What changed in this filing

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Item 1A. Risk Factors

2023-03-02 compared with 2022-03-10 · 133 added, 126 removed, 266 unchanged (49% of the section changed)

6 unchanged sentences

We have a history of operating losses, expect additional losses and may not achieve or sustain profitability.

We have a history of operating losses and expect to incur additional losses until we achieve sufficient revenue and resulting margins to offset our operating costs. Our net loss for the years ended December 31, 2021 and 2020 was $24.4 million and $12.6 million, respectively.

We have a history of operating losses and expect to incur additional losses until we achieve sufficient revenue and resulting margins to offset our operating costs. Our net loss for the years ended December 31, 2022 and 2021 was $17.6 million and $24.4 million, respectively.

Our reduction in net losses in 2022 was primarily attributable to a new strategic roadmap with tighter cost controls and reduced operating expenses.

Our ability to achieve future profitability is dependent on a variety of factors, many of which are outside of our control.

Failure to achieve profitability or sustain profitability, if achieved, may require us to raise additional financing, which could have a material negative impact on the market value of our Common Stock.

The continued spread of COVID-19 and uncertain market conditions may adversely affect our business, financial condition and results of operations.

We are monitoring the impact of the COVID-19 pandemic, which has caused significant uncertainty and disruption to global financial markets and supply chains, beginning in early calendar year 2020.

The Company's business, operating results, and financial condition could continue to be adversely affected due to the COVID-19 pandemic.

The significance of the operational and financial impact of the COVID-19 pandemic will depend on how long and widespread the uncertainty and disruption continue.

The extent to which the COVID-19 pandemic continues to impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the duration of the outbreak, new information which may emerge concerning the severity of COVID-19 and the actions being taken to contain COVID-19 or treat its impact, among others.

Uncertainty surrounds the duration and broader impact of the COVID-19 pandemic and therefore, the effects it will have on our financial results and operations.

If economic or market conditions in key global markets deteriorate, we may experience material adverse effects on our business, financial condition and results from operations.

Factors deriving from the domestic and international response to the COVID-19 pandemic that may negatively impact sales and gross margin in the future include but are not limited to:

limitations on the ability of our suppliers to meet delivery requirements and commitments;

limitations on the ability of employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home;

limitations on the ability of carriers to deliver products to customers;

limitations on the ability of our customers to conduct their business and purchase our products and services;

and limitations on the ability of our customers to pay us on a timely basis.

Substantially all of our employees are located in the U.S.

In addition to our employees, we rely on (i) distributors, agents and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the U.S., Canada, Europe and Asia.

If we, or any of these third-party partners encounter any disruptions to our or their respective operations or facilities, or if we or any of these third-party partners were to shut down for any reason, including by pandemic, fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, or other unforeseen disruption, then we or they may be prevented or delayed from effectively operating our or their business, respectively.

Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected. 

We may need additional capital to execute our business plan, and raising additional capital, if possible, by issuing additional equity securities may cause dilution to existing stockholders.

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Grow market acceptance for the BolaWrap product line and/or other future products.

We may experience difficulties in integrating and transitioning from the BolaWrap 100 to the BolaWrap 150.

The success of our new generation product, the BolaWrap 150, depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues and supply chain challenges, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies in the early stages of introduction.

We face risks commercializing our virtual reality training platform and may be unsuccessful in growing revenues.

We do not have extensive experience with virtual reality training, and are relying on new hires and consultants with expertise in the field.

We continue to invest substantial funds in developing and commercializing this product line which is highly competitive.

The commercial launch of the Wrap Reality Virtual Training product is in the early stages.

Our ability to commercialize this product line may be influenced by many factors, including:

our ability to develop new products and new content;

our ability to successfully integrate our virtual reality product with our custom AWS solution into a viable platform acceptable to customers;

our ability to obtain, set up and service new customers;

We continue to invest substantial funds in further developing and commercializing our Wrap Reality product line which is highly competitive.

The commercial launch of the Wrap Reality Virtual Training product is in the early stages in a new marketplace for 3D Virtual Reality training that competes with a legacy 2D virtual training environment.

We expect 2D virtual training companies to either try to buy out companies like ours or choose to have to build 3D Virtual reality to compete with us.

As one of the only companies with both on premise 3D Virtual Reality and later in 2023 full cloud 3D Virtual Reality we plan to compete on both fronts, our ability to commercialize this 3D Virtual Reality product line may be influenced by many factors, including:

our ability to continue to develop new products and new content;

our ability to obtain, set up and service new VR customers;

our ability to achieve and maintain market acceptance;

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Sales of our product to agencies may be delayed or limited by such claims or perceptions or to any negative publicity or damage to our reputation.

We may incur significant and unpredictable warranty costs as our products are introduced and produced.

We now receive earned media that is often positive and helps our sales and growth and having negative earned media will create the opposite effect.

We may incur significant and unpredictable warranty costs as our products are produced, sold, and used.

We warrant our products to be free from defects in materials and workmanship for a period of up to one year from the date of purchase.

Additional one-year warranties can be purchased by the customer.

We may incur substantial and unpredictable warranty costs from post-production product or component failures.

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We currently have no reserve for slow moving or obsolete inventory but may incur future charges for obsolete or excess inventory.

Our international operations could be harmed by factors including natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.

Our international operations could be harmed by factors including  

natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.

We sell our products worldwide and have exported to multiple countries.

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Import and export control and licensing requirements;

Compliance with a variety of U.S.

laws, including the Foreign Corrupt Practices Act, by us or key subcontractors or agents;

Compliance with a variety of US laws, ATF regulations, US Department of Commerce regulations and the Foreign Corrupt Practices Act, by us or key subcontractors or agents;

Compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements;

Greater difficulty in safeguarding intellectual property abroad than in the U.S.;

Greater difficulty in safeguarding intellectual property abroad than in the US;

Difficulty in staffing and managing geographically diverse operations.

These and other risks may preclude or curtail international sales or increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products.

Failure to comply with U.S.

and international governmental laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or U.S.

export control regulations, could have an adverse impact on our business with the U.S.

and international governments.

Global economic weakness and uncertainty, including geopolitical conflict, could adversely affect our revenues, gross margins and expenses.

Our business may be impacted by global economic conditions, which have been in recent years, and continue to be, volatile.

Failure to comply with US and international governmental laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or US export control regulations, could have an adverse impact on our business with the US and international governments.

Global economic weakness and uncertainty, geopolitical conflict, war, and civil unrest, could adversely affect our revenues, gross margins and expenses.

Our business may be impacted by global economic conditions, which have been volatile in recent years.

Geopolitical conflict, such as the recent conflict in Ukraine, and related international economic sanctions and their impact may exacerbate this volatility.

Specifically, our revenues and gross margins depend significantly on global economic conditions and the demand by foreign governments and agencies for the BolaWrap in many of our target markets.

Specifically, our revenues and gross margins depend significantly on global economic conditions and the demand by foreign governments and agencies for the BolaWrap and Wrap Reality in many of our target markets.

Economic weakness and uncertainty in these markets have resulted, and may result in the future, in decreased revenue attributable to these markets, gross margin, earnings or growth rates, and difficulty managing inventory levels.

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Economic weakness and uncertainty also make it more difficult for us to make accurate forecasts of revenues, gross margins and expenses.

The continued impact of COVID-19 and uncertain market conditions may continue to adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic, which has caused significant uncertainty and disruption to global financial markets and supply chains since  early calendar year 2020, continues to adversely affect the Company’s business, operating results, and financial condition, although such disruptions and uncertainties have abated.

The extent to which the COVID-19 pandemic continues to impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the continued duration of the outbreak in the markets we target, new information which may emerge concerning the severity of COVID-19 and its variants, and the actions being taken to contain COVID-19 or treat its impact, among others.

Uncertainty surrounds the duration and broader impact of the COVID-19 pandemic and therefore, the effects it will have on our financial results and operations.

If economic or market conditions in key global markets deteriorate, we may experience material adverse effects on our business, financial condition, and results from operations.

Factors deriving from the domestic and international response to the COVID-19 pandemic that may negatively impact sales and gross margin in the future include but are not limited to:

limitations on the ability of our suppliers to meet delivery requirements and commitments;

limitations on the ability of employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home;

limitations on the ability of carriers to deliver products to customers;

limitations on the ability of our customers to conduct their business and purchase our products and services;

and limitations on the ability of our customers to pay us on a timely basis.

Substantially all our employees are located in the US.

In addition to our employees, we rely on (i) distributors, agents, and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the US, Canada, Europe and Asia.

Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected. 

We anticipate that a significant portion of our revenue in the short-term will be generated from international sales, which may adversely affect our ability to timely collect accounts receivable.

During the year ended December 31, 2022, we generated approximately 34% of our revenue from international sales.

Due principally to the longer sales cycle, logistic delays and regulatory issues associated with domestic sales versus international sales, we currently anticipate that a significant portion of our sales in the year ended December 31, 2022 will be generated from international orders.

In the event we are unable to timely collect account receivables associated with international sales, or timing of such international sales are delayed, our financial condition could be adversely and materially affected.

Due principally to the longer sales cycle, procurement delays and regulatory issues associated with domestic sales versus international sales, we currently anticipate that a significant portion of our sales in the year ending December 31, 2023 will be generated from international orders.

In the event we are unable to timely collect account receivables associated with international sales, or timing of such international sales is delayed, our financial condition could be adversely and materially affected.

If we are unable to manage our projected growth, our growth prospects may be limited, and our future profitability may be adversely affected.

We intend to continue to expand our sales, marketing and training programs and our manufacturing capability.

Rapid expansion may strain our managerial, financial and other resources.

We intend to continue to expand our sales and marketing and our manufacturing capability.

Rapid expansion may strain our staffing, financial and other resources.

If we are unable to manage our growth, our business, operating results, and financial condition could be adversely affected.

Our systems, procedures, controls and management resources also may not be adequate to support our future operations.

We will need to continually improve our operational, financial and other internal systems to manage our growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability.

Our systems, procedures, controls, and management resources may not be adequate to support our future growing operations and we have started to upgrade them and will continue to do so in 2023.

We are working to continually improve our operational, financial, and other internal systems to manage our growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability.

We may face personal injury and other liability claims that harm our reputation and adversely affect our sales and financial condition.

Our product is intended to be used in confrontations that could result in injury to those involved, whether or not involving our product.

Our product is intended to be used in confrontations to de-escalate the situation and reduce the chance for injury to officers and the subjects that they interact with.

There is always a chance that use could result in injury to those involved, whether involving our product.

Our product may cause or be associated with such injuries.

A person injured in a confrontation or otherwise in connection with the use of our product may bring legal action against us to recover damages on the basis of theories including personal injury, wrongful death, negligent design, dangerous product or inadequate warning.

A person injured in a confrontation or otherwise in connection with the use of our product may bring legal action against us to recover damages based on theories including personal injury, wrongful death, negligent design, dangerous product, or inadequate warning.

We may also be subject to lawsuits involving allegations of misuse of our product.

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Our solutions are used to assist law enforcement and first responders in volatile encounters.

Even when our device works as intended, incidents can lead to injury, loss of life and other negative outcomes, and such events are likely to receive negative publicity.

Even when our device works as intended, incidents can lead to injury, loss of life and other negative outcomes, and such events are likely to receive negative publicity even if not directly caused by BolaWrap.

If our product fails to help de-escalate an encounter, related adverse outcomes may receive negative media attention.

At times, body or dash camera images or other images of use of our product may become a matter of public record due to legal or other obligations (for example, as a result of public-records requests or subpoenas to provide information or to testify in court), and we may receive negative media attention as a result.

At times, body or dash camera images or other images of use of our product may become a matter of public record due to legal or other obligations (for example, because of public-records requests or subpoenas to provide information or to testify in court), and we may receive negative media attention as a result.

We may be subject to criticism and unflattering media coverage regarding the effectiveness of our remote restraint solutions and the cost of our solutions to our customers, or the appropriateness of use on persons in crisis or the mentally ill.

Such negative publicity could have an adverse impact on new sales, which would adversely impact our financial results and future prospects.

Our future success is dependent on our ability to expand sales through distributors, and our inability to grow our sales force or maintain distributors would negatively affect our sales.

Our distribution strategy is to pursue sales through multiple channels with an emphasis on independent distributors, domestically and internationally.

Such negative publicity could have an adverse impact on new sales, which would adversely impact our financial results and prospects.

Our future success is dependent on our ability to expand sales, and our inability to grow our sales force or maintain and grow distributors would negatively affect our sales.

Our distribution strategy is to pursue sales through multiple channels with an emphasis on direct sales, as well as independent distributors, domestically and internationally.

Our inability to recruit and retain sales personnel and maintain and add police equipment distributors who can successfully sell our products could adversely affect our sales.

If we do not competitively price our products, meet the requirements of any future distributors or end-users, provide adequate marketing support, or comply with the terms of any distribution arrangements, such distributors may fail to aggressively market our product or may terminate their relationships with us.

If we do not competitively price our products, provide high quality big free products and solutions, meet the requirements of any end-users, provide adequate marketing support, or comply with the terms of any distribution arrangements, such distributors may fail to aggressively market our product or may terminate their relationships with us.

These developments would likely have a material adverse effect on our sales.

Our reliance on the sales of our products by distributors also makes it more difficult to predict our revenue, cash flow and operating results.

We expect to expend significant resources to generate sales due to our lengthy sales cycle, and such efforts may not result in sales or revenue.

Generally, law enforcement agencies consider a wide range of issues before committing to purchase a product, including product benefits, training costs, the cost to use our product in addition to, or in place of, other use of force products, product reliability and budget constraints.

Our reliance on the sales of our products by distributors for a large portion of our sales also makes it more difficult to predict our revenue, cash flow and operating results.

We expect to expend significant resources to generate sales due to our lengthy sales cycle, and such efforts may not result in the level of sales or revenue we expect.

Generally, law enforcement agencies consider a wide range of issues before committing to purchase a product, including product benefits, training time and costs, the cost to use our product in addition to, or in place of, other less lethal products even though they are likely more dangerous, time in market, product reliability and budget constraints.

The length of our sales cycle may range from 30 days to a year or more.

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Most of our intended end-users are subject to budgetary and political constraints that may delay or prevent sales.

Most of our and our distributors intended end-user customers are government agencies.

Most of our intended end-user customers are government agencies at all levels.

These agencies often do not set their own budgets and therefore have little control over the amount of money they can spend.

In addition, these agencies experience political pressure that may dictate the manner in which they spend money.

In addition, these agencies experience political pressure that may dictate the way they spend money.

As a result, even if an agency wants to acquire our product, it may be unable to purchase our product due to budgetary or political constraints.

Some government agency orders may also be canceled or substantially delayed due to budgetary, political, or other scheduling delays, which frequently occur in connection with the acquisition of products by such agencies.

Our dependence on third-party suppliers for key components of our product make us vulnerable to price increases and supply shortages that could delay shipment of our products and reduce our sales or margins.

Our dependence on third-party suppliers for key components of our products makes us vulnerable to price increases, inflation, recession, and supply shortages that could delay shipment of our products and reduce our sales or margins.

We depend on certain domestic and foreign suppliers for the delivery of components used in the assembly of our product.

Approximately 70% of our supply chain is from domestic US suppliers.

Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or sub-assemblies and reduced control over pricing and timing of delivery of components and subassemblies.

Specifically, we depend on suppliers of sub-assemblies, electronic components, injection molded plastic parts, and other miscellaneous custom parts for our product, some from sole source suppliers.

We are subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products.

In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities.

In late 2022 we started to drive more diversity into our supply chain, and we plan to continue to build multiple suppliers for critical parts to reduce our dependence on a small number of suppliers.

We are still subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products.

In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities or changes for bugs or enhancements.

Delays in our suppliers’

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We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize, revenue enhancements or other synergies from such acquisitions.

On December 14, 2020, we acquired substantially all of the virtual reality system assets and business of NSENA.

Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions we may acquire in the future.

On November 30, 2022, we acquired the rights to certain software assets and services to drive the rapid enhancement of our Wrap Reality Cloud platform.

We believe this acquisition should help speed up our path to marketing with 3D Virtual Reality in the cloud in addition to our robust 3D Virtual Reality on premise.

However, our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions we may acquire in the future.

We may not realize the intended benefits of the acquisition of other businesses in the future as rapidly as, or to the extent, anticipated by our management.

There can be no assurance that we will be able to successfully integrate any other acquired businesses, products or technologies without substantial expense, delay or other operational or financial problems.

Acquisitions involve a number of risks, some or all which could have a material adverse effect on our acquired businesses, products or technologies.

Acquisitions involve several risks, some or all of which could have a material adverse effect on our acquired businesses, products or

technologies.

Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income.

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Difficulties and unanticipated expense related to the integration of departments, information technology systems, including accounting systems, technologies, books and records, and procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies;

Costs and expense associated with any undisclosed or potential liabilities; and

Costs and expense associated with any undisclosed or potential liabilities;

The use of more cash or other financial resources on integration and implementation activities than we expect.

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Government regulation of our products may adversely affect sales.

Our BolaWrap device is classified as a firearm and the BolaWrap 150 is also classified as an exempt special explosive device.

Both firearms and explosive devices are regulated by the U.S.

Bureau of Alcohol, Tobacco, Firearms and Explosives (“

Our BolaWrap device is classified as a firearm and the BolaWrap 150 is also classified as an "Any other Weapon (AOW).

Both firearms and explosive devices are regulated by the US Bureau of Alcohol, Tobacco, Firearms and Explosives (“

ATF ”) involving substantial regulatory compliance.

ATF regulations are enforced by surveillance and inspection.

If ATF finds a violation, it can institute a wide range of enforcement actions, ranging from public warnings to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution.

ATF regulations are enforced by surveillance and inspection of federal firearms licensees (“

FFLs ”).

If ATF finds a violation, it can institute a wide range of enforcement actions, ranging from warnings to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution.

Any such actions could have a material adverse impact on our operations.

Our device may face state restrictions, especially regarding sales to security agencies.

Our product sales may be significantly affected by federal, state and local regulation.

The federal firearms laws impose strict controls over the possession and transfers of firearms, which may impact our ability to transfer devices to customers.

Because ATF has classified our devices as AOWs, we must register our devices with the ATF at the time of manufacture.

Before we may transfer our registered devices to any customer, including a government agency, we must obtain approval from the ATF.

The ATF processing time for transfer applications varies significantly, depending on the prospective transferee.

Applications to transfer AOWs to U.S., state or local government entities are usually processed in 1-3 weeks, while transfers to private, non-licensed individuals require a longer processing time because of the required background investigation of the transferee.

These types of transfers may take 6-8 months or longer.

The federal firearms laws prohibit interstate transfers of firearms to non-licensed persons or entities.

Consequently, we are prohibited from transferring our devices directly to a non-government, non-licensed individual or entity in a different state.

To accomplish such a transfer, we must first obtain ATF approval to transfer the device to another FFL dealer in the end-user’s state.

After that transfer is completed, the FFL dealer must obtain ATF approval to transfer the device to the non-government, non-licensed individual.

The ATF may deny any transfer application if such transfer would violate state law or when the transferee is prohibited from possessing a firearm.

Our device may face state restrictions, especially regarding sales to private security agencies.

Our product sales may be significantly affected by international, federal, state and local regulations.

Failure to comply with regulations could also result in the imposition of fines, penalties and other actions that could adversely impact our financial position, cash flows and operating results.

Our product is also controlled by the U.S.

Department of Commerce (“

DOC ”) for exports directly from the United States.

Consequently, we need to obtain export licenses from the DOC for the export of our products from the United States.

Compliance with or changes in U.S.

export regulations could significantly and adversely affect any future international sales.

Our product is also controlled by the US Department of Commerce (“

DOC ”) for exports directly from the US.

Consequently, we need to obtain export licenses from the DOC for the export of our products from the US.

Compliance with or future changes in US export regulations could significantly and adversely affect any future international sales.

The shipment of some of our components and our products involve conformity to regulations governing the transport of “dangerous goods”.

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Certain foreign jurisdictions may restrict the importation or sale of our products, limiting our international sales opportunities.

Our products, including the BolaWrap 100 and BolaWrap 150, have limited issued patents or other intellectual property protection.

Our products, including the BolaWrap 100 and BolaWrap 150, are protected by limited patent and other intellectual property protection.

If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights.

Our future success depends in part upon our proprietary technology.

We currently own thirteen issued U.S.

patents related to BolaWrap technology, and have fifteen U.S.

patents pending.

We have filed foreign patent applications in the European Union (up to 38 countries) and 17 other countries and reserved our rights to file additional foreign patents.

We currently own nineteen issued US patents related to the BolaWrap technology and have eight US patents pending.

We have filed foreign patent applications in the European Union (up to 38 countries) and seventeen other countries and reserved our rights to file additional foreign patents.

Our protective measures taken thus far, including our issued patents, pending patents, issued and pending trademarks and trade secret laws, may prove inadequate to protect our proprietary rights.

There can be no assurance we will be granted any patent rights from pending patents.

To date we have a total of 53 issued domestic and international patents for our small global company.

During 2022 we filed thirty-three patent applications, two of which were US filings.

We feel the significant investment in patent protection in the US and abroad creates a significant amount of IP and value in Wrap Technologies.

However, there can be no assurance we will be granted any patent rights from pending patents.

The scope of any possible patent rights may not prevent others from developing and selling competing products.

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In addition, any patents, if granted, may be held invalid upon challenge, or others may claim rights in or ownership of our patents.

Our competitive position will be seriously damaged if our products are found to infringe on the intellectual property rights of others.

Our competitive position may be seriously damaged if our products are found to infringe on the intellectual property rights of others.

Other companies and our competitors may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products.

Any intellectual property infringement claims made against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business.

In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results could be adversely affected.

In the event of a successful claim of infringement against us and if we are unable to license the allegedly infringed technology, our business and operating results could be adversely affected.

Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources.

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Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed.

In addition, it is possible that our distributors and customers may seek indemnity from us in the event that our products are found or alleged to infringe the intellectual property rights of others.

In addition, it is possible that others may seek indemnity from us if our products are found or alleged to infringe the intellectual property rights of others.

Any such claim for indemnity could result in substantial expense to us that could harm our operating results.

Competition in the law enforcement market could reduce our sales, make our products obsolete or inferior and prevent us from achieving profitability.

The law enforcement market is highly competitive.

We face competition from numerous larger, better capitalized, more experienced and more widely known companies that make restraint devices, less-lethal weapons and other law enforcement products.

The law enforcement market is highly competitive, and adoption of new policing tools and innovative training solutions may take time, Law enforcement adherence to currently used products may also slow adaptation to new policing tools.

We face competition from numerous larger, better capitalized, more experienced and more widely known companies that make less-lethal weapons and other law enforcement products.

One or more of our competitors may have developed or may succeed in developing technologies and products that are more effective than any of ours, rendering our technology and products obsolete or noncompetitive.

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These changes may also negatively affect the financial condition of some international customers and reduce or eliminate their future orders of our products.

Our business is dependent on the continued services of certain executives and key employees.

Our business and operations are substantially dependent upon the experience and continued service of certain executives and certain key sales and research employees.

We have no employment agreements or post-employment agreements to have access to important institutional knowledge should any key person resign or be dismissed.

The loss of one or several key employees could have a material adverse effect upon our business, financial condition, results of operations and cash flows.

We are also dependent on our ability to retain and motivate high quality personnel, especially sales and skilled engineering personnel.

Our business is dependent on the ability to attract and retain key personnel.

We are dependent on our ability to retain and motivate our high-quality personnel, especially managers, sales and skilled engineering and manufacturing personnel.

Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified managerial, sales and technical personnel in the future.

The inability to attract and retain the necessary managerial, sales and technical personnel could cause our business, operating results or financial condition to suffer.

We have experienced recent changes in management.

These changes have the potential to disrupt our business, and any such disruption could adversely affect our operations, product development, growth, financial condition or results from operations.

We had significant changes in management in the past three years, most recently in January 2022 when LW Varner, Jr.

was appointed to serve as interim Chief Executive Officer pursuant to a consulting agreement following the departure of Thomas P.

Smith as the Company’s Chief Executive Officer.

Also in January 2022, the Company entered into a consulting agreement with Lawrence Hirsh to provide certain services to Mr.

Varner and the Company with respect to finance and related matters.

The Board of Directors have commenced a search to identify a permanent Chief Executive Officer.

In addition, the Board of Directors has commenced a formal search to identify a highly qualified candidate to serve in the capacity of Chief Financial Officer upon the earlier of the retirement of James A.

Barnes, the Company’s current Chief Financial Officer, or the Board of Directors’

naming of his replacement.

Executive leadership transitions can be inherently difficult to manage, may cause significant and costly disruption to our business, might lead to additional departures of existing personnel, and could have a material adverse effect on our business, operating results, financial condition and internal controls over financial reporting.

In 2022, the business went through significant transformation including the creation of our mission, vision and core values.

New management built the company's first strategic roadmap to outline the market space where BolaWrap and Wrap Reality fit and have changed significant elements of the business to improve training, which has now become a revenue source over a cost center.

There has been a shift to build repeatable domestic sales and build additional resources into international sales.

We changed our customer service department into a customer success team.

We improved our pricing on devices and cassettes.

We built additional distributor relationships.

In the last three quarters of 2022, the new management team significantly reduced operating expenses in almost all areas.

These changes reduced overall headcount, contractor costs and spending.

While greatly improving our financial foundation, it also required turnover of personnel and changes to how we operate.

Risk Factors Relating to Our Financial Statements and Operating Results

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Our quarterly and annual results will likely be subject to fluctuations caused by many factors, any of which could result in our failure to achieve our expectations.

We currently expect that the BolaWrap product will be the primary source of our revenue in the foreseeable future.

We expect our revenue to vary significantly due to a number of factors.

We currently expect that the BolaWrap product will be the primary source of our revenue in 2023.

We expect our revenue to vary significantly due to several factors.

Many of these factors are beyond our control.

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These factors include, among others:

Our ability to develop and supply product to customers;

Our ability to develop, manufacture, ship and supply product to customers;

Market acceptance of, and changes in demand for, our products;

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Unpredictable volume and timing of customer orders;

The availability, pricing and timeliness of delivery of components for our products;

The availability, pricing, and timeliness of delivery of components in our supply chain for our products;

Fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs;

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General political conditions in this country and in various other parts of the world that could affect spending for the products that we intend to offer;

Seasonality of purchasing timeframes and procurement delays impact sales.

Some or all of these factors could adversely affect demand for our products and, therefore, adversely affect our future operating results.

As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not be meaningful in the near term, and accordingly you should not rely upon our performance in a particular period as indicative of our performance in any future period.

Our expense may vary from period to period, which could affect quarterly results and our stock price.

If we incur additional expense in a quarter in which we do not experience increased revenue, our results of operations will be adversely affected, and we may incur larger losses than anticipated for that quarter.

Our expenses may vary from period to period, which could affect quarterly results and our stock price.

If we incur additional expenses in a quarter in which we do not experience increased revenue, our results of operations will be adversely affected, and we may incur larger losses than anticipated for that quarter.

Factors that could cause our expense to fluctuate from period to period include:

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The timing of personnel and consultant hiring;

Supply chain and inventory cost variations.

Most of our operating expenses are relatively fixed in the short term.

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Our stock price is volatile and may continue to be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.

The market price of our Common Stock has fluctuated significant to date and in the future may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors”

The market price of our Common Stock has fluctuated significantly to date and in the future may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors”

Actual or anticipated fluctuations in our operating results;

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Changes in the availability of federal funding to support local law enforcement efforts, or local budgets;

International budget changes or changeover in government leadership;

Announcements by us of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

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Announcements of merger or acquisition transactions;

Changes in our board of directors or management;

Sales of large blocks of our Common Stock, including sales by our executive officers, directors and significant stockholders;

Changes in our board of directors or management and key personnel;

Sales of large blocks of our Common Stock, including sales by our founders, executive officers, directors and significant stockholders;

Lawsuits threatened or filed against us;

Short sales, hedging and other derivative transactions involving our capital stock;

General economic conditions in the United States and abroad;

General economic conditions in the US and abroad;

Other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

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Stock prices of many security and technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.

Stock prices of nanocap securities and small cap securities have fluctuated even more than medium and large cap companies in recent years.

We are and, in the future, may be subject to securities litigation, which may be expensive and could divert management attention.

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For instance, in September 2020 a putative class action lawsuit and in November 2020 a shareholder derivative lawsuit were filed against us and certain of our directors and officers.

Our motion to dismiss the putative class action lawsuit was successful in December 2021.

The lawsuit was dismissed in May 2022.

Lawsuits of this nature divert financial and management resources that would otherwise be used to benefit our operations.

Although we deny the material allegations in the lawsuits and intend to defend ourselves vigorously, defending the lawsuits may result in substantial costs.

Although we denied the material allegations in the lawsuits and defended ourselves vigorously, defending the lawsuits may result in substantial costs.

Any lawsuit to which we or our directors or officers are a party, with or without merit, may result in an unfavorable judgment.

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As a result, we may not be able to maintain our current levels of insurance at a reasonable cost, or at all, which might make it more difficult to attract qualified candidates to serve as executive officers or directors of the Company.

Our officers and directors are among our largest stockholders and may have certain personal interests that may affect the Company.

Management and certain directors owned more than 10% of our Common Stock at December 31, 2022.

As a result, our management and certain directors, acting individually or as a group, has the potential ability to exert influence on the outcome of issues requiring approval by our stockholders.

Sales of a substantial number of shares of our Common Stock may adversely affect the market price of our Common Stock.

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If our Common Stock were delisted from Nasdaq, among other things, this could result in a number of negative implications, including reduced liquidity in our Common Stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws as well as the potential loss of confidence by suppliers, customers and employees, institutional investor interest, fewer business development opportunities, greater difficulty in obtaining financing and possible breaches of certain contractual obligations.

Our officers and directors are among our largest stockholders and may have certain personal interests that may affect the Company.

Management and certain directors owned approximately 34% of our Common Stock at December 31, 2021.

As a result, our management and certain directors, acting individually or as a group, has the potential ability to exert influence on the outcome of issues requiring approval by our stockholders.

This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other stockholders or preventing transactions in which stockholders might otherwise recover a premium for their shares over current market prices.

We may issue additional shares of Common Stock in the future.

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Although the number of shares of Common Stock that stockholders presently own will not decrease, such shares will represent a smaller percentage of the total shares that will be outstanding after the issuance of additional shares. The issuance of additional shares of Common Stock may cause the market price of our Common Stock to decline.

Sales of shares of Common Stock issuable upon the exercise of any future options or warrants may lower the price of our Common Stock.

At December 31, 2021, we had warrants, options and restricted stock units outstanding on 5.6 million shares of our Common Stock.

The issuance of shares of Common Stock issuable upon the exercise of options or warrants or issuance from restricted stock units could cause substantial dilution to existing holders of our Common Stock, and the sale of those shares in the market could cause the market price of our Common Stock to decline.

Sales of shares of Common Stock issuable upon the exercise of any future options or warrants and vesting of restricted stock units may lower the price of our Common Stock.

At December 31, 2022, we had we had outstanding options and unvested stock units of on 6.4 million shares of our Common Stock.

The issuance of shares of Common Stock issuable upon the exercise of options or issuance from restricted stock units or the exercise of warrants that may be outstanding in the future could cause substantial dilution to existing holders of our Common Stock, and the sale of those shares in the market could cause the market price of our Common Stock to decline.

The potential dilution from the issuance of these shares could negatively affect the terms on which we are able to obtain equity financing.

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If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. 

As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results and financial condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, including by competitors and other third parties.

As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results, and financial condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, increased competition due to this insight, including by key competitors and other third parties.

If any such claims are successful, our business, operating results and financial condition could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, operating results and financial condition.

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

What changed 10-K

Item 1A. Risk Factors