What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-10 · 206 added, 174 removed, 160 unchanged (70% of the section changed)

15 unchanged sentences

Our actual results could differ materially from those discussed in these forward-looking statements.

We are a global public safety technology and services company organized in March 2016 delivering modern policing solutions to law enforcement and security personnel.

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

We are leading the movement for safer outcomes by equipping law enforcement with safe, non-pain compliance tools and immersive training for the modern world.

We began sales of our first public safety product, the BolaWrap 100 remote restraint device, in late 2018.

In October 2021 we released a new generation product, the BolaWrap 150.

The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100 that is being phased out.

The immediate addressable domestic market for our solutions consists of approximately 900,000 full-time sworn law enforcement officers at over 15,300 federal, state and local law enforcement agencies, and over 12 million police officers in over 100 countries.

We are also exploring other domestic markets, including military and private security.

In late 2020 we added a new solution to our public safety technologies, which is our virtual reality (“

VR ”) training platform –

Wrap Reality.

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

In Q1 2022 we delivered a new generation product, the BolaWrap 150.

The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100 that has been phased out.

Our target market for our solutions includes approximately 900,000 full-time sworn law enforcement officers in over 18,000 federal, state, and local law enforcement agencies in the US and over 12 million police officers in more than 100 countries.

Additionally, we are exploring opportunities in other domestic markets, such as military and private security.

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

The 100 largest international police agencies are estimated to have over 12.1 million law enforcement personnel.

According to 360iResearch, a market research consulting firm, we participate in a segment of the non-lethal products global market expected to grow to $16.1 billion by 2027.

According to 360iResearch, a market research consulting firm, our non-lethal products are part of a global market segment expected to grow to $16.1 billion by 2027.

We focus our efforts on the following products and services:

BolaWrap Remote Restraint Device –

is a hand-held remote restraint device that discharges an eight-foot bola style Kevlar tether to entangle an individual at a range of 10-25 feet.

is a hand-held remote restraint device that discharges a seven and half-foot bola style Kevlar tether to entangle an individual at a range of 10-25 feet.

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

Wrap Reality –

is a law enforcement training system employing immersive computer graphics virtual reality (" VR ") with proprietary software-enabled content.

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

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

In addition to the United States law enforcement market, we have shipped our restraint products to 51 countries.

We have established an active distributor network with 12 domestic distributors representing 49 states and one dealer representing Puerto Rico.

Wrap Reality has 38 scenarios for law enforcement and corrections and 25 scenarios at this time for societal reentry.

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

In addition to the US law enforcement market, we have shipped our restraint products to 59 countries.

We have established an active distributor network representing 50 states and one dealer representing the US territory of Puerto Rico.

We have distribution agreements with 49 international distributors covering 54 countries.

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

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

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

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

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

Recent Developments

During the year ended December 31, 2022, we accomplished the following:

Received an aggregate of $12.0 million in proceeds from the exercise of 1,815,012 warrants.

Received an aggregate of $1.7 million in proceeds from the exercise of 915,404 stock options.

Shipped BolaWrap products to 15 new countries, with BolaWrap products now being used in 51 countries.

Granted three new U.S.

patents, and filed 16 new U.S.

patent applications.

Expanded the geographic scope of our international patent and trademark applications, which now cover up to 38 countries in Europe, and 17 other countries.

Earned the ISO 9001:2015 Certification for our Quality Management System, a demonstration of our commitment to excellence in providing quality products and services.

Extended our pilot program with the Los Angeles Police Department for one year, positioning the deployment of the BolaWrap 150 planned in the first quarter of 2022.

Announced the first 50 reported field uses of the BolaWrap tabulated from police agencies, with the BolaWrap effectively assisting in taking a suspect into custody without excessive force, and thereby facilitating a successful outcome, in more than 80% of the reported field uses.

Increased our focus on sustainability by becoming a participant of the United Nations Global Compact, the largest corporate citizenship and sustainability initiative, and publishing our initial Environmental, Social and Governance (" ESG ") letter.

Announced a collaboration with Amazon Web Services (" AWS ") to deliver the Wrap Reality Virtual Training platform, and the capability to keep and maintain training records, to law enforcement, built on AWS GovCloud (US).

Upgraded the Wrap Reality Virtual Training platform and began offering a subscription-based service model while beta testing the platform developed with AWS.

Unveiled the next generation BolaWrap 150 remote restraint device featuring electronic deployment, and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100.

Received a favorable non-firearm classification of the BolaWrap 150 from the Royal Canadian Mounted Police (" RCMP ").

Obtained the first risk pool funding to support agency purchases of BolaWrap from the Arizona Municipal Risk Retention Pool (" AMRRP ").

Increased revenue to $7.7 million, an increase of 96% over revenue in 2020.

Management Restructuring

On January 24, 2022, the Board of Directors approved and initiated a leadership transition plan to support the next phase of its corporate strategy, which is focused on diversifying the Company’s suite of products, offerings and services.

The transition and corporate strategy included the resignation of President, CEO and director Thomas P.

appointment of LW Varner, Jr.

as a consultant and Interim CEO;

appointment of Lawrence Hirsh as a financial consultant;

announcement of the planned retirement of CFO, Secretary and Treasurer James A.

Barnes expected upon appointment of a successor;

appointment of director Wayne Walker as Chairman of the Board;

and acceptance of the resignation of directors Patrick Kinsella and Jeffrey Kukowski.

The Board of Directors announced they are conducting a formal process to identify highly qualified candidates for the CEO and CFO roles and also announced that directors Scot Cohen and Kim Sentovich were appointed as a Special Transition Committee of the Board of Directors to support and oversee the interim management team which in addition to Mr.

Varner and Mr.

Hirsh includes Chief Operating Officer Glenn Hickman (the " Management Transition ").

Pursuant to a Cooperation Agreement between the Company and Elwood G.

Norris, a former officer of the Company and current shareholder, dated March 4, 2021, Mr.

Norris may have certain rights to nominate a replacement board candidate as a result of Mr.

Kukowski’s resignation.

Through our strategic roadmap process, determined the exact market fit for where BolaWrap and Wrap Reality operate in the law enforcement marketplace.

(See our Force Factor slide for a visual depiction)

Created and implemented a strategic roadmap to lead the company to long-term growth and produce lasting value for shareholders

Controlled our costs and reduced full year 2022 operating expenses $5.0 million or 19% as compared to 2021

Our strategic roadmap is centered on sustainably growing sales through building repeatable domestic BolaWrap sales, ramping international sales on the new BolaWrap 150, and implementing a customer success function expanding existing agencies to full patrol-wide BolaWrap deployment.

Customer Success did not exist as a specific function until mid Q3 of 2022 and is building on our proactive approach to expand sales in 2023 with existing customers and agencies.

Added a dedicated inside sales function to grow our velocity and follow up on new leads.  

Expanded our distributor and partner relationships

Leveraged product diversification and innovation to catalyze sales growth.

Improved pricing on BolaWrap 150 devices and cassettes now that the product has proven itself to law enforcement as a significant upgrade.

This has a direct and positive impact on future gross margins.

Adjusted our training curriculum to include the when and the why BolaWrap is used.

Transitioned to charging for our respected training services.

Documented our curriculum for submittal to all US Peace Officers Standards and Training (POST) councils.

Implemented changes to how we sell Wrap Reality and have now solidified our go forward virtual reality model as a Software as a Service (“

SaaS ”) model.

Entered into a Professional Services and Technology Acquisition Agreement with Lumeto and Spatial, whereby Lumeto and Spatial will provide the Company certain technology, services, and perpetual licenses for use within the Company’s Wrap Reality virtual simulation training platform.

Management Changes

As previously reported in January 2022, the Board of Directors approved and initiated a leadership transition plan to support the next phase of its company strategy.

The transition and corporate strategy included the resignation of Thomas P.

Smith, our President, Chief Executive Officer and director, and the announcement of the planned retirement of James A.

Barnes our former Chief Financial Officer, Secretary and Treasurer, who retired in July 2022 upon the appointment of Chris DeAlmeida as our Chief Financial Officer.

After a period of transition managed by Special Transition Committee consisting of directors Scot Cohen and Kim Sentovich and including interim contract executives, on April 18, 2022, the Company appointed TJ Kennedy, a current director, as our Chief Executive Officer and Kevin Mullins as our President.

Kennedy and Mullins have significant leadership experience in public safety technology prior to their appointment.

Mullins is leading go to market functions in the President role.

In late December 2022, we also brought onboard Tracey Friedlander as our General Counsel.

Business Outlook and Challenges

Our products and solutions continue to gain worldwide awareness and recognition through social media, media exposure, trade shows, product demonstrations and word of mouth as a result of positive responses from agencies and early adoption and deployment success.

We believe Wrap is gaining traction as a recognized global brand, with innovative technology and an initial product foundation achieved through aggressive marketing and public relations.

We believe that we have strong market opportunities for our remote restraint solution throughout the world in the law enforcement and security sectors as a result of increasing demands for less lethal policing and increasing threats posed by non-compliant subjects.

During the year ended December 31, 2021, the Company received an increased number of field reports of successful BolaWrap usage from law enforcement agencies.

Many agencies consider BolaWrap as a very low level, or non-reportable, use of force option and, accordingly, many uses are not reported to us.

Others are considered evidence and are also not shared.

Some law enforcement agencies have shared bodycam footage of their field uses, some of which we are allowed to use in our marketing activities.

We believe increased reports of avoiding escalation will help grow revenues in the future.

Revenues for the year ended December 31, 2021 increased 96% over the prior year, and we continue to expand our business, both domestically and internationally, through direct and distributor sales.

We have a robust and growing pipeline of market opportunities for our restraint product offering and training services within the law enforcement, military and homeland security business sectors domestically and internationally.

Social trends demanding more compassionate and safe policing practices are expected to continue to drive our global business.

We are pursuing large business prospects internationally and also pursuing business with large police agencies in the U.S.

It is difficult to anticipate how long it will take to close these opportunities, or if they will ultimately come to fruition especially given the uncertainty of COVID-19 and social unrest, as discussed below.

To support our increased sales and distribution activities, we have developed and offer robust training and class materials that certify law enforcement officers and trainers as BolaWrap instructors in the use and limitations of the BolaWrap, in conjunction with modern policing tactics for de-escalation of encounters.

We believe law enforcement trainers and officers that have seen demonstrations or have been trained about our products are more supportive of their department’s purchase and deployment of our products.

Over 1,000 agencies have received BolaWrap training, with over 3,000 training officers at those agencies actively certified as BolaWrap instructors, qualified to train the rest of their departments.

The number of agencies and training officers has doubled compared to the year ended December 31, 2021.

With the acquisition of NSENA in December 2020, and the rebranding of the NSENA business as Wrap Reality, we have continued to market our virtual reality system while working to integrate previous scenarios into a robust platform, employing BolaWrap and additional de-escalation techniques into new Wrap Reality scenarios.

In August 2021 we announced the development of a new expanded Wrap Reality Virtual Training platform powered by, and developed through, a collaboration with AWS using AWS GovCloud (US).

The new platform combines our advanced law enforcement simulator with secure cloud services to automatically track training progress and provide the ability to replay recorded training sessions.

We plan to increase marketing activities for our virtual reality solution as our platform enhancements are introduced to market.

We believe our Company's products and solutions are gaining global recognition and awareness through various channels such as social media, trade shows, and media exposure, among others.

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

As a result, our brand, Wrap, is becoming increasingly recognized on a global scale as a leader in remote restraint and non-lethal solutions.

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

We are confident in the potential market opportunities for our remote restraint and virtual reality solutions in the law enforcement and security sectors worldwide.

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

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

BolaWrap is now in use by over 900 US law enforcement agencies and in 59 countries.

Due to its safe remote restraint capabilities, some agencies do not deem its usage a categorical reportable use of force and rather place it underneath early use of force such as handcuffs.

In our strategic roadmap, we clarified that law enforcement agencies deploy BolaWrap when verbal commands breakdown but long before there is justifiable escalation to pepper spray, pepper ball, batons, bean bags, tasers or Conducted Electrical Weapons (CEW’s) or firearms.

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

In the usage reports we have been provided;

officers have reported successful outcomes in 82% of the use cases.

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

From the information we have been provided, the most common BolaWrap use case is for individuals with behavioral health issues, and the second most common BolaWrap use case is during domestic violence calls.

Twenty-six percent of the reported persons who are wrapped with the BolaWrap are thought to be under the influence of alcohol or drugs.

There are many reasons why we may not receive reports on all the use of the BolaWrap, including, when uses of BolaWrap are considered evidence in ongoing criminal cases, are controlled by local policy or regulation, or require officer and union and other released to be shared with us.

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

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

Our company anticipates/believes that our portfolio of safe, remote restraint products and training services has a strong and expanding pipeline of market opportunities in the law enforcement, military, corrections, and homeland security sectors both domestically and internationally.

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

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

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

As part of our efforts to expand our sales and distribution operations, we provide a comprehensive training program for law enforcement officers and trainers in using the BolaWrap.

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

We now focus on also teaching when and why BolaWrap should be used, including the specific area of success (I.e., after verbal commands break down and before the law enforcement officer is ready to escalate to less lethal pain compliance tools.

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

As of December 31, 2022, over 1,360 agencies have received BolaWrap training with over 4,580 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing a 32% increase in agencies and a 30% increase in trained officers as compared to December 31, 2021.

Operating expenses for the full year 2022 reduced by $5.0 million or 19% as compared to the full year 2021.

Our new management team immediately prioritized reducing operating expenses, and in the second quarter, conducted a thorough top to bottom assessment of all aspects of our business.

This assessment culminated in the creation of a strategic roadmap aimed at achieving sustainable growth and delivering long-term value to our shareholders.

Our strategic roadmap centers on expanding our sales by building repeatable domestic BolaWrap sales, increasing international sales of the new BolaWrap 150, and expanding the deployment of BolaWrap to full patrol-wide utilization via a customer success function.

Additionally, we have established a dedicated inside sales leader to increase our velocity on new leads.

To catalyze sales growth, we are expanding our distributor and partner relationships while simultaneously diversifying and innovating our product offerings.

As part of our strategic roadmap, we have made the decision to improve the pricing on BolaWrap 150 devices and cassettes, given the product's proven success as a significant upgrade for law enforcement.

These increased margins will drive us to breakeven and profitability more quickly.

We have also begun charging for our respected training services.

Changes have been implemented in how we sell Wrap Reality, and we have established a Software as a Service (SaaS) model for our virtual reality technology moving forward.

We acquired a cloud software capability and will now be offering both on premise and cloud 3D Virtual Reality options for Wrap Reality later in 2023.

We believe the synergy in BolaWrap to de-escalate and reduce uses of force and the immersive 3D Virtual Reality training for law enforcement and corrections create a unique well positioned law enforcement technology company that is prepared for 21 st Century policing and driving safe outcomes.

Now with our key focus on where BolaWrap and Wrap Reality fit into the Force Factor diagram below in Figure X, agencies are likely to see significant increased usage where BolaWrap is a tool that can be used every week to appropriately de-escalate a dangerous situation and save the lives and careers of the officers we serve and save the lives of the individuals they interact with on dangerous calls.

We anticipate these changes will have a significant positive impact on our future success and growth.

Our company is confident that implementing these strategic changes will lead to substantial sales growth and put us on a path towards sustainable profitability.

Although geopolitical tensions and macroeconomic challenges have affected our quarterly results in the past and may in the future, we believe our firm is uniquely positioned to provide lifesaving technologies and training that enable law enforcement officers worldwide to conduct safe and effective encounters while reducing the use of force.

If departments follow our newly released Use of Force Guarantee requirements, we are confident enough to offer that in 12 months we would buy their BolaWrap devices back if they do not reduce their reportable use of force by 10%.

With an increasing addressable market, Wrap offers a unique value proposition.

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

Looking ahead to the coming years, we plan to increase the number of product demonstrations and training sessions, particularly in international markets.

Our new focus on the when and why BolaWrap is used is already showing improved results.

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

Our sales of the BolaWrap 150 and Wrap Reality are expected to continue to rise significantly, aided by our ongoing cost savings and cost control measures, which should lead to an overall reduction in cash burn.

As a result, we anticipate reaching an adjusted EBITDA break-even point by the conclusion of fiscal 2023, and if strong sales persist, we may achieve profitability by the end of 2024.

With the transaction with Lumeto in late November 2022, we have continued to invest in our VR system while working to continue to develop real-world scenarios into our robust Wrap Reality platform.

In the future, the Lumeto transaction will allow for a cloud-based option of our Wrap Reality platform including a lower initial capital commitment for hardware.

We plan to increase marketing activities for our VR solution to both law enforcement and corrections throughout 2023 and expect to launch the cloud-based version in mid-2023.

At December 31, 2022 we had backlog of approximately $257 thousand expected to be delivered in the first quarter of 2023.

We had deferred revenue of $265 thousand expected to be recognized generally over the next five years.

Additionally, we had deferred revenue of $333 thousand expected to be recognized generally over the next five years.

Our deferred revenue mostly is from Wrap Reality subscription and other revenue.

We expect our deferred revenue to grow in future years due to the SaaS business model on Wrap Reality.

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

During the second quarter of 2021, we began to wind down our production line for the BolaWrap 100 product line and in the third quarter completed a shift to a new production process for the next generation BolaWrap 150 product, which required new tooling, new production equipment and processes, and additional licensing.

We recorded $747 thousand of product line exit costs related to this change in production activities in the second quarter.

Since inception in March 2016, we have generated significant losses from operations and anticipate that we will continue to generate significant losses from operations for the foreseeable future.

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

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

We expect that we will need to continue to innovate new applications for our public safety technology, develop new products and technologies to meet diverse customer requirements and identify and develop new markets for our products.

We have experienced recent changes in management.

Changes in management and other key personnel have the potential to disrupt our business, and any such disruption could adversely affect our operations, programs, growth, financial condition or results of operations.

In addition, new members of management may have different perspectives regarding product development and opportunities for our business, which may cause us to focus on new business opportunities or reduce or change emphasis on our existing products and business.

Impact of COVID-19 and Social Unrest on our Business

We continue to face significant challenges in operating and growing our business related to the global impact of the novel coronavirus (“

COVID-19 ”).

COVID-19 impact includes continued travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders, shutdowns and slowdowns of certain businesses around the world and impacts on supply chains and logistics.

The COVID-19 pandemic has resulted in a substantial curtailment of business activities worldwide and is causing weakened economic conditions, both in the United States and many countries abroad.

As part of intensifying efforts to contain the spread of COVID-19, many companies and state, local and foreign governments continue to impose restrictions, including shelter-in-place orders and travel bans.

While some of these companies and jurisdictions have started to relax such restrictions, in some cases, the restrictions are put back in place after having been lifted.

These factors negatively impacted our operations and results of operations for 2020 and 2021.

We expect that the evolving COVID-19 pandemic, associated travel restrictions and social distancing requirements, especially internationally, may continue to have an adverse impact on our results of operations.

While the ultimate economic impact of the COVID-19 pandemic is highly uncertain, we expect that our business and results of operations, including our revenues, earnings and cash flows from operations, will be adversely impacted during 2022, including as a result of:

Delays in our ability to travel and train, especially internationally;

Greater funding challenges for our customer base, which may adversely affect timing of anticipated contracts and new customer sales;

Disruption to our supply chain caused by distribution and other logistical issues, which may further delay our ability to deliver product to customers during and beyond 2022;

Potential decrease in productivity of our employees or those of our customers or suppliers due to travel bans or restrictions, work-from-home or shelter-in-place policies and orders.

We also may be adversely affected by continued social unrest, protests against police and movements such as “Defund the Police”.

These events may directly or indirectly affect police agency budgets and funding available to current and potential customers.

Participants in these events may also attempt to create the perception that our solutions are contributing to the perceived problems or ineffective as a solution, which may adversely affect us, our business and results of operations, including our revenues, earnings and cash flows from operations.

It is currently not possible to predict the magnitude or duration of the COVID-19 pandemic’s impact on our business or the future impact of the recent, ongoing and possible future unrest.

The extent to which these events impact our business will depend on numerous evolving factors that we may not be able to control or accurately predict, including without limitation:

the duration and scope of the challenges created by the COVID-19 pandemic or by ongoing social unrest;

governmental, business and individuals’ actions that have been and continue to be taken in response to these events;

the impact of the COVID-19 pandemic and social unrest on economic activity and actions taken in response;

the effect on our customers and demand for our products and services;

our ability to continue to sell and deliver our products and services, including as a result of travel restrictions, logistic and supply chain challenges, people working from home, or restrictions on access to our potential customers;

the ability of our customers to pay for our products and services;

any closures of our facilities and the facilities of our customers and suppliers;

the degree to which our employees or those of our customers or suppliers become ill with COVID-19.

For the full year 2022 we reduced our net loss by more than $6.8 million versus the comparable prior year.

Net cash used in operations during the full year 2022 was $3.6 million less than cash used in operations during the full year 2021.

This improvement was a result of our strategic roadmap as well as our cost control measures implemented in Q2, Q3 and Q4 of last year.

We expect that we will continue to innovate new applications for our public safety technology, open new geographies, develop new products and technologies to meet diverse customer requirements and identify and develop new markets for our products.

We believe that our sales in 2022, were significantly adversely affected by the shift to our BolaWrap 150 product and the discontinuation of the BolaWrap 100 production line, along with the limited ability to demonstrate and train customers in 2021 due to the COVID-19 pandemic, particularly internationally.

We had many customers that were happy with the BolaWrap 100 and many distributors who also like the BolaWrap 100 that were concerned about not being able to continue to expand with the first-generation device.

This device was completely turned off from sales in Q4 of 2021 and product delays kept our BolaWrap 150 from being fully delivered to customers until late Q1 in 2022.

This gap in having product to sell as well as the unhappiness in turning off the first-generation product while it was still having success in the field, created significant work throughout 2022 to get the BolaWrap 150 approved by departments as well as by import and federal authorities for international countries.

We also had a much slower than expected trade in the timeframe of BolaWrap 100 to BolaWrap 150 due to the customer affinity for our first to market device.

A lesson learned by the company was to continue to sell BolaWrap 100 cartridges and to announce in late 2022 that we will build and supply the BolaWrap 150 for at least five years from its launch date.

This will allow departments that are going to do very large agency wide deployments to count on the BolaWrap 150 to be available even if we bring to market a newer device that has new features.

However, we witnessed a rebound in the second half of 2022, following the full-scale production and sales of the BolaWrap 150.

New device supply chain and product issues improved.

We got on the road and demonstrated the new and enhanced capabilities of the BolaWrap 150 and customers clearly saw the enhanced capabilities and have come to respect and want the new technology.

Supply chain disruptions have also affected our operations and could negatively impact our ability to source materials, manufacture and distribute products.

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

Nevertheless, we currently have $19.3 million in cash and cash equivalents and short-term investments as of December 31, 2022, which we believe provides sufficient capital to fund our operations for the next twelve months and absorb the potential near-term impacts of the pandemic and other economic uncertainty.

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

We acknowledge that the work carried out by our employees and associates is critical and essential, as per various published standards.

We have taken several measures to ensure the safety and security of our employees, while also ensuring the availability and functionality of our critical infrastructure.

In compliance with the guidelines issued by the Centers for Disease Control and local authorities, we have implemented COVID-19 safety measures in the workplace.

Nevertheless, we recognize that events related to the pandemic could potentially result in lost or delayed revenue for our Company.

These events include restrictions on our suppliers' ability to meet delivery requirements and commitments, employees' inability to perform their work due to illness caused by the pandemic or local, state, or federal mandates requiring employees to stay home.

Delays in carriers' ability to deliver our products to customers, unforeseen deviations from customers or foreign governments restricting the ability to conduct business, and customers' inability to pay us on a timely basis, if at all, could also limit our revenue.

Our Company may be positively or negatively impacted by continued social unrest, protests against racial inequality, and movements like "Defund the Police." Such unrest may be further fueled by misleading information or negative publicity about our solutions.

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

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

In addition, participants in these events may attempt to create the impression that our solutions are contributing to the perceived problems, potentially harming our business and operations, including our revenues, earnings, and cash flows from operations.

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

Such disruptions could have an adverse impact on our operations, programs, growth, financial condition, or results of operations.

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

Critical Accounting Policies and Estimates

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

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

The preparation of financial statements in accordance with accounting principles generally accepted in the US (“

US GAAP ”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities.

We evaluate our estimates, on an on-going basis, including those estimates related to recognition and measurement of contingencies and accrued expense.

12 unchanged sentences

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

Our primary performance obligations are products/accessories and virtual reality software licensing or sale.

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

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

7 unchanged sentences

ASU ”) 2018-07 for share-based transactions with non-employees.

Share-based compensation expense recognized during 2020 and 2019 includes stock option and restricted stock unit compensation expense.

Share-based compensation expense recognized includes stock option and restricted stock unit compensation expense.

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

19 unchanged sentences

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

Exit Expense .

Our product line exit expense included estimates of end of product life raw material write offs, costs of noncancelable raw material purchase orders and retirement of unamortized production tooling costs.

We make these estimates based on current production plans and these judgments and estimates have an impact on our financial statements.

Accrued Expense.

5 unchanged sentences

We evaluate the adequacy of this reserve each reporting period.

We use the recognition criteria of ASC 450-20, “Loss Contingencies”

to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period.

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

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

8 unchanged sentences

Operating Expense

Our operating expense includes (i) selling, general and administrative expense, and (ii) research and development expense.

Our operating expenses include (i) selling, general and administrative expense, (ii) research and development expense, and in the most recent fiscal quarter, (iii) product line exit expense.

Research and development expense is comprised of the costs incurred in performing research and development activities and developing production on our behalf, including compensation and consulting, design and prototype costs, contract services, patent costs and other outside expense.

The scope and magnitude of our future research and development expense is difficult to predict at this time and will depend on elections made regarding research projects, staffing levels and outside consulting and contract costs.

The future level of selling, general and administrative expense will be dependent on staffing levels, elections regarding expenditures on sales, marketing and customer training, the use of outside resources, public company and regulatory costs, and other factors, some of which are outside of our control.

We expect our operating costs will increase as we expand product distribution activities and expand our research and development, production, distribution, training, service and administrative functions in the near term.

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

The future level of selling, general and administrative expense will be dependent on staffing levels, elections regarding expenditures on sales, marketing and customer training, the use of outside resources, public company and regulatory expense, and other factors, some of which are outside of our control.

We expect our operating costs will remain at comparable current levels in the near term.

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

Historical expenditures are not indicative of future expenditures.

1 unchanged sentence

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The following table and narrative sets forth for the periods indicated certain items of our condensed statement of operations, expressed in thousands of dollars.

The following table and narrative sets forth for the periods indicated certain items of our statement of operations, expressed in thousands of dollars.

The financial information and the discussion below should be read in conjunction with the financial statements and notes contained in this Report.

15 unchanged sentences

Fiscal 2022 ”) as compared to revenue of $7.7 million for the year ended December 31, 2021 (" Fiscal 2021 "), a 4% increase over the prior year.

We believe our sales during Fiscal 2021 were negatively impacted by the COVID-19 pandemic as we were limited in our ability to make product demonstrations and conduct training especially in our international markets.

We also believe some customers delayed purchase decisions during the last quarter of Fiscal 2021 in anticipation of the introduction of our second-generation product, the BolaWrap 150.

As some areas of the United States eased restrictions, during Fiscal 2021, we were able to commence limited in-person demonstrations and training to supplement our webinar capabilities.

We incurred product promotional costs of $924 thousand for Fiscal 2021, related primarily to the cost of demonstration and training products and accessories delivered to law enforcement agencies that were expensed as marketing costs, as compared to $747 thousand for Fiscal 2020.

We are responding to increased demand for training as a result of expanded product and brand awareness and increased successful field use by agencies.

We had $265 thousand of deferred revenue at December 31, 2021, of which $172 thousand related to virtual reality training and $67 thousand related to extended warranties.

At December 31, 2021, we had backlog of $268 thousand expected to be delivered in the next twelve months.

International revenues decreased from $4,372 thousand for the year ended December 31, 2021 to $2,734 thousand for the year ended December 31, 2022.

We incurred discounts of $898 thousand during the year ended December 31, 2022, primarily as a result of promotional programs designed to encourage domestic customers to upgrade to the BolaWrap 150.

These discounts compare to business discounts of $561 thousand in the prior year.

We expect a decline to minimal discounts in 2023 as we have phased out our promotional upgrade offer.

International revenues generally consist of larger orders with the end user being large, centralized government agencies.

These orders continue to be lumpy and difficult to predict as to both timing and amount.

International orders anticipated in the second quarter were delayed significantly due to the changeover from the BolaWrap 100 but those orders for BolaWrap 150 are anticipated in future quarters.

Some key international customers had approved the BolaWrap 100 and even purchased just prior to our announcement of the BolaWrap 150 a significant number of devices and cartridges.

Because of the large size of these agencies, they wanted to grow on a single device and not multiple devices, but Wrap management made the decision to shut down the BolaWrap 100 product line for new devices in 2021.

We believe that revenue during the fiscal year 2023 will increase overall compared to the revenue recorded during 2022 due to growth of domestic sales and anticipated international orders from a robust pipeline, although no assurances can be given.

We believe based on pipeline that these larger international deals are more likely to book and ship in the latter half of 2023.

We incurred product promotional costs of $688 thousand for Fiscal 2022, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

A total of $924 thousand of such product promotional costs were incurred during the Fiscal 2021.

We had $333 thousand of deferred revenue at December 31, 2022, of which $198 thousand related to VR, $11 thousand was related to training and $124 thousand related to BolaWrap extended warranties and services.

As we potentially secure increased bookings for Wrap Reality, as well as BolaWrap extended warranties, we expect our deferred revenue to grow in future quarters.

At December 31, 2022, we had backlog of $257 thousand expected to be delivered in the first quarter of 2023.

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

The impact of the COVID-19 pandemic and geopolitical conflicts, including the recent war in Ukraine, has created much uncertainty in the global marketplace, with the COVID-19 pandemic continuing to restrict our ability to travel internationally and, to a more limited extent, domestically.

These conditions are expected to continue at least through the first quarter of 2022. 

We are therefore unable to predict at this time whether our sales will continue to increase during fiscal year ending December 31, 2022 at the same rate as the fiscal year ended December 31, 2021 due to these uncertainties.

Although no assurances can be given, we do believe, however, that the challenges to substantially increasing sales caused by COVID-19 will abate as the pandemic wanes, especially given the number of BolaWrap trials currently ongoing and the current environment where non-lethal options are being widely considered by law enforcement domestically and internationally. 

As a result, we believe that revenue during the fiscal year 2022 will increase compared to the revenue recorded during 2021, and this anticipated increase is likely to be material, although no assurances can be given.

We have experienced recent changes in management.

Changes in management and other key personnel have the potential to disrupt our business, and any such disruption could adversely affect our revenue growth in future periods, especially in the near term as we execute our Management Transition plan.

Our cost of revenue for Fiscal 2021 was $5.7 million and included $747 thousand of restructuring inventory charge.

Excluding this non-cash charge, the gross margin for Fiscal 2021 was 36%.

Our cost of revenue for Fiscal 2020 was $2.6 million resulting in a gross margin of 34%.

During the third quarter ended September 30, 2021, we began production of our new generation BolaWrap 150 product with different material inputs and manufacturing processes such that historical margins may not be indicative of future margins.

We have limited warranty cost experience and estimated future warranty costs can impact our gross margins.

Our gross profit for Fiscal 2022 was $3.7 million or a gross margin of 46%.

Excluding the non-cash charge related to a restructuring inventory charge, our gross profit for Fiscal 2021 was $2.7 million resulting in a gross margin of 35%.

The Fiscal 2022 gross profit represented an 87% increase over prior year as a result of rolling out the BolaWrap 150 product, selling price adjustments implemented in September of 2022, and a reduction of promotional pricing, offset by some supply chain issues and inventory adjustments.

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

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

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

At present, our cassettes have lower margins than BolaWrap devices.

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

Cassettes in 2022 were a total of 23% of our overall revenue and will continue to grow as a recurring revenue base as more BolaWrap devices are in the field and the usage of BolaWrap increases due to the need of officers to de-escalate earlier to prevent injuries and use of higher levels of force.

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

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

Our global supply chain has experienced notable component shortages, extended lead times, cost fluctuations, and logistical constraints, all of which have affected our product costs.

Although we anticipate these supply chain obstacles to ease in 2023, we acknowledge that future supplier shortages, quality problems, and logistics delays could impact our production schedules and have a material negative impact on our financial condition, results of operation, and cash flows.

Selling, General and Administrative Expense

Selling, general and administrative (“

SG&A ”) expense increased by $8.6 million during Fiscal 2021, when compared to Fiscal 2020.

The largest driver of this increase was related to an increase of $2.6 million in share-based compensation, of which $1.5 million was for director compensation, and the remaining $1.1 million was related to incentive for management and employees.

We continue to invest in our marketing and promotion, which augments the media attention we receive from external sources, such as news broadcasts.

During Fiscal 2021, we incurred increases of $325 thousand related to public relations initiatives and $111 thousand related to digital marketing campaigns.

Costs related to advertising and promotional products remained flat from Fiscal 2020.

For Fiscal 2021, our public reporting expense increased by $1.56 million.

This includes $818 thousand in connection with actions by a former executive officer/shareholder seeking changes in the composition of our Board of Directors and candidates to stand for election at the 2021 Annual Shareholders’

Meeting, changes to the Executive Chairman position, and related matters.

There were no comparable costs in 2020.

This matter was settled in March 2021, and we do not expect additional costs.

Other SG&A expense increases included a $2.8 million increase in cash compensation, recruiting and consultancy costs resulting from our growth in personnel over the prior year.

In addition, our travel expense related to sales, demonstrations and training increased by $523 thousand as a result of resumption of travel by sales and training personnel.

In the second and third quarters of 2020, we had virtually no travel due to the COVID-19 pandemic and the various travel restrictions that were in place.

Despite the growth in 2021, we are still well below historical norms for our travel expense but expect travel expense to increase as international travel restrictions ease.

In 2022, we expect to monitor and control the amount of resources we expend on the marketing and selling of our products, training distributors and customers and administratively supporting our operations to respond to increased opportunities, but amounts could vary depending on sales levels, the impact of the COVID-19 pandemic and other factors outside of our control.

We expect increased administrative costs due to costs associated with the Management Transition but cannot estimate such costs at this time.

SG&A ”) expense decreased significantly by $3.9 million during Fiscal 2022 when compared to Fiscal 2021 due to cost containment efforts.

Share-based compensation costs allocated to SG&A decreased to $2.7 million compared to $4.6 million for the comparable prior year.

This $1.9 million decrease resulted primarily from changes in management, one-time costs in the prior year period, and changes in the stock price.

Salaries and burden costs of $6.5 million for Fiscal 2022 was an increase of $951 thousand or a 17% increase due to higher bonus accrual as a result of meeting full year targets, and one-time recruiting expenses associated with changes in management.

During Fiscal 2022, as compared to the prior year, we incurred reduced advertising and promotions costs (including product promotion costs) of $769 thousand, increased professional fees of $377 thousand, and reduced consulting and contract services fees of $905 thousand.

We expect expenditures for SG&A expenses in 2023 to remain in line with 2022 despite expected revenue growth.

Advertising and promotion costs were $1.1 million for during Fiscal 2022 or a decrease of $0.8 million as compared to $1.9 Million during Fiscal 2021.

The changes in advertising costs were related to reductions in consultants and other cost containment efforts.

Research and Development Expense

Research and development expense increased by $3.4 million for Fiscal 2021, when compared to Fiscal 2020.

We incurred a $518 thousand period over period increase in non-cash share-based compensation expense allocated to research and development expense as a result of new award grants and vesting timing.

The increase in costs during the Fiscal 2021 compared to the prior year included a $758 thousand increase in cash compensation costs resulting from an increase in headcount primarily associated with product development.

Outside consulting costs increased by $1.2 million and prototype related costs increased by $570 thousand for Fiscal 2021, primarily due to costs related to the new generation BolaWrap 150 product, initiatives to develop new products, and increased development of virtual reality scenarios.

We expect our research and development costs to remain at current levels despite our plans to increase personnel, as the increase in personnel costs is expected to be offset by lower costs for outside resources due to the substantial completion of BolaWrap 150 and a focus on controlling spending on new research initiatives. 

Loss from operations during Fiscal 2021 increased by $11.4 million when compared to Fiscal 2020, resulting primarily from increased share-based compensation and increased operating costs due to increased personnel, marketing and selling, public company costs, and supporting activities.

We also incurred a one-time non-cash product line exit expense of $747 thousand during the period that we do not expect to recur. 

Research and development expense decreased by $1.1 million for Fiscal 2022, when compared to Fiscal 2021.

We incurred a $257 thousand period over period decrease in share-based compensation expense allocated to research and development expense as a result of cost containment efforts and changes in personnel.

Outside consulting costs decreased by $847 thousand and prototype related costs decreased by $2 thousand for Fiscal 2022, primarily due to reduced costs related to finalizing the BolaWrap 150 product.

Operating Loss

Loss from operations during Fiscal 2022 of $17.6 million was a reduction of $6.8 million when compared to Fiscal 2021, reflecting increased margin and the focus on reducing operating costs and implementation of our strategic roadmap.

Liquidity and Capital Resources

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

As of December 31, 2021, we had cash and cash equivalents of $4.9 million, short-term investments of $30 million, positive working capital of $38 million and had sustained cumulative losses attributable to stockholders of $49.8 million.

We believe that our cash on hand and short-term investments will sustain our operations for at least the next twelve months from the date of this Report.

During Fiscal 2021, we received $13.7 million of proceeds from the exercise of previously issued stock purchase warrants and from the exercise of stock options.

During Fiscal 2020, we received $11.7 million of net proceeds resulting from the consummation of a registered offering of our Common Stock in June 2020, $25.9 million of net proceeds from the exercise of previously issued warrants and stock options and obtained $414 thousand in proceeds from a loan issued under the Paycheck Protection Act (the " PPP Loan ") (See Note 10 to the Consolidated Financial Statements of this Report).

As of December 31, 2022, we had cash and cash equivalents of $5.3 million, short-term investments of  $13.9 million, positive working capital of $23.7 million and had sustained cumulative losses attributable to stockholders of $67.4 million.

We believe that our cash on hand and short-term investments will sustain our operations for at least the next twelve months.

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

5 unchanged sentences

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

The impact and effects of the global outbreak of the COVID-19 pandemic, and other potential pandemics or contagious diseases or fear of such outbreaks, and geopolitical conflicts;

The speed at which BolaWrap is accepted to be on every officer and the speed at which departments move from small deployments to all field officers;

The speed of new sales being booked and the success of our marketing efforts;

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

12 unchanged sentences

Operating Activities

During Fiscal 2022, net cash used in operating activities was $14.6 million. The net loss of $17.6 million was decreased by non-cash expense of $4.4 million consisting primarily of share-based compensation expense of $3.2 million.

Other major component changes using operating cash included an increase of $2.4 million in inventories and a net increase in accounts payable and accrued liabilities of $250 thousand.

A decrease in accounts receivable of $957 thousand increased the cash used in operating activities.

During Fiscal 2021, net cash used in operating activities was $18.2 million. The net loss of $24.4 million was decreased by non-cash expense of $7.2 million, consisting primarily of share-based compensation expense of $5.4 million, restructuring inventory charges of $747 thousand, depreciation and amortization expense of $478 thousand, and shares issued for services of $239 thousand.

1 unchanged sentence

A decrease in inventories of $559 thousand, an increase in accounts payable and accrued expense of $492 thousand, and an increase of $249 thousand in deferred revenue reduced the cash used in operating activities.

During Fiscal 2020, net cash used in operating activities was $12.2 million. The net loss of $12.6 million was decreased by non-cash expense of $2.1 million consisting primarily of share-based compensation expense of $2.2 million less debt forgiveness income of $417 thousand related to the PPP loan.

Other major component changes using operating cash included an increase of $1.7 million in accounts receivable, an increase in inventories of $343 thousand, a $342 thousand decrease in customer deposits and a $508 thousand increase in prepaid expense and other current assets.

An increase of $825 thousand in accounts payable and an increase of $493 thousand in accrued liabilities reduced the cash used in operating activities.

Investing Activities

During Fiscal 2021, we used $55 million of cash to purchase short-term investments and had proceeds from maturities of short-term investments of $50 million.

During Fiscal 2022, we used $30.5 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $46.6 million.

During Fiscal 2021, we used $55 million of cash to purchase short-term investments and had proceeds from maturities of short-term investments of $50 million.

We used $256 thousand and $995 thousand of cash for the purchase of property and equipment during Fiscal 2022 and Fiscal 2021, respectively.

We invested $173 thousand and $187 thousand in patents during Fiscal 2022 and Fiscal 2021, respectively.

During Fiscal 2020, we purchased $543 thousand of indefinite life intangible assets and software and paid $210 thousand for the first installment of the NSENA acquisition.

Financing Activities

During Fiscal 2022, we received $83 thousand in proceeds from the exercise of previously issued stock options.

During Fiscal 2021, we received $12 million from previously issued stock purchase warrants, $1.7 million in proceeds from the exercise of previously issued stock options and paid $275 thousand in debt relating to the December 2020 acquisition of NSENA.

During Fiscal 2020, we received $11.7 million of net proceeds resulting from a registered offering of our Common Stock in June 2020, $25.9 million of net proceeds from the exercise of previously issued warrants and stock options and $414 thousand in proceeds from a PPP Loan.

Contractual Obligations and Commitments

1 unchanged sentence

Syzygy ”), we are obligated to pay to Syzygy a 4% royalty fee on future product sales up to an aggregate amount of $1.0 million in royalty payments or until September 30, 2026, whichever occurs earlier.

In January 2022 we extended our facility lease for three years through July 2025 and we are committed to aggregate lease payments on the lease of $107 thousand in 2022, $121 thousand in 2023, $126 thousand in 2024 and $75 thousand in 2025.

Pursuant to the Professional Services and Technology Acquisition Agreement (the “

Agreement ”) entered into with Lumeto, Inc.

and Spatial Industries Group, Inc.

(collectively, “

Service Provider ”), which Agreement provides that the Service Provider will provide to the Company certain technology, services, and perpetual licenses for use within the Company’s Wrap Reality virtual simulation training platform (the “

Technology, Services, and License ”), we are obligated to pay to the Service Provider (a) a cash payment upon the execution of the Agreement of $700,000, (b) a cash payment of $125,000 upon the completion of certain project delivery milestones expected in Q1, and (c) a cash payment of $125,000 upon the completion and delivery of the final Technology, Services, and License which is expected in Q2.

In January 2022 we extended our facility lease for three years through July 2025 and we are committed to aggregate lease payments on the lease of $121 thousand in 2023, $126 thousand in 2024 and $75 thousand in 2025.

At December 31, 2022 we were committed for approximately $3.6 million for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

On January 24, 2022, we announced a Management Transition plan and entered into consulting agreements with LW Varner as our interim CEO, and Lawrence Hirsch as our interim financial consultant.

Pursuant to the consulting agreements, unless earlier terminated, we are obligated for aggregate consulting payments of $225 thousand through April 17, 2022 and up to $75 thousand of share-based compensation plus travel costs and expenses.

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.

In 2022 we had increased in labor and materials due to inflation.

We believe in 2023 that low unemployment and higher salaries will create higher payroll costs and increased operating expenses in the business.

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

Recent Accounting Pronouncements

3 unchanged sentences

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 7. Management’s Discussion and Analysis