What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-10 · 125 added, 112 removed, 296 unchanged (44% of the section changed)

48 unchanged sentences

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

Wrap Intrensic –

is a Body-Worn Camera (BWC) and Digital Evidence Management (DEM) solutions provider. 

BWC and DEM play crucial role in capturing, storing, and managing digital evidence, such as video and audio recordings for various purposes, including criminal investigations and maintaining transparency in public interactions.

The Wrap Intrensic X2 camera hardware and storage and data management capability, along with awareness of front-line operations, provides customers with a solution to meet the challenges. 

Wrap Intrensic Evidence on Cloud provides an unlimited video storage platform that includes video and other evidence uploading, search, retrieval, redaction, and evidence sharing while reducing the need for resources required to manage this evidence.

In addition to the US law enforcement market, we have shipped our restraint products to 62 countries.

4 unchanged sentences

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

Management Changes

On April 17, 2023, Kevin Mullins was named Chief Executive Officer. 

In connection with Mr.

Mullins' appointment, TJ Kennedy agreed to immediately step down as the Company’s Chief Executive Officer and a member of the Board of Directors (the “

Board ”). 

Additionally, on April 17, 2023, the Company performed a reduction in force that resulted in changes in the composition of the executives of the Company. 

As part of the reduction in force, Glenn Hickman stepped down as Chief Operating Officer.

Business Outlook and Challenges

3 unchanged sentences

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.

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

These opportunities are driven by the increasing demand for less-lethal policing, continued training, and transparency driven by community demands and local laws.

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

12 unchanged sentences

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

Management anticipates that our portfolio of safe, remote restraint products and training tools 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.

Management anticipates that our portfolio of products has a strong and expanding pipeline of market opportunities in the law enforcement, military, corrections, and homeland security sectors both domestically and internationally.

With the increasing demand for more humane and safer policing practices, continued need for ongoing training, and transparency for police encounters, we expect a continued surge in our global business.

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

4 unchanged sentences

Management 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 June 30, 2023, over 1,450 agencies have received BolaWrap training with over 4,827 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing a 18% increase in agencies and a 16% increase in trained officers as compared to June 30, 2022. 

Operating expense for the second quarter of fiscal 2023 increased $0.51 million, or 10%, to $5.75 million from $5.24 million in the prior year period.

The increase in operating expense was the result of the Company incurring approximately $1.4 million of one-time items related to organizational changes including severance and legal fees that impacted operational expense.

Excluding these one-time items, operational expense for the second quarter 2023 would have been $4.35 million or a 17% decrease from the prior year period.

We expect to see the full benefit of the organizational changes we made in April during the back half of 2023.

Management is confident that implementing the strategic changes it made in April 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.

As of September 30, 2023, over 1,480 agencies have received BolaWrap training with over 5,200 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments, representing a 14% increase in agencies and a 14% increase in trained officers as compared to September 30, 2022. 

Operating expense for the third quarter of fiscal 2023 increased $0.1 million, or 2%, to $4.9 million from $4.8 million in the prior year period.

The increase in operating expense was the result of one-time items associated with the Company’s finance offering and legal expenses associated with the acquisition of Intrensic.

Management is confident that implementing the strategic changes it made in April are leading 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, training, and digital evidence management that enable law enforcement officers.

If departments follow our 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%.

1 unchanged sentence

Our improved pricing strategy, coupled with reduced operating expense 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.

Looking ahead to the coming years, we plan to increase the number of product demonstrations and training sessions, both domestically and in the 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, aided by our ongoing cost savings and cost control measures, which should lead to an overall reduction in cash burn.

At June 30, 2023 we had backlog of approximately $25 thousand expected to be delivered in the third quarter of 2023.

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

At September 30, 2023, we had backlog of approximately $48 thousand expected to be delivered in the fourth quarter of 2023.

Additionally, we had deferred revenue of $365 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.

1 unchanged sentence

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

We increased our net loss during the second quarter of fiscal 2023 by more than $0.2 million as compared to the second quarter of fiscal 2022.

The decrease in net loss was primarily the result of one-time items related to the organizational changes made during the second quarter 2023 including $1.4 million of non-cash expense related to stock compensation, severance, and legal fees.

Excluding the one-time items, net loss for the second quarter 2023 would have been $3.61 million or a 25% decrease from the prior year period.

Net cash used in operations during the six months ended June 30, 2023 was $5.43 million less than cash used in operations during the six months ended June 30, 2022.

This improvement was a result of our strategic roadmap as well as our cost control measures implemented in Q2, Q3 and Q4 of our last fiscal year, and Q1 and Q2 of this fiscal year.

We reduced our net loss during the third quarter of fiscal 2023 by more than $1.1 million as compared to the third quarter of fiscal 2022.

Net cash used in operations during the nine months ended September 30, 2023, was $2.1 million more than cash used in operations during the nine months ended September 30, 2022.

This increase in net cash used during the first nine months of 2023 as primarily driven by changes in Account Receivable and Inventory.

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 during the second quarter of fiscal 2023 were impacted by the timing of new orders, particularly on in the international market, and associated budgeting from our customers. 

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

2 unchanged sentences

Offering ”), which Offering closed on July 5, 2023, resulting in gross proceeds to the Company of approximately $10.0 million of which $7.4 million was received on June 29, 2023.

The $7.4 million received was recorded to cash with an offset to accrued expense.

As a result, we had $18.2 million in cash and cash equivalents and short-term investments as of June 30, 2023.

The $7.4 million received was recorded to cash with an offset to warranty liability.

As a result, we had $14.9 million in cash and cash equivalents and short-term investments as of September 30, 2023.

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

3 unchanged sentences

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

Our Company may be positively or negatively impacted by social unrest, riots, 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.

We recently introduced our Protest Riot Pack aimed at equipping officers with an easy to grab no-harm solution for dealing with civil unrest.

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.

59 unchanged sentences

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

The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement”

in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Business Combination.

The Company accounts for its business combinations under the provisions of Accounting Standards Codification ("ASC") Topic 805-10, Business Combinations ("ASC 805-10"), which requires that the purchase method of accounting be used for all business combinations.

Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values.

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques.

ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination.

Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.

The estimated fair value of the acquired intangible assets was determined using a method which reflects the present value of the operating cash flows generated by this asset after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital.

Certain adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill.

Any adjustments subsequent to the measurement period are recorded in income.

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

Other than the planned production change requiring a new estimate of exit expense, there were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the period ended June 30, 2023.

Other than the warrants and business combination described above, there were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the period ended September 30, 2023.

Our accounting policies are more fully described in Note 1.

12 unchanged sentences

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 reduce from the first half of 2023 as a result of the changes implemented in April 2023, and ongoing cost containment efforts.

We expect our operating costs will reduce from the first three fiscal quarters of 2023 as a result of the changes implemented in April 2023, and ongoing cost containment efforts.

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

1 unchanged sentence

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

1 unchanged sentence

Three Months Ended

September 30,

(in thousands, except percentage change)

Product sales

Other revenue

Total revenue

Total revenues

Cost of revenue

Operating expense:

Operating expenses:

Selling, general and administrative

Research and development

Total operating expense

Total operating expenses

Loss from operations

We reported net revenue of $1.2 million for the three months ended June 30, 2023, as compared to $1.2 million for the quarter ended June 30, 2022, a 3% increase over the prior year.

International revenue decreased from $75 thousand for the three months ended June 30, 2022 to $31 thousand for the three months ended June 30, 2023.

We believe that our sales during the three months ended June 30, 2023, were impacted by the timing of new orders, particularly international and associated budgeting from our customers. We also incurred discounts of $42 thousand during the three months ended June 30, 2023, as a result of promotional programs designed to encourage customers to upgrade to the BolaWrap 150.

Gross sales were $1.2 million for the three months ended June 30, 2023, before such discounts.

We reported net revenue of $3.6 million for the three months ended September 30, 2023, as compared to $1.7 million for the quarter ended September 30, 2022, a 113% increase over the prior year.

International revenue increased from $223 thousand for the three months ended September 30, 2022 to $2.3 million for the three months ended September 30, 2023.

The increase in international revenue was driven by certain large orders and continued strong demand for our products in the EMEA region.

We also incurred discounts of $68 thousand during the three months ended September 30, 2023, as a result of promotional programs designed to encourage customers to upgrade to the BolaWrap 150.

Gross sales were $3.7 million for the three months ended September 30, 2023, before such discounts.

The discounts compare to normal business discounts of $240 thousand in the comparable quarter of the prior year.

2 unchanged sentences

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

International orders anticipated in the second quarter of 2022 were delayed significantly due to the changeover from the BolaWrap 100 but those orders for BolaWrap 150 are anticipated in future quarters.

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 $41 thousand during the three months ended June 30, 2023, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

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

We incurred product promotional costs of $61 thousand during the three months ended September 30, 2023, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

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

We had $340 thousand of deferred revenue at June 30, 2023, of which $217 thousand related to VR, $17 thousand was related to training and $106 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 June 30, 2023, we had backlog of $25 thousand expected to be delivered in the third 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. 

Our gross profit for the three months ended June 30, 2023 was $668 thousand, or a gross margin of 56%.

Our cost of revenue for the three months ended June 30, 2022 was $457 thousand resulting in a gross margin of 39%.

The increase in gross profit represented an 46% 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.

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

Our gross profit for the three months ended September 30, 2022, was $0.9 million, or a gross margin of 54%.

The increase in gross profit represented a 139% increase over prior year as a result of cost efficiencies with the BolaWrap 150 production, selling price adjustments implemented in September of 2022, and a reduction of promotional pricing.

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

3 unchanged sentences

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

Cassettes were a total of 19% of our overall revenue in the three months ended June 30, 2023, 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.

Cassettes were a total of 21% of our overall revenue in the three months ended September 30, 2023, 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.

4 unchanged sentences

Selling, general and administrative (“

SG&A ”) expense of $4.8 million for the three months ended June 30, 2023 increased by $1.0 million, when compared to $3.8 million for the three months ended June 30, 2022.

The increase in selling general and administrative expense was the result of the Company incurring approximately $1.4 million of one-time items related to organizational changes including severance and legal fees that impacted operational expense.

Excluding these one-time items, selling general and administrative expense for the second quarter 2023 would have been $3.35 million or a 11% decrease from the prior year period.

Share-based compensation costs allocated to SG&A increased to $990 thousand compared to $589 thousand for the comparable prior quarter.

This $401 thousand increase resulted primarily from changes in management and one-time costs associated with the management changes in April 2023.

Salaries and burden costs of $1.53 million for the three months ended June 30, 2023 was a decrease of $10 thousand, or a 1% decrease, due to reduced headcount and one-time recruiting expense.

During three months ended June 30, 2023, as compared to same period during the prior year, we increased professional fees by $308 thousand, and increased consulting and contract services fees by $182 thousand.

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

Advertising and promotion costs were $282 thousand for the three months ended June 30, 2023, or a decrease of $51 thousand as compared to $333 thousand during the three months ended June 30, 2022.

SG&A ”) expense of $4.3 million for the three months ended September 30, 2023 increased by $0.7 million, when compared to $3.6 million for the three months ended September 30, 2022.

The increase in selling general and administrative expense was the result of one-time items associated with the Company’s financing and the acquisition of Intrensic.

Share-based compensation costs allocated to SG&A decreased to $(149) thousand compared to $700 thousand for the comparable prior quarter.

This $849 thousand decrease resulted primarily from changes in management and one-time cost offsets associated with the management changes in April 2023.

Salaries and burden costs of $1.6 million for the three months ended September 30, 2023, was a decrease of $0.6 million, or a 25% decrease, due to change in headcount.

During the three months ended September 30, 2023, as compared to same period during the prior year, we increased professional fees by $940 thousand, and increased consulting and contract services fees by $214 thousand.

We expect expenditures for SG&A expense to be relatively in line with the third quarter of 2023 despite anticipated increases in Revenue.

Advertising and promotion costs were $224 thousand for the three months ended September 30, 2023, or a decrease of $32 thousand as compared to $256 thousand during the three months ended September 30, 2022.

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

1 unchanged sentence

Research and Development Expense

Research and development expense decreased by $474 thousand for the three months ended June 30, 2023 when compared to the three months ended June 30, 2022.

We incurred a $92 thousand period over period increase in share-based compensation expense allocated to research and development expense as a result of personnel changes made in April 2023.

Research and development expense decreased by $626 thousand for the three months ended September 30, 2023, when compared to the three months ended September 30, 2022.

We incurred a $225 thousand period over period decrease in share-based compensation expense allocated to research and development expense as a result of personnel changes made in April 2023.

Outside consulting costs decreased by $90 thousand and prototype related costs decreased by $120 thousand primarily due to reduced costs related to finalizing the BolaWrap 150 product and continued cost containment efforts.

Operating Loss

Loss from operations of $5.1 million during the three months ended June 30, 2023 was an increase of $0.3 million compared to loss from operations of $4.8 million during the three months ended June 30, 2022, reflecting increased margin and the focus on reducing operating costs.

Excluding these one-time items, operational expense for the second quarter 2023 would have been $4.35 million or a 17% decrease from the prior year period.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Loss from operations of $2.8 million during the three months ended September 30, 2023, was a reduction of $1.1 million compared to loss from operations of $3.9 million during the three months ended September 30, 2022, reflecting increased margin and the focus on reducing operating costs.

Nine m onths Ended September 30, 2023, Compared to Nine m onths Ended September 30, 2022

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

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

Six Months Ended

Nine m onths Ended

September 30,

Product sales

7 unchanged sentences

Loss from operations

We reported net revenue of $1.9 million for the six months ended June 30, 2023, as compared to $2.8 million for the six months ended June 30, 2022, a 31% decrease over the prior year.

International revenue decreased from $479 thousand for the six months ended June 30, 2022 to $35 thousand for the six months ended June 30, 2023.

We believe that our sales during the six months ended June 30, 2023 were impacted by the timing of new orders and associated budgeting from our customers. We also incurred discounts of $64 thousand during the six months ended June 30, 2023, as a result of promotional programs designed to encourage customers to upgrade to the BolaWrap 150.

Gross sales were $1.98 million for the six months ended June 30, 2023, before such discounts.

The discounts compare to normal business discounts of $549 thousand in the comparable six-month period of the prior year.

We reported net revenue of $5.5 million for the nine months ended September 30, 2023, as compared to $4.5 million for the nine months ended September 30, 2022, a 24% increase over the prior year.

International revenue increased from $1.0 million for the nine months ended September 30, 2022 to $2.3 million for the nine months ended September 30, 2023.

We incurred discounts of $132 thousand during the nine months ended September 30, 2023, as a result of promotional programs designed to encourage customers to upgrade to the BolaWrap 150.

Gross sales were $5.7 million for the nine months ended September 30, 2023, before such discounts.

The discounts compare to normal business discounts of $790 thousand in the comparable nine-month period of the prior year.

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

1 unchanged sentence

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

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 $95 thousand during the six months ended June 30, 2023, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

We incurred product promotional costs of $156 thousand during the nine months ended September 30, 2023, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

We had $365 thousand of deferred revenue on September 30, 2023, of which $199 thousand related to VR, $6 thousand was related to training and $160 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 June 30, 2023, we had backlog of $25 thousand expected to be delivered in the third quarter of 2023.

On September 30, 2023, we had backlog of $48 thousand expected to be delivered in the fourth 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. 

Our gross profit for the six months ended June 30, 2023 was $1.02 million, or a gross margin of 53%.

Our cost of revenue for the six months ended June 30, 2022 was $1.12 thousand resulting in a gross margin of 41%.

The decrease in gross profit represented an 9% decrease over prior year as a result of decreased sales.

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

Our gross profit for the nine months ended September 30, 2022, was $2.0 million, or a gross margin of 46%.

The increase in gross profit represented a 57% increase over prior year as a result of increased sales and continue cost containment efforts on production.

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

3 unchanged sentences

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

Cassettes were a total of 18% of our overall revenue in the six months ended June 30, 2023, 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.

Cassettes were a total of 20% of our overall revenue in the nine months ended September 30, 2023, 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.

4 unchanged sentences

Selling, general and administrative ( “

SG&A ”) expense of $8.3 million for the six months ended June 30, 2023 decreased, by $0.1 million, when compared to $8.4 million for the six months ended June 30, 2022, due to cost containment efforts.

Share-based compensation costs allocated to SG&A increased to $1.6 million compared to $1.5 million for the comparable prior-year period.

This $0.1 million increase resulted primarily due to changes in management, one-time costs in the prior year period, and changes in the stock price.

Salaries and burden costs of $3.0 million for the six months ended June 30, 2023 was a decrease of $132 thousand, or a 4% decrease, due to reduced headcount and one-time recruiting expense.

During six months ended June 30, 2023, as compared to same period during the prior year, we increased professional fees by $160 thousand, and increased consulting and contract services fees by $30 thousand.

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

Advertising and promotion costs were $445 thousand for the six months ended June 30, 2023, or a decrease of $216 thousand as compared to $661 thousand during the six months ended June 30, 2022.

SG&A ”) expense of $12.6 million for the nine months ended September 30, 2023 increased by $0.6 million, when compared to $12.0 million for the nine months ended September 30, 2022, due to cost one-time costs associated with severance, the Intrensic acquisition, and the Company’s financing.

Share-based compensation costs allocated to SG&A decreased to $1.4 million compared to $2.2 million for the comparable prior-year period.

This $0.8 million decrease resulted primarily due to changes in management, one-time costs in the prior year period, and changes in the stock price.

Salaries and burden costs of $4.6 million for the nine months ended September 30, 2023, was a $2.2 million decrease compared to the prior year nine months ended September 30, 2022.

During nine months ended September 30, 2023, as compared to same period during the prior year, we increased professional fees by $1.1 million, and increased consulting and contract services fees by $243 thousand.

We expect expenditures for SG&A expense in 2023 to be slightly lower than 2022 despite expected revenue growth.

Advertising and promotion costs were $669 thousand for the nine months ended September 30, 2023, or a decrease of $246 thousand as compared to $915 thousand during the nine months ended September 30, 2022.

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

Research and Development Expense

Research and development expense decreased by $898 thousand for the six months ended June 30, 2023 when compared to the six months ended June 30, 2022.

We incurred a $21 thousand period over period increase in share-based compensation expense allocated to research and development expense as a result of personnel changes made in April 2023.

Outside consulting costs decreased by $252 thousand and prototype related costs decreased by $323 thousand for the six months ended June 30, 2023, primarily due to reduced costs related to finalizing the BolaWrap 150 product.

Research and development expense decreased by $1.5 million for the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022.

We incurred a $204 thousand period over period decrease in share-based compensation expense allocated to research and development expense as a result of personnel changes made in April 2023.

Outside consulting costs decreased by $342 thousand and prototype related costs decreased by $443 thousand for the nine months ended September 30, 2023, primarily due to reduced costs related to finalizing the BolaWrap 150 product.

Operating Loss

Loss from operations of $9.3 million during the six months ended June 30, 2023 was a reduction of $878 thousand compared to loss from operations of $10.2 million during the six months ended June 30, 2022, reflecting increased margin and the focus on reducing operating costs.

Loss from operations of $12.1 million during the nine months ended September 30, 2023 was a reduction of $2.0 million compared to loss from operations of $14.1 million during the nine months ended September 30, 2022, reflecting increased margin and the focus on reducing operating costs.

Liquidity and Capital Resources

2 unchanged sentences

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

As of June 30, 2023, we had cash and cash equivalents of $11.7 million, short-term investments of $6.5 million, positive working capital of $16.6 million and had sustained cumulative losses attributable to stockholders of $76.4 million.

Our working capital at June 30, 2023 was positively affected by an increase in inventories of approximately $2.5 million, which consisted of increases of inventory of the BolaWrap 150 in anticipation of future orders, and the receipt of $7.4 million from the Offering on June 29, 2023 that formally closed on July 5, 2023. 

As of September 30, 2023, we had cash and cash equivalents of $4.9 million, short-term investments of $10.0 million, positive working capital of $15.0 million and had sustained cumulative losses attributable to stockholders of $79.4 million.

Our working capital at September 30, 2023 was positively affected by an increase in inventories of approximately $1.8 million, which consisted of increases of inventory of the BolaWrap 150 in anticipation of future orders, and the receipt of $10.0 million from the Offering on June 29, 2023 that formally closed on July 5, 2023. 

The Offering was consummated following an analysis of our future capital needs, resulting in the issuance of Series A Convertible Preferred Stock and Warrants. 

The Offering generated gross proceeds to the Company of approximately $10.0 million. 

As a result, we had $18.2 million in cash and cash equivalents and short-term investments as of June 30, 2023.

As a result, we had $14.9 million in cash and cash equivalents and short-term investments as of September 30, 2023.

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

16 unchanged sentences

Market price and trading volume of our Common Stock.

On June 29, 2023, the Company entered into a Securities Purchase Agreement with a founder and director of the Company and certain accredited and institutional investors (collectively, the “

Investors ”), pursuant to which it agreed to sell to the Investors in a registered direct offering (the “

Offering ”) (i) an aggregate of 10,000 shares of the Company’s newly-designated Series A Convertible Preferred Stock, with a par value $0.0001 per share, and a stated value of $1,000 per share (“

Series A Preferred ”), initially convertible into up to 6,896,553 shares of the Company’s Common Stock, at a conversion price of $1.45 per share, and (ii) warrants to acquire up to an aggregate of 6,896,553 shares of Common Stock (“

Warrants ”).

The Series A Preferred provide for the payment to holders thereof of cumulative dividends of 8% per annum, payable quarterly in arrears.

The Warrants are exercisable six months after issuance at an exercise price of $1.45 per share, subject to adjustment, and expire five years from the date of issuance.

The $1.45 per share conversion price of the Series A Preferred and exercise price of the Warrant represent the closing share price of the Company’s Common Stock on June 29, 2023.

The Offering closed on July 5, 2023 (the “

Closing ”), resulting in aggregate gross proceeds from the Offering of approximately $10.0 million.

The Company received approximately $10.0 million in gross proceeds from the Offering.

After payment of placement agent fees and costs of the Offering, the net proceeds from the Offering were approximately $9.0 million.

Proceeds from the Offering are being used to scale the Company’s sales team, support marketing efforts, and fuel the evolution and diversification of the Company’s product offerings.

Off-Balance Sheet Arrangements

1 unchanged sentence

Operating Activities

During the six months ended June 30, 2023, net cash used in operating activities was $776 thousand.

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

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

Other major component changes using operating cash included an increase of $2.55 million in inventories and a net increase in accounts payable and accrued liabilities of $7.66 million.

A decrease in accounts receivable of $884 million reduced the cash used in operating activities.

During the six months ended June 30, 2022, net cash used in operating activities was $6.2 million. The net loss of $10.2 million was decreased by non-cash expense of $2.2 million consisting primarily of share-based compensation expense of $1.76 million.

Other major component changes using operating cash included an increase of $467 thousand in inventories and a net reduction in accounts payable and accrued liabilities of $311 thousand.

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

During the nine months ended September 30, 2022, net cash used in operating activities was $11.0 million. The net loss of $14.1 million was decreased by non-cash expense of $3.4 million consisting primarily of share-based compensation expense of $2.6 million.

Other major component changes using operating cash included an increase of $1.4 million in inventories and a net reduction in accounts payable and accrued liabilities of $659 thousand.

A decrease in accounts receivable of $1.6 million reduced the cash used in operating activities.

Investing Activities

During the six months ended June 30, 2023, we used $2.65 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $10 million.

During the six months ended June 30, 2023, we used $66 thousand of cash for the purchase of property and equipment, and invested $176 thousand in patents.

During the six months ended June 30, 2022, we used $14.9 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $20 million.

During the six months ended June 30, 2022, we used $168 thousand of cash for the purchase of property and equipment and invested $102 thousand in patents.

During the nine months ended September 30, 2023, we used $6.1 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $10.0 million.

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

During the nine months ended September 30, 2022, we used $23.1 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $33.3 million. During the nine months ended September 30, 2022, we used $201 thousand of cash for the purchase of property and equipment and invested $133 thousand in patents.

Financing Activities

During the six months ended June 30, 2023 and 2022, we received $0 and $75 thousand, respectively, in proceeds from the exercise of previously issued stock options.

During the six months ended June 30, 2023 and 2022, we received $7.4 million and $0 million in gross proceeds from the issuance of securities, which amount in the six months ended June 30, 2023 is reflected in cash and cash equivalents, with an offset to accrued expense, each as reflected in the Company’s Condensed Consolidated Balance Sheet at June 30, 2023.

During the nine months ended September 30, 2023 we received $9.8 million in gross proceeds from the issuance of securities, which is reflected in cash and cash equivalents, with an offset to accrued expense, reflected in the Company’s Condensed Consolidated Balance Sheet at September 30, 2023.

We did not receive any gross proceeds for the issuance of securities for the nine months ended September 20, 2022.

During the nine months ended September 30, 2022, we received $83 thousand in proceeds from the exercise of previously issued stock options.

We did not receive any proceeds from the exercise of previously issued stock options for the nine months ended September 31, 2023.

Contractual Obligations and Commitments

7 unchanged sentences

Technology, Services, and License ”), in consideration for a cash payment of $700 made to the Service Provider upon the execution of the Agreement.

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 $61 thousand for six months in 2023, $126 thousand in 2024 and $75 thousand in 2025.

At June 30, 2023, we were committed for approximately $3.9 million for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

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 $31 thousand for three months in 2023, $126 thousand in 2024 and $75 thousand in 2025.

At September 30, 2023, we were committed for approximately $1.7 million for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

On August 9, 2023, the Company entered into a Membership Interest Purchase Agreement (the “

Purchase Agreement ”) with Intrensic, LLC, a Delaware limited liability company (“

Intrensic ”), and certain members of Intrensic, including Kevin Mullins, the Company’s Chief Executive Officer (collectively, “

Intrensic ”), and certain members of Intrensic, including Kevin Mullins, a director of the Company and its Chief Executive Officer (collectively, “

Sellers ”). 

4 unchanged sentences

Effects of Inflation

During the six months ended June 30, 2023 and year ended December 31, 2022, we had experienced increased costs in labor and materials due to inflation.

During the nine months ended September 30, 2023 and year ended December 31, 2022, we had experienced increased costs 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 expense in the business.

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

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended June 30, 2023, or subsequently thereto, that we believe are of potential significance to our financial statements.

Quantitative and Qualitative Disclosures about Market Risk.

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis