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, 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 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.
