, and to examine any actions taken in connection with the 2023 AI Order, which are incongruent with Trump’s order.

In addition, agencies such as the Department of Commerce and the Federal Trade Commission have issued proposed rules governing the use and development of AI technologies. Legislation related to AI technologies has also been introduced at the federal level and is advancing at the state level. Such additional regulations may impact our ability to develop, use, and commercialize AI technologies offered by our service providers and within our products and services in the future.

On May 21, 2024, the European Union legislators approved the EU Artificial Intelligence Act (the “EU AI Act”), which establishes a comprehensive, risk-based governance framework for artificial intelligence in the EU market. The EU AI Act entered into force on August 2, 2024, and the majority of the substantive requirements will apply from August 2, 2026. The EU AI Act, and developing interpretation and application of the GDPR in respect of automated decision making, together with developing guidance and/or decisions in this area, may affect our use of AI technologies and our ability to provide, improve or commercialize our business, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition.

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It is possible that further new laws and regulations will be adopted in the United States and in other non-U.S. jurisdictions, or that existing laws and regulations, including competition and antitrust laws, may be interpreted in ways that would limit our ability to use AI technologies for our business, or require us to change the way we use AI technologies in a manner that negatively affects the performance of our business and the way in which we use AI technologies. We may need to expend resources to adjust our system in certain jurisdictions if the laws, regulations, or decisions are not consistent across jurisdictions.

Further, the cost to comply with such laws, regulations or decisions and/or guidance interpreting existing laws, could be significant and would increase our operating expenses (such as by imposing additional reporting obligations regarding our use of AI technologies). Such an increase in operating expenses, as well as any actual or perceived failure to comply with such laws and regulations, could materially and adversely affect our business, financial condition, results of operations, and prospects.

Further, a number of aspects of intellectual property protection in the field of AI are currently under development and there is uncertainty and ongoing litigation in different jurisdictions as to the degree and extent of protection warranted for AI and relevant system input and outputs. If we fail to obtain protection for our intellectual property rights within our AI technologies, or later have our intellectual property rights invalidated or otherwise diminished, our competitors may be able to take advantage of our research and development efforts to develop competing products that could adversely affect our business, reputation and financial condition. Further, given the long history of development of AI technologies, other parties may have (or in the future may obtain) patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our own AI technologies.

Risk Factors Relating to Our Financial Statements and Operating Results

We cannot predict our future operating results. Our quarterly and annual results will likely be subject to fluctuations caused by many factors, any of which could result in our failure to achieve our expectations.

We currently expect that the BolaWrap product will be the primary source of our revenue in 2026. We expect our revenue to vary significantly due to several factors. Many of these factors are beyond our control. Any one or more of these factors, including those listed below, could cause us to fail to achieve our revenue expectations. These factors include, among others:

Our ability to develop, manufacture, ship and supply product to customers;

Market acceptance of, and changes in demand for, our products;

Gains or losses of significant customers, distributors, or strategic relationships;

Unpredictable volume and timing of customer orders;

The availability, pricing, and timeliness of delivery of components in our supply chain for our products;

Fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs;

Timing of new technological advances, product announcements or introductions by us and by our competitors;

Unpredictable warranty costs associated with our products;

Budgetary cycles and order delays by customers or production delays by us or our suppliers;

Regulatory changes affecting the marketability of our products;

General economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling

General political conditions in this country and in various other parts of the world that could affect spending for the products that we intend to offer; and

Seasonality of purchasing timeframes and procurement delays impact sales.

Some or all of these factors could adversely affect demand for our products and, therefore, adversely affect our future operating results. As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not be meaningful in the near term, and accordingly you should not rely upon our performance in a particular period as indicative of our performance in any future period.

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Our expenses may vary from period to period, which could affect quarterly results and our stock price.

If we incur additional expenses in a quarter in which we do not experience increased revenue, our results of operations will be adversely affected, and we may incur larger losses than anticipated for that quarter. Factors that could cause our expense to fluctuate from period to period include:

The timing and extent of our research and development efforts;

Investments and costs of maintaining or protecting our intellectual property;

Marketing and sales efforts to promote our products and technologies;

The timing of personnel and consultant hiring; and

Supply chain and inventory cost variations.

Most of our operating expenses are relatively fixed in the short term. We may be unable to rapidly adjust spending to compensate for any unexpected sales shortfalls, which could harm our quarterly operating results and our stock price. We do not have the ability to predict future operating results with any certainty.

Risk Factors Related to Our Series A and Series B Preferred Stock

The Certificate of Designations for the Series A Preferred Stock provides for dividends to be issued in the form of shares of Common Stock at a conversion price that varies with the trading price of our Common Stock, and it contains “ full ratchet ” anti-dilution provisions applicable to the dividend conversion price and the conversion price for voluntary conversions of Series A Preferred Stock into Common Stock. These features may result in a greater number of shares of Common Stock being issued upon conversions than if the conversions were effected at the conversion price in effect at the time of this offering. Sales of these shares will dilute the interests of other security holders and may depress the price of our Common Stock and make it difficult for us to raise additional capital.

The Series A Certificate of Designations (as defined herein) for our Series A Preferred Stock provides for the payment of dividends to the holder of our Series A Preferred Stock in cash or shares of Common Stock, or a combination thereof, at the Company’s option. If the Company elects to pay any dividends in shares of Common Stock, the conversion price used to calculate the number of shares issuable will equal to the lower of (i) the then applicable conversion price and (ii) 85% of the arithmetic average of the three (3) lowest closing prices of the Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the dividend payment date, subject to a floor price. The Series A Certificate of Designations also contains “full ratchet” anti-dilution provisions applicable to the conversion prices used in voluntary conversions of Series A Preferred Stock by the holders thereof and by the Company in paying any dividends in shares of Common Stock, which provisions require the lowering of the applicable conversion price, as then in effect, to the purchase price of equity or equity-linked securities issued in subsequent offerings. If in the future, while any of our Series A Preferred Stock is outstanding, we issue securities at an effective Common Stock purchase price that is less than the applicable conversion price of our Series A Preferred Stock, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the Series A Certificate of Designations for the Series A Preferred Stock, to further reduce the relevant conversion price, which will result in a greater number of shares of Common Stock being issuable upon conversion of the Series A Preferred Stock or upon the payment of dividends to the holders of the Series A Preferred Stock in shares of Common Stock, which in turn will have a greater dilutive effect on our stockholders. The potential for such additional issuances may depress the price of our Common Stock regardless of our business performance. We may find it more difficult to raise additional equity capital while any of our Series A Preferred Stock is outstanding.

Further, it is possible that we will not have a sufficient number of available shares to satisfy the conversion of the Series A Preferred Stock or the payment of dividends to the holders of the Series A Preferred Stock in shares of Common Stock if we enter into a future transaction that reduces the applicable conversion price. If we do not have a sufficient number of available shares for any Series A Preferred Stock conversions, we will be required to increase our authorized shares, which may not be possible and will be time-consuming and expensive.

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The Series A Preferred Stock provides for the payment of dividends in cash or in shares of our Common Stock, or a combination thereof, and we may not be permitted to pay such dividends in cash, which will require us to have shares of Common Stock available to pay the dividends.

Each share of the Series A Preferred Stock is entitled to receive cumulative dividends at the rate per share of 8% per annum of the stated value per share. The dividends are payable in cash, out of any funds legally available for such purpose, or shares of Common Stock, or a combination thereof, at the Company’s option. The conversion price used to calculate the number of shares of Common Stock issuable in connection with a given dividend payment is subject to reduction if in the future we issue securities for less than the conversion price of our Series A Preferred Stock, as then in effect. This may have the effect of increasing the number of shares we would be obligated to issue in order to make a dividend payment in shares of Common Stock. We will not be permitted to pay the dividend in cash unless we are legally permitted to do so under Delaware law. As such, we may rely on having available shares of Common Stock to pay such dividends, which will result in dilution to our stockholders. If we do not have such available shares, we may not be able to satisfy our dividend obligations.

The Certificate of Designations of the Series B Convertible Preferred Stock provides for the payment of cumulative dividends in shares of our Common Stock which will require us to have shares of Common Stock available to pay the dividends.

Each share of the Series B Convertible Preferred Stock, par value $0.0001 per share ("Series B Preferred Stock") is entitled to receive dividends as and when declared by the Board of Directors of the Company (the "Board"), from time to time, in its sole discretion, which dividends shall be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms hereof, in cash, in securities of the Company, or using assets as determined by the Board on the stated value of such preferred share in accordance with the terms of the Series B Certificate of Designations (as defined herein). As such, we may rely on having available shares of Common Stock to pay such dividends, which will result in dilution to our stockholders. If we do not have such available shares, we may not be able to satisfy our obligations as related to these dividends pursuant to the terms of the Series B Certificate of Designations.

The Series B Warrants contain certain anti-dilution provisions, which may dilute the interests of our stockholders, depress the price of our Common Stock, and make it difficult for us to raise additional capital.

Certain events may reduce the exercise price of the warrants issued concurrently with the Series B Preferred Stock (the "Series B Warrants"), which in turn may lead to further dilution to the holders of our Common Stock. In addition, the perceived risk of dilution may cause our stockholders to be more inclined to sell their Common Stock, which may in turn depress the price of shares of our Common Stock regardless of our business performance. We may also find it more difficult to raise additional equity capital while any of the shares of Series B Preferred Stock and the Series B Warrants remain outstanding. Under the Series B Purchase Agreement (as defined herein), we are subject to certain covenants that may make it difficult to procure additional financing.

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Risk Factors Relating to Our Common Stock

Our stock price is volatile and may continue to be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.

The market price of our Common Stock has fluctuated significantly to date and in the future may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:

Actual or anticipated fluctuations in our operating results;

Failure of securities analysts to initiate or maintain coverage of our Company, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors;

Rating changes by any securities analysts who follow our Company;

Changes in the availability of federal funding to support local law enforcement efforts, or local budgets;

International budget changes or changeover in government leadership;

Announcements by us of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

Changes in operating performance and stock market valuations of other security product companies generally;

Price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

Announcements of merger or acquisition transactions;

Changes in our Board or management and key personnel;

Sales of large blocks of our Common Stock, including sales by our founders, executive officers, directors and significant stockholders;

Lawsuits threatened or filed against us;

Short sales, hedging and other derivative transactions involving our capital stock;

General economic conditions in the US and abroad; and

Other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many security and technology companies. Stock prices of many security and technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. Stock prices of nanocap securities and small cap securities have fluctuated even more than medium and large cap companies in recent years.

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We have been, and in the future may be, subject to securities litigation, which has and may be expensive and has and could divert management attention.

Our share price is volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation.

Lawsuits of this nature divert financial and management resources that would otherwise be used to benefit our operations and defending the lawsuits may result in substantial costs. Any lawsuit to which we or our directors or officers are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Any of these results could adversely affect our business.

In addition, we may be the target of securities-related litigation in the future. Such litigation may divert our management’s attention and resources, result in substantial costs, and have an adverse effect on our business, results of operations and financial condition. We maintain director and officer insurance that we regard as reasonably adequate to protect us from potential claims; however, we cannot assure you that it will. Further, if we are subject to future litigation, the costs of insurance may increase, and the availability of coverage may decrease. As a result, we may not be able to maintain our current levels of insurance at a reasonable cost, or at all, which might make it more difficult to attract qualified candidates to serve as executive officers or directors of the Company.

Our officers and directors are among our largest stockholders and may have certain personal interests that may affect the Company.

Management and certain directors owned more than 10% of our Common Stock as of December 31, 2025. As a result, our management and certain directors, acting individually or as a group, have the potential ability to exert influence on the outcome of issues requiring approval by our stockholders.

Sales of a substantial number of shares of our Common Stock may adversely affect the market price of our Common Stock.

Sales or distributions of a substantial number of shares of our Common Stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our Common Stock. Many of the outstanding shares of our Common Stock, other than the shares held by executive officers and directors, are eligible for immediate resale in the public market. Substantial selling of our Common Stock could adversely affect the market price of our Common Stock.

Our Common Stock could be delisted from the Nasdaq Stock Market.

Nasdaq’s continued listing standards for our Common Stock require, among other things, that we maintain a closing bid price for our Common Stock of at least $1.00, and either (A) stockholders’ equity of $2.5 million; (B) market value of listed securities of $35 million; or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, and that we timely file all required reports with the SEC or risk delisting, which would have a material adverse effect on our business.

A delisting of our Common Stock from the Nasdaq Capital Market could materially reduce the liquidity of our Common Stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.

There is no assurance that we will maintain compliance with such minimum listing requirements. If our Common Stock were delisted from Nasdaq, trading of our Common Stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our Common Stock on an over-the-counter market, and many investors would likely not buy or sell our Common Stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our Common Stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our Common Stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital

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We may issue additional shares of Common Stock in the future. The issuance of additional shares of Common Stock may reduce the value of your Common Stock.

We may issue additional shares of Common Stock without further action by our stockholders. Moreover, the economic and voting interests of each stockholder will be diluted as a result of any such issuances. Although the number of shares of Common Stock that stockholders presently own will not decrease, such shares will represent a smaller percentage of the total shares that will be outstanding after the issuance of additional shares. The issuance of additional shares of Common Stock may cause the market price of our Common Stock to decline.

Sales of shares of Common Stock issuable upon the exercise of any future options or warrants and vesting of restricted stock units may lower the price of our Common Stock.

As of   December 31, 2025 , we had outstanding options and unvested stock units of 6 .4  million shares o f our Common Stock. The issuance of shares of Common Stock issuable upon the exercise of options or issuance from restricted stock units or the exercise of warrants that may be outstanding in the future could cause substantial dilution to existing holders of our Common Stock, and the sale of those shares in the market could cause the market price of our Common Stock to decline. The potential dilution from the issuance of these shares could negatively affect the terms on which we are able to obtain equity financing.

We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of your Common Stock.

We are authorized to issue up to 5.0 million shares of preferred stock in one or more series in which 10,000 shares have been designated as Series A Preferred Stock and 4,500 shares have been designated as Series B Preferred Stock. Our Board may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue additional shares of preferred stock, it could affect your rights or reduce the value of your Common Stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. Preferred stock terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions.

We incur substantial costs as a result of being a public company.

As a public company, we incur significant levels of legal, accounting, insurance, exchange listing fees and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act , the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Capital Market and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources as compared to when we operated as a private company. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more corporate employees in the future or engage outside consultants to comply with these requirements, which would increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results, and financial condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, increased competition due to this insight, including by key competitors and other third parties. If any such claims are successful, our business, operating results and financial condition could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, operating results and financial condition.

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The payment of dividends will be at the discretion of our Board.

We have never declared dividends on our Common Stock, and currently do not anticipate that we will do so in the foreseeable future. The declaration and amount of future dividends, if any, will be determined by our Board and will depend on our financial condition, earnings, capital requirements, financial covenants, regulatory constraints, industry practice and other factors our Board deems relevant. In addition, so long as any shares of Series A Preferred Stock are outstanding, as they are at this time, we are not able to declare or pay any cash dividend or distribution on any of our capital stock (other than as required by the Series A Certificate of Designations) without the prior written consent of the Required Holders (as defined in the Series A Certificate of Designations).

General Risk Factors

Our disclosure controls and procedures may not prevent or detect all acts of fraud.

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our management expects that our disclosure controls and procedures and internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within our company have been prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing and other aspects of our business.

Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports. Section 404 of the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC require us to include in our Form 10-K a report by management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of the respective fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of December 31, 2025, it is possible that material weaknesses will be identified in the future. In addition, components of our internal control over financial reporting may require improvement from time to time. If management is unable to assert that our internal control over financial reporting is effective in any future period, investors may lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the Company’s stock price.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis set forth below should be read in conjunction with the information presented in other sections of this Annual Report, including “ Item 1. Business, ”   “ Item 1A. Risk Factors, ” and “ Item 8. Financial Statements and Supplementary Data. ” The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Words such as “ expects, ”   “ anticipates, ”   “ intends, ”   “ plans, ”   “ believes, ”   “ seeks, ”   “ estimates ” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying forward-looking statements. Our actual results could differ materially from those discussed in these forward-looking statements.

Overview

We are a global public safety technology and services company focused on delivering integrated non-lethal solutions for law enforcement, corrections, defense, and other public safety organizations worldwide. Our mission is to enable safer outcomes by providing officers and agencies with the tools, training, and tactics to gain proactive, lawful control of encounters, reducing risk to both officers and subjects, while preserving tactical advantage.

We began sales of our first public safety product, the BolaWrap® 100 device, in late 2018. In the first quarter of 2022, we introduced the BolaWrap® 150, a next generation, electronically deployed device that is more robust, smaller, lighter, and simpler to deploy than the BolaWrap 100, which has since been phased out. In December 2020, we acquired NSENA Inc., a provider of immersive virtual reality training for law enforcement utilizing proprietary software-enabled content and computer graphics simulation. This acquisition provided the foundation for Wrap Reality™, our virtual reality (“VR”) training platform designed for law enforcement simulation training and correctional reentry scenarios.

In August 2023, we acquired Intrensic, a Delaware limited liability company, which added body worn camera and digital evidence management capabilities to our portfolio.

During 2025, we continued our transition from a single-product company into a diversified public safety technology and services company delivering integrated non-lethal solutions that combine tools, training, and tactics. This transition included expanding our product portfolio, advancing our training and software platforms, entering adjacent defense and homeland security markets, and strengthening our commercial and leadership infrastructure. While we continued to incur operating losses during the year, we implemented cost containment initiatives and focused on aligning our operating structure with our near- and long-term strategic priorities.

We expanded our product portfolio with the launch of WrapTactics™, a digital training platform designed to integrate human-factors awareness, decision-making under stress, and tactical proficiency agency-wide; and WrapVision™, a North America assembled body worn camera solution designed to meet federal procurement and data sovereignty requirements. We also advanced several counter unmanned aircraft system initiatives, including the MERLIN™ program, which apply our proprietary tether deployment technology to non-lethal drone interdiction and defense applications. These initiatives are intended to broaden our addressable market beyond traditional policing into defense, homeland security, and critical infrastructure protection, while maintaining our core focus on providing integrated tools, training, and tactics that give officers proactive, lawful control of encounters and support safer outcomes for officers, subjects and the communities they serve.

On September 19, 2025, we formed a new wholly-owned subsidiary of the Company, Wrap Federal, under the laws of the State of Delaware. Wrap Federal was established for the purpose of supporting U.S. federal government clients in the Department of Defense, Department of Homeland Security, and other federal agencies. We believe a continued focus on integrating our systems into existing federal frameworks supports our goal of becoming a fully integrated federal public safety and defense technology enterprise.

Products and Services

Our core product and service offerings are designed to provide officers and agencies with integrated non-lethal tools, training, and tactics that support safer outcomes, and sustained readiness across the public safety ecosystem. We focus our efforts on the following:

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BolaWrap®

Our BolaWrap product line is a handheld, non-lethal device designed to give officers a proactive tactical option by deploying a Kevlar® tether that entangles the arms and/or legs, limiting a subject's mobility and balance. The BolaWrap 150 employs electronic deployment, improved reliability, enhanced durability, and reduced weight compared to prior generations. Upon deployment, the device creates a controlled interruption through sight, sound, and sensation, giving officers time, space, and tactical advantage to intervene earlier and manage encounters before contact distance collapses. BolaWrap is sold with proprietary cassettes that are consumed upon each deployment and must be replaced, providing a recurring consumable revenue stream.

Wrap Reality™ Virtual Reality Training

Wrap Reality is an immersive VR training platform providing scenario-based training focused on human-factors awareness, decision making under stress, and use of force judgment. The platform is designed to build and sustain the cognitive and tactical skills officers need to recognize intervention points, manage distance and positioning, and apply proportional, lawful responses in dynamic environments. Wrap Reality supports law enforcement, corrections, and societal reentry training and offers a growing library of configurable scenarios, including 45 scenarios for law enforcement and corrections and 15 scenarios for societal reentry. Wrap Reality may be deployed on premises or through cloud enabled environments and supports data capture, replay, and performance review.

WrapTactics™ Digital Training Platform

Launched in 2025, WrapTactics is a subscription based digital training and performance platform aimed at delivering short form, scenario-based instruction focused on non-lethal response tactics, decision-making under stress, and follow-on lawful control techniques. The platform is designed to prevent skill decay by providing continuous, low-burden training that reinforces the tactical fundamentals (distance, positioning, timing, and force decision-making) that officers rely on in dynamic encounters. WrapTactics complements our hardware and VR offerings and supports recurring revenue opportunities through bundled training and service offerings.

WrapVision™ Body-Worn Camera and Digital Evidence Management

WrapVision, launched in 2025, is a body-worn camera solution assembled in North America and designed to meet federal procurement and data-sovereignty requirements. WrapVision replaces our prior-generation Intrensic X2 camera hardware and serves as the front-end capture device within our digital evidence management ecosystem. Our cloud-based DEM platform provides unlimited video storage along with video and evidence uploading, search, retrieval, redaction, and evidence sharing capabilities, reducing the resources agencies require to manage digital evidence. Together, WrapVision and our DEM platform provide agencies with integrated accountability and transparency tools that complement our non-lethal and training solutions. WrapVision builds on the Intrensic acquisition and reflects our strategy to deliver integrated solutions for public safety.

Counter-Unmanned Aircraft Systems (C-UAS) and Defense Applications

During 2025, we expanded research, development, and demonstration efforts applying our tether deployment technology to counter C-UAS applications. MERLIN is designed to leverage the same self-contained cassette architecture underlying the BolaWrap platform, adapting it for non-lethal drone interdiction capabilities across defense, homeland security, and critical-infrastructure protection missions. These initiatives remain in various stages of development and evaluation and are subject to government testing, funding, and procurement timelines.

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Recent Developments

February 2026 Purchase Agreement

On February 2, 2026, we entered into a securities purchase agreement (the “February 2026 Purchase Agreement”) with the investors signatory thereto (the “February 2026 Purchasers”) for the issuance and sale in a private placement (the “February 2026 Private Placement”) of (i) an aggregate of 1,700,000 shares of Common Stock, (ii) pre-funded warrants (the “February 2026 Pre-Funded Warrants”) to purchase up to 800,000 shares of Common Stock, with an exercise price of $0.0001 per share, and (iii) warrants (the “February 2026 Investor Warrants” and, together with the February 2026 Pre-Funded Warrants, the “February 2026 Warrants”) to purchase up to 2,500,000 shares of Common Stock, with an exercise price of $2.30 per share. The purchase price for one share of Common Stock and accompanying February 2026 Common Warrant was $2.00 and the purchase price for one February 2026 Pre-Funded Warrant and accompanying February 2026 Common Warrant was $1.9999.

The closing of the February 2026 Private Placement (the “February 2026 Closing”) occurred on February 3, 2026. The aggregate gross proceeds from the February 2026 Closing were approximately $5.0 million, prior to deducting offering expenses payable by us.

The February 2026 Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the February 2026 Purchasers, including for liabilities under the Securities Act and other obligations of the parties and termination provisions.

February 2026 Warrants

The February 2026 Common Warrants are exercisable for shares of Common Stock immediately at an exercise price of $2.30 per share and expire five years from the date of issuance. The February 2026 Pre-Funded Warrants are exercisable for shares of Common Stock immediately and expire when exercised in full.

A holder of the February 2026 Warrants may not exercise any portion of such holder’s February 2026 Warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of Common Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise.

February 2026 Registration Rights Agreement

On February 2, 2026, in connection with the February 2026 Private Placement, the Company entered into a registration rights agreement (the “February 2026 Registration Rights Agreement”) with the February 2026 Purchasers, pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the shares of Common Stock and shares of Common Stock underlying the February 2026 Warrants no later than 60 days following the date of the February 2026 Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 90 days following the date of the February 2026 Registration Rights Agreement (or 120 days following the date of the February 2026 Registration Rights Agreement in the event of a “full review” by the SEC). On February 9, 2026, the Company filed the registration statement pursuant to the February 2026 Registration Rights Agreement, which was declared effective by the SEC on February 13, 2026.

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Business Outlook

We believe demand for integrated non-lethal solutions will continue to be influenced by public expectations for proportional and accountable use of force, evolving legal and policy standards, and increased emphasis on officer safety, community trust, and sustained operational readiness. Modern policing operates under continuous public and legal scrutiny, creating a need for tools, training, and tactics that give officers defensible, proportional options in dynamic encounters. Our business outlook is shaped by our ability to increase adoption of our core products, deepen customer relationships through programmatic training and service delivery, expand recurring revenue, and selectively enter adjacent markets while managing costs and capital resources.

In 2026, our near-term focus is on expanding agency-wide deployments of BolaWrap, increasing utilization of our training and subscription-based offerings, including Wrap Reality and WrapTactics, and advancing commercialization efforts for WrapVision. We also expect to continue evaluating development and demonstration opportunities related to our counter-unmanned aircraft system initiatives, although the timing and scale of any resulting revenues remain uncertain and dependent on government testing, funding, and procurement decisions.

Our results will continue to be influenced by government budget cycles, procurement processes, and the availability of grant funding at the federal, state, and local levels. We also expect international sales to remain uneven due to centralized procurement processes and the timing of large orders. While we have implemented cost containment initiatives and continue to evaluate our operating structure, we expect to continue incurring operating losses until we achieve sufficient scale, margin improvement, and recurring revenue to offset our fixed costs.

Business Trends

Our ability to execute our strategy and improve our financial performance is subject to a number of risks and challenges, many of which are outside of our control.

A significant portion of our revenues is derived from government customers, which exposes us to extended sales cycles, budget constraints, procurement delays, and changes in public policy or funding priorities. These factors can result in variability in the timing and amount of revenue recognized and may make it difficult to predict future operating results.

We are subject to extensive regulation, including firearms classification, export controls, procurement requirements, and data privacy and cybersecurity regulations. Changes in regulatory interpretation or enforcement could adversely affect our ability to manufacture, sell, or distribute our products.

Effects of Inflation

The Company has experienced increased costs related to labor and materials, which management attributes in part to inflationary pressures. These cost increases have been driven primarily by higher wage rates, competitive labor market conditions, and increased supplier pricing for certain materials and services. While inflationary pressures persisted during 2025, the Company has taken steps to mitigate the impact through cost containment initiatives, workforce reductions, supply chain management efforts, and selective pricing actions where appropriate. However, continued inflationary pressures could result in higher operating costs in future periods, and there can be no assurance that the Company will be able to fully offset such increases through operational efficiencies or pricing adjustments.

Segment and Related Information

The Company operates as a single segment. The Company’s chief operating decision maker is Scot Cohen, the Company’s Executive Chairman and Chief Executive Officer, who manages operations for purposes of allocating resources.

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Results of Operations

Year Ended December 31, 2025 Compared to year ended December 31, 2024

The following table and narrative sets forth for the periods indicated certain items of our statement of operations, expressed in thousands of dollars. The financial information and the discussion below should be read in conjunction with the financial statements and notes contained in this Annual Report on Form 10-K.

Year Ended December 31,

Change

(in thousands, except percentage change)

Revenues:

Product sales

Technology enabled services

Total revenues

Sales returns and allowances

Cost of revenue

Gross profit

Operating Expenses:

Selling, general and administrative

Research and development

Total operating expenses

Loss from operations

Revenue

Gross revenue for the year ended December 31, 2025 was $5.2 million, compared to $4.5 million for the year ended December 31, 2024, representing an increase of $0.7 million, or 15.4%. The increase in 2025 was offset by sales returns and allowances of $0.5 million related to the return of product from a distributor in connection with a change in the Company’s go-to-market strategy. Accordingly, the net revenue for the year ended December 31, 2025 was $4.7 million, compared to $4.5 million for the year ended December 31, 2024, representing an increase of $0.2 million, or 3.7%. The increase in net revenue was primarily attributable to growth in technology-enabled and managed services revenue, partially offset by a modest decline in product sales.

Product sales were $3.5 million for the year ended December 31, 2025, compared to $3.6 million for the year ended December 31, 2024, representing a decrease of $0.1 million, or 2.3%. The decrease in product sales was driven primarily by lower distributor orders and continued variability in international demand, partially offset by stable domestic demand for BolaWrap products.

Technology-enabled and managed services revenue increased to $1.7 million for the year ended December 31, 2025, compared to $0.9 million for the year ended December 31, 2024. The increase was primarily attributable to the acquisition of W1 in February 2025 and the expansion of managed services offerings aligned with the Company’s go-to-market strategy.

International revenue continues to consist primarily of larger, less predictable orders from centralized government agencies and remains lumpy and difficult to forecast with respect to both timing and amount. Domestic revenue continues to be driven by demand for non-lethal alternatives and training solutions, where BolaWrap remains differentiated as a non-lethal tool.

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Cost of Revenue and Gross Profit

Cost of revenue was $2.0 million for both years ended December 31, 2025 and December 31, 2024. For the year ended December 31, 2025, we had increases primarily related to costs associated with increased services revenue which were offset by decreases in cost of revenue primarily attributable to lower product volumes and continued cost containment efforts.

Gross profit for the year ended December 31, 2025 was $2.7 million, compared to $2.5 million for the year ended December 31, 2024, representing an increase of $0.2 million, or 9.5%. Gross margin increased to 57.8% in 2025 from 54.7% in 2024, primarily due to improved product margins, favorable product and services mix, and continued cost discipline in manufacturing and sourcing.

As our revenue history remains limited, historical margins may not be indicative of future margins. Our margins are subject to variations based on product mix, sales channels, and the relative mix of devices, cassettes, and services. Cassettes continue to have lower margins than BolaWrap devices; however, as cassette volumes increase, we expect to continue to pursue cost reductions to improve cassette margins over time.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense was $16.1 million for the year ended December 31, 2025, compared to $15.7 million for the year ended December 31, 2024, representing an increase of $0.4 million, or 2.8%. The increase was primarily driven by increased share-based compensation expense and a non-cash impairment charge related to certain intangible assets, partially offset by the Company's ongoing cost containment initiatives, including reductions in salaries, advertising, and promotional spending.

Share-based compensation expense included in SG&A increased to $4.0 million in 2025 from $2.4 million in 2024, primarily due to options and grants issued to new employees as a result of the acquisition of W1 in February 2025, as well as incentives provided to certain key senior level management in 2025. Salaries and related burden costs declined compared to the prior year due to the reduction in the Company’s workforce including a reduction of certain executive management positions. Advertising and promotional costs declined as the Company reduced trade show participation and promotional spending.

Research and Development Expense

R&D expense was $56 thousand for the year ended December 31, 2025, compared to $2.3 million for the year ended December 31, 2024, representing a decrease of $2.3 million, or 97.6%. The decrease was primarily attributable to reductions in personnel and consulting costs resulting from the Company’s cost containment initiatives and a strategic shift to focus development efforts on existing products and services.

Operating Loss

Loss from operations for the year ended December 31, 2025 was $13.5 million, compared to $15.6 million for the year ended December 31, 2024, representing an improvement of $2.1 million, or 13.4%. The improvement was primarily driven by higher gross profit and lower operating expenses, reflecting the impact of cost containment initiatives implemented during 2024 and continued through 2025, partially offset by a one-time, non-cash impairment.

Operating Expense

Our operating expense includes (i) selling, general and administrative expense, (ii) research and development expense and (iii) product line exit expense. Research and development expense is comprised of the costs incurred in performing research and development activities and developing production on our behalf, including compensation and consulting, design and prototype costs, contract services, patent costs and other outside expense. The scope and magnitude of our future research and development expense is difficult to predict at this time and will depend on elections made regarding research projects, staffing levels and outside consulting and contract costs. The future level of selling, general and administrative expense will be dependent on staffing levels, elections regarding expenditures on sales, marketing and customer training, the use of outside resources, public company and regulatory expense, and other factors, some of which are outside of our control.

We expect our operating costs to remain flat or slightly increase depending on the scope of additional sales and marketing initiatives. We may incur additional non-cash share-based compensation costs depending on future options and restricted stock unit grants that are impacted by stock prices and other valuation factors. Historical expenditures are not indicative of future expenditures.

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Liquidity and Capital Resources

Overview

Our primary source of liquidity to date has been funding from our stockholders through the sale of equity securities and the exercise of derivative securities, including options and warrants. We expect our primary sources of future liquidity in the long term to be derived from product and services revenue, the exercise of outstanding stock options and warrants, and future equity or debt financings.

We have incurred net losses and negative cash flows from operations since inception. As of December 31, 2025, we had cash and cash equivalents of $3.5 million, compared to $3.6 million as of December 31, 2024. Net cash used in operating activities was $10.3 million during the year ended December 31, 2025, compared to $8.1 million during the year ended December 31, 2024, primarily reflecting higher net losses and working capital changes. During 2025, the Company completed multiple financing transactions, including the issuance of Common Stock and warrants in private placements and the issuance of Series B Preferred Stock, generating aggregate gross proceeds of $10.2 million. In addition, during 2025 the Company amended certain warrant agreements, resulting in the reclassification of warrant liabilities to equity and eliminating future non-cash fair value adjustments related to those warrants.

Based on our current operating plan, existing cash balances, and expected cash flows, management believes that the Company has sufficient liquidity to fund its operations for at least the next twelve months. However, our ability to continue as a going concern is dependent on our ability to increase revenues, manage operating expenses, and access additional capital as needed. Liquidity constraints and access to capital markets could negatively affect our liquidity and require changes to our operating or investment strategy.

Capital Requirements

Our future capital requirements will depend on numerous factors, including the timing and extent of market acceptance of our products and services, investments in product development, sales and marketing activities, working capital requirements, and the timing and amount of future revenue. We may seek to raise additional capital through equity or debt financings, strategic partnerships, or other arrangements. There can be no assurance that such financing will be available on acceptable terms, or at all.

Our future capital requirements, cash flows and results of operations could be affected by, and will depend on, many factors, some of which are currently unknown to us, including, among other things:

Decisions regarding staffing, development, production, marketing and other functions;

The timing and extent of market acceptance of our products;

Costs, timing and outcome of planned production and required customer and regulatory compliance of our products;

Costs of preparing, filing and prosecuting our patent applications and defending any future intellectual property-related claims;

Costs and timing of additional product development;

Costs, timing and outcome of any future warranty claims or litigation against us associated with any of our products;

Ability to collect accounts receivable; and

Timing and costs associated with any new financing.

Principal factors that could affect our ability to obtain cash from external sources including from exercise of outstanding warrants and options include:

Volatility in the capital markets; and

Market price and trading volume of our Common Stock.

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Series A Offering

On June 29, 2023, the Company entered into a Securities Purchase Agreement (“Series A Purchase Agreement”) with certain accredited investors, including Scot Cohen, the Company’s Executive Chairman and Chief Executive Officer (collectively, the “Series A Investors”), pursuant to which we agreed to sell to the Series A Investors in a registered direct offering (the “Series A Offering”) (i) an aggregate of 10,000 shares of the Company’s Series A Preferred Stock, initially convertible into up to 6,896,553 shares of the Company’s Common Stock, at an initial conversion price of $1.45 per share, and (ii) warrants (the “Series A Warrants”) to acquire up to an aggregate of 6,896,553 shares of Common Stock (the “Series A Warrant Shares”). The conversion price of the Series A Preferred Stock is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable conversion price (subject to certain exceptions). The closing of the Series A Offering occurred on July 3, 2023. The aggregate gross proceeds from the Series A Offering were approximately $10 million.

The Company engaged Katalyst Securities LLC (the “Placement Agent”) to act as exclusive placement agent in connection with the Series A Offering. Pursuant to an engagement letter with the Placement Agent, we paid to the Placement Agent or its designees (i) a cash fee equal to 8% of the gross proceeds of the Series A Offering and (ii) warrants  to purchase an aggregate of 551,725 shares of Common Stock  (equal to 8% of the shares of Common Stock underlying the Series A Preferred Stock sold in the Series A Offering) at an exercise price of $1.45 per share.

Series A Preferred Stock

On July 3, 2023, the Company filed the Certificate of Designations of the Series A Preferred Stock (the “Series A Certificate of Designations”) with the Secretary of State of the State of Delaware, designating 10,000 shares of its preferred stock as Series A Convertible Preferred Stock. The terms of the Series A Preferred Stock are as set forth in the form of Series A Certificate of Designations. The Series A Preferred Stock is convertible into shares of common stock (the “Series A Conversion Shares”) at the election of the holder at any time at an initial conversion price of $1.45. The conversion price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable conversion price (subject to certain exceptions).

The holders of the Series A Preferred Stock are entitled to dividends of 8% per annum, compounded monthly, which are payable in cash or shares of Common Stock, or a combination thereof, at the Company’s option in accordance with the terms of the Series A Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Series A Certificate of Designations), the Series A Preferred Stock will accrue dividends at the rate of 20% per annum. If the Company elects to pay any dividends in shares of Common Stock, the conversion price used to calculate the number of shares issuable will equal to the lower of (i) the then applicable conversion price and (ii) 85% of the arithmetic average of the three (3) lowest closing prices of the Company’s Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the dividend payment date, provided that such price shall not be lower than the lower of (x) $0.2828 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events ) and (y) 20% of the “Minimum Price” (as defined in Nasdaq Stock Market Rule 5635) on the date of the Nasdaq Stockholder Approval (as defined herein) (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market.

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On August 19, 2024, the Company entered into an Amendment Agreement (the “August 2024 Amendment”) with the Required Holders (as defined in the Series A Certificate of Designations). Pursuant to the August 2024 Amendment, the Required Holders agreed that (A) the unpaid and accrued dividends on the Series A Preferred Stock due July 1, 2024 (the “July Delinquent Dividend Amount”), shall be payable, at the option of the Company, in (i) cash and/or (ii) shares of Common Stock, at a price per share of Common Stock equal to the lower of (x) $1.00 and (y) the Dividend Conversion Price (as defined in the Series A Certificate of Designations), using July 1, 2024, as the applicable date of determination in accordance with the Series A Certificate of Designations; (B) the dividends due on October 1, 2024 (the “October Dividend Amount” and, together with the July Delinquent Dividend Amount, the “Delinquent Dividend Amounts”), shall be payable in shares of Common Stock based on a per share price of Common Stock equal to 80% of the arithmetic average of the three (3) lowest closing sale prices of the Common Stock during the month of September 2024; and (C) such Delinquent Dividend Amounts and any Dividend Balance Shares (as defined in the Series A Certificate of Designations), with respect thereto, if applicable, shall be delivered on October 1, 2024. The Company and the Required Holders further agreed pursuant to the August 2024 Amendment to amend (i) the Series A Certificate of Designations, as described below, by filing a Certificate of Amendment to the Series A Certificate of Designations (the “August 2024 Certificate of Amendment”) and (ii) the Series A Purchase Agreement to amend the definition of “Excluded Securities.” The August 2024 Certificate of Amendment amends the Series A Certificate of Designations to, among other things, (A) allow for the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company; provided that such issuance is approved by the Company’s stockholders prior to such issuance, and (B) amend certain conditions required for (i) a mandatory conversion of the Series A Preferred Stock, and (ii) the Company’s right to redeem, all or a portion, of the Series A Preferred Stock outstanding pursuant to an optional redemption, in each case, pursuant to the terms of the Series A Certificate of Designations.

On October 14, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Series A Certificate of Designations), pursuant to which, the Required Holders agreed to amend the Series A Certificate of Designations of the Company’s Series A Preferred Stock, by filing a Certificate of Amendment to the Series A Certificate of Designations (the “October 2024 Certificate of Amendment”). The October 2024 Certificate of Amendment amends the Series A Certificate of Designations to, among other things, provide that, except as required by applicable law, the holders of the Series A Preferred Stock will be entitled to vote with holders of the Common Stock on an as converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be calculated assuming a conversion price of $1.414 per share, which was the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the Series A Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Series A Certificate of Designations. The October 2024 Certificate of Amendment further provides that (i) certain holders of the Series A Preferred Stock will not be subject to certain beneficial ownership limitations as described in the Series A Certificate of Designations, and (ii) stockholder approval will not be required in connection with the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company. The October 2024 Certificate of Amendment was filed with the Secretary of State of the State of Delaware, effective as of October 14, 2024. The holders of the Series A Preferred Stock have no voting rights, other than with respect to certain matters affecting the rights of the Series A Preferred Stock.

On November 25, 2024, the Company entered into an Amendment and Agreement with the Series A Investors (the “November 2024 Amendment Agreement”), pursuant to which, (i) the Series A Investors agreed to amend the Series A Certificate of Designations, as described below, by filing a Certificate of Amendment to the Series A Certificate of Designations with the Secretary of State (the “November 2024 Certificate of Amendment”), and (ii) the Series A Investors and the Company agreed that all payment amounts that have accrued and are unpaid as of November 25, 2024, pursuant to the Series A Certificate of Designations and the August 2024 Amendment will be satisfied by delivery of shares of Common Stock on or prior to November 25, 2024, with each Series A Investor entitled to receive the number of shares of Common Stock specified below such Series A Investor’s name on its respective signature page thereto.

Pursuant to the November 2024 Amendment Agreement, the Company may require holders to convert their shares of Series A Preferred Stock into shares of Common Stock if the closing price of the Company’s Common Stock exceeds $8.00 per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the Common Stock exceeds $2,000,000 per day during the same period, provided that certain equity conditions described in the Series A Certificate of Designations are satisfied.

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At any time beginning 18 months from the date of the issuance, provided that that the Company has filed all reports required to be filed by it pursuant to the Exchange Act on a timely basis for a continuous period of one year and provided further that certain equity conditions described in the Series A Certificate of Designations are satisfied, the Company has the right to redeem in cash all or some of the shares of the Series A Preferred Stock outstanding at such time at a redemption price equal to the product of (x) 125% multiplied by (y) the sum of (A) the stated value of the Series A Preferred Stock plus (B) all declared and unpaid dividends on such Series A Preferred Stock and any other unpaid amounts then due and payable hereunder with respect to such Series A Preferred Stock, plus (C) the make-whole amount, plus (D) any accrued and unpaid late charges with respect to such stated value and amounts payable pursuant to clause (B) as of such date of determination.

The November 2024 Certificate of Amendment amends the Series A Certificate of Designations to provide that upon the occurrence of a Triggering Event (as defined in the Series A Certificate of Designations), the Series A Preferred Stock will accrue dividends compounded monthly at the rate of 20% per annum. In addition, the November 2024 Certificate of Amendment amends the Series A Certificate of Designations to, among other things, (A) allow for the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company; provided that such issuance is approved by the Company’s stockholders prior to such issuance, and (B) amend certain conditions required for (i) a mandatory conversion of the Series A Preferred Stock, and (ii) the Company’s right to redeem, all or a portion, of the Series A Preferred Stock outstanding pursuant to an optional redemption, in each case, pursuant to the terms of the Series A Certificate of Designations. The November 2024 Certificate of Amendment became effective with the Secretary of State on December 6, 2024.

There is no established public trading market for the Series A Preferred Stock and we do not intend to list the Series A Preferred Stock on any national securities exchange or nationally recognized trading system.

Series A Warrants

The Company issued the Series A Warrants to purchase up to an aggregate of 6,896,553 shares of Common Stock. Each Series A Warrant has an exercise price of $1.45, became exercisable after the date that was six months from the date of issuance and will expire 5 years following the date of issuance. The exercise price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions).

On June 30, 2025, the Company entered into a warrant amendment (the “Series A Warrant Amendment”) with the Required Holders (as defined in the Series A Purchase Agreement), pursuant to which, the Required Holders agreed to amend the terms of the Series A Warrants to make certain adjustments to the definition of “Black Scholes Value” in each of the Series A Warrants, as described in the Series A Warrant Amendment, such that the underlying price per share as used in such calculation equals the sum of the price per share being offered in cash in the applicable Fundamental Transaction (as defined in the Series A Warrants), if any, plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction, if any. As consideration for entering into the Series A Warrant Amendment, the Company and the Required Holders agreed to amend the term of the Series A Warrants to be six and one-half years from the date of issuance.

Nasdaq Stockholder Approval

The Company’s ability to issue Series A Conversion Shares and Series A Warrant Shares using shares of Common Stock is subject to certain limitations set forth in the Certificate of Designations. Prior to receiving the Nasdaq Stockholder Approval, such limitations included a limit on the number of shares that may be issued until the time, if any, that the Company’s stockholders have approved the issuance of more than 19.99% of the Company’s outstanding shares of Common Stock in accordance with the rules of the Nasdaq Stock Market (the “Nasdaq Stockholder Approval”). Such Nasdaq Stockholder Approval was received at a special meeting of stockholders held on September 19, 2023.

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February 2025 Offering

On February 24, 2025, the Company entered into a securities purchase agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “PIPE Purchasers”) for the issuance and sale in a private placement (the “February 2025 Private Placement”) of an aggregate of 3,216,666 shares (the “Common Shares”) of Common Stock and accompanying warrants (“PIPE Warrants”) to purchase up to 3,216,666 shares of Common Stock, with an exercise price of $1.80 per share. The purchase price for one Common Share and accompanying PIPE Warrant was $1.80. The closing of the February 2025 Private Placement occurred on February 28, 2025, other than with respect to 380,555 Common Shares and 380,555 PIPE Warrants, which closed on or about March 7, 2025. The PIPE Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the PIPE Purchasers, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. The gross proceeds to the Company were approximately $5,790 before estimated offering expenses payable by the Company. On June 30, 2025, the Company entered into a warrant amendment (the “2025 Warrant Amendment”) with certain of the PIPE Purchasers, pursuant to which, such PIPE Purchasers agreed to amend the terms of their respective PIPE Warrants to make certain adjustments to the definition of “Black Scholes Value,” as described in the 2025 Warrant Amendment, such that the underlying price per share as used in such calculation equals the sum of the price per share being offered in cash in the applicable Fundamental Transaction (as defined in the PIPE Warrants), if any, plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction, if any. As consideration for entering into the 2025 Warrant Amendment, the Company and the applicable PIPE Purchasers agreed to amend the term of their respective PIPE Warrants to be five and one-half years from the date of issuance.

In connection with the February 2025 Private Placement, the Company entered into a registration rights agreement, dated as of February 24, 2025, with the PIPE Purchasers (the “PIPE Registration Rights Agreement”), pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the shares of Common Stock and the shares of Common Stock underlying the PIPE Warrants no later than 60 days following the date of the PIPE Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 90 days following the date of the PIPE Registration Rights Agreement (or 120 days following the date of the PIPE Registration Rights Agreement in the event of a “full review” by the SEC). On April 25, 2025, the Company filed a resale registration statement on Form S-1 (File No. 333- 286782) with the SEC.

Series B Offering

On August 18, 2025, the Company entered into a Securities Purchase Agreement (the “Series B Purchase Agreement”) with certain accredited investors (the “Series B Purchasers”) for the issuance and sale in a private placement (the “Series B Private Placement”) of an aggregate of (i) 4,500 shares of the Company’s Series B Preferred Stock initially convertible into up to 3,000,000 shares of Common Stock (the “Series B Conversion Shares”), at an initial conversion price of $1.50 per share, and (ii) accompanying warrants (the “Series B Warrants”) to purchase up to 3,000,000 shares of Common Stock (the “Series B Warrant Shares”), with an initial exercise price of $1.50 per share. The Series B Warrants and the shares of Series B Preferred Stock will be exercisable or convertible, respectively, into shares of Common Stock beginning on the effective date of stockholder approval of (i) under Nasdaq Stock Market Rule 5635(d), the issuance of shares of Common Stock in excess of 19.99% of the Company’s issued and outstanding shares of Common Stock at prices below the “Minimum Price” (as defined in Rule 5635 of the Rules of the Nasdaq Stock Market) on the date of the Series B Purchase Agreement pursuant to the terms of the Series B Preferred Stock and the Series B Warrants, and (ii) an increase in the authorized shares of the Company. On December 12, 2025, at the Company’s 2025 Annual Meeting of Stockholders, the Company obtained stockholder approval pursuant to the Series B Registration Rights Agreement (the “Series B Stockholder Approval”). The Series B Warrants will expire five years from December 12, 2025, the effective date of the Series B Stockholder Approval.

Series B Preferred Stock

On August 20, 2025, the Company filed the Series B Certificate of Designations, thereby creating the Series B Preferred Stock. The Series B Certificate of Designations became effective with the Secretary of State of the State of Delaware upon filing. The Series B Preferred Stock are convertible into the Series B Conversion Shares at the election of the holders of the Series B Preferred Stock at any time at an initial conversion price of $1.50 per share. The conversion price is subject to customary adjustments for stock dividends, stock splits, reclassifications, stock combinations and the like (subject to certain exceptions).

Holders of the Series B Preferred Stock shall be entitled to receive dividends when and as declared by the Board, from time to time, in its sole discretion, which dividends will be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms of the Series B Certificate of Designations, in cash, in securities of the Company or using assets as determined by the Board on the stated value of such Series B Preferred Stock

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Except as otherwise provided in the Series B Certificate of Designations or as otherwise required by law, the Series B Preferred Stock has no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of Series B Preferred Stock of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the of the Series B Preferred Stock or alter or amend the Series B Certificate of Designations, (b) amend the Amended and Restated Certificate of Incorporation of the Company, as amended, or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (c) increase the number of authorized shares of the Series B Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

There is no established public trading market for the Series B Preferred Stock and the Company does not intend to list the Series B Preferred Stock on any national securities exchange or nationally recognized trading system.

Series B Warrants

A holder of the Series B Warrants may not exercise any portion of such holder’s Series B Warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of Common Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise.

There is no established public trading market for the Series B Warrants and the Company does not intend to list the Series B Warrants on any national securities exchange or nationally recognized trading system.

The Series B Warrants will expire five years from December 12, 2025, the effective date of the Series B Stockholder Approval.

Series B Registration Rights Agreement

In connection with the Series B Private Placement, the Company entered into a registration rights agreement (the "Series B Registration Rights Agreement"), dated as of August 18, 2025, with the Series B Purchasers, pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the Series B Conversion Shares and Series B Warrant Shares no later than 60 days following the date of the Series B Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 90 days following the date of the Series B Registration Rights Agreement (or 120 days following the date of the Series B Registration Rights Agreement in the event of a “full review” by the SEC). On October 17, 2025, the Company filed a resale registration statement on Form S-3 (File No. 333- 290946) with the SEC.

February 2026 Purchase Agreement

On February 2, 2026, we entered into the February 2026 Purchase Agreement with the February 2026 Purchasers for the issuance and sale in a private placement of (i) an aggregate of 1,700,000 shares of Common Stock, (ii) February 2026 Pre-Funded Warrants to purchase up to 800,000 shares of Common Stock, with an exercise price of $0.0001 per share, and (iii) February 2026 Investor Warrants to purchase up to 2,500,000 shares of Common Stock, with an exercise price of $2.30 per share. The purchase price for one share of Common Stock and accompanying February 2026 Common Warrant was $2.00 and the purchase price for one February 2026 Pre-Funded Warrant and accompanying February 2026 Common Warrant was $1.9999.

The February 2026 Closing occurred on February 3, 2026. The aggregate gross proceeds from the February 2026 Closing were approximately $5.0 million, prior to deducting offering expenses payable by us.

The February 2026 Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the February 2026 Purchasers, including for liabilities under the Securities Act and other obligations of the parties and termination provisions.

February 2026 Warrants

The February 2026 Common Warrants are exercisable for shares of Common Stock immediately at an exercise price of $2.30 per share and expire five years from the date of issuance. The February 2026 Pre-Funded Warrants are exercisable for shares of Common Stock immediately and expire when exercised in full. A holder of the February 2026 Warrants may not exercise any portion of such holder’s February 2026 Warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of Common Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise.

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February 2026 Registration Rights Agreement

On February 2, 2026, in connection with the February 2026 Private Placement, the Company entered into the February 2026 Registration Rights Agreement with the February 2026 Purchasers, pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the shares of Common Stock and shares of Common Stock underlying the February 2026 Warrants no later than 60 days following the date of the February 2026 Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 90 days following the date of the February 2026 Registration Rights Agreement (or 120 days following the date of the February 2026 Registration Rights Agreement in the event of a “full review” by the SEC). On February 9, 2026, the Company filed the registration statement pursuant to the February 2026 Registration Rights Agreement, which was declared effective by the SEC on February 13, 2026.

Cash Flow

Operating Activities

Net cash used in operating activities was approximately $10.3 million for the year ended December 31, 2025, compared to approximately $8.1 million for the year ended December 31, 2024. The increase in operating cash outflows year over year was driven primarily by higher net operating losses and changes in working capital, partially offset by higher non-cash charges.

For 2025, operating cash usage was primarily attributable to a net loss of $10.3 million, reflecting continued investment in the business and lower overall scale of revenues. Non-cash items reduced operating cash usage, most notably share-based compensation of $4.0 million, depreciation and amortization of approximately $0.6 million, impairment of $0.6 million and a non-cash gain of $3.2 million related to changes in the fair value of warrant liabilities, prior to their reclassification to equity in mid-2025.

Working capital changes in 2025 also contributed to operating cash usage, driven primarily by a $2.2 million increase in accounts receivable, reflecting higher billings late in the year, and a $0.9 million decrease in accrued liabilities, largely due to the settlement of prior-year accruals. These uses of cash were partially offset by a $1.2 million reduction in inventory, reflecting inventory management initiatives and lower production activity, as well as a modest decrease in prepaid expenses and other current assets.

In comparison, net cash used in operating activities for 2024 was approximately $8.1 million, despite the Company reporting a lower net loss of $5.9 million. Operating cash usage in 2024 was significantly influenced by non-cash fair value adjustments to warrant liabilities of $9.6 million, which increased reported net income but had no impact on cash flows. Non-cash expenses in 2024 included share-based compensation of $2.4 million and depreciation and amortization of approximately $0.8 million.

Working capital activity in 2024 provided net operating cash, primarily due to a $2.4 million decrease in accounts receivable and a $1.0 million reduction in customer deposits, partially offset by a $0.4 million increase in inventory. Overall, the year-over-year increase in operating cash usage in 2025 reflects higher underlying operating losses and less favorable working capital movements compared to 2024.

Management expects operating cash usage to decline in 2026 and 2027 as a result of actions already implemented, including the substantial reduction in research and development spending, continued discipline in selling, general and administrative costs, lower cash requirements related to inventory and working capital, and the elimination of non-core activities, while seeking incremental revenue growth from higher-margin managed and technology-enabled services.

Investing Activities

Net cash used in investing activities was approximately $0.4 million for the year ended December 31, 2025, compared to net cash provided of $7.3 million for the year ended December 31, 2024.

Investing activity in 2025 consisted primarily of capital expenditures for property and equipment and investments in patents and trademarks, reflecting continued, but limited, investment in product development and intellectual property.

In contrast, investing activities in 2024 were dominated by $7.5 million of proceeds from the maturity of short-term investments, which significantly increased cash during the year. Excluding these maturities, investing activity in 2024 was otherwise limited to routine capital expenditures and investments in patents, similar in nature to 2025.

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Financing Activities

Net cash provided by financing activities was approximately $10.5 million for the year ended December 31, 2025, compared to approximately $0.5 million for the year ended December 31, 2024.

Financing activity in 2025 was driven primarily by private placement financings, including the issuance of Common Stock, warrants, and Series B Preferred Stock, which collectively generated significant new capital to fund operations. In addition, the Company completed warrant amendments during 2025 that resulted in the reclassification of warrant liabilities to equity, eliminating future non-cash fair value adjustments, although this reclassification did not impact cash flows.

In comparison, financing activity in 2024 was limited and consisted primarily of proceeds from the exercise of stock options, partially offset by cash dividends paid on the Company’s Series A Preferred Stock. The substantial increase in financing cash inflows in 2025 reflects management’s focus on strengthening liquidity and extending the Company’s operating runway.

Contractual Obligations and Commitments

Pursuant to that certain exclusive Amended and Restated Intellectual Property License Agreement, dated September 30, 2016, by and between the Company and Syzygy Licensing, LLC (“Syzygy”), we are obligated to pay to Syzygy a 4% royalty fee on future product sales up to an aggregate amount of $1.0 million in royalty payments, or until September 30, 2026, whichever occurs earlier. As of December 31, 2024 the Company had incurred the maximum amount of royalties under the terms of the agreement. As of December 31, 2025, the aggregate remaining royalty obligation is $99.

In September 2023, the Company entered into a lease for office space located in Coconut Grove, Florida, with a multi-year term concluding in 2031. As of December 31, 2025, aggregate remaining minimum lease payments under this lease totaled approximate ly $2.8 million. In February 2026, the Company terminated this lease, eliminating the remaining obligation.

As of December 31, 2025, the Company was committed to approximately $0.3 mi llion for future component deliveries and contract services. These commitments relate primarily to inventory purchases and service agreements that are generally subject to modification or rescheduling in the normal course of business.

In August 2025, the Company entered into a lease for manufacturing and office space located in Southwest Virginia, with a multi-year term commencing in October 2025 and concluding in 2030. The Company was granted early occupancy of the facility beginning on August 18, 2025. As of December 31, 2025, aggregate remaining minimum lease payments under this lease totaled approximatel y $0.6 million.

In March 2026, the Company entered into a month-to-month service agreement for a business address located in Miami, Florida, at an approximate monthly cost of $165. The agreement may be terminated by either party in accordance with its terms.

The Company does not have any material long-term debt obligations as of December 31, 2025.

Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. The Company has not entered into any derivative contracts that are indexed to the Company’s shares and classified as stockholders' equity or that are not reflected in the Company’s financial statements included in this Annual Report on Form 10-K. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2025, or subsequently thereto, that we believe are of potential significance to our financial statements.

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to contingencies, accrued expenses, and asset valuations. These estimates are based on historical experience and on various assumptions that management believes are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

Some of our accounting policies require a higher degree of judgment in their application than others. The most significant of these policies include revenue recognition, valuation of warrant liabilities, share-based compensation, allowance for doubtful accounts, valuation of inventory, valuation and impairment of intangible assets, warranty liabilities, income taxes, and contingencies.

Revenue Recognition. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We sell products and services to customers including law enforcement agencies, domestic distributors, and international distributors. Revenue from product sales is generally recognized when products are shipped (free on board (FOB) shipping point) or received by customers (FOB destination), as applicable, when the transaction price is fixed or determinable and collectability is reasonably assured. We identify performance obligations in customer contracts, determine the transaction price, allocate the transaction price to the performance obligations, and recognize revenue as the performance obligations are satisfied. Our primary performance obligations include product and accessory sales, software licenses or subscriptions, and training services. Our customers generally do not have the right to return products unless the products are defective.

Valuation of Warrant Liabilities . We account for certain warrants as liabilities and measure them at fair value at each reporting date, with changes in fair value recognized in earnings. The valuation of warrant liabilities requires the use of significant assumptions, including expected volatility, expected term, risk-free interest rates, and other market-based inputs. Changes in these assumptions or market conditions can have a material impact on the fair value of warrant liabilities and our results of operations.

Share-Based Compensation. We account for share-based compensation in accordance with ASC Topic 718, Stock Compensation, and ASU 2018-07 for share-based payments to non-employees. Share-based compensation expense includes stock options and restricted stock units and is measured at grant date fair value. The grant date fair value of stock options is determined using the Black-Scholes option-pricing model, which requires assumptions regarding the market price of our Common Stock on the date of grant, expected term, expected volatility, risk-free interest rate, and expected dividends. These assumptions involve significant judgment. The grant date fair value of restricted stock units is based on the market price of our Common Stock on the date of grant. Share-based compensation expense is recognized over the vesting period and forfeitures are accounted for as they occur.

Allowance for Doubtful Accounts. We estimate expected credit losses on accounts receivable based on a review of customer-specific factors and the aging of receivables. Our customers are primarily government agencies and well-established distributors. In estimating the allowance for doubtful accounts, we consider customer creditworthiness, historical collection experience, current economic conditions, industry trends, and changes in customer payment terms. Changes in these assumptions could materially affect our allowance and results of operations.

Valuation of Inventory. Our inventory consists of raw materials, subassemblies, and finished goods. Inventory is stated at the lower of cost or net realizable value. Management evaluates inventory for excess, obsolete, or slow-moving items and records write-downs when the expected future benefit is less than the carrying value. These evaluations require judgment regarding future demand, product life cycles, and technological changes.

Valuation and Impairment of Intangible Assets . Intangible assets include capitalized costs related to patents and trademarks, customer relationships, trade names, software, non-compete and non-solicitation agreements acquired in asset acquisitions, and indefinite-lived website domains. Definite-lived intangible assets are amortized over their estimated useful lives. We evaluate intangible assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment assessments require significant judgment, including estimates of future cash flows, useful lives, discount rates, and assumptions regarding the strategic use of the assets. Changes in these assumptions could result in impairment charges that materially affect our results of operations.

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Business Combinations and Asset Acquisitions. We account for business combinations in accordance with ASC Topic 805, Business Combinations. Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair value as of the acquisition date. Determining fair values requires significant judgment and estimation, including the valuation of identifiable intangible assets such as customer relationships, trade names, software, and non-compete agreements. During asset acquisitions, we allocate the purchase price to the identifiable assets acquired and liabilities assumed based on their relative fair values. These valuations require management to make assumptions regarding future cash flows, useful lives, discount rates, and other factors. Changes in these assumptions could materially affect the carrying values of acquired assets and result in impairment charges.

Warrants. We account for certain warrants issued in connection with equity financings as liabilities in accordance with applicable accounting guidance. These warrants are measured at fair value at each reporting date, with changes in fair value recognized in earnings. The valuation of warrant liabilities requires the use of significant assumptions, including expected volatility, expected term, risk-free interest rates, and other market-based inputs. Because these assumptions are subjective and sensitive to market conditions, changes in fair value can result in significant non-cash gains or losses that may cause volatility in our reported results of operations.

Warranty Liabilities. We provide limited warranties on our products and establish a warranty reserve at the time product revenue is recognized. The warranty reserve is based on estimates of future warranty claims and related repair or replacement costs. Factors affecting warranty estimates include the number of units sold, historical warranty claim rates, and anticipated repair costs. Due to limited historical experience, actual warranty costs may differ from our estimates.

Accrued Compensation and Contingencies. We accrue bonus compensation when it becomes probable that a liability has been incurred and the amount can be reasonably estimated. Bonus expense is recognized over the service period based on estimated achievement of performance targets and adjusted as necessary based on actual results. We account for contingencies in accordance with ASC Topic 450, Contingencies. Management evaluates legal and other contingencies to determine whether a loss is probable and reasonably estimable, which requires judgment and may change as new information becomes available.

Income Taxes. We account for income taxes in accordance with ASC Topic 740, Income Taxes. Significant judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits, and any related valuation allowances. Due to our history of operating losses, we have recorded a full valuation allowance against our deferred tax assets. Management assesses the likelihood that deferred tax assets will be realized based on future taxable income, tax planning strategies, and other factors. Changes in these assumptions could materially impact our effective tax rate and results of operations.

Changes in Estimates . There were no material changes to our critical accounting policies during the year ended December 31, 2025. However, management’s judgments and estimates related to impairment assessments, valuation of warrant liabilities, and income tax valuation allowances required increased judgment due to continued operating losses, product portfolio expansion, and market conditions.