In 1987, Max Atchisson sold the rights of AA-12 to Jerry Baber of Military Police Systems, Inc., Piney Flats, Tennessee. MPS in turn developed the successor simply known as Auto Assault-12, which was redesigned over a period of 18 years with 188 changes and improvements to the original blueprint. MPS also teamed up with Action Manufacturing Company, and Special Cartridge Company to combine the gun with FRAG-12 High-Explosive ammunition into a multifunction weapon system.

The XM25 CDTE fires 25mm Grenade that are set to explode in mid-air at or near the target. A laser rangefinder in the weapon is used to determine the distance to the target. The user can manually adjust the detonating distance by up to 10 feet (3.0 m) shorter or longer; the XM25 automatically transmits the detonating distance to the grenade in the firing chamber. The grenade tracks the distance it has traveled by the number of spiral rotations after it is fired, then detonates at the proper distance to produce an air burst effect. These features make the XM25 more effective than traditional grenade launchers at the task of hitting targets that are behind cover or dug into the ground (i.e. in defilade.) One of the weapon's developers, Richard Audette, believes that the XM25 is a big leap forward because it is the first small arms weapon to use smart technology.