Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclaimer Regarding Forward Looking Statements

Our Management's Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also forward-looking statements within the meaning of the Exchange Act. Forward-looking statements include statements in which words such as "may," "if," "will," "should," "intend," "expect," "anticipate," "plan," "believe," "estimate," "project," "consider," or similar expressions are used. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our access to capital to fund our continuing operations, our ability to sell our products and services and to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission ("SEC").

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Although the forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Reverse Stock Split

At the open of the market on April 4, 2025, our 1-for-10 reverse split of our common stock went effective with Nasdaq. As a result, all common stock share amounts, as well as share amounts and exercise and conversion prices have been adjusted to reflect the reverse stock split.

Overview

We provide non-invasive technology to quickly and discretely track and identify the presence of alcohol in individuals. Our mission is to save lives, positively impact behavioral outcomes and individual wellness, increase workplace safety and productivity, and create significant economic benefits. Our non-invasive technologies are integrated within our scalable and patent-pending software platform, SOBRsafe^TM, producing statistical, measurable business and user data. We operate as a single segment designed to enable customers to purchase products directly through channel partners, sales agents or through our digital enterprise and consumer channels. To that end, our SOBRsafe software platform, along with our integrated hardware devices, SOBRcheck^TM and SOBRsure®, used to provide non-invasive personal alcohol awareness tracking with identity verification, combine to create a robust solution that has current and potential applications in:

	➢	Behavioral wellness
	➢	Licensing and integration
	➢	Commercial environments, including but not limited to oil and gas, fleet management, telematics, ride share programs, and general workplace safety
	➢	Individual consumer use, including co-parenting trust, personal accountability, and adolescent driver safety

Our SOBRcheck device is a patent-pending, touch-based identity verification and alcohol tracking solution. Users place two fingers on the device sensors, one compares biometric data points from the finger to confirm identity, while the other senses alcohol contained in perspiration emitted through the pores of the fingertip. The touch-based device connects to the SOBRsafe software solution to collect, present and communicate data collected to subscribed parties.

Our SOBRsure device is a patent-pending, fitness-style wearable band with a personal alcohol awareness tracking solution intended for discrete, low-profile and voluntary use providing qualified, real-time alcohol tracking and GPS tracking. The wearable band is a device which includes a contained sensor which senses alcohol contained in perspiration released through the pores of the skin. The wearable band connects to a mobile device via Bluetooth communication where the SOBRsafe mobile application collects and transmits data to the SOBRsafe software solution. The SOBRsure device provides passive, qualified, real-time alcohol insights to administrators, parents and more, and also includes device removal and service interruption notifications.

Our SOBRsafe technology can also be deployed across numerous additional devices for various uses. We are currently exploring possible integrations with existing systems and licensing by non-competitive third parties.

We believe our device portfolio approach could yield a substantial repository of user data - a potentially monetizable asset for statistical analytics. The opportunity to collect data points over time could enable the development of business and insurance liability benchmarking, through artificial intelligence ("AI"), powerful guidance for perpetual safety improvement and associated economic cost savings capture. By demonstrating substance-free environments, organizations could deliver a data-driven argument for a reduction in annual insurance premiums. We could potentially partner with insurance providers to encourage use of the SOBRsafe devices and/or technology.

Continuing in fiscal 2025, and as in prior years, the design, manufacturing, quality testing and distribution for all SOBRsafe integrated devices take place in the United States.

Our brand, products and software services continue to gain awareness and recognition through a robust marketing platform, trade shows, media exposure, social media and product demonstrations. To generate sales, we have a three-part strategy: 1) direct sales to enterprise businesses and consumers, 2) enter into agreements with channel partners and 3) enter into licensing and integration agreements. We currently employ four highly experienced sales professionals facilitating direct sales and channel partner relationships. Licensing and integration opportunities with third parties continue in preliminary stages.

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Since inception we have generated significant losses from operations and anticipate that we will continue to generate significant losses for the foreseeable future. Our success is dependent on our ability to access additional capital. Additional capital will be required under the following circumstances: 1) to offset negative cash flows from operations, 2) to accelerate customer acquisition, thereby increasing capital outlay, 3) for advanced purchasing of materials, 4) for the development and acquisition of new technology, 5) for potential acquisition of a key asset, and 6) for sales expansion.

Alcohol Use Disorder and Its Effects

SOBR Safe is committed to addressing the increasing prevalence of Alcohol Use Disorder ("AUD") which is a medical condition characterized by an inability to control or stop the use of alcohol despite the adverse effects and consequences. According to the National Institute on Alcohol Abuse and Alcoholism ("NIAAA") approximately 29 million individuals in the United States and 283 million globally suffer from this diagnosis where the problematic use of alcohol can result in both short- and long-term health issues including effects on behavioral wellness and overall physical health. The NIAA also notes AUD increased by 38% during the COVID pandemic, creating a surge in diagnoses and untreated cases.

In the United States, alcohol consumption and AUD can be linked to more than 200 diseases including 50% of all liver disease and 25% of pancreatitis cases and contributes to 5% of cancer related deaths. Approximately 178,000 alcohol related deaths occurred in the United States during 2022 and continue to increase annually.

Further attributing to the ongoing and ever-increasing AUD epidemic, less than 10% of those affected have available or receive treatment leaving approximately 26 million in the United States without traditional medical treatment options. The demographics of the 26 million untreated individuals cover a wide range including 17 million men and 12 million women with 1.5 million under the age of 21. We continue ongoing efforts to identify the wide-ranging demographics of the AUD epidemic in an effort to provide support defined for each group according to their wellness needs and journeys.

We have begun executing a strategic initiative to expand beyond our core cloud-based alcohol monitoring and detection solutions to establish a broader presence within the health and wellness ecosystem. This evolution reflects SOBR's commitment to supporting users not only in maintaining sobriety but also in achieving overall physical and mental well-being. Approximately 40% of Americans who experience AUD each year also experience depression, and around 35% live with anxiety. This overlap highlights a sizable total addressable market that spans behavioral health providers including sober living facilities, intensive outpatient programs, and residential treatment centers as well as retail consumers managing recovery for themselves or supporting a loved one. We believe this expansion will strengthen user engagement, diversify revenue streams, and position the Company as a comprehensive wellness technology provider in the future. Our ongoing focus will be placed on product innovation, providing data-driven user insights, and ensuring that new offerings remain consistent with our mission to promote a healthier, safer world free from the impacts of alcohol with balanced lifestyles.

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As of December 31, 2025, the Company has 454 active subscribers from its business to consumer channel with an average monthly subscription length of 3.5 months, and 14 active enterprise subscribers with a total of 257 users from its business-to-business channel who are billed on a monthly basis.

Recent Developments

During the year ended December 31, 2025, we accomplished the following:

	➢	Achieved an increase in revenue of 105.6% from the prior year.
	➢	Net proceeds of approximately $3.6M were received from the exercise of outstanding warrants during the quarter ended March 31, 2025, which were issued in conjunction with the 2024 PIPE Offering.
	➢	We effected and completed a 1-for-10 reverse stock split of the Company's common stock on April 4, 2025, a Share Combination Event, reducing the total number of outstanding shares from approximately 15.2 million to 1.5 million. Fractional shares as a result of the reverse stock split were rounded up to one full share of common stock. Following the reverse stock split, the exercise price of the Series A Warrants issued in conjunction with the 2024 PIPE Offering was reduced to the Floor Price of $7.60 per common share. Further, the Share Combination Event resulted in the calculation of a True-up Payment due to the remaining holders limited to a ceiling of $1,640,000, which was paid in full in July 2025.
	➢	Enhanced SOBRsafe's patent-pending software technology solutions with improvements to the mobile application including streamlined administration application and notification protocols and introduced new user interface elements.
	➢	Completed third-party hardware product validation tests in the first quarter of 2025 and a corresponding third-party product sensor validation test.
	➢	Collaborated with a national marketing firm providing solutions to and for the largest U.S. newspaper publisher and the largest local-to-national publishing and digital media organization in the United States, launching both business-to-consumer and business-to-business marketing initiatives building brand recognition and support 2025 sales efforts. The effort has generated improved brand awareness and stimulated market adoption through the multi-channel, multi-disciplined national marketing campaigns.
	➢	Initiated a robust marketing campaign in March 2025 which was executed in April 2025 to correspond with the National Council on Alcohol and Drug Dependence Alcohol Awareness Month.
	➢	Additional marketing focused campaigns have been conducted to coincide with key national initiatives including Recovery Month in September 2025.
	➢	Broadened the global reach of SOBRsafe users and subscribers across all 50 U.S. states, Canada, Australia, and New Zealand, while launching an alcohol tracking and testing program for airport personnel and pilots outside of the U.S., building upon the Company's global footprint.
	➢	Expanded business-to-business sales in the first quarter of 2025 into the family law market to address the approximate 450,000 individuals undergoing domestic monitoring.
	➢	Converted the Company's website presence to an ecommerce platform supporting both business to business and business to consumer channels facilitating hardware and software subscription sales creating a scalable mechanism for future sale growth.
	➢	Launched a comprehensive customer service support center to provide broader range of services including inbound and outbound communication capabilities.
	➢	Partnering with a leading university in the United States to support their research and development of a transdermal alcohol analytics platform utilizing SOBRsure devices for essential data acquisition.
	➢	On July 17, 2025, the Company's stockholders approved and ratified an amendment to increase the number of shares authorized under the 2019 Equity Incentive Plan to 350,000 shares.
	➢	On October 31, 2025, the Company successfully exited the one-year monitoring period by the Nasdaq Listing Qualification staff which expired on October 30, 2025.
	➢	On December 29, 2025, the Company completed the 2025 PIPE Offering where the Company agreed to issue an aggregate of 370,000 share of common stock at a purchase price of $1.55 per share, 920,324 pre-funded warrants to purchase shares of its common stock at $1.55 per share, 1,290,324 Series C Warrants, each to purchase one share of common stock at an initial exercise price of $1.30 per share, and 1,290,324 Series D Warrants to purchase one share of common stock at $1.30 per share. The aggregate net proceeds received by the Company from the offering were $1.7 million, net of commissions and offering expenses.

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Subsequent to the year ended December 31, 2025, the following developments occurred as detailed below:

	➢	On February 1, 2026, the number of shares authorized under the 2019 Equity Incentive Plan increased by 94,312 shares, or 5% of the outstanding shares of the Company on December 31, 2025, for a total of 444,312 shares authorized.
	➢	On March 19, 2026, the Company received a deficiency letter from the Staff of Nasdaq notifying the Company that, for the preceding 30 consecutive business days, the closing bid price of the Company's common stock remained below the Bid Price Requirement. As a result of the reverse stock splits effected in the last two years, the Company is not eligible for the 180-day compliance period set forth in Rule 5810(c)(3)(A) because the reverse splits have a cumulative ratio of over 1-for-250. The Company has appealed the Staff's determination and will submit a plan to regain compliance with continuing Nasdaq listing requirements. However, there can be no assurance that the Company will regain compliance with the Bid Price Requirement or otherwise maintain compliance with any of the other listing requirements.

Business Outlook and Challenges

Our products continue to gain awareness and recognition through trade shows, media exposure, social media and product demonstrations. To generate sales, we have a three-part strategy: 1) direct sales to enterprise businesses and consumers, 2) enter into agreements with channel partners and 3) enter into licensing and integration agreements. We currently employ four highly experienced sales professionals facilitating direct sales and channel partner relationships. Licensing and integration opportunities with non-competitive third parties continue in preliminary stages.

We anticipate that our outsourced manufacturers can adequately support an increase in sales for the foreseeable future. We expect that we will need to continue to evolve our products and software to meet diverse customer requirements across varied markets.

Since inception we have generated significant losses from operations and anticipate that we will continue to generate significant losses for the foreseeable future. Our success is dependent on our ability to access additional capital. Additional capital will be required under the following circumstances: 1) to offset negative cash flows from operations, 2) to accelerate customer acquisition, thereby increasing capital outlay, 3) for advanced purchasing of materials, 4) for the acquisition of new technology, 5) for potential acquisition of a key asset, and 6) for sales expansion.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of our audited consolidated financial statements and related disclosures require our management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the audited consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. We base such estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

As part of the process of preparing our consolidated 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, and impairments.

While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements appearing elsewhere in this annual report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue Recognition

The Company enters contracts with customers and generates revenue through various combinations of software products and services which include the sale of cloud-based software solutions, tracking and data collection hardware devices, and cloud-based data reporting and analysis services. Depending on the combination of products and services detailed in the respective customer contract, the identifiable components may be highly interdependent and interrelated with each other such that each is required to provide the substance of the value of the Company's offering and accounted for as a combined performance obligation, or the specific components may be generally distinct and accounted for as separate performance obligations. Revenue is recognized when control of these software products and/or services are transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for these respective services and devices.

Revenue is recognized in conjunction with guidance provided by Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") issued by the Financial Accounting Standards Board. The Company determines revenue recognition through five steps outlined in ASC 606 which include (1) the identification of the contract or contracts with a customer, (2) identification of individual or combined performance obligations contained in the contract, (3) determination of the transaction price detailed within the contract, (4) allocation of the transaction price to the specific performance obligations, and (5) finally, recognition of revenue as the Company's performance obligations are satisfied according to the terms of the contract.

Allowance for Doubtful Accounts

Customer accounts are monitored for potential credit losses based upon management's assessment of expected collectability and the allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowance. In making this assessment, management takes into consideration any circumstances of which the Company is aware regarding a customer's inability to meet its financial obligations to the Company, and any potential prevailing economic conditions and their impact on the Company's customers.

Valuation of Inventory

Inventory is comprised primarily of component parts and finished products. We 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.

Impairment of Long-Lived Assets

Long-lived assets and identifiable intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of discounted expected future cash flows is less than the carrying amount of the asset or if changes in facts and circumstances indicate, an impairment loss is recognized and measured using the asset's fair value.

Stock-based Compensation

The Company uses the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (warrants, options and restricted stock units). The fair value of each warrant and option is estimated on the date of grant using the Black-Scholes options-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the future. Expected volatilities are based on weighted averages of the historical volatility of the Company's common stock estimated over the expected term of the awards. The expected term of awards granted is derived using the "simplified method" which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of a restricted stock unit equals the closing price of our common stock on the trading day of the grant date.

Recent Accounting Pronouncements

New pronouncements issued for future implementation are discussed in Note 1 to our financial statements.

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Effects of Inflation

We do not believe that inflation has had a material impact on our business, revenue or operating results during the periods presented. However, continued increases in inflation could have an adverse effect on our results of future operations, financial position, and liquidity in 2025.

The following discussion:

	•	summarizes our results of operations; and
	•	analyzes our financial condition and the results of our operations for the year ended December 31, 2025 and year ended December 31, 2024.

Results of Operations for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Summary of Results of Operations

		Year Ended December 31,
		2025				2024
Revenue		$	437,421			$	212,736
Cost of goods and services			201,920				193,568
Gross profit			235,501				19,168
Operating expenses:
Selling, general and administrative			8,122,119				6,217,762
Stock-based compensation expense			485,432				729,712
Research and development			325,654				747,525
Asset impairment loss			456,377				-
Total operating expenses			9,393,582				7,694,999
Loss from operations			(9,158,081	)			(7,675,831	)
Other income (expense):
Other income			228,737				110,212
Notes payable - conversion expense			-				(585,875	)
Interest expense			(21,777	)			(457,662	)
Total other expense, net			(206,960	)			(933,325	)
Net loss		$	(8,951,121	)		$	(8,609,156	)

Revenue

Revenues of $437,421 for year ended December 31, 2025 have increased by $224,685, or an increase of 105.6%, as compared to the prior year period of $212,736. This increase is primarily driven by increased sales of our SOBRsure device of $140,931, or 180.3%, and an increase in sales of our SOBRsure software subscriptions of $105,580, or 384.8%. These increases have been offset by increases in sales returns and discounts of $16,567. During the year ended December 31, 2025, the Company sold 966 unique SOBRsure 2^nd generation devices, representing an increase of 217.8% from 242 unique sales of SOBRsure 1^st generation devices and 62 unique sales of SOBRsure 2^nd generation devices during the year ended December 31, 2024.

Gross Profit

The cost of goods and services for the year ended December 31, 2025 was $201,920 resulting in a gross profit of $235,501 and a gross margin of 53.8%, compared to cost of goods and services for the year ended December 31, 2024 of $193,568 resulting in a gross profit of $19,168 and a gross margin of 9.0%. The increase in gross margin year over year is due to the Company's disposal of its first generation SOBRsure devices in the amount of $91,381 due to substantial enhancements to the second-generation device available in November 2024, and additional disposal of damaged SOBRcheck devices in the amount of $24,360. Gross margin for fiscal 2024 adjusted for one-time inventory disposals is 63.4%. Gross margin as adjusted for the 2024 inventory disposals decreased 15.1% from the prior year. The decrease in gross margin is primarily driven by two factors: (i) strategic price reductions to the SOBRsure devices and software subscriptions and (ii) an increase in cost of goods associated with product replacements. The pricing adjustments reflect a proactive approach to enhancing market competitiveness and expanding our customer base. The replacements were linked to specific product quality issues that have since been identified and addressed. The Company has implemented corrective actions, including enhanced quality assurance processes and supplier performance reviews, to mitigate similar issues going forward. We expect these efforts to support margin recovery in future periods while maintaining our focus on customer satisfaction and product integrity. While these actions contributed to a short-term decline in gross margin, they are expected to support revenue growth and improve margin performance over the longer term.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $1,904,357 or 30.6%, from $6,217,762 for the year ended December 31, 2024 to $8,122,119 for the year ended December 31, 2025, primarily due to the comprehensive marketing plan implemented in order to position the Company to generate improvements in the generation of both revenues and positive cash flows. Additional increases are due to increase in employee headcount, and employee payroll and benefits expense of $765,164. This is offset by a decrease in legal fees of $564,958.

Stock-Based Compensation Expense

Stock-based compensation expense was $485,432 for the year ended December 31, 2025 as compared to $729,712 for the year ended December 31, 2024. The reduction in stock-based compensation expense of $244,280 or 33.5% is due to previously issued equity compensation awards becoming fully vested and no issuance of new awards in 2025.

Research and Development Expense

Research and development expense decreased by $417,871 or 55.9% from $747,525 for the year ended December 31, 2024, compared to $329,654 for the year ended December 31, 2025. The decrease in research and development is driven by focusing on improvements to its existing SOBRsafe software platform and enhancements to its mobile application, whereas the prior year spend was primarily driven by more expensive hardware development initiatives including the development of the second generation of the SOBRsure device.

Asset Impairment Loss

During the year ended December 31, 2025, the Company recognized an impairment loss related to certain intangible assets after determining that the carrying value of the assets exceeded their estimated fair value. As a result, the Company recorded an impairment charge of $456,377. The impairment reduced the carrying value of the affected intangible assets to their estimated fair value as of the measurement date. No asset impairment loss was recorded during the year ended December 31, 2024.

Other Income

Other income increased by $118,525 from $110,212 for the year ended December 31, 2024, compared to $228,737 for the year ended December 31, 2025. Other income consists primarily of interest income earned on cash deposits. The increase is due to more cash held in liquid investment balances through fiscal 2025 as compared to 2024.

Notes Payable - Conversion Expense

Notes payable conversion expense of $585,875 for the year ended December 31, 2024, was recorded in relation to the Convertible Debt Inducement completed on March 4, 2024.

Interest Expense

Interest expense decreased by $435,885 from $457,662 for the year ended December 31, 2024, compared to $21,777 for the year ended December 31, 2025. The decrease in interest expense is due to the conversion of the outstanding convertible debt balances to equity during the second quarter of 2024.

Operating Loss; Net Loss

Our operating loss increased by $1,482,250 from $7,675,831 for the year ended December 31, 2024, compared to $9,158,081 for the year ended December 31, 2025. The change in our operating loss for the year ended December 31, 2025, compared to the same prior year period, is primarily a result in an increase in selling, general and administrative expenses and asset impairment loss (as detailed above), offset by decreases in stock-based compensation and research and development expenses.

Our net loss increased by $341,965 from $8,609,156 for the year ended December 31, 2024, to $8,951,121 for the year ended December 31, 2025. The change in our net loss for the year ended December 31, 2025, compared to the same prior year period, is primarily a result in an increase our operating loss as detailed above, and decrease in interest income.

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Liquidity and Capital Resources for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Introduction

During the years ended December 31, 2025 and 2024, the Company has incurred recurring losses from operations. Future capital requirements will depend on many factors, including the Company's ability to sell and develop products, generate cash flow from operations, and assess competing market developments. The Company will need additional capital in the future. Our cash on hand as of December 31, 2025, was $4,759,370 and our current normalized monthly operating cash flow burn rate is approximately $580,000.

Management believes that cash balances and positive working capital at December 31, 2025 do not provide adequate operating capital for operating activities for the next twelve months after the date these financial statements are issued. Management anticipates additional revenue generation with the release of its second-generation SOBRsure device and a comprehensive marketing plan. In addition, the Company's plans and ability to access capital sources and implement expense reduction tactics to preserve working capital provide the opportunity for the Company to continue as a going concern. These plans are contingent upon the actions to be performed by the Company which have been implemented through the quarter and will continue into future periods, however, these conditions have not been met on or before April 10, 2026. As such, substantial doubt about the Company's ability to continue as a going concern has not been alleviated at December 31, 2025.

Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2025 and December 31, 2024, are as follows:

		December 31, 2025				December 31, 2024				Change
Cash		$	4,759,370			$	8,384,042			$	(3,624,672	)
Total current assets			5,230,936				8,872,074				(3,641,138	)
Total assets			6,621,222				11,171,203				(4,549,981	)
Total current liabilities			1,696,033				1,276,889				419,144
Total liabilities			1,696,033				1,368,882				327,191

Our current assets and total assets decreased as of December 31, 2025, as compared to December 31, 2024, primarily due to normal business operations, a decrease in the Company's cash balance from the True-up Payment made in July 2025 offset by private placement completed by the Company in December 2025.

Our current and total liabilities increased as of December 31, 2025, as compared to December 31, 2024, primarily due to the increase in accrued expenses related to the Delaware Franchise tax payable and employee benefit payable.

Sources and Uses of Cash

Operations

Our net cash used in operating activities increased by $436,383 from $6,521,584 for the year ended December 31, 2024, to net cash used in operating activities of $6,957,967 for the year ended December 31, 2025. For the year ended December 31, 2025, the net cash used in operating activities consisted primarily of our net loss of $9,012,647 offset by non-cash items including amortization and depreciation of $389,281, stock-based compensation expense of $485,432, non-cash interest expense of $8,141, non-cash lease expense of $101,357, non-cash intangible asset impairment of $456,377 and bad debt expense of $16,203. The net loss and non-cash items have been offset by changes in our assets and liabilities primarily from sources of cash from prepaid expenses of $197,919, inventory of $78,353, other assets of $24,689, accounts payable of $62,174, and accrued expenses of $304,322, balanced by uses of cash for accounts receivable of $27,650 and operating lease liability of $111,303. For the year ended December 31, 2024, the net cash used in operating activities consisted primarily of our net loss of $8,609,156 offset by non-cash items including amortization of $385,464, amortization of debt discounts of $237,250, stock-based compensation expense of $729,712, notes payable conversion expense of $585,875, non-cash interest expense of $204,043, non-cash lease expense of $90,976, non-cash disposal of obsolete inventory of $115,741, and bad debt expense of $25,260. The net loss and non-cash items have been offset by changes in our assets and liabilities primarily from sources of cash from prepaid expenses of $284,690, balanced by uses of cash for accounts receivable of $24,440, other assets of $46,060, accounts payable of $103,108, accrued expenses of $311,403, and operating lease liability of $97,107.

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Investments

For the year ended December 31, 2025 the net cash used in investing activities of $38,172 consisted of our purchase of office leasehold and furniture improvements. There was no cash provided by or used in investing activities during the year ended December 31, 2024.

Financing

Our net cash provided by financing activities decreased by $8,744,012 from $12,115,479 for the year ended December 31, 2024, to $3,371,467 for the year ended December 31, 2025. For the year ended December 31, 2025, our net cash from financing activities consisted of proceeds from the exercise of warrants of $3,680,411, and gross proceeds from the private placement transaction of $1,999,935, offset by payments for transaction costs of equity transactions of $418,458, financing payments of $250,421 for annual insurance premiums and the payment of $1,640,000 for the PIPE Warrant True-up Payment. For the year ended December 31, 2024, our net cash from financing activities consisted of proceeds from the exercise of warrants of $5,340,747, and gross proceeds from the private placement transaction of $8,199,996, offset by payments for transaction costs of equity transactions of $1,224,456 and financing payments of $200,808 for annual insurance premiums.

Contractual Obligations and Commitments

At December 31, 2025, the Company had contractual commitments to make payments under operating leases. Payments due under these commitments are as follows:

		Total				Due Within 1 Year
Operating lease obligations		$	91,993			$	91,993
Total contractual cash obligations		$	91,993			$	91,993

For additional information about our contractual commitments for these leases, see "Note 5 - Leases" included in our Notes to Consolidated Financial Statements.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements as of December 31, 2025, and December 31, 2024.