What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-14 · 627 added, 357 removed, 33 unchanged (97% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q (this “ Report ” ) and with our audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “ Annual Report ” ).

This Report may contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ” ), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ).

Such forward-looking statements are based upon management ’ s assumptions, expectations, projections, intentions and beliefs about future events.

Except for historical information, the use of predictive, future-tense or forward-looking words such as “ expect, ” “ anticipate, ” “ intend, ” “ plan, ” “ believe, ” “ seek, ” “ estimate, ” “ continue, ” “ may, ” “ will, ” “ could, ” “ would, ” or the negative or plural of such words and similar expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying forward-looking statements.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report and in our other filings with the Securities and Exchange Commission ( “ SEC ” ), including particularly matters set forth under Part I, Item 1A (Risk Factors) of the Annual Report.

Furthermore, such forward-looking statements speak only as of the date of this Report.

Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

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.

should read the following discussion in conjunction with the financial statements and other financial information included elsewhere

in this Quarterly Report on Form 10-Q (this “ Report ” ) and with our audited financial statements and other information

presented in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “ Annual Report ” ).

Report may contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of

1933, as amended (the “ Securities Act ” ), and Section 21E of the Securities Exchange Act of 1934, as amended

(the “ Exchange Act ” ).

Such forward-looking statements are based upon management ’ s assumptions,

expectations, projections, intentions and beliefs about future events.

Except for historical information, the use of predictive, future-tense

or forward-looking words such as “ expect, ” “ anticipate, ” “ intend, ” “ plan, ”

“ believe, ” “ seek, ” “ estimate, ” “ continue, ” “ may, ”

“ will, ” “ could, ” “ would, ” or the negative or plural of such words and similar

expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying

forward-looking statements.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors

that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the

forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed

below and elsewhere in this Report and in our other filings with the Securities and Exchange Commission ( “ SEC ” ),

including particularly matters set forth under Part I, Item 1A (Risk Factors) of the Annual Report.

Furthermore, such forward-looking

statements speak only as of the date of this Report.

Except as required by law, we undertake no obligation to update any forward-looking

statements to reflect events or circumstances after the date of such statements.

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.

Our target market for our solutions 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.

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.

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.

is now sold to law enforcement agencies for simulation training as well as corrections departments for the societal reentry scenarios.

target market for our solutions 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 in other domestic 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 2027.

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 force options.

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

It allows 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.

In addition to the U.S.

Additionally, we are exploring

opportunities in other domestic 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 2027.

focus our efforts on the following products and services:

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 force options.

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

It allows 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.

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.

addition to the U.S.

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

We have established an active distributor network representing 50 states and one dealer representing the U.S.

We have established an active distributor

network representing 50 states and one dealer representing the U.S.

territory of Puerto Rico.

We have distribution agreements with 35 international distributors covering 75 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.

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

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 remote restraint and non-lethal solutions.

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

We believe there are market opportunities for our remote restraint and virtual reality 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.

We have distribution agreements with 35

international distributors covering 75 countries.

We focus significant sales, training and business development efforts to support our

distribution network in addition to our internal sales team.

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

We believe we have established a strong brand and market presence globally and have established significant competitive advantages in

February 18, 2025, we entered into an Asset Purchase Agreement, dated as of February 18, 2025 (the “W1 Purchase Agreement”),

pursuant which, subject to the terms and conditions set forth therein, we acquired substantially all the assets of 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.

Outlook and Challenges

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 remote restraint and non-lethal solutions.

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

We believe there are market opportunities for our remote restraint

and virtual reality solutions in the law enforcement and security sectors worldwide.

These opportunities are driven by the increasing

demand for less-lethal policing.

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

is now in use by over 900 U.S.

law enforcement agencies and in 62 countries.

Due to its safe remote restraint 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 us, but many do not.

In the usage reports we have been provided, officers have reported successful outcomes in 84% of the use cases.

Due to its safe remote restraint 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.

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.

agencies voluntarily report usage to Wrap but many do not.

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

outcomes in 84% 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 behavioral health issues, and the second most common BolaWrap use case is during domestic violence calls.

26% of the reported persons who are wrapped with the BolaWrap are thought to be under the influence of alcohol or drugs.

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 de-escalation continue to increase, it will contribute to our future revenue growth.

We anticipate and believe that our portfolio of safe, remote restraint 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.

From the information we have

been provided, the most common BolaWrap use case is for individuals with behavioral health issues, and the second most common BolaWrap

use case is during domestic violence calls.

26% of the reported persons who are wrapped with the BolaWrap are thought to be under the

influence of alcohol or drugs.

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

We believe that as the reports of BolaWrap’s effectiveness in de-escalation continue to increase, it will contribute to

our future revenue growth.

anticipate and believe that our portfolio of safe, remote restraint 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, 2024, over 1,530 agencies have received BolaWrap training with over 5,400 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing a 10% increase in agencies and a 10% increase in trained officers as compared to September 30, 2023.

Operating expense of $13.0 million for the nine months ended September 30, 2024 decreased by $2.3 million, when compared to operating expense of $15.3 million for the nine months ended September 30, 2023, as a result of the Company’s cost containment initiatives enacted beginning in the first half of 2024 as well as a reduction in share-based compensation, offset by increased occupancy expenses related to our new office space.

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.

If departments follow our Use of Force Guarantee requirements, we have offered to buy back their BolaWrap devices if their reportable use of force is not reduced by 10%.

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.

we are exploring major international business prospects while simultaneously seeking to establish relationships with large police agencies

However, we acknowledge that it is challenging to predict the exact timeline for closing these deals, or whether they will

ultimately materialize.

anticipates that our portfolio of products 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, continued need for ongoing training and transparency for police encounters, we expect a continued surge in our global

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.

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 March 31, 2024, over 1,530 agencies have received BolaWrap training with over

5,400 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing

an 10% increase in agencies and a 10% increase in trained officers as compared to March 31, 2024.

expense of $4.5 million for the three months ended March 31, 2025 decreased by $458 thousand, when compared to $5.0 million for the

three months ended March 31, 2024, as a result of the Company’s cost containment initiatives enacted beginning during the first

half of 2024.

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.

If departments follow our Use of Force Guarantee requirements,

we have offered to buy back their BolaWrap devices if their reportable use of force is not reduced by 10%.

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.

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, 2024, we had backlog of approximately $156 thousand which is expected to be delivered in the fourth quarter of 2024.

Additionally, as of September 30, 2024, we had deferred revenue of $673 thousand, which consisted of $97 thousand related to VR, $463 thousand related to Intrensic, $98 thousand related to BolaWrap extended warranties and services and $15 thousand related to training.

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

Since inception, we have generated significant losses from operations and anticipate that we will continue to generate significant losses from operations for the foreseeable future.

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

We recorded net income of $1.7 million during the first nine months of fiscal 2024 as compared to net loss of $11.8 million during the first nine months of fiscal 2023, an improvement of approximately $13.5 million for the comparable period.

Net cash used in operations during the nine months ended September 30, 2024, was $6.0 million less than net cash used in operations during the nine months ended September 30, 2023.

This decrease in net cash used in operations during the first nine months of 2024 was primarily driven by the Company’s cost containment efforts initiated in the first half of 2024.

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 also affected 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 into or modify favorable terms and conditions regarding equity and debt financing activities.

Nevertheless, we had $4.9 million in cash and cash equivalents as of September 30, 2024.

We therefore believe we have sufficient capital to fund our operations for the next twelve months following this Report.

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, protests against racial inequality, and movements like "Defund the Police." 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.

Nasdaq Listing Requirements

On April 18, 2024, the Company received a notice (the “ Initial Notice ”) from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“ Nasdaq ”) notifying the Company that as it has not yet filed its Annual Report on Form 10-K (the “ 2023 Form 10-K ”) for the year ended December 31, 2023, the Company is not in compliance with Listing Rule 5250(c)(1) (the “ Listing Rule ”) for continued listing on the Nasdaq Capital Market.

Additionally, on May 17, 2024, the Company received a notice from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “ Q1 Form 10-Q ”) for the three months ended March 31, 2024, the Company is not in compliance with the Listing Rule for continued listing on the Nasdaq Capital Market.

On August 16, 2024, the Company received a notice from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “ Q2 Form 10-Q ,” and collectively with the Q1 Form 10-Q, the “ Delinquent Filings ”) for the three months ended June 30, 2024, the Company is not in compliance with the Listing Rule for continued listing on the Nasdaq Capital Market.

The Company previously submitted a plan to Nasdaq to regain compliance with respect to the delinquent 2023 Form 10-K and Q1 Form 10-Q (the “ Plan ”), and Nasdaq granted an exception until August 30, 2024, to file the delinquent 2023 Form 10-K and Q1 Form 10-Q.

On August 28, 2024, the 2023 Form 10-K was filed with the SEC.

Nasdaq granted the Company an additional exception of up to a maximum of 180 calendar days from the filing due date of the 2023 Form 10-K to file the Delinquent Filings, or until October 14, 2024, to regain compliance.

The Company filed the Q1 Form 10-Q with the SEC on September 25, 2024, and filed the Q2 Form 10-Q with the SEC on October 14, 2024, and regained compliance with Nasdaq.

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 estimates.

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

These include share-based compensation and contingencies and areas such as revenue recognition, allowance for doubtful accounts, valuation of inventory and intangible assets, estimates of product line exit costs, 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.

Our 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.

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.

of March 31, 2025, we had backlog of approximately $64 thousand which was expected to be delivered in the second quarter of 2025.

Additionally,

as of March 31, 2025, we had deferred revenue of $350 thousand consisting of $57 thousand related to VR, $234 thousand related to Intrensic,

$54 thousand related to BolaWrap extended warranties and services and $5 thousand related to training.

Distributor and customer orders

for future deliveries are generally subject to modification, rescheduling or in some instances, cancellation, in the normal course of

inception, we have generated significant losses from operations and anticipate that we will continue to generate significant losses from

operations for the foreseeable future.

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

We recorded net income of $109 thousand during the three months ended March 31, 2025, which was in-line with the net income of

$117 thousand for the three months ended March 31, 2024.

Net cash used in operations during the three months ended March 31, 2025, was

$0.7 million less than net cash used in operations during the three months ended March 31, 2024.

This decrease in net cash used in operations

during the three months ended March 31, 2024, was primarily driven by the Company’s continued cost containment efforts.

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.

chain disruptions also affected 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 into or modify favorable terms and conditions regarding equity and debt financing activities.

Nevertheless, we had $6.2

million in cash and cash equivalents as of March 31, 2025.

We therefore believe we have sufficient capital to fund our operations for

the next twelve months following this 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.

Company may be positively or negatively impacted by continued social unrest, protests against racial inequality, and movements like “Defund

the Police.” Such unrest may be further fueled by misleading information or negative publicity about our solutions.

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

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.

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.

Accounting Policies and Estimates

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.

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

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

If later our assessment of the probability of these tax contingencies changes, our accrual for such tax uncertainties may increase

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 estimates.

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

These include share-based compensation

and contingencies and areas such as revenue recognition, allowance for doubtful accounts, valuation of inventory and intangible assets,

estimates of product line exit costs, warranty liabilities and impairments.

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.

Our 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.

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

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.

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.

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

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.

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 credit worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms.

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

Valuation of Inventory .

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 credit worthiness, past transaction history with the customer,

current economic industry trends and changes in customer payment terms.

Our judgments and estimates regarding collectability of accounts

receivable have an impact on our financial statements.

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 value.

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 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 value.

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.

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

This reserve 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.

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 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.

Warranty expense

is recorded in cost of revenue.

We evaluate the adequacy of this reserve each reporting period.

We use the recognition criteria of FASB ASC Topic 450-20, Loss Contingencies, to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred, and we recognize expense ratably over the service period.

We accrue bonus expense each quarter based on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets.

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 common shares 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.

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.

Other than the warrants and business combination described above, 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, 2024.

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 the Annual Report.

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.

use the recognition criteria of FASB ASC Topic 450-20, Loss Contingencies, to estimate the amount of bonuses when it becomes probable

a bonus liability will be incurred and we recognize expense ratably over the service period.

We accrue bonus expense each quarter based

on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets.

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

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.

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.

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.

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

Historically,

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

Other than the warrants and business combination described above, 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 March 31, 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.

and Related Information

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, in our financial statements 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 will continue to reduce from the first quarter of 2024, as a result of the changes from ongoing cost containment efforts.

We may incur additional non-cash share-based compensation costs depending on future option and restricted stock unit grants that are impacted by stock prices and other valuation factors.

Historical expenditures are not indicative of future expenditures.

Results of Operations

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023 (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 Report.

Major Customers

and Related Information, in our financial statements for further discussion.

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.

expect our operating costs will continue to stabilize or decline slightly from the first quarter of 2025 as a result of the changes

from ongoing cost containment efforts.

We may incur additional non-cash share-based compensation costs depending on future

options and restricted stock unit grants that are impacted by stock prices and other valuation factors.

Historical expenditures are

not indicative of future expenditures.

of Operations

Months Ended March 31, 2025, Compared to Three Months Ended March 31, 2024 (Unaudited)

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,

(in thousands, except for percentage change)

(in thousands, except percentage change)

Product sales

Managed services

Other revenue

6 unchanged sentences

Loss from operations

We reported net revenue of $593 thousand for the three months ended September 30, 2024, as compared to $3.6 million for the three months ended September 30, 2023, an 84% decrease compared to the prior year.

The decrease in 2024 as compared to the prior year is primarily a result of 2023 revenues that included large order intake in EMEA.

We incurred product promotional costs of $1 thousand during the three months ended September 30, 2024, representing a 98% decrease as compared to $61 thousand for the three months ended September 30, 2023.

The 2023 product promotional costs were related primarily to BolaWrap 150 demonstration products, and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

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

Our gross profit for the three months ended September 30, 2023, was $2.2 million, or a gross margin of 60%.

The 89% year-over-year decrease in gross profit was a result of lower volumes of BolaWrap 150 product sales slightly offset by the added high-margin revenue from the Company’s Intrensic acquisition in August 2023.

As our revenue history is limited, historical margins may not accurately reflect future margins.

However, we expect higher margins with the production of the BolaWrap 150 compared to previous production due to design changes and improved pricing, as well as our higher margin revenue from the Intrensic product offerings.

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 10% of our overall revenue in the three months ended September 30, 2024, and will 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 force.

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

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 2024, 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 $3.3 million for the three months ended September 30, 2024, was reduced by $1.0 million when compared to $4.3 million for the three months ended September 30, 2023.

The decrease in SG&A expense was primarily the result of the Company’s cost containment initiatives enacted beginning in the first half of 2024 which was offset by an increase of $1.0 million in share-based compensation as well as by increased occupancy expenses related to our new office space.

Share-based compensation costs allocated to SG&A increased to $896 thousand for the three months ended September 30, 2024, compared to a negative $149 thousand for the three months ended September 30, 2023, resulting from forfeitures and cancellations in 2023.

Salaries and burden costs of $756 thousand for the three months ended September 30, 2024, were approximately $880 thousand lower than in the three months ended September 30, 2023.

This reduction reflects an approximate 32% reduction in the Company’s workforce including a reduction of certain C-Level positions.

During the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, we decreased professional and consulting fees by $907 thousand reflecting the Company’s cost containment efforts.

We expect expenditures for SG&A expenses in 2024 to continue to decline in the last quarter of 2024, as a result of the Company’s cost cutting initiatives.

Advertising and promotion costs were $81 thousand for the three months ended September 30, 2024, or a decrease of $143 thousand as compared to $224 thousand for the three months ended September 30, 2023.

The changes in advertising costs were primarily related to reduced trade show costs offset by slight increases in digital marketing campaigns.

Research and Development Expense

Research and development expense decreased by $83 thousand for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023.

We incurred a $36 thousand period over period increase in compensation expense as well as a $71 thousand period over period decrease in share-based compensation expense allocated to research and development expense as a result of reduction of personnel.

Outside consulting costs decreased by $8 thousand for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023, primarily due to the Company’s move to a more variable cost model.

Operating Loss

Loss from operations of $3.6 million during the three months ended September 30, 2024, was an increase of $876 thousand compared to loss from operations of $2.8 million during the three months ended September 30, 2023, primarily reflecting the reduced revenues offset by lower operating costs from the Company’s cost containment efforts.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

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 Report.

Nine Months Ended

September 30,

(in thousands, except for percentage change)

Product sales

Other revenue

Total revenue

Cost of revenue

Operating expense:

Selling, general and administrative

Research and development

Total operating expense

Loss from operations

We reported net revenue of $3.6 million for the nine months ended September 30, 2024, as compared to $5.5 million for the nine months ended September 30, 2023, a 34% decrease.

The decrease in 2024 is primarily a result of a $2.3 million decrease in sales of BolaWrap devices, cartridges and accessories to distributors in EMEA.

We incurred discounts of $18 thousand during the nine months ended September 30, 2024, compared to $132 thousand for the nine months ended September 30, 2023.

We expect a continued decline to minimal discounts throughout 2024, as we have phased out our promotional upgrade offer.

We incurred product promotional costs of $101 thousand during the nine months ended September 30, 2024, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

We are responding to increased demand for training as a result of expanded product and brand awareness and increased successful field use by agencies but, due to increased awareness, expect reductions in product promotional costs throughout 2024.

As of September 30, 2024, we had deferred revenue of $673 thousand, which consisted of $97 thousand related to VR, $463 thousand related to Intrensic, $98 thousand related to BolaWrap extended warranties and services and $15 thousand related to training.

On September 30, 2024, we had backlog of $260 thousand expected to be delivered in the fourth quarter of 2024.

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

Our gross profit for the nine months ended September 30, 2024, was $2.1 million, or a gross margin of 56%.

Our gross profit for the nine months ended September 30, 2023, was $3.2 million, or a gross margin of 58%.

The 36% year-over-year decrease in gross profit was a result of higher volumes of the BolaWrap 150 product sold to EMEA distributors in 2023 that were slightly offset by the added high-margin revenue from the Company’s Intrensic acquisition in August 2023.

As our revenue history is limited, historical margins may not accurately reflect future margins.

However, we expect higher margins with the production of the BolaWrap 150 compared to previous production due to design changes and improved pricing.

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

reported net revenue of $765 thousand for the three months ended March 31, 2025, as compared to $1.5 million for the three months ended

March 31, 2024, or a 48% decrease.

The decrease for the three months ended March 31, 2025, as compared to March 31, 2024, is primarily

a result of lower product orders offset by the added managed services revenue from the acquisition of the W1 business.

gross profit for the three months ended March 31, 2025, was $595 thousand, or a gross margin of 78%.

Our gross profit for the three months

ended March 31, 2024, was $836 thousand, or a gross margin of 57%.

The decrease in gross profit represented a 29% decrease compared to

the three months ended March 31, 2024, as a result of lower volume of the Bola Wrap 150 product sales offset by the added high-margin

revenue from the Company’s Intrensic acquisition in August 2023 and acquisition ofW1 in February 2025.

our revenue history is limited, historical margins may not accurately reflect future margins.

However, we expect higher margins with

the production of the BolaWrap 150 compared to previous production due to design changes and improved pricing as well as our higher margin

revenue from the Intrensic product offerings.

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 13% of our overall revenue for the nine months ended September 30, 2024, and will 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 force.

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

As we scale cassette production,

we will look to reduce our costs and drive higher cassette margins.

Cassettes were a total of 10% of our overall revenue in the three

months ended March 31, 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

Additionally, we expect that gross margins will be impacted by the added managed services and software revenue contributions in

the second half of 2025.

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

our product costs.

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.

Selling, General and Administrative Expense

SG&A expense of $11.0 million for the nine months ended September 30, 2024, decreased by $1.6 million when compared to $12.6 million for the nine months ended September 30, 2023, as a result of the Company’s cost containment initiatives enacted beginning in the first half of 2024 offset by increased occupancy expenses related to our new office space.

Share-based compensation costs allocated to SG&A increased to $1.7 million for the nine months ended September 30, 2024, compared to $1.4 million for the nine months ended September 30, 2023.

This $331 thousand increase resulted primarily due to changes in management and changes in the Company’s stock price.

Salaries and burden costs of $3.2 million for the nine months ended September 30, 2024, was a $1.4 million decrease compared to the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, we increased our occupancy costs by $615 thousand, which was offset by a reduction of professional fees by $807 thousand and travel and entertainment costs by $211 thousand.

We expect expenditures for SG&A expense in 2024 to be lower than 2023 as a result of the Company’s cost containment initiatives enacted beginning in the first half 2024.

Advertising and promotion costs were $552 thousand for the nine months ended September 30, 2024, or a decrease of $117 thousand as compared to $669 thousand for the nine months ended September 30, 2023.

The decrease in advertising costs was related to decreases in video and testimonial costs as well as reductions in trade shows and other cost containment efforts.

Research and Development Expense

Research and development expense decreased by $723 thousand for the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2024.

We incurred a $130 thousand period over period decrease in compensation expense allocated to research and development expense as a result of personnel changes along with a $165 thousand period over period decrease in share-based compensation expense allocated to research and development expense as a result of personnel changes.

Outside consulting costs decreased by $101 thousand and material costs were lower by $128 thousand for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

Operating Loss

Loss from operations of $10.9 million during the nine months ended September 30, 2024, represents a reduction of $1.2 million compared to loss from operations of $12.1 million during the nine months ended September 30, 2023, reflecting increased focus on reducing operating costs.

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 from future equity or debt financings.

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

As of September 30, 2024, we had cash and cash equivalents of $4.9 million, working capital of $1.6 million including the $7.2 million value of the Series A Warrants recorded in connection with the issuance of the Series A Preferred Stock in July 2023, and had sustained cumulative losses attributable to stockholders of $97.3 million.

Our working capital net of the warrants-short term at September 30, 2024 was $8.6 million lower compared to December 31, 2023, primarily as a result of operating losses of $10.9 million for the period.

Our working capital as of September 30, 2024 was negatively affected by the continued operating losses during the prior twelve months.

We believe we have sufficient capital to fund our operations for the next twelve months following this Report.

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

Capital Requirements

Our future liquidity requirements or future capital needs will depend on, among other things, capital required to introduce new products and the operational staffing and support requirements, as well as the timing and amount of future revenue and product costs.

We anticipate that demands for operating and working capital may grow depending on decisions on staffing, development, production, marketing, training and other functions and based on other factors outside of our control, including the timing of receipt of revenue.

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

Any future outbreaks pandemics or contagious diseases or fear of such outbreaks;

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

The timing and extent of market acceptance of our products;

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

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

Costs and timing of additional product development;

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

Ability to collect accounts receivable;

Timing and costs associated with any new financing.

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

Volatility in the capital markets;

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, and (ii) warrants (the “ Series A Warrants ”) to acquire up to an aggregate of 6,896,553 shares of Common Stock (the “ Series A Warrant Shares ”).

The conversion price of the Series A Preferred Stock is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable conversion price (subject to certain exceptions).

The closing of the Series A Offering occurred on July 3, 2023.

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.

General and Administrative Expense

general and administrative (“SG&A”) expense of $4.1 million for the three months ended March 31, 2025, was reduced by

$0.1 million when compared to $4.2 million for the three months ended March 31, 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 as well as by increased occupancy expenses related to the new the office space in

compensation costs allocated to SG&A totaled $1.6 million thousand for the three months ended March 31, 2025, compared to $675 thousand

for the three months ended March 31, 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.

and burden costs of $799 thousand for the three months ended March 31, 2025, were approximately $0.6 million lower than the three months

ended March 31, 2024.

This reduction reflects the reduction in the Company’s workforce including a reduction of certain C-Level

During the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, we decreased professional

and consulting fees by $95 thousand reflecting the Company’s cost containment efforts.

We expect expenditures for SG&A expenses

in 2025 to increase from the first quarter’s run-rate as a result of the W1 acquisition.

and promotion costs were $81 thousand for the three months ended March 31, 2025, or a decrease of $182 thousand as compared to $263 thousand

during the three months ended March 31, 2024.

The changes in advertising costs were primarily related to reduced trade show costs offset

by slight increases in digital marketing campaigns.

and Development Expense

and development expense totaling $378 thousand decreased by $377 thousand for the three months ended March 31, 2025, when compared

to the three months ended March 31, 2024.

We incurred a $309 thousand period-over-period decrease in compensation expense as well as

a $34 thousand period-over-period increase in share-based compensation expense allocated to research and development expense as a

result of reduction of personnel.

Outside consulting costs decreased by $21 thousand for the three months ended March 31, 2025, when

compared to the three months ended March 31, 2024, primarily due to the Company’s move to a more variable cost

from operations of $3.9 million during the three months ended March 31, 2025, was a decrease of $0.2 million compared to loss from operations

of $4.1 million during the three months ended March 31, 2024, primarily reflecting the reduced revenues offset by lower operating costs

from the Company’s cost containment efforts.

and Capital Resources

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 from future equity or debt financings.

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

As of March 31, 2025, we had cash of $6.2

million, negative working capital of $0.3 million including the $11.3 million of the Series A Warrants recorded in connection

with the issuance of the Series A Preferred Stock in July 2023 as well as the PIPE Warrants (as defined herein) issued in connection

with the Private Placement (as defined herein), and had sustained cumulative losses attributable to stockholders of $105.1 million.

Our working capital net of the warrants-short term as of March 31, 2025, was $3.6 million higher compared to December 31, 2024,

primarily as a result of the cash received in the Private Placement offset by operating losses of $3.9 million for the three months

ended March 31, 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.

future liquidity requirements or future capital needs will depend on, among other things, capital required to introduce new products

and the operational staffing and support requirements, as well as the timing and amount of future revenue and product costs.

We anticipate

that demands for operating and working capital may grow depending on decisions on staffing, development, production, marketing, training

and other functions and based on other factors outside of our control, including the timing of receipt of revenue.

future capital requirements, cash flows and results of operations could be affected by, and will depend on, many factors, some of which

are currently unknown to us, including, among other things:

outbreaks pandemics or contagious diseases or fear of such outbreaks;

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

and extent of market acceptance of our products;

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

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

and timing of additional product development;

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

to collect accounts receivable;

and costs associated with any new financing.

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

in the capital markets;

price and trading volume of our Common Stock.

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, and (ii) warrants (the “Series A Warrants”) to acquire up to an

aggregate of 6,896,553 shares of Common Stock (the “Series A Warrant Shares”).

The conversion price of the Series A Preferred

Stock is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based

adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at

a price below the then-applicable conversion price (subject to certain exceptions).

The closing of the Series A Offering occurred on

July 3, 2023.

The aggregate gross proceeds from the Series A Offering were $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 Preferred Stock

The terms of the Series A Preferred Stock are as set forth in the form of Certificate of Designations of the Series A Preferred Stock.

The Series A Preferred Stock is convertible into shares of Common Stock (the “ Conversion Shares ”) at the election of the holder at any time at an initial conversion price of $1.45 per share (the “ Conversion Price ”).

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 Certificate of Designations.

Upon the occurrence and during the continuance of a Triggering Event (as defined in the 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 be equal to the lower of (i) the then applicable Conversion Price and (ii) 85% of the arithmetic average of the three (3) lowest closing prices of the Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the dividend payment date, provided that such price shall not be lower than the lower of (x) $0.2828 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events ) and (y) 20% of the “Minimum Price” (as defined in Nasdaq Stock Market Rule 5635) on the date of the Nasdaq Stockholder Approval (as defined herein) (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market.

The Company may require holders to convert their Series A Preferred Stock into shares of Common Stock if the closing price of the 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 and certain equity conditions described in the Certificate of Designations are satisfied.

At any time beginning 18 months from the date of the issuance, provided that certain equity conditions described in the Certificate of Designations are satisfied, and provided further 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, 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.

Other than Scot Cohen, V4 Global LLC or their transferees, a holder of Series A Preferred Stock cannot convert shares of its Series A Preferred Stock into shares of Common Stock if the holder and its affiliates would beneficially own more than 4.99%, or 9.99% at the election of the holder, of the outstanding Common Stock after giving effect to the conversion.

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice.

Except as required by law (including without limitation, the Delaware General Corporation Law (the “ DGCL ”)), the holders of the Series A Preferred Stock are entitled to vote with holders of the Common Stock on as 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 applicable immediately before the execution and delivery of the Series A Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Certificate of Designations.

To the extent that under the DGCL the vote of the holders of shares of Series A Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of a majority of the outstanding shares of Series A Preferred Stock, voting together in the aggregate and not in separate series unless required under the DGCL, represented at a duly held meeting at which a quorum is present or by written consent of such majority (except as otherwise may be required under the DGCL) shall constitute the approval of such action by both the class or the series, as applicable.

On August 19, 2024, the Company entered into an Amendment Agreement (the “ Series A Amendment ”) with the Required Holders (as defined in the Certificate of Designations).

Pursuant to the Series A 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 Certificate of Designations), using July 1, 2024, as the applicable date of determination in accordance with the Certificate of Designations; (B) the dividends due on October 1, 2024 (the “ October Dividend Amount ” and, together with the July Delinquent Dividend Amount, the “ Delinquent Dividend Amounts ”), shall be payable in shares of Common Stock based on a per share price of Common Stock equal to 80% of the arithmetic average of the three (3) lowest closing sale prices of the Common Stock during the month of September 2024; and (C) such Delinquent Dividend Amounts and any Dividend Balance Shares (as defined in the Certificate of Designations), with respect thereto, if applicable, shall be delivered on October 1, 2024 and the Pre-Dividend Shares (as defined in the Certificate of Designations) with respect to each of the July Delinquent Dividend Amount and the October Dividend Amount, if applicable, shall be delivered to the Series A Investors on or prior to the twenty-first (21st) trading day prior to October 1, 2024.

The Company and the Required Holders further agreed pursuant to the Series A Amendment to amend (i) the Certificate of Designations, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “ Certificate of Amendment ”) and (ii) the Series A Purchase Agreement to amend the definition of “Excluded Securities.”

The Certificate of Amendment amended the 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, which was subsequently further amended by the October 2024 Certificate of Amendment (as defined below), (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 Certificate of Designations, and (C) amend the definition of “Excluded Securities” to exclude Dividend Shares (as defined in the Certificate of Designations) and shares of Common Stock issued in connection with the payments of dividends.

The Certificate of Amendment was filed with the Secretary of State of the State of Delaware on August 23, 2024.

On October 14, 2024, the Company entered into an Amendment Agreement (the “ October 2024 Series A Amendment ”) with the Required Holders.

Pursuant to the October 2024 Series A Amendment, the Required Holders agreed to further amend the Certificate of Designations (the “ October 2024 Certificate of Amendment ”).

Pursuant to the October 2024 Certificate of Amendment, (i) the Series A Preferred Stock is now entitled to voting rights as described therein, (ii) certain holders of the Preferred Stock are no longer subject to certain beneficial ownership limitations as described in the Certificate of Designations, and (iii) stockholder approval is no longer 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 on October 14, 2024.

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

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).

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

Nasdaq Stockholder Approval

The Company’s ability to issue Conversion Shares and Series A Warrant Shares is subject to certain limitations set forth in the Certificate of Designations.

Prior to receiving the Nasdaq Stockholder Approval (as defined below), 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 ”).

The Company expects to use the net proceeds from

the Series A Offering for general corporate purposes.

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.

A Preferred Stock

July 3, 2023, the Company filed the Certificate of Designations of the Series A Preferred Stock (the “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

The Series A Preferred Stock is convertible into shares of Common Stock (the “Conversion

Shares”) at the election of the holder at any time at an initial conversion price of $1.45 (the “Conversion Price”).

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).

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 Certificate of Designations.

Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Series A Preferred

Stock will accrue dividends at the rate of 20% per annum.

If the Company elects to pay any dividends in shares of Common Stock, the Conversion

Price used to calculate the number of shares issuable will equal to the lower of (i) the then applicable Conversion Price and (ii) 85%

of the arithmetic average of the three (3) lowest closing prices of the Company’s Common Stock during the twenty (20) consecutive

trading day period ending on the trading day immediately preceding the dividend payment date, provided that such price shall not be lower

than the lower of (x) $0.2828 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other

similar events ) and (y) 20% of the “Minimum Price” (as defined in Nasdaq Stock Market Rule 5635) on the date of the 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.

August 19, 2024, the Company entered into an Amendment Agreement (the “August 2024 Amendment”) with the Required Holders

(as defined in the 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 Certificate of Designations), using July 1, 2024, as

the applicable date of determination in accordance with the Certificate of Designations;

(B) the dividends due on October 1, 2024 (the

“October Dividend Amount” and, together with the July Delinquent Dividend Amount, the “Delinquent Dividend Amounts”),

shall be payable in shares of Common Stock based on a per share price of Common Stock equal to 80% of the arithmetic average of the three

(3) lowest closing sale prices of the Common Stock during the month of September 2024;

and (C) such Delinquent Dividend Amounts and any

Dividend Balance Shares (as defined in the Certificate of Designations), with respect thereto, if applicable, shall be delivered on October

The Company and the Required Holders further agreed pursuant to the August 2024 Amendment to amend (i) the Certificate of Designations,

as described below, by filing a Certificate of Amendment to the 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 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 Certificate of Designations.

October 14, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations),

pursuant to which, the Required Holders agreed to amend the Certificate of Designations of the Company’s Series A Preferred Stock,

as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “October 2024 Certificate of Amendment”).

The October 2024 Certificate of Amendment amends the 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 Certificate of Designations.

The October 2024 Certificate of Amendment further provides that (i) certain holders of the Series

A Preferred Stock will not be subject to certain beneficial ownership limitations as described in the 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.

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 Certificate of Designations, as described below,

by filing a Certificate of Amendment to the 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 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.

The November 2024 Certificate of Amendment

amends the Certificate of Designations to provide that upon the occurrence of a Triggering Event (as defined in the 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.

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 Certificate of Designations are satisfied.

any time beginning 18 months from the date of the issuance, provided that provided that that the Company has filed all reports required

to be filed by it pursuant to the Exchange Act on a timely basis for a continuous period of one year and provided further that certain

equity conditions described in the 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.

Certificate of Amendment amends the 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 Certificate of Designations.

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.

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).

Stockholder Approval

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 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,

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.

Cash Flows from Operating Activities

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 $619 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.

During the nine months ended September 30, 2023, net cash used in operating activities was $12.9 million.

The net loss of $11.8 million was decreased by non-cash expense of $2.5 million consisting primarily of share-based compensation expense of $1.6 million.

Other major component changes using operating cash included an increase of $1.8 million in inventories and a net increase in accounts receivable of $1.4 million.

Cash Flows from Investing Activities

During the nine months ended September 30, 2024, we had proceeds from maturities of short-term investments of $7.5 million.

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

During the nine months ended September 30, 2023, we used $6.1 million of cash to purchase short-term investments, and we had proceeds from maturities of short-term investments of $10 million.

During the nine months ended September 30, 2023, we used $60 thousand of cash for the purchase of intangible assets, $551 thousand of cash for the purchase of Intrensic, $133 thousand of cash for the purchase of property and equipment and invested $277 thousand in patents.

Cash Flows from Financing Activities

During the nine months ended September 30, 2024, we received $588 thousand in proceeds from the exercise of previously issued stock options and paid $120 thousand in cash dividends on the Company’s Series A Preferred Stock.

During the nine months ended September 30, 2023, we received $9.8 million in gross proceeds from the issuance of securities, which was reflected in cash and cash equivalents and $0 in proceeds from the exercise of previously issued stock options.

Contractual Obligations and Commitments

Pursuant to the License Agreement, 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.

We recorded $66 thousand for royalties during the nine months ended September 30, 2024.

The maximum payout was satisfied as of June 30, 2024.

In January 2022, we extended our Tempe, Arizona facility lease for three years through July 2025 and we are committed to aggregate lease payments on the facility lease of $126 thousand in 2024 and $75 thousand in 2025.

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 $3.6 million.

On August 9, 2023, the Company entered into a Membership Interest Purchase Agreement (the “ Intrensic Purchase Agreement ”) with certain members of Intrensic, including Kevin Mullins, the Company’s former Chief Executive Officer (collectively, “ Sellers ”) and Buford Ortale, as the Sellers’ representative.

Under the terms of the Intrensic Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell, 100% of the membership interests (the “ Membership Interests ”) of Intrensic for the following consideration upon the consummation of the sale of the Membership Interests (the “ Intrensic Closing ”):

(i) $554 thousand in cash, subject to adjustment based upon the outstanding indebtedness of Intrensic and Intrensic’s working capital as of the Intrensic Closing;

and (ii) 1,250,000 shares of Common Stock of the Company (the “ Intrensic Acquisition ”).

The Intrensic Acquisition closed on August 16, 2023, in accordance with the terms of the Intrensic Purchase Agreement.

As of September 30, 2024, we were committed for approximately $941 thousand for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

Effects of Inflation

During the nine months ended September 30, 2024, and the year ended December 31, 2023, we had experienced increased costs in labor and materials due to inflation.

We believe throughout 2024 that low unemployment and higher salaries will create higher payroll costs and increased operating expense in the business.

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

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 the Company.

Sheet Arrangements

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.

Flows from Operating Activities

the three months ended March 31, 2025, net cash used in operating activities was $3.1 million.

The net income of $109 thousand was decreased

by non-cash income of $4.0 million related to the change in fair value of warrants and increased by non-cash expense of $1.9 million

consisting primarily of share-based compensation expense of $1.7 million and depreciation and amortization of $155 thousand.

Other major component changes using operating cash included an increase of $404 thousand in prepaids and a $184 thousand increase in

accounts receivable as well as a decrease in both accounts payable of $115 thousand and accrued liabilities of $272 thousand.

the three months ended March 31, 2024, net cash used in operating activities was $3.7 million.

The net income of $117 thousand was decreased

by non-cash income of $4.2 million related to the change in fair value of warrants and increased by non-cash expense of $1.1 million

consisting primarily of share-based compensation expense of $848 thousand.

Other major component changes using operating cash included

an increase of $584 thousand in inventories and a decrease in accounts receivable of $683 thousand.

Flows from Investing Activities

the three months ended March 31, 2025, we used $54 thousand of cash for the acquisition of W1 and invested $47 thousand in patents.

the three months ended March 31, 2024, we had proceeds from maturities of short-term investments of $2.5 million.

During the three

months ended March 31, 2024, we used $14 thousand cash for the purchase of property and equipment and invested $66 thousand in

patents and equipment.

Flows from Financing Activities

the three months ended March 31, 2025, we received $5.7 million in net proceeds from a Private Placement.

the three months ended March 31, 2024, we received $588 thousand in proceeds from the exercise of previously issued stock options and

paid $60 thousand in cash dividends on the Company’s Series A Preferred Stock.

Obligations and Commitments

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.

We recorded $66 thousand

for royalties during the three months ended March 31, 2025.

The maximum payout has been reached as of June 30, 2024, and we have included

$81 thousand in our accrued liabilities.

January 2022, we extended our Tempe, Arizona facility lease for three years through July 2025 and we are committed to aggregate lease

payments on the facility lease of $126 thousand in 2024 and $75 thousand in 2025.

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 $3.6 million.

of March 31, 2025, we were committed to approximately $509 thousand for future component deliveries and contract services that are generally

subject to modification or rescheduling in the normal course of business.

the three months ended March 31, 2025, and for the year ended December 31, 2024, we had experienced increased costs in labor and

materials due to inflation.

We believe throughout 2025 that low unemployment and higher salaries will create higher payroll costs

and increased operating expense in the business.

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

Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required

under this item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis