What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-13 · 154 added, 593 removed, 81 unchanged (90% of the section changed)

5 unchanged sentences

statements and other information presented in our Annual Report on Form 10-K

for the year ended December 31, 2024 (as amended, the “ Annual Report ” ).

for the year ended December 31, 2025 (the “ Annual Report ” ).

This Report may contain or incorporate by reference forward-looking statements

28 unchanged sentences

subsidiaries.

We are a global public safety technology and services company that delivers safe and effective policing solutions to law enforcement and security

personnel worldwide.

We are leading the movement for safer outcomes by equipping law enforcement with safer, non-painful compliance tools, and immersive training fit for modern society.

We began sales of our first public safety product, the BolaWrap

100 remote restraint device, in late 2018.

In the first quarter of 2022, we delivered a new generation product, the BolaWrap 150.

The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap

100 that has since been phased out.

In late 2020 we added a new solution to our public safety technologies, our virtual reality (“VR”) training platform, Wrap Reality, and in August 2023 we acquired Intrensic, LLC, a Delaware limited liability

company (“Intrensic”), which added a Body-Worn Camera (“BWC”) and Digital Evidence Management (“DEM”) solution to our portfolio of policing solutions.

Wrap Reality is now sold to law enforcement agencies for simulation training as well as corrections

departments for the societal reentry scenarios.

In 2025, we expanded our product portfolio with the launch of WrapTactics, a digital pre-escalation and performance training platform, and WrapVision, a North American-made body-worn camera solution designed to meet federal procurement standards.

We also advanced several counter-unmanned-aircraft-system (“C-UAS”) initiatives, including our MERLIN and PAN-DA programs, which apply our tether-deployment technology to non-lethal drone interdiction and defense applications.

These developments broaden our reach beyond traditional policing to include defense, homeland security, and other public-safety markets, while maintaining our focus on de-escalation, accountability, and safer outcomes.

Our target market for our product and technology enabled services includes approximately 900,000 full-time sworn law enforcement officers in over 18,000

federal, state, and local law enforcement agencies in the U.S.

and over 12 million police officers in more than 100 countries.

Additionally, we are exploring opportunities to increase our presence in other adjacent markets, such as military and

private security.

Our international focus is on countries with the largest police forces.

According to 360iResearch, a market research consulting firm, our non-lethal products are part of a global market segment expected to grow to $16.1 billion by

We focus our efforts on the following products and services:

BolaWrap Remote Restraint Device - a hand-held remote restraint device that discharges a seven and half-foot Kevlar tether to entangle an

individual at a range of 10-25 feet.

BolaWrap assists law enforcement to safely and effectively control encounters early without resorting to painful use of force options.

Wrap Reality - a law enforcement 3D training system employing immersive computer graphics VR with proprietary software-enabled content.

up to two participants to enter a simulated training environment simultaneously, and customized weapons controllers enable trainees to engage in strategic decision making along the force continuum.

Wrap Reality has 45 scenarios for law enforcement

and corrections and 15 scenarios for societal reentry.

Wrap Reality is one of the most robust 3D Virtual Reality solutions on the market for law enforcement and societal reentry today.

Wrap Intrensic - a Body-Worn Camera and Digital Evidence Management solutions provider.

BWC and DEM play crucial roles in capturing, storing, and

managing digital evidence, such as video and audio recordings for various purposes, including criminal investigations and maintaining transparency in public interactions.

The Wrap Intrensic X2 camera hardware and storage and data management

capability, along with awareness of front-line operations, provides customers with a solution to meet their challenges.

Wrap Intrensic Evidence on our cloud-based video storage platform provides an unlimited video storage platform that includes video

and other evidence uploading, search, retrieval, redaction, and evidence sharing while reducing the need for resources required to manage this evidence.

WrapTactics Digital Training Platform - a subscription-based digital learning and training system that delivers short-form, scenario-based courses focused on pre-escalation tactics, emotional regulation, and post-deployment control techniques.

The platform reinforces officer readiness through burst-learning modules and supports recurring-revenue opportunities by integrating with Wrap’s bundled offerings, WrapReady and WrapPlus.

WrapTactics includes an exclusive partnership with STORM Training Group, whose evidence-based defensive-tactics curriculum is incorporated into Wrap’s subscription ecosystem to provide post-BolaWrap arrest and control instruction

WrapReality Training Simulator - a fully immersive VR training simulator that provides first responders with realistic, interactive scenarios designed to improve decision-making under pressure.

The system continues to expand its content library and complements WrapTactics and BolaWrap deployments.

WrapVision Body-Worn Camera and Evidence Management System - a North American-made, Trade Agreements Act-compliant body-worn camera solution designed for law enforcement, public-safety, and healthcare users.

The device integrates LTE, Wi-Fi, Bluetooth, and VPN connectivity for secure live streaming, provides up to twelve hours of operation per charge, and is compatible with leading video-management platforms.

WrapVision complements our pre-escalation and accountability initiatives by offering secure domestic data storage and alignment with federal procurement standards.

C-UAS and Drone-Based Solutions - we have expanded into the C-UAS and aerial-interdiction markets through multiple research, development, and demonstration programs including:

• MERLIN 1 - a lightweight, modular, open-architecture system that equips drones and ground robots with Wraps BolaWrap cassette and multi-shot 1KC entanglement cassette for rapid, low-collateral interdiction of Group-1 UAS threats.

Designed for plug-and-play integration and tool-less reload, it delivers precise effects and operator-simple controls for public safety and defense missions.

• Project PAN-DA (Personal Anti-Drone Armament) - a handheld, surface-to-air, quick-reaction C-UAS launcher derived from the BolaWrap 150 platform, providing individual operators with a portable non-lethal defense capability against small drones.

• 1KC Wide Area Kinetic Anti-Drone Cassette - a patent-pending, modular cassette designed for integration with PAN-DA and MERLIN systems to enable wide-area coverage and multiple drone engagements per mission.

In addition to the U.S.

law enforcement market, we have shipped our restraint products to 62 countries.

We have distribution agreements with 22

international distributors covering 43 countries.

We focus significant sales, training and business development efforts to support our distribution network in addition to our internal sales team.

We focus significant resources on research and development innovations and continue to enhance our products and plan to introduce new products.

believe we have established a strong brand and market presence globally and have established significant competitive advantages in our markets.

We are a global public safety technology and services company that delivers safe and effective policing solutions to law enforcement and security personnel worldwide.

Our product and service portfolio includes the BolaWrap® device, Wrap Reality VR training simulator, WrapTactics digital training platform, and WrapVision™ body-worn camera and digital evidence management solution.

We also offer technology-enabled services including managed services and policy support.

Our core 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.

BolaWrap gives officers a proactive, non-lethal tactical option through a tether deployment system sold with recurring consumable cassettes.

Wrap Reality and WrapTactics are designed to deliver immersive VR and subscription-based digital training focused on decision-making under stress, use of force judgment, and non-lethal response tactics.

WrapVision provides a body-worn camera and cloud-based digital evidence management platform designed to meet federal procurement and data-sovereignty requirements.

We are also expanding our tether deployment technology into counter-unmanned aircraft systems and defense applications through our MERLIN program, which targets non-lethal drone interdiction capabilities for defense, homeland security, and critical-infrastructure protection missions.

We serve law enforcement, corrections, and security personnel across domestic and international markets.

Recent Developments

Leadership Changes

In the third and fourth quarters of 2025, the Company strengthened its leadership team with several key appointments.

On July 2, 2025, Dr.

Todd Larson, was named Strategic Advisor to lead the development of WrapTactics.

On September 24, 2025, Joseph Cameron was appointed Chief Revenue Officer of the Company, and on October 27, 2025, Braden Frame was appointed Chief Commercial Officer of the Company.

On October 21, 2025, the Company and Jerry Ratigan, who served as the Company’s Chief Financial Officer, Principal Accounting Officer and Principal Financial Officer, mutually agreed to the separation of Mr.

Ratigan from such roles, effective as of October 24, 2025.

The terms of Mr.

Ratigan’s separation from the Company have been memorialized pursuant to a General Release and Severance

Agreement, dated as of October 21, 2025 (the “Separation Agreement”).

Pursuant to the Separation Agreement, Mr.

Ratigan is entitled to receive a severance payment in an amount equal to $50,000, representing three months of Mr.

Ratigan’s base salary, less all lawful and authorized withholdings and deductions, payable in a lump sum on the Company’s first regular pay date following the Effective Date (as defined in the Separation Agreement).

In exchange for the consideration provided to Mr.

Ratigan in the Separation Agreement, Mr.

Ratigan agreed to waive and release any claims in connection with Mr.

Ratigan’s employment and separation from the Company.

In connection with Mr.

Ratigan’s separation, on October 25, 2025, the board of directors of the Company appointed Scot Cohen, to the position of Principal Financial Officer and Principal Accounting Officer, effective as of October 25, 2025.

On October 25, 2025, the Board increased the size of the Board to six (6) members and appointed John Shulman to serve as a member of the Company’s Board, to serve until the Company’s next annual meeting of stockholders or until his successor is duly elected and qualified.

Shulman will be entitled to the standard compensation paid by the Company to all its nonemployee directors under the Company’s director compensation program.

Business and Product Developments

In the third and fourth quarters of 2025, we announced the following relating to our business and products:

• In August 2025, we launched WrapVision, a North American-made, Trade Agreements Act-compliant, all-in-one body-worn-camera and digital-evidence-management platform for law enforcement, public-safety, and healthcare users.

WrapVision integrates secure data storage, LTE connectivity, and compatibility with major video-management systems.

• In August 2025, we initiated our Drone Counter-UAS R&D Program, adapting the BolaWrap 150 for kinetic aerial delivery.

The program’s first concept, Wrap MERLIN-1, is a modular drone-mounted payload engineered to entangle and neutralize hostile drones mid-flight, representing our first entry into the defense and allied-operations market.

• In August 2025, we unveiled Project PAN-DA, a handheld, surface-to-air, quick-reaction C-UAS concept derived from our BolaWrap 150 platform.

PAN-DA is intended to provide individual operators with a portable, non-lethal defense tool capable of disabling small unmanned aerial systems at close range.

• In August 2025, we introduced the 1KC Wide Area Kinetic Anti-Drone Cassette, a patent-pending modular payload designed for defense and homeland-security operators.

The 1KC system extends our C-UAS portfolio by enabling multi-drone interdiction capability using tether-and-anchor technology.

• In November 2025, in collaboration with Vector, we achieved the first known air-to-air interdiction using our BolaWrap entanglement system.

The successful demonstration of the MERLIN-Interdictor payload on Vector’s Hammer drone platform bolstered our C-UAS program and demonstrated the feasibility of non-lethal aerial interdiction in live-flight conditions.

Strategic Partnerships

On October 2, 2025, we announced a strategic partnership with Carahsoft Technology Corp.

(“Carahsoft”).

Under the agreement, Carahsoft will serve as Wrap's Master Government Aggregator, making our portfolio of technologies available to the public sector through Carahsoft's reseller partners and National Association of State Procurements Officials (NASPO) ValuePoint and OMNIA Partners contracts.

Acquisition of W1

On February 18, 2025, we entered into an Asset Purchase Agreement, dated as of February 18, 2025, pursuant to which, subject to the terms and conditions

set forth therein, we acquired substantially all the assets of W1 Global, LLC, (“W1”) used in, held for use in or relating to the business of advisory and investigative professional services, which were primarily the customer contracts assigned at

the closing, for a nominal purchase price.

The company acquired W1 Global to integrate technology enablement into its core offerings and expand into managed technology services supporting the BolaWrap go-to-market strategy.

Following a third-quarter evaluation, the company determined that W1’s investigative services were not essential to Wrap’s domestic or international expansion;

however, customers strongly valued managed services related to policy and training.

As a result, Wrap will continue focusing on managed services in policy governance and training to advance the next era of non-lethal technology development, delivering an integrated response package that combines technology with the support, policy alignment, and governance needed for adoption at the state and federal levels.

Entry into Series B Securities Purchase Agreement

On August 18, 2025, the Company entered into a securities purchase agreement (the “Series B Purchase Agreement”) with certain accredited investors (collectively, 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 newly-designated Series B Convertible Preferred Stock, with a par value of $0.0001 per share and a stated value of $1,000 per share, initially convertible into up to 3,000,000 shares of Common Stock, at an initial conversion price of $1.50 per share (the “Series B Preferred Stock”), and (ii) accompanying warrants (“Series B Warrants”) to purchase up to 3,000,000 shares of Common Stock, 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 (“Series B Conversion Shares”) 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 (the “Series B Stockholder Approval”).

As of the date of this Quarterly Report on Form 10-Q, the Company has not obtained the Series B Stockholder Approval.

However, the Company plans to hold a special meeting of its stockholders on December 12, 2025, to, among other things, obtain the Series B Stockholder Approval.

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

On August 20, 2025, the Company filed the Certificate of Designations of Series B Preferred Stock with the Secretary of State of the State of Delaware (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 terms of the Series B Convertible Preferred Stock are as set forth in the Series B Certificate of Designations.

Business Outlook and Challenges

We believe our Company’s products and solutions are gaining global recognition and awareness through various channels such as social media, trade shows,

and media exposure, among others.

In part, this recognition and awareness can be attributed to positive feedback from law enforcement agencies and the successful deployment of our products.

As a result, we believe our brand is becoming increasingly

recognized on a global scale as a leader in pre-escalation and non-lethal solutions.

In addition, we are focused on sales, marketing, public and investor relations efforts.

We believe there are increasing market opportunities for our

products and solutions in the law enforcement and security sectors worldwide.

These opportunities are driven by the increasing demand for less-lethal policing.

In the law enforcement sector, our BolaWrap product has been successfully deployed in the field, as reported by many agencies.

BolaWrap is now in use by

over 900 U.S.

law enforcement agencies and in 62 countries.

Due to its non-lethal, non-pain-based-compliance capabilities, some agencies do not deem its usage a categorical reportable use of force and rather place it underneath early use of force

such as handcuffs.

In our strategic roadmap, we clarified that law enforcement agencies deploy BolaWrap when verbal commands breakdown but long before there is justifiable escalation to pepper spray, pepper ball, batons, bean bags, tasers or

Conducted Electrical Weapons (CEW’s) or firearms.

Some agencies voluntarily report usage to Wrap but many do not.

In the usage reports we have been provided, officers have reported successful outcomes in

85% of the use cases.

This percentage is higher than what is often seen with less lethal tools.

From the information we have been provided, the most common BolaWrap use case is for individuals with or experiencing behavioral health issues, and the

second most common BolaWrap use case is during domestic violence calls.

There are many reasons why we may not receive reports on all the use of the BolaWrap, including, when uses of BolaWrap are considered evidence in ongoing

criminal cases, are controlled by local policy or regulation, or require officer and union permission to be shared with us.

However, some agencies have shared bodycam footage of successful field deployments with us, which we may use in our training

and education efforts.

We believe that as the reports of BolaWrap’s effectiveness in pre-escalation continue to increase, it will contribute to our future revenue growth.

We anticipate and believe that our portfolio of non-lethal, non-pain-based compliance products and training services has a strong and expanding pipeline

of market opportunities in the law enforcement, military, corrections, and homeland security sectors both domestically and internationally.

With the increasing demand for more humane and safer policing practices, we expect a continued surge in our

global business.

Currently, we are exploring major international business prospects while simultaneously seeking to establish relationships with large police agencies in the U.S.

However, we acknowledge that it is challenging to predict the exact

timeline for closing these deals, or whether they will ultimately materialize.

As part of our efforts to expand our sales and distribution operations, we provide a comprehensive training program for law enforcement officers and

trainers in using the BolaWrap.

This training equips them with knowledge about the appropriate use and limitations of BolaWrap in tandem with modern policing techniques for de-escalation of encounters.

We now focus on also teaching when and why

BolaWrap should be used, including the specific area of success, such as after verbal commands break down and before the law enforcement officer is ready to escalate to less lethal pain compliance tools.

We believe that law enforcement trainers and

officers who have been trained to use our products, or have witnessed demonstrations, are more inclined to support the acquisition and deployment of our products by their respective departments to drive successful outcomes.

As of September 30, 2025, over

1,590 agencies have received BolaWrap training with over 5,600 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing a 4% increase in agencies and a 3% increase in

trained officers as compared to September 30, 2024.

Operating expense of $3.6 million for the three months ended September 30, 2025 decreased by $0.3 million, when compared to $3.9 million for the three months

ended September 30, 2024, as a result of the Company’s ongoing cost containment initiatives enacted beginning during the first half of 2024.

Operating expense of $11.5 million for the nine months ended September 30, 2025 decreased by $1.5 million, when compared to $13.0 million for the nine months ended September 30, 2024.

Although geopolitical tensions and macroeconomic challenges have affected our quarterly results in the past and may in the future, we believe our Company

is uniquely positioned to provide lifesaving technologies and training that enable law enforcement officers worldwide to conduct safe and effective encounters while reducing the use of force.

With an increasing addressable market, the Company offers

what we believe is a unique value proposition.

Our improved pricing strategy, coupled with reduced operating expenses and our growing sales outlook, is expected to help reduce losses and improve cash flow in the future.

We plan to increase the number of product demonstrations and training sessions, particularly in international markets.

Our new focus on the when and why

BolaWrap is used has shown improved results.

This is a departure from the hardware product only approach of the past.

Our sales of the BolaWrap 150 and Wrap Reality are expected to continue to rise, aided by our ongoing cost savings and cost control

measures, which we expect to lead to an overall reduction in cash burn.

As of September 30, 2025, we had backlog of approximately $80 thousand which was expected to be delivered in the fourth quarter of 2025.

Additionally, as of September 30, 2025, we had deferred revenue of $400 thousand consisting of $39 thousand related to VR, $289 thousand related to Intrensic, $35 thousand related to BolaWrap extended warranties and services and $37 thousand related to training.

and customer orders for future deliveries are generally subject to modification, rescheduling or in some instances, cancellation, in the normal course of business.

We believe that we have adequate financial resources to sustain our operations for the next twelve months.

We recorded net loss from operations of $2.8 million during the three months ended September 30, 2025, compared to a net loss from operations of $3.6 million for the three months ended September 30, 2024;

primarily driven by a decrease in operating expenses.

For the nine months ended September 30, 2025 and September 30, 2024, we recorded net loss from operations of $9.5 and $10.9 million, respectively;

primarily driven by a decrease in operating expenses.

Net cash used in operations increased by $0.7 million, from a net cash used in operating activities of

$6.9 million for the nine months ended September 30, 2024, to net cash used in operating activities of $7.6 million for the nine months ended September 30, 2025.

We expect that we will continue to innovate new applications for our public safety technology, open new geographies, develop new products and

technologies to meet diverse customer requirements and identify and develop new markets for our products.

Supply chain disruptions could also affect our operations and could negatively impact our ability to source materials, manufacture and distribute

products in the future.

Moreover, financial markets continue to experience significant volatility, which could potentially affect our ability to enter or modify favorable terms and conditions regarding equity and debt financing activities.

Nevertheless, we had $6.0 million in cash and cash equivalents as of September 30, 2025 as compared to $3.6 million as of December 31, 2024.

We therefore believe we have sufficient capital to fund our operations for the next twelve months following the date of this Quarterly Report on Form 10-Q.

However, we may require additional working capital and liquidity constraints and access to capital markets could still negatively affect our liquidity and may require changes to our plan of operations.

Our Company may be positively or negatively impacted by continued social unrest and protests against law enforcement.

Such unrest may be further fueled

by misleading information or negative publicity about our solutions.

We believe our solutions are the answer to reducing use of force and driving safer outcomes for officers and the citizens they interact with each day.

Although the intensity of

these events may have subsided, some may still indirectly or directly, influence police agency budgets and the funding available to current and potential customers.

In addition, participants in these events may attempt to create the impression that

our solutions are contributing to the perceived problems, potentially harming our business and operations, including our revenues, earnings, and cash flows from operations.

Changes in our management and other critical personnel have the potential to positively or negatively affect our business.

Such disruptions could have an

adverse impact on our operations, programs, growth, financial condition, or results of operations.

On the other hand, improvements in our operations, operating expenses, and go-to-market approaches could positively influence the success of our

business in the future.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“ U.S.

GAAP ”) requires us

to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities.

We evaluate our estimates, on an on-going basis, including those estimates

related to recognition and measurement of contingencies and accrued expense.

We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances.

Actual results may differ from these

estimates under different assumptions or conditions.

As part of the process of preparing our financial statements, we are required to estimate our provision for income taxes.

Significant management judgment

is required in determining our provision for income taxes, deferred tax assets and liabilities, tax contingencies, unrecognized tax benefits, and any required valuation allowance, including taking into consideration the probability of the tax

contingencies being incurred.

Management assesses this probability based upon information provided by its tax advisers, its legal advisers and similar tax cases.

If later our assessment of the probability of these tax contingencies changes, our

accrual for such tax uncertainties may increase or decrease.

Our effective tax rate for annual and interim reporting periods could be impacted if uncertain tax positions that are not recognized are settled at an amount which differs from our

Some of our accounting policies require higher degrees of judgment than others in application.

These include share-based compensation and contingencies

and areas such as revenue recognition, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty liabilities and impairments.

Revenue Recognition .

We sell our products to customers including law enforcement agencies, domestic distributors and international distributors

and revenue from such transactions is recognized in the periods that products are shipped (free on board (“ FOB ”) shipping point) or received by customers (FOB destination), when the fee is fixed or determinable and when collection of resulting

receivables is reasonably assured.

We identify customer performance obligations, determine the transaction price, allocate the transaction price to the performance obligations and recognize revenue as we satisfy the performance obligations.

primary performance obligations are products/accessories and VR software licensing or sale.

Our customers do not have the right to return product unless the product is found to be defective.

Share-Based Compensation.

We follow the fair value recognition provisions issued by the Financial Accounting Standards Board (“ FASB ”) in

Accounting Standards Codification (“ ASC ”) Topic 718, Stock Compensation (“ ASC 718 ”) and we adopted Accounting Standards Update (“ ASU ”) 2018-07 for share-based transactions with non-employees.

Share-based compensation expense

recognized includes stock option and restricted stock unit compensation expense.

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model.

The grant date is the date at which an employer and employee or

non-employee reach a mutual understanding of the key terms and conditions of a share-based payment award.

The Black-Scholes option-pricing model requires inputs including the market price of the Company’s Common Stock on the date of grant, the term

that the stock options are expected to be outstanding, the implied stock volatilities of several publicly traded peers over the expected term of stock options, risk-free interest rate and expected dividend.

Each of these inputs is subjective and

generally requires significant judgment to determine.

The grant date fair value of restricted stock units is based upon the market price of the Company’s Common Stock on the date of the grant.

We determine the amount of share-based compensation

expense based on awards that we ultimately expect to vest and account for forfeitures as they occur.

The fair value of share-based compensation is amortized to compensation expense over the vesting term.

Allowance for Doubtful Accounts.

Our products are sold to customers in many different markets and geographic locations.

We estimate our bad debt

reserve on a case-by-case basis and the aging of accounts due to a limited number of customers, mostly government agencies or well-established distributors.

We base these estimates on many factors including customer creditworthiness, past transaction

history with the customer, current economic industry trends and changes in customer payment terms.

Our judgments and estimates regarding the collectability of accounts receivable have an impact on our financial statements.

Valuation of Inventory .

Our inventory is comprised of raw materials, assemblies and finished products.

We must periodically make judgments and

estimates regarding the future utility and carrying value of our inventory.

The carrying value of our inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from our inventory is less than carrying

Valuation of Intangible Assets.

Intangible assets consisted of (a) capitalized legal fees and filing expense related to obtaining patents and

trademarks, (b) customer agreements, tradenames, software, non-solicitation and non-compete agreements acquired in business combinations and valued at fair value at the acquisition date, and (c) the purchase cost of indefinite-lived website domains.

We must make judgments and estimates regarding the future utility and carrying value of intangible assets.

The carrying values of such assets are periodically reviewed and impairments, if any, are recognized when the expected future benefit to be

derived from an individual intangible asset is less than carrying value.

This generally could occur when certain assets are no longer consistent with our business strategy and whose expected future value has decreased.

Accrued Expense.

We establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized.

requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time.

Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs, and

anticipated rates of warranty claims.

We have a very limited history to make such estimates and warranty estimates have an impact on our financial statements.

Warranty expense is recorded in cost of revenue.

We evaluate the adequacy of this reserve

each reporting period.

The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant’s specific terms and

applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment

considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815,

including whether the warrants are indexed to the Company’s own shares of Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for

equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

As of September 30, 2025, all

warrants are classified as equity-classified instruments.

Business Combination.

The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic

805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations.

Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of

acquisition at their respective fair values.

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques.

ASC 805-10 also

specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible

assets acquired in a business combination.

Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.

The estimated fair value of the acquired intangible assets was determined using a method which reflects the present value of the operating cash flows

generated by this asset after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital.

Certain adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement period,

which is up to one year, are recorded as adjustments to goodwill.

Any adjustments subsequent to the measurement period are recorded in income.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the period

ended September 30, 2025.

Our accounting policies are more fully described in Note 1.

Organization and Summary of Significant Accounting Policies in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for

the year ended December 31, 2024, as filed with the SEC on March 31, 2025, as amended on April 25, 2025.

Private Placement

On February 2, 2026, we entered into a securities purchase agreement (the “February 2026 Purchase Agreement”) with certain accredited investors (“February 2026 Purchasers”) for a private placement offering (the “February 2026 Private Placement”) of an aggregate of (i) 1,700,000 shares of Common Stock, (ii) pre-funded warrants to purchase up to 800,000 shares of Common Stock (“Pre-Funded Warrants”), and (iii) common warrants to purchase up to 2,500,000 shares of Common Stock (“Common Warrants” and, together with the Pre-Funded Warrants, the “February 2026 Warrants”).

The purchase price was $2.00 per share (or $1.9999 per Pre-Funded Warrant), with the Common Warrants having an exercise price of $2.30 per share and a five-year term.

The gross proceeds from the February 2026 Private Placement were approximately $5.0 million before deducting offering expenses.

The securities were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and Regulation D thereunder.

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.

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.

Refer to Note 15.

Major Customers and Related Information, to our unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q for further discussion.

Operating Expense

Our operating expense includes (i) selling, general and administrative expense, (ii) research and development expense, and in the most recent fiscal

quarter, 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.

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.

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.

Results of Operations

Three Months Ended September 30, 2025, Compared to Three Months Ended September 30, 2024 (Unaudited)

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

The financial information

and the discussion below should be read in conjunction with the financial statements and notes contained in this Quarterly Report on Form 10-Q.

Three Months Ended September 30, Change

2025 2024 $ %

(in thousands, except percentage change)

Product sales $ 1,743 $ 434 $ 1,309 302 %

Managed services 242 - 242 - %

Technology enabled services 37 159 (122 ) (77 )%

Total revenues, gross 2,022 593 1,429 241 %

Sales returns and allowances (531 ) - (531 ) - %

Total revenues, net 1,491 593 898 151 %

Cost of revenue 608 358 250 70 %

Gross profit 883 235 648 276 %

Operating Expenses:

Selling, general and administrative 3,477 3,334 143 4 %

Research and development 167 527 (360 ) (68 )%

Total operating expenses 3,644 3,861 (217 ) (6 )%

Loss from operations $ (2,761 ) $ (3,626 ) $ 865 (24 )%

We reported gross revenue for the three months ended September 30, 2025 of $2.0 million, an increase of 241% compared to the three months ended September 30, 2024.

We reported net revenue of $1.5 million for the three months ended September 30, 2025, as compared to $593 thousand for the three months ended September 30, 2024, or a 151% increase.

The gross revenue and net revenue for the three months ended September 30, 2025 was offset by a sales return 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.

The increase for the three months ended September 30, 2025, as compared to September 30, 2024, is primarily a result of increases in product sales combined with added revenue from managed services.

Our gross profit for the three months ended September 30, 2025, was $0.9 million, or a gross margin of 59%.

Our gross profit for the three months ended September 30, 2024, was $235 thousand, or a gross margin of 40%.

The increase in gross profit represented a 276% increase compared to the three months ended September 30, 2024, because of increased volume of the Bola Wrap 150 product sales and the added high-margin

revenue from the Company’s acquisition of W1 in February 2025.

Our margins are subject to variations based on the sales channels and product mix through which our products are sold.

At present, our cassettes have

lower margins than BolaWrap devices.

As we scale cassette production, we will look to reduce our costs and drive higher cassette margins.

Cassettes were a total of 6% of product sales and 7% of our overall revenue in the three months ended September 30,

2025, and is expected to continue to grow as a recurring revenue base as more BolaWrap devices are in the field and the usage of BolaWrap increases.

Our global supply chain has experienced notable component shortages, extended lead times, cost fluctuations, and logistical constraints, all of which

have affected our product costs.

Although we have seen these supply chain obstacles ease in 2025, we acknowledge that future supplier shortages, quality problems, and logistics delays could impact our production schedules and have a material negative

impact on our financial condition, results of operation, and cash flows.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense of $3.5 million for the three months ended September 30, 2025, an increase of $0.2 million when compared to $3.3 million for the three months ended September 30, 2024.

The increase in SG&A expense was primarily the result of increased professional fees.

Share-based compensation costs allocated to SG&A totaled $0.6 million for the three months ended September 30, 2025, compared to $0.9 million for the

three months ended September 30, 2024, primarily due to the cancellation or forfeiture of options and grants.

Salaries and burden costs of $1.1 million for the three months ended September 30, 2025, were $0.2 million higher than the three months ended September 30, 2024.

This increase reflects the addition of high-caliber talent offset by a decrease in share-based compensation, coupled with ongoing cost containment efforts, during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.

Advertising and promotion costs were $80 thousand for the three months ended September 30, 2025, or a decrease of $1 thousand as compared to $81 thousand

during the three months ended September 30, 2024.

The changes in advertising costs were primarily related to increased promotion and advertising activities, partially offset by decreases in tradeshow and promotional item expenses.

Research and Development Expense

Research and development expenses totaling $167 thousand decreased by $360 thousand for the three months ended September 30, 2025, when compared to the three

months ended September 30, 2024.

We incurred a $375 thousand period-over-period decrease in compensation expense as well as a $12 thousand period-over-period decrease in share-based compensation expense allocated to research and development expense

because of reduction of personnel.

Outside consulting costs decreased by $21 thousand for the three months ended September 30, 2025, when compared to the three months ended September 30, 2024, primarily due to the Company’s cost reduction initiatives.

Operating Loss

Loss from operations of $2.8 million during the three months ended September 30, 2025, was an improvement of $0.9 million compared to loss from operations of

$3.6 million during the three months ended September 30, 2024, primarily reflecting the increased revenues offset by lower operating costs from the Company’s cost containment efforts.

Nine Months Ended September 30, 2025, Compared to Nine Months Ended September 30, 2024 (Unaudited)

Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025 (Unaudited)

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

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and the discussion below should be read in conjunction with the financial statements and notes contained in this Quarterly Report on Form 10-Q.

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2026 2025 $ %

(in thousands, except percentage change)

(in thousands)

Product sales $ 883 $ 309 $ 574 186 %

Managed services 1,241 - 1,241 - %

Technology enabled services 228 456 (228 ) (50 )%

Total revenues, gross 3,799 3,642 157 (4 )%

Sales returns and allowances (531 ) - (531 ) - %

Total revenues, net 3,268 3,642 (374 ) (10 )%

Cost of revenue 1,303 1,587 (284 ) (18 )%

Total revenues 1,111 765 346 45 %

Cost of revenues 420 170 250 147 %

Gross profit 691 595 96 16 %

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Loss from operations (4,769 ) (3,922 ) (847 ) 22 %

Gross revenue totaled $3.8 million for the nine months ended September 30, 2025, as compared to $3.6 million in the three months ended September 30, 2024.

Net revenue totaled $3.3 million for the nine months ended September 30, 2025, as compared to $3.6 million for the nine months ended September 30, 2024, or a 10% decrease.

The gross revenue and net revenue for the nine months ended September 30, 2025 was offset by a sales return 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.

The decrease for the nine months ended September 30, 2025, as compared to September 30, 2024, is primarily a result of lower product orders offset by the added managed services revenue from the acquisition of the W1 business.

Our gross profit for the nine months ended September 30, 2025, was $2.0 million, or a gross margin of 61%.

Our gross profit for the nine months ended September 30,

2024, was $2.1 million, or a gross margin of 56%.

The decrease in gross profit represented a 4% decrease compared to the nine months ended September 30, 2024, because of lower volume of the Bola Wrap 150 product sales offset by the added high-margin

revenue from the Company’s acquisition of W1 in February 2025.

Our margins are also subject to variations based on the sales channels and product mix through which our products are sold.

At present, our cassettes

have lower margins than BolaWrap devices.

As we scale cassette production, we will look to reduce our costs and drive higher cassette margins.

Cassettes were a total of 9% of our product sales and 6% of overall revenue in the nine months ended September 30, 2025, and is expected to continue to grow as a recurring revenue base as more BolaWrap devices are in the field and the usage of BolaWrap increases due to the need of officers to de-escalate earlier to prevent injuries and use of higher levels of

We regularly introduce updates and revisions to our products, which may include changes to raw materials and components, and can impact on our product

Given our limited experience with warranty costs, our estimated future warranty expense may affect our gross margins.

Our global supply chain has experienced notable component shortages, extended lead times, cost fluctuations, and logistical

constraints, all of which have affected our product costs.

Although we have seen these supply chain obstacles ease in 2025, we acknowledge that future supplier shortages, quality problems, and logistics delays could impact our production schedules

and have a material negative impact on our financial condition, results of operation, and cash flows.

We reported net revenue of $1.1 million for the three months ended March 31, 2026, as compared to $765 thousand for the three months ended March 31, 2025, representing an increase of $346 thousand, or 45%.

The increase reflects higher product sales, partially offset by a decline in technology-enabled revenue.

Product sales were $0.9 million for the three months ended March 31, 2026, compared to $0.3 million for the three months ended March 31, 2025, an increase of $0.6 million, or 186%.

The increase reflects higher shipments of BolaWrap 150 devices and cassettes to both domestic and international customers as order flow improved following the transition to a more direct, agency-focused go-to-market approach.

Cassettes and consumables represented a growing component of product revenue, consistent with the expanding base of BolaWrap devices in active field use.

Technology-enabled services revenue was $0.2 million for the three months ended March 31, 2026, compared to $0.5 million for the three months ended March 31, 2025, a decrease of $0.2 million, or 50%.

The decrease reflects the strategic restructuring of our managed services offerings following the Company's decision to wind down certain advisory and investigative service arrangements associated with the W1 asset acquisition in February 2025 and are not necessarily representative of the ongoing business.

This decline was partially offset by growth in WrapVision body-worn camera and related software revenue.

The Company is focusing its technology-enabled services revenue on its higher-margin subscription and software-based offerings, including WrapTactics and Wrap Reality, as well as WrapVision evidence management subscriptions.

The timing of subscription renewals and new contract activations contributed to the year-over-year decline in this revenue category for the three months ended March 31, 2026.

Prior period "Managed services" and "Other revenue" have been reclassified into "Technology enabled services" to conform to the current period presentation.

Gross profit was $0.7 million for the three months ended March 31, 2026, compared to $0.6 million for the three months ended March 31, 2025, an increase of $0.1 million, or 16%.

Gross margin was 62.2% for the three months ended March 31, 2026, compared to 77.8% for three months ended March 31, 2025.

The decline in gross margin percentage reflects the shift in revenue mix toward hardware product sales, which carry lower margins than software subscriptions and managed services.

BolaWrap devices and cassettes represent the majority of revenues for the three months ended March 31, 2026, and while product margins remain solid, they are lower than the margins generated by technology-enabled services in the prior-year period.

Cost of revenues increased $0.3 million to $0.4 million, consistent with the higher product volume.

We expect gross margins to improve as technology-enabled services revenue grows as a proportion of total revenue throughout 2026.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense of $10.9 million for the nine months ended September 30, 2025, was reduced by $0.1 million when

compared to $11.0 million for the nine months ended September 30, 2024.

The decrease in SG&A expense was primarily the result of the Company’s cost containment initiatives enacted beginning during the first half of 2024 which were offset by an increase

of $1.0 million in share-based compensation.

Share-based compensation costs allocated to SG&A totaled $3.1 million for the nine months ended September 30, 2025, compared to $1.8 million for the nine months ended September 30, 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 burden costs of $3.0 million for the nine months ended September 30, 2025, were $180 thousand lower than the $3.2 million for the nine months ended September 30, 2024.

This reduction reflects the reduction in the Company’s workforce including a reduction of certain executive management positions.

Advertising and promotion costs were $205 thousand for the nine months ended September 30, 2025, or a decrease of $63 thousand as compared to $268 thousand

during the nine months ended September 30, 2024.

The changes in advertising costs were primarily related to reduced trade show costs and promotional items.

Selling, general and administrative (“SG&A”) expense was $5.4 million for the three months ended March 31, 2026, compared to $4.1 million for the three months ended March 31, 2025, an increase of $1.2 million, or 29%.

The increase was driven primarily by higher non-cash share-based compensation expense.

Share-based compensation allocated to SG&A was $2.4 million for the three months ended March 31, 2026, compared to $1.6 million for the three months ended March 31, 2025, reflecting grants issued to new and existing employees and officers in connection with the grants of equity incentive awards in 2025.

Cash-based SG&A costs, including salaries and burden, occupancy, marketing, and professional fees were $3.0 million for the three months ended March 31, 2026, compared to $2.5 million for the three months ended March 31, 2025.

The increase of $0.5 million, or 20.3%, was primarily due to increased professional fees and offset by overall declines in office expense and other general and administrative expenses as the Company maintained ongoing cost discipline.

Research and Development Expense

Research and development expenses totaling $619 thousand decreased by $1.3 million for the nine months ended September 30, 2025, when compared to the nine months ended September 30, 2024, primarily due to a reduction in personnel.

Outside consulting costs decreased by $164 thousand for the nine months ended September 30, 2025, when compared to the nine months ended September 30, 2024, primarily due to the Company’s cost

reduction initiatives

Research and development expense was $105 thousand for the three months ended March 31, 2026, compared to $378 thousand for the three months ended March 31, 2025, a decrease of $273 thousand, or 72%.

The decrease reflects the Company's shift to a more variable-cost development model and reduced headcount dedicated to R&D activities, as the primary platforms — BolaWrap 150, WrapTactics, WrapVision, and Wrap Reality — have advanced beyond the primary development phase and are now in commercial deployment.

R&D investment is expected to continue at a more modest level in 2026, focused on incremental product enhancements, the WrapTactics content library, and counter-UAS development activities for the MERLIN program.

Operating Loss

Loss from operations totaled $9.5 million during the nine months ended September 30, 2025, which was a decrease of $1.4 million compared to loss from

operations of $10.9 million during the nine months ended September 30, 2024, reflecting the reduced revenues offset by lower operating costs from the Company’s cost containment efforts.

Loss from operations was $4.8 million for the three months ended March 31, 2026, compared to $3.9 million for the three months ended March 31, 2025.

The increased operating loss reflected higher operating expenses, driven primarily by an increase in non-cash share-based compensation expense, partially offset by increased gross profit.

Other Income (Expense), Net

Total other income, net was $229 thousand for the three months ended March 31, 2026, compared to $4.0 million for the three months ended March 31, 2025, a decrease of $3.8 million.

The year-over-year change is primarily attributable to the non-recurrence of the non-cash gain from the change in fair value of warrant liabilities that was recorded during the three months ended March 31, 2025, partially offset by a non-cash gain on lease termination during the three months ended March 31, 2026.

Gain on Lease Termination.

During the three months ended March 31, 2026, the Company recognized a $227 thousand gain on lease termination in connection with the early termination of the office lease at 3480 Main Highway, Suite 202, Miami, Florida (Coconut Grove).

On February 13, 2026, the Company entered into a Termination and Mutual Release Agreement with the landlord, terminating the lease effective as of that date.

Under ASC 842, upon termination the Company derecognized the carrying value of the operating lease right-of-use asset and the corresponding lease liability, resulting in the $227 thousand non-cash gain representing the excess of the liability extinguished over the right-of-use asset derecognized as of the termination date.

The gain is non-cash and non-recurring in nature.

Change in Fair Value of Warrant Liabilities.

During the three months ended March 31, 2025, the Company recognized a $4.0 million non-cash gain attributable to the decrease in the fair value of outstanding warrant liabilities.

On June 30, 2025, the Company amended its warrants issued in connection with the Series A Preferred Stock offering (the “Series A Warrants”) and its warrants issued in the February 2025 private placement (the “PIPE Warrants”), resulting in their reclassification from warrant liabilities to permanent equity under ASC 815-40.

Following this reclassification, the Company no longer carries warrant liabilities on its balance sheet and does not record non-cash income or expense related to changes in warrant fair value.

Accordingly, no such gain or loss was recognized during the three months ended March 31, 2026, and no comparable item is expected in future periods.

Interest Income.

Interest income was $1 thousand for the three months ended March 31, 2026, compared to $2 thousand for the three months ended March 31, 2025, reflecting a lower average balance of interest-bearing money market funds during the period.

Net loss was $4.5 million for the three months ended March 31, 2026, compared to net income of $109 thousand for the three months ended March 31, 2025.

The change from net income to net loss reflects the non-recurrence of the $4.0 million non-cash warrant fair value gain, partially offset by the $227 thousand non-cash gain on lease termination.

Net loss attributable to common stockholders was $4.8 million, or $(0.09) per basic and diluted share, for the three months ended March 31, 2026, compared to a net loss attributable to common stockholders of $55 thousand, or $0.00 per basic and diluted share, for the three months ended March 31, 2025.

The weighted average common shares used in the calculation were approximately 54.0 million for the three months ended March 31, 2026, compared to 48.4 million for the three months ended March 31, 2025, reflecting shares issued in the February 2025 private placement, the February 2026 private placement, and other equity issuances.

Liquidity and Capital Resources

Our primary source of liquidity to date has been funding from our stockholders from the sale of equity securities and the exercise of derivative

securities, consisting of options and warrants.

We expect our primary source of future liquidity will be from the sale of products, exercise of stock options and warrants and future equity or debt financing.

We have experienced net losses and negative cash flows from operations since our inception.

As of September 30, 2025, we had cash and cash equivalents of $6.0 million and had sustained cumulative losses attributable to stockholders of $112.0 million.

Our working capital net of the warrants-short term as of September 30, 2025, was $3.6 million higher compared to December 31, 2024, primarily as a result of the

cash received in the Private Placement (as defined herein) offset by operating losses of $9.5 million for the nine months ended September 30, 2025.

We believe we have sufficient capital to fund our operations for the next twelve months from the date of this Quarterly Report

on Form 10-Q.

However, liquidity constraints and access to capital markets could still negatively affect our liquidity and may require changes to our investment strategy.

Our primary source of liquidity has been funding from stockholders through the sale of equity securities and the exercise of derivative securities.

We expect our primary sources of future liquidity to be product and technology-enabled services revenue, proceeds from the exercise of outstanding stock options and warrants, and future equity or debt financings as needed.

As of March 31, 2026, we had cash and cash equivalents of $7.3 million and working capital of $12.6 million (total current assets of $14.5 million less total current liabilities of $1.9 million).

This compares to cash and cash equivalents of $3.5 million and working capital of $9.6 million as of December 31, 2025.

The $3.8 million increase in cash during the quarter was driven primarily by $5.0 million in proceeds from the February 2026 private placement and $100 thousand from warrant exercises, partially offset by $1.2 million of cash used in operations and $58 thousand used in investing activities.

Total liabilities decreased to $2.3 million as of March 31, 2026, from $3.9 million as of December 31, 2025.

This decline was principally driven by the derecognition of the long-term operating lease liability of $2.1 million upon termination of the Coconut Grove, Florida lease (3480 Main Highway, Suite 202, Miami, Florida), partially offset by increases in accounts payable and accrued liabilities associated with the Company's normal business operations.

Total stockholders' equity increased to $14.4 million from $11.5 million, reflecting the $5.1 million in net equity proceeds from the private placement and warrant exercises, offset by the net loss for the period.

We believe we have sufficient capital to fund our operations for at least the next twelve months from the date of this Report based on our current operating plan, existing cash balances, and expected revenues.

In the short term, we expect to use our cash and cash equivalents to fund ongoing operating needs, including personnel and talent recruitment, manufacturing of our products, supply chain purchases, sales and marketing activities, and general working capital.

Over the longer term, we expect to continue funding these activities as well as making investments to support the continued growth of our business as opportunities arise.

However, we have generated significant losses since inception and expect to continue to incur net losses as we invest in our business.

Liquidity constraints and limited access to capital markets could negatively affect our ability to fund operations and may require changes to our operating or investment strategy.

If additional capital is required, we may seek to raise funds through public or private equity offerings, debt financings, or strategic transactions;

however, there can be no assurance that such financing would be available on acceptable terms or at all.

Capital Requirements

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Market price and trading volume of our Common Stock.

2023 Offering

On June 29, 2023, the Company entered into a Series Purchase Agreement (“Series A Purchase Agreement”) with certain accredited investors, including the

Company’s Executive Chairman and Chief Executive Officer (collectively, the “Series A Investors”), pursuant to which it 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 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 (the "Series A Conversion Price"), 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 Series A 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 Series A 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 $10 million.

The Company expects to use the net proceeds from the Series A Offering for general corporate purposes.

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 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 Convertible Preferred Stock, par value $0.0001 per share (the “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) the Series A Warrants to acquire up to an aggregate of 6,896,553 shares of Common Stock (the “Series A Warrant Shares”).

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.

Series A Preferred Stock

On July 3, 2023, the Company filed the Certificate of Designations of the Series A Convertible 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 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 Series A 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 Series A 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 Series A Conversion Price used to calculate the number of shares issuable will equal to the lower of (i) the then

applicable Series A 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 requisite stockholder approval (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.

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;

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, as described below, by filing a Certificate of Amendment to the Series A Certificate of Designations (the “October 2024 Certificate of

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.

October 2024 Certificate of Amendment further provides that (i) certain holders of the Series A Preferred Stock will not be subject to certain beneficial ownership limitations as described in the Series A Certificate of Designations, and (ii) stockholder

approval will not be required in connection with the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company.

The October 2024 Certificate of Amendment

was filed with the Secretary of State of the State of Delaware, effective as of October 14, 2024.

The holders of the Series A Preferred Stock have no voting rights, other than with respect to certain matters affecting the rights of the Series A

Preferred Stock.

On November 25, 2024, the Company entered into an Amendment and Agreement with the Series A Investors (the “November 2024 Amendment Agreement”), pursuant

to which, (i) the Series A Investors agreed to amend the Series A Certificate of Designations, as described below, by filing a Certificate of Amendment to the Series A Certificate of Designations with the Secretary of State (the “November 2024 Certificate of

Amendment”), and (ii) the Series A Investors and the Company agreed that all payment amounts that have accrued and are unpaid as of November 25, 2024, pursuant to the Series A Certificate of Designations and the August 2024 Amendment will be satisfied by

delivery of shares of Common Stock on or prior to November 25, 2024, with each Series A Investor entitled to receive the number of shares of Common Stock specified below such Series A Investor’s name on its respective signature page thereto.

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.

The Certificate of Amendment became effective with the Secretary of State on December 6, 2024.

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.

At any time beginning 18 months from the date of the issuance, provided 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 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 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.

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.

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 per share, 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 Conversion Shares and Series A Warrant Shares using shares of Common Stock is subject to certain limitations set forth in

the Series A 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.

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 “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 gross proceeds to the Company were $5,790 before estimated offering expenses payable by

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.

August 2025 Offering

On August 18, 2025, the Company entered into the Series B Purchase Agreement with the Series B Purchasers for the issuance and sale in a 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, at an initial conversion price of $1.50 per share, and (ii) accompanying Series B Warrants to purchase up to 3,000,000 shares of Common Stock, 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.

As of the date of this Quarterly Report on Form 10-Q, the Company has not obtained the Series B Stockholder Approval.

However, the Company plans to hold a special meeting of its stockholders on December 12, 2025, to, among other things, obtain the Series B Stockholder Approval.

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

Series B Preferred Stock

On August 20, 2025, the Company filed the Series B Certificate of Designations, thereby creating the Series B Preferred Stock.

The Series B Certificate of Designations became effective with the Secretary of State of the State of Delaware upon filing.

The terms of the Series B Convertible Preferred Stock are as set forth in the Series B Certificate of Designations.

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.

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 its certificate of incorporation 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.

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 the effective date of the Series B Stockholder Approval.

Registration Rights Agreement

In connection with the Series B Private Placement, the Company entered into a registration rights agreement, dated as of August 18, 2025, with the Series B Purchasers (the “Series B Registration Rights Agreement”), 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 no later than 60 days following the date of the 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 Registration Rights Agreement (or 120 days following the date of the 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.

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 stockholder’s equity or that are not reflected in the Company’s financial statements included in this Quarterly

Report on Form 10-Q.

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.

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.

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 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 receipt of stockholder approval of the transactions contemplated by the Series A Purchase Agreement (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.

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.

At any time beginning 18 months from the date of the issuance, provided 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.

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) 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 Common 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 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.

Cash Flows from Operating Activities

During the nine months ended September 30, 2025, net cash used in operating activities was $7.6 million.

The net loss of $6.4 million was decreased by non-cash

income of $3.2 million related to the change in fair value of warrants and increased by non-cash expense of $2.9 million consisting primarily of share-based compensation of $3.1 million and depreciation and amortization of $0.5 million.

Other major component

changes using operating cash included a increase in accounts receivable of $1.3 million, a decrease in accrued liabilities of $0.9 million and offset by a decrease in inventories of $1.1 million.

During the nine months ended September 30, 2024, net cash used in operating activities was $6.9 million.

The net income of $1.7 million was decreased by

non-cash income of $12.5 million related to the change in fair value of warrants and increased by non-cash expense of $2.4 million consisting primarily of share-based compensation expense of $1.8 million and depreciation and amortization of $646 thousand.

Other major component changes using operating cash included an increase of $529 thousand in inventories and a decrease in both accounts receivable of $2.3 million and customer deposits of $1.0 million.

Net cash used in operating activities was $1.2 million for the three months ended March 31, 2026, compared to $3.1 million for the three months ended March 31, 2025.

The significant improvement of $1.9 million year-over-year was driven by more favorable working capital changes and a lower operating loss on a cash basis, partially offset by the non-recurrence of changes in warrant-related items.

The primary components of operating cash flow for the three months ended March 31, 2026 were the net loss of $4.5 million, adjusted for non-cash items including share-based compensation of $2.4 million and the non-cash $227 thousand gain on lease termination.

Changes in working capital were a source of cash of approximately $1.0 million in the three months ended March 31, 2026, driven by collections of accounts receivable of $797 thousand and inventory reductions of $326 thousand, partially offset by an increase in prepaid expenses and deposits of $380 thousand.

Cash Flows from Investing Activities

During the nine months ended September 30, 2025, net cash used in investing activities was $249 thousands of cash for capital expenditures and investment in

During the nine months ended September 30, 2024, we had net proceeds from maturities of

short-term investments of $7.5 million.

During the nine months ended September 30, 2024, we used $13 thousand cash for the purchase of property and equipment and invested $124 thousand in patents and equipment.

Net cash used in investing activities was $58 thousand for the three months ended March 31, 2026, compared to $100 thousand for the three months ended March 31, 2025.

Investing outflows in the three months ended March 31, 2026 consisted of $53 thousand invested in patents and other intangible assets and $5 thousand in capital expenditures for property and equipment.

The $54 thousand paid for the W1 asset acquisition in the three months ended March 31, 2025 did not recur.

Cash Flows from Financing Activities

During the nine months ended September 30, 2025, net cash provided by financing activities was $10.2 million as a result of proceeds from Private Placements.

During the nine months ended September 30, 2024, net cash provided by financing activities was $588 thousand because of proceeds from the exercise of

previously issued stock options of $588 thousand offset $120 thousand in cash dividends paid on the Company’s Series A Preferred Stock.

Net cash provided by financing activities was $5.1 million for the three months ended March 31, 2026, compared to $5.7 million for the three months ended March 31, 2025.

Financing inflows in the three months ended March 31, 2026 consisted of $5.0 million in net proceeds from a private placement of common stock and $100 thousand from the exercise of warrants.

No dividends on the Series A or Series B Convertible Preferred Stock were paid in cash during the three months ended March 31, 2026;

dividends of $249 thousand were settled in shares of Common Stock.

Contractual Obligations and Commitments

In September 2023, we committed to a lease of office space in Coconut Grove, Florida in a multi-year term concluding in 2031 which includes aggregate

lease payments remaining totaling $3.5 million.

As of September 30, 2025, we were committed to approximately $391 thousand for future component deliveries and contract services that are generally subject to

modification or rescheduling in the normal course of business.

We committed to a lease of manufacturing and office space in Southwest Virginia in a multi-year term commencing October 2025 and concluding in

2031, which includes aggregate lease payments remaining totaling $600 thousand.

The Company was granted early occupancy of the facility for use beginning on August 18, 2025.

Effects of Inflation

During the nine months ended September 30, 2025, and for the year ended December 31, 2024, we experienced increased costs in labor and materials due to

We believe throughout 2025 that low unemployment and higher salaries will create higher payroll costs and increased operating expenses in the business.

We have seen increases in costs from multiple suppliers for materials as well as labor.

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.

In 2024, the Company had incurred the maximum amount of royalties under the terms of the agreement.

As of March 31, 2026, 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.

In February 2026, the Company terminated this lease, eliminating the remaining obligation.

As of March 31, 2026, the Company was committed to approximately $0.5 million 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 March 31, 2026, aggregate remaining minimum lease payments under this lease totaled approximately $0.5 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 March 31, 2026.

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.

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 three months ended March 31, 2026, or subsequently thereto, that we believe are of potential significance to our financial statements.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from those described in the Annual Report.

Our critical accounting policies include revenue recognition, share-based compensation, allowance for credit losses, valuation of inventories and intangible assets.

The gain on lease termination recorded in the three months ended March 31, 2026 was determined based on the carrying values of the derecognized right-of-use asset and lease liability at the termination date in accordance with ASC 842.

Quantitative and Qualitative Disclosures about Market Risk.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis