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Item 7. Management’s Discussion and Analysis

2026-02-17 compared with 2025-02-28 · 77 added, 83 removed, 191 unchanged (46% of the section changed)

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Recent Developments

On June 3, 2024, we permanently reduced the exercise price of our outstanding public warrants and private warrants, previously exercisable at $11.50 per share, to an exercise price of $7.80 per share.

On November 20, 2024, we further reduced the exercise price of our outstanding public warrants and private warrants to an exercise price of $4.50 per share.

The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes.

On June 22, 2024, we entered into an extension agreement with Platinum Capital Partner, Inc.

to extend the maturity date of a $2,000,000 senior secured convertible promissory note to June 22, 2025.

In consideration for entering into the extension agreement, we issued to Platinum 232,360 shares of common stock in payment of all interest and extension fees through June 22, 2025.

As of December 31, 2024, the $2,000,000 principal balance of the senior secured convertible note was converted to equity.

During the year ended December 31, 2024, we issued 879,051 shares of common stock related to the conversion.

On September 3, 2024, we closed an offering of $8 million consisting of 2,882,883 shares of common stock and 2,882,883 common warrants to purchase up to 2,882,883 shares of common stock at a combined offering price of $2.775 per share and common stock warrant.

The Company received net proceeds of approximately $7.3 million, after deducting the estimated offering expenses payable by us, including the placement agent fees.

We intend to use the net proceeds from the offering for working capital and general corporate purposes, including cost of goods sold purchases, personnel and product development.

On September 27, 2024, the Company entered into a master loan agreement with Mr.

Huang, whereby he may provide additional funding of up to $1,500,000 under certain terms and conditions.

The agreement provides for interest of 6%.

We agreed to pay interest for the 2024 advances of $11,913 and issued warrants to purchase up to 220,000 shares of common stock.

The warrants have an exercise price of $2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance.

There are no outstanding advances under this master loan agreement as of December 31, 2024.

On December 24, 2024, we entered into a warrant exercise inducement agreement with a holder of existing common stock warrants exercisable for an aggregate of 2,882,883 shares of common stock at the existing exercise price of $2.65 per share (collectively, the “Existing Warrants”), in exchange for the issuance of new common stock warrants to purchase 2,162,162 shares of common stock at an exercise price per share of $4.50 (collectively, the “Inducement Warrants”).

The investor agreed to exercise the existing 2,882,883 warrants for cash resulting in aggregate gross proceeds of approximately $7.6 million with approximately $7.4 million in net proceeds after deducting advisory fees.

The Inducement Warrants are immediately exercisable and will be exercisable for five years from the date of issuance.

As of September 30, 2024, we determined the First Operating Performance Milestone of the earnout shares was achieved and 1,250,000 shares of our common stock were issued to applicable personnel on January 7, 2025.

Expansion into Robotics and Autonomous Systems

We are pursuing the extension of our edge AI platform to support robotic and autonomous system deployments and expect to conduct pilot programs during 2026.

We believe the integration of advanced computer vision, sensor fusion, and real-time edge analytics with mobile and semi-autonomous platforms represents a natural extension of our existing software capabilities.

Our robotics-related initiatives are focused on enabling our AI software to operate on, and integrate with, ground-based or mobile robotic platforms for applications such as security, inspection, monitoring, and situational awareness.

These platforms are expected to leverage our existing AI models, including object detection, behavior analysis, and anomaly detection, deployed at the edge to support real-time decision-making in dynamic environments.

During 2026, we plan to conduct limited pilot deployments with selected customers and partners to evaluate technical performance, operational integration, and market demand.

These pilot programs are not expected to generate material revenue.

Any future commercialization of robotics-enabled offerings would be expected to complement our existing software-centric business model.

There can be no assurance that these pilot efforts will result in commercially viable products or services.

Backlog and Pipeline

We also began to see movement during the fourth quarter of 2025 and into the first quarter of 2026 on several large projects in the federal and commercial marketplace, including several notable awards:

$1.9 million award from Department of Homeland Security (DHS) supporting large National Special Security Events (NSSE) scheduled for 2026.

$2.8 million award from a large commercial customer supporting a technical refresh of deployed hardware and software.

Our backlog as of December 31, 2025 was $3.3 million.

Our total validated pipeline as of December 31, 2025 was $173.4 million, consisting of single and multi-year opportunities for AI-driven edge, video, and sensor and data management platform across our customer verticals.

Our pipeline includes opportunities at varying stages of progression with expected award timeframes over the next 18-24 months.

Warrant Exercise

On October 8, 2025, we entered into a warrant exercise inducement offer letter with the holder of existing common stock warrants exercisable for an aggregate of 2,162,162 shares of common stock to exercise such warrants at the existing exercise price of $4.50 per share, in exchange for our agreement to issue new common stock warrants to purchase 2,702,702 shares of common stock at an exercise price per share of $6.20.

The aggregate gross proceeds received from the exercise of the existing warrants were approximately $9,729,729, before deducting financial advisory fees.

We intend to use the net proceeds from the exercise of the existing warrants for working capital and general corporate purposes.

The shares of common stock issuable upon exercise of the existing warrants are registered for issuance pursuant to a registration statement on Form S-3 (File No.

333-284462), which was declared effective by the SEC on January 31, 2025.

In consideration for the immediate exercise of the existing warrants for cash, the holder received the inducement warrants to purchase 2,702,702 shares of common stock in a private placement pursuant to Section 4(a)(2) of the Securities Act.

The inducement warrants have an exercise price of $6.20 per share, are immediately exercisable and will be exercisable for five and one-half years from the date of issuance.

The inducement warrants and the shares of common stock underlying the inducement warrants offered in the private placement have not been registered under the Securities Act or applicable state securities laws.

Accordingly, the securities may not be offered or sold in the United States except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act and such applicable state securities laws.

As part of the transaction, we have filed a resale registration statement on Form S-3 with the SEC to register the resale of the shares of common stock underlying the inducement warrants, which registration statement went effective on November 16, 2025.

Key Performance Indicators

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Other income (expense):

(Loss) gain from change in fair value of earnout liability

(Loss) gain from change in fair value of warrant liability

Gain (loss) from change in fair value of earnout liability

Gain (loss) change in fair value of warrant liability

Loss from change in fair value of convertible debt

Loss on note conversion

Interest expense, net

Other income (expense)

Total other (expense) income, net

(Loss) income before income taxes

Interest income (expense), net

Other expense

Total income (other expense), net

Income (loss) before income taxes

Provision for income taxes

Net (loss) income

Net Revenues — Net revenues for the year ended December 31, 2024 increased $10,750,000 to $23,050,000 as compared to $12,300,000 for the year ended December 31, 2023, as a result of increased product sales.

We received purchase orders from various federal government agency customers totaling over $16 million which we shipped in the year ended December 31, 2024.

Net income (loss)

Net Revenues — Net revenues for the year ended December 31, 2025 decreased $7,729,000 to $15,321,000 as compared to $23,050,000 for the year ended December 31, 2024.

The net revenues for the year ended December 31, 2024 included purchase orders from various federal government agency customers totaling over $16 million, which we primarily shipped in the year ended December 31, 2024.

On January 20, 2025, President Trump signed an executive order creating an advisory commission, the Department of Government Efficiency, to reform federal government processes and reduce expenditures.

Pressures on and uncertainty surrounding the U.S.

federal government’s budget, and potential changes in budgetary priorities and spending levels, could adversely affect staffing levels and the funding for government projects.

Disruptions in how the government agencies operate due to these policies may materially affect our business and resulted in a decline in revenue for the year ended December 31, 2025.

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support.

For the year ended December 31, 2024, cost of sales increased $5,987,000 to $12,523,000 as compared to $6,536,000 for the year ended December 31, 2023.

The increase was due to higher product sales and product mix with increased equipment purchases during the year ended December 31, 2024.

For the year ended December 31, 2025, cost of sales decreased $4,899,000 to $7,624,000 as compared to $12,523,000 for the year ended December 31, 2024.

The decrease was due to lower sales, offset by product mix with decreased equipment purchases during the year ended December 31, 2025.

Research and Development Expenses — Research and development expenses for the year ended December 31, 2025 increased $271,000 to $3,076,000 as compared to $2,805,000 for the year ended December 31, 2024.

The increase was due to increased expenses for product development.

The increase was due to increased expenses for product development in the United States and Taiwan.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the year ended December 31, 2025 increased $610,000 to $11,837,000 as compared to $11,227,000 for the year ended December 31, 2024.

The increase was due to (i) increased insurance costs of $626,000;

(ii) increased professional fees of $944,000, primarily related to the merger and the Nasdaq listing;

(iii) increased other operating expenses of $1,471,000 including higher wages and other costs associated with the Nasdaq listing;

and offset by (iv) decreased stock based compensation of $1,489,000.

The stock based compensation during the year ended December 31, 2023 included warrants to purchase common stock issued on May 8, 2023 for 765,000 shares to each of the two founders valued at $2,136,000.

Other Expense — Other expense for the year ended December 31, 2024 was $53,960,000 as compared to other income of $23,011,000 for the year ended December 31, 2023.

The increase is primarily due to an increase in stock-based compensation expense of $267,000 and other personnel costs.

Other Income (Expense) — Other income for the year ended December 31, 2025 was $36,537,000 as compared to other expense of $53,960,000 for the year ended December 31, 2024.

Other income for the year ended December 31, 2025 consisted of (i) gain from change in fair value of earnout liability of $15,402,000;

(ii) gain from change in fair value of warrant liability of $20,853,000;

and (iii) interest income of $282,000.

The income from change in fair value of various financial instruments was primarily the result of a decrease in our stock price.

Other expense for the year ended December 31, 2024 consisted of (i) loss from change in fair value of earnout liability of $18,171,000;

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The loss from change in fair value of various financial instruments was primarily the result of an increase in the stock price.

Other income for the year ended December 31, 2023 consisted of (i) gain from change in fair value of warrant liability of $1,341,000;

(ii) gain from change in fair value of earnout liability of $21,977,000;

and offset by (iii) unrealized loss for increase in fair value of convertible promissory note of $241,000 and (iv) noncash interest and other, net of $66,000.

The gain from change in fair value of various financial instruments was primarily the result of a decrease in the stock price from the merger date to December 31, 2023.

Net Loss — Net loss for the year ended December 31, 2024 was $57,465,000 as compared to a net income of $16,371,000 for the year ended December 31, 2023.

The net loss primarily related to noncash items of $55,766 ,000.

Net Income (Loss) — Net income (loss) for the year ended December 31, 2025 was $29,321,000 as compared to a net loss of $57,465,000 for the year ended December 31, 2024.

The net income primarily related to noncash items of $34,247,000.

Noncash items included (i) gain from change in warrant liability of $20,853,000;

(ii) gain from change in earnout liability of $15,402,000;

and offset by (iii) stock based compensation of $1,630,000;

and (iv) net amortization of operating lease right of use asset of $378,000.

The net loss for the year ended December 31, 2024 was primarily related to noncash items of $55,766,000.

Noncash items included (i) depreciation of $2,000;

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and (ix) loss on note conversions of $1,145,000.

The net income for the year ended December 31, 2023 included noncash income of $19,627,000.

Liquidity and Capital Resources as of December 31, 2025 and 2024

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We have incurred losses from operations in the past few years and had an accumulated deficit of $45.6 million as of December 31, 2025.

As disclosed in Note 1, in September 2024, we closed an $8 million public offering with approximately $7.3 million in net proceeds.

In December 2024, we received net proceeds of approximately $7.4 million from the exercise of warrants related to an inducement offer agreement.

We formally evaluated our liquidity and cash position in February 2025 when preparing the December 31, 2024 audited consolidated financial statements.

During this process, we analyzed our cash requirements and operations at least through February 2026 and determined that, based upon our current available cash and operations, we have no substantial doubt about our ability to continue as a going concern.

Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties.

Our actual results could vary as a result of our near and long-term future capital requirements that will depend on many factors.

On October 8, 2025, we entered into warrant exercise inducement offer letter with the holder of existing common stock warrants exercisable for an aggregate of 2,162,162 shares of common stock to exercise such warrants at the existing exercise price of $4.50 per share, in exchange for our agreement to issue new common stock warrants to purchase 2,702,702 shares of common stock at an exercise price per share of $6.20.

The aggregate gross proceeds received from the exercise of the existing warrants were approximately $9,729,729, before deducting financial advisory fees.

We intend to use the net proceeds from the exercise of the existing warrants for working capital and general corporate purposes.

Operating Activities

Net cash used in operating activities for the year ended December 31, 2025 was $8,005,000.

This amount was primarily related to (i) net income of $29,321,000;

offset by (ii) net working capital changes of $3,080,000 (including a $2,444,000 increase in deferred revenues);

and (iii) noncash items of $34,247,000.

Noncash items included (iv) gain from change in warrant liability of $20,853,000;

(v) gain from change in earnout liability of $15,402,000;

and offset by (vi) stock based compensation of $1,630,000;

and (vii) net amortization of operating lease right of use asset of $378,000.

Net cash used in operating activities for the year ended December 31, 2024 was $6,504,000.

This amount was primarily related to (i) net loss of $57,465,000;

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and (xii) loss on note conversions of $1,145,000.

Net cash used in operating activities for the year ended December 31, 2023 was $3,291,000.

This amount was primarily related to (i) net income of $16,371,000;

(ii) depreciation of $15,000;

(iii) stock based compensation of $2,852,000;

(iv) net amortization of operating lease right of use asset of $597,000;

(v) unrealized loss for increase in fair value of convertible promissory note of $240,000;

(vi) non cash interest, net of $65,000;

offset by (vii) gain from change in fair value of warrant liability of $1,341,000;

(viii) gain from change in fair value of earnout liability of $21,976,000;

and (ix) working capital changes of $36,000.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 was $8,347,000 and consisted of (i) net proceeds from exercise of warrants of $9,498,000;

(ii) proceeds from stock option exercises of $149,000;

and offset by (iii) repayment of advances by founders of $1,300,000.

Net cash provided by financing activities for the year ended December 31, 2024 was $14,785,000 and consisted of (i) net proceeds from offering of $7,290,000;

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and (iii) proceeds from stock option exercises of $240,000;

offset by repayment of advances by founders of $450,000.

Net cash provided by financing activities for the year ended December 31, 2023 was $6,120,000 and consisted of (i) issuance of a senior secured convertible promissory note of $2,585,000;

(ii) net advances provided by the founders of $1,150,000;

(iii) proceeds from reverse capitalization of $2,800,000;

and offset by (iv) the payoff of small business loan and line of credit of $425,000.

and (iv) offset by repayment of advances by founders of $450,000.

Debt Financing Arrangements

On June 22, 2023, we entered into a senior secured convertible promissory note with Platinum Capital Partners Inc.

and received $2,000,000.

On February 2, 2024, we issued an amended and restated senior secured convertible promissory note to Platinum in the principal amount of $2,000,000 primarily to adjust the conversion price per share to the lower of (i) $3.69717, subject to appropriate adjustment as provided in the note, and (ii) 65% of the VWAP of the common stock for the five trading days immediately prior to any conversion, but in no event below $2.27518, subject to appropriate adjustment as provided in the note.

The note contained “weighted average” anti-dilution protection for issuances of shares of common stock or common stock equivalents at a price less than the conversion price then in effect.

On June 22, 2024, we entered into an extension agreement with Platinum Capital Partner, Inc.

to extend the maturity date of the $2,000,000 senior secured convertible promissory note to June 22, 2025.

(“Platinum”) and received $2,000,000.

On June 22, 2024, we entered into an extension agreement with Platinum to extend the maturity date of the $2,000,000 senior secured convertible promissory note to June 22, 2025.

In consideration for entering into the extension agreement, we issued to Platinum 232,360 shares of common stock in payment of all interest and extension fees through June 22, 2025.

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At the option of the holders, the notes were convertible into cash, common stock or a combination of cash and stock.

On March 5, 2024, the two private investors converted the notes with a face value of $600,000 and interest into 169,204 shares of the Company’s common stock valued at $835,610.

On March 5, 2024, the two private investors converted the notes with a face value of $600,000 and interest into 169,204 shares of our common stock valued at $835,610.

On September 13, 2024, we issued an additional 86,198 shares of our common stock related to the conversion of notes at $2.65 per share.

We recognized a loss on debt conversion of $1,144,676 during the year ended December 31, 2024.

Contractual Obligations and Commitments

Contractual Cash Obligations

Operating lease cash payments

Contractual Obligations and Commitments [MAKE CHANGES TO SAME DISCLOSURE THAT APPEARS ON PAGE 36]

On July 13, 2023, we entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started on October 1, 2023.

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We do not believe that is reasonably certain that the lease will be extended.

On February 29, 2024, we extended an office lease in Mooresville, North Carolina.

We lease 3,621 square feet and the net monthly payment is $6,488.

On August 27, 2024, we extended the lease to February 28, 2025.

We will exit this location on February 28, 2025.

On February 1, 2025, we entered into an office lease in Mooresville, North Carolina.

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Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

We recorded our senior secured convertible promissory note, earnout liability (unvested earnout shares), public and private placement warrants and the warrants that were issued with the senior secured convertible note at fair value, remeasured on a recurring basis The senior secured convertible note was fully converted to equity as of December 31, 2024.

The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2024 and 2023 are based upon the short-term nature of the assets and liabilities.

The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

We recorded our earnout liability (unvested earnout shares) and public and private placement warrants, remeasured on a recurring basis The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2025 and 2024 are based upon the short-term nature of the assets and liabilities.

We classify as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis