WRAP TECHNOLOGIES, INC. 10-Q

Item 1. Financial Statements   Wrap Technologies, Inc. Condensed Consolidated Balance Sheets (in thousands, except par value and share amounts)       September 30, 2023     December 31, 2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 4,934     $ 5,330   Short-term investments     10,000       13,949   Accounts receivable and contract assets, net     4,321       2,830   Inventories, net     5,816       3,975   Prepaid expense and other current assets     762       775   Total current assets     25,833       26,859   Property and equipment, net     533       758   Operating lease right-of-use asset, net     205       285   Intangible assets, net     3,319       2,569   Goodwill, net     1,611       -   Other assets     166       100   Total assets   $ 31,667     $ 30,571                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 1,546     $ 1,419   Accrued liabilities     1,128       1,463   Customer deposits     2       -   Deferred revenue- short term     189       166   Operating lease liability - short term     116       108   Warrants – short term     7,834       -   Total current liabilities     10,815       3,156                     Long-term liabilities:                 Deferred revenue- long term     176       167   Operating lease liability - long term     105       193   Total long-term liabilities     281       360   Total liabilities     11,096       3,516                     Commitments and contingencies (Note 12)                               Stockholders' equity:                 Preferred stock - 5,000,000 authorized; par value $ 0.0001 per share     -       -   Convertible P referred S tock– 10,000 authorized, par value $ 0.0001 per share; 10,000 and 0 issued and outstanding at September 30, 2023 and December 31, 2022, respectively     2,036       -   Common stock - 150,000,000 authorized; par value $ 0.0001 per share; 43,289,236  and 41,175,993 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively     4       4   Additional paid-in capital     97,919       94,333   Accumulated deficit     ( 79,388 )     ( 67,376 ) Accumulated other comprehensive loss     -       94   Total stockholders' equity     20,571       27,055   Total liabilities and stockholders' equity   $ 31,667     $ 30,571     See accompanying notes to unaudited condensed consolidated interim financial statements.   1       Wrap Technologies, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) (unaudited)       Three Months Ended September 30,     Nine m onths Ended September 30,       2023     2022     2023     2022   Revenue:                                 Product sales   $ 3,248     $ 1,612     $ 4,897     $ 4,042   Other revenue     383       89       647       422   Total revenue     3,631       1,701       5,544       4,464   Cost of revenue     1,454       790       2,347       2,430   Gross profit (loss)     2,177       911       3,197       2,034                                     Operating expense:                                 Selling, general and administrative     4,317       3,586       12,604       11,952   Research and development     610       1,236       2,683       4,210   Total operating expense     4,927       4,822       15,287       16,162   Loss from operations     ( 2,750 )     ( 3,911 )     ( 12,090 )     ( 14,128 )                                   Other income (expense):                                 Interest income     90       34       413       36   Change in fair value of warrant liabilities     ( 117 )     -       ( 117 )         Other     ( 6 )     12       ( 25 )     10   Total other income (expense)     ( 33 )     46       271       46   Net loss   $ ( 2,783 )   $ ( 3,865 )   $ ( 11,819 )   $ ( 14,082 )                                   Less: Convertible preferred stock dividends     ( 193 )     -       ( 193 )     -   Net loss attributable to common stockholders   $ ( 2,976 )   $ ( 3,865 )   $ ( 12,012 )   $ ( 14,082 )                                   Net loss per basic and diluted common share   $ ( 0.07 )   $ ( 0.09 )   $ ( 0.29 )   $ ( 0.34 ) Weighted average common shares used to compute net loss per basic and diluted common share     42,652,481       41,086,285       41,914,512       40,955,234                                     Comprehensive loss:                                 Net loss   $ ( 2,783 )   $ ( 3,865 )   $ ( 11,819 )   $ ( 14,082 ) Net unrealized gain on short-term investments     -       73       -       62   Comprehensive loss   $ ( 2,783 )   $ ( 3,792 )   $ ( 11,819 )   $ ( 14,020 )   See accompanying notes to unaudited condensed consolidated interim financial statements.   2       Wrap Technologies, Inc. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited)   Three Months Ended September 30, 2023       Common Stock     Convertible Preferred Stock     Additional Paid-In     Accumulated     Accumulated Other Comprehensive     Total Stockholders'       Shares     Amount     Shares     Amount     Capital     Deficit     Income     Equity   Balance at July 1, 2023     41,910,687     $ 4             $ -     $ 96,182     $ ( 76,411 )   $ -     $ 19,775   Share-based compensation expense     -       -       -       -       ( 201 )     ( 1 )     -       ( 202 ) Dividends on convertible preferred stock     -       -       -       -       -       ( 193 )     -       ( 193 ) Convertible preferred stock issued, net of offering costs     -               10,000       2,036       -       -       -       2,036   Common shares issued upon vesting of restricted stock units     128,549       -       -       -       -       -       -       -   Issuance of common stock for acquisition     1,250,000       -       -       -       1,938       -       -       1,938   Net loss for the period     -       -       -       -       -       ( 2,783 )     -       ( 2,783 ) Balance at September 30, 2023     43,289,236     $ 4       10,000     $ 2,036     $ 97,919     $ ( 79,388 )   $ -     $ 20,571     Nine Months Ended September 30, 2023       Common Stock     Convertible Preferred Stock     Additional Paid-In     Accumulated     Accumulated Other Comprehensive     Total Stockholders'       Shares     Amount     Shares     Amount     Capital     Deficit     Income     Equity   Balance at January 1, 2023     41,175,993     $ 4       -     $ -     $ 94,333     $ ( 67,376 )   $ 94     $ 27,055   Common shares issued upon exercise of stock options     250       -       -       -       -       -       -       -   Share-based compensation expense     -       -       -       -       1,648       -       -       1,648   Dividends on convertible preferred stock     -       -       -       -       -       ( 193 )             ( 193 ) Convertible preferred stock issued, net of offering costs     -       -       10,000       2,036       -       -       -       2,036   Common shares issued upon vesting of restricted stock units     862,993       -       -       -       -       -       -       -   Issuance of common stock for acquisition     1,250,000       -       -       -       1,938       -       -       1,938   Settlement – US Treasury bills     -       -       -       -       -       -       ( 94 )     ( 94 ) Net loss for the period     -       -       -       -       -       ( 11,819 )     -       ( 11,819 ) Balance at September 30, 2023     43,289,236     $ 4       10,000     $ 2,036     $ 97,919     $ ( 79,388 )   $ -     $ 20,571     See accompanying notes to unaudited condensed consolidated interim financial statements.   3     Three Months Ended September 30, 2022                                       Accumulated                               Additional             Other     Total       Common Stock             Paid-In     Accumulated     Comprehensive     Stockholders'       Shares     Amount     Capital     Deficit     Income     Equity   Balance at July 1, 2022     40,992,161     $ 4     $ 92,856     $ ( 59,976 )   $ ( 17 )   $ 32,867   Common shares issued upon exercise of stock options     5,500       -       8       -       -       8   Share-based compensation expense     -       -       872       -       -       872   Common shares issued upon vesting of restricted stock units     127,917       -       -       -       -       -   Net unrealized gain on short-term investments     -       -       -       -       73       73   Net loss for the period     -       -       -       ( 3,865 )     -       ( 3,865 ) Balance at September 30, 2022     41,125,578     $ 4     $ 93,736     $ ( 63,841 )   $ 56     $ 29,955     Nine Months Ended September 30, 2022                                       Accumulated                               Additional             Other     Total       Common Stock             Paid-In     Accumulated     Comprehensive     Stockholders'       Shares     Amount     Capital     Deficit     Income     Equity   Balance at January 1, 2022     40,851,945     $ 4     $ 91,025     $ ( 49,759 )   $ ( 6 )   $ 41,264   Common shares issued upon exercise of stock options     55,500       -       83       -       -       83   Share-based compensation expense     -       -       2,628       -       -       2,628   Common shares issued upon vesting of restricted stock units     218,133       -       -       -       -       -   Net unrealized gain on short-term investments     -       -       -       -       62       62   Net loss for the period     -       -       -       ( 14,082 )     -       ( 14,082 ) Balance at September 30, 2022     41,125,578     $ 4     $ 93,736     $ ( 63,841 )   $ 56     $ 29,955     See accompanying notes to unaudited condensed consolidated interim financial statements.   4       Wrap Technologies, Inc.   Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)       Nine m onths Ended September 30,       2023     2022   Cash Flows From Operating Activities:                 Net loss   $ ( 11,819 )   $ ( 14,082 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     675       574   Share-based compensation     1,648       2,628   Warranty provision     ( 8 )     55   Change in fair value of warrant liabilities     117       -   Non-cash lease expense     80       75   Provision for doubtful accounts     ( 48 )     61   Changes in assets and liabilities:                 Accounts receivable     ( 1,353 )     1,576   Inventories     ( 1,780 )     ( 1,396 ) Prepaid expense and other current assets     13       268   Accounts payable     ( 67 )     ( 834 ) Operating lease liability     ( 80 )     ( 65 ) Customer deposits     2       ( 43 ) Accrued liabilities and other     ( 322 )     175   Warranty settlement     ( 8 )     ( 63 ) Deferred revenue     32       35   Net cash used in operating activities     ( 12,918 )     ( 11,036 )                   Cash Flows From Investing Activities:                 Purchase of short-term investments     ( 6,145 )     ( 23,119 ) Proceeds from maturities of short-term investments     10,000       33,300   Capital expenditures for property and equipment     ( 133 )     ( 201 ) Investment in patents and trademarks     ( 277 )     ( 133 ) Purchase of intangible assets     ( 60 )     -   Net cash paid for acquisition of Intrensic     ( 551 )     -   Cash outlay for deposits     ( 66 )     ( 3 ) Net cash provided by investing activities     2,768       9,844                     Cash Flows From Financing Activities:                 Proceeds from exercise of stock options     -       83   Proceeds from issuance of warrants and convertible preferred stock, net of offering costs     9,754       -   Net cash provided by financing activities     9,754       83                     Net decrease in cash and cash equivalents     ( 396 )     ( 1,109 ) Cash and cash equivalents, beginning of period     5,330       4,937   Cash and cash equivalents, end of period   $ 4,934     $ 3,828                     Supplemental Disclosure of Non-Cash Investing and Financing Activities:                 Change in unrealized gain on short-term investments   $ ( 94 )   $ 62   Issuance of common stock for acquisition   $ ( 1,938 )   $ -   Net assets acquired from acquisition   $ 147     $ -   Convertible preferred stock issued, net of offering costs   $ ( 2,036 )   $ -   Warrant liabilities   $ ( 7,834 )   $ -   Dividends on convertible preferred stock   $ ( 193 )   $ -   Right-of-use asset and liability recorded during period   $ -     $ 260     See accompanying notes to unaudited condensed consolidated interim financial statements.   5     Wrap Technologies, Inc. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands, except per share and share amounts)     1.                  ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT DEVELOPMENTS   Organization and Business Description   Wrap Technologies, Inc., a Delaware corporation (the “ Company ”, “ we ”, “ us ”, and “ our ”), is a publicly traded company with our Common Stock, par value $ 0.0001 per share (“ Common Stock ”), listed on the Nasdaq Capital Market (“ Nasdaq ”) under the trading symbol “WRAP”. The Company is a developer and supplier of public safety products and training services for law enforcement and security personnel. The Company’s primary product is the BolaWrap® remote restraint device. The principal markets for the Company’s proprietary products and services are in North and South America, Europe, Middle East and Asia.   Basis of Presentation   The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“ SEC ”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“ U.S. GAAP ”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “ Annual Report ”), as filed with the SEC on March 2, 2023. The accompanying condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated balance sheet at December 31, 2022, contained in the Annual Report. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.   Where necessary, the prior year’s information has been reclassified to conform to the current year presentation.   Principles of Consolidation   The Company has two wholly owned subsidiaries, Wrap Reality, Inc. formed in December 2020 that sells a virtual reality (“ VR ”) training system primarily targeting law enforcement agencies and Intrensic, LLC which the Company acquired in August 2023 which specializes in Body Worn Camera and Digital Evidence Management solutions. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.   Business Combinations   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.   Goodwill   Goodwill represents the difference, if any, between the aggregate consideration paid for an acquisition and the fair values of the underlying net assets and liabilities assumed from an acquired business. Goodwill is not amortized, but instead is tested for impairment. The Company tests goodwill for impairment on an annual basis during the fourth quarter, or more frequently if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process.   Definite-lived Intangible Assets     Definite-lived intangible assets represent certain trade names, patents, licenses, software, acquired technology and customer relationships. Definite-lived intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses, if any. Definite-lived intangible assets acquired through the business combination are measured at fair value at the acquisition date. The Company amortizes these acquired definite-lived intangibles assets with a finite life on a straight-line basis, over 6 years for technology; 7 years for customer relationships; and 8 years for trademarks and trade names.   Use of Estimates   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions (e.g., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued expense and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenue and expense during the reporting period. Actual results could materially differ from those estimates.   6     Warrants   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.   For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company accounts for the warrants issued in accordance with the guidance contained in ASC 815-40-15-7C, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations.   Convertible Preferred Stocks   The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 480 and ASC 815 to determine if those instruments or embedded components of those instruments qualify as derivatives and are subject to bifurcation accounting. The Company determines that the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host contract. The convertible instruments are accounted for as a single hybrid instrument. Additionally, the convertible instruments do not have any redemption features that would preclude permanent equity classification in accordance with the guidance contained in ASC 480-10-S99.   The Company issued the Warrants, which are classified as liabilities and measured at fair value on a recurring basis, and Convertible Preferred Stocks in one transaction. The issuance proceeds were allocated by using the with-and-without method. Under this method, The Company first allocated the issuance proceeds to the Warrants based on their initial fair value measurement, and then allocated the remaining proceeds to the Convertible Preferred Stocks.   Loss per Share   Basic loss per share (EPS) is computed by dividing net loss, less any dividends, accretion or decretion, redemption or induced conversion, if any, on our Series A Convertible Preferred Stock, by the weighted average number of shares outstanding during the reported period.   In computing diluted EPS, we adjust the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion, if any. We adjust the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of the Series A Convertible Preferred Stock, restricted stock units, and stock options. Stock options and restricted stock units exercisable or issuable for a total of 2,668,750  and 6,396,277 shares of Common Stock were outstanding at September 30, 2023, and 2022, respectively. These securities are not included in the computation of diluted net loss per common share for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company.   Recent Issued Accounting Guidance   The Company has reviewed recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected to cause a material impact on its financial condition or the results of operations.   In July 2023, the SEC adopted the final rule under SEC Release No. 33-11216, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, requiring disclosure of material cybersecurity incidents on Form 8-K and periodic disclosure of a registrant’s cybersecurity risk management, strategy and governance in annual reports. Regulation S-K Item 6 disclosure requirements under this rule will be effective for us in the fourth quarter of 2023. Incident disclosure requirements in Form 8-K will be effective for us on June 15, 2024. We are still evaluating for any impact on our financial statement disclosures from the adoption of this final rule.   Recent Developments   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, “ Sellers ”). Under the terms of the Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell, 100 % of the membership interests (the “ Membership Interests ”) of Intrensic for the following consideration upon the consummation of the sale of the Membership Interests (the “ Intrensic Closing ”): (i) $ 553,588 in cash, subject to adjustment based upon the outstanding indebtedness of Intrensic and Intrensic’s working capital as of the Intrensic Closing; and (ii) 1,250,000 shares of Common Stock of the Company (collectively, the “ Purchase Price ”) (the “ Intrensic Acquisition ”).   Kevin Mullins, a director of the Company and the Company’s Chief Executive Officer, owns approximately 9.53% of the Membership Interests, and as such, has a financial interest in the Intrensic Acquisition.   7        2.            REVENUE AND PRODUCT COSTS   Revenue consists of product revenue and other revenue. Product sales include BolaWrap products and accessories. Other revenue includes VR revenue, service, training and shipping revenue.   Periodically, certain customers request bill and hold transactions for future delivery as scheduled and designated by them. In such cases, revenue is not recognized until after control, title and risk of ownership has transferred which is generally when the customer has requested such transaction under normal billing and payment terms and has been notified that the product (i) has been completed according to customer specifications, (ii) has passed quality control inspections, and (iii) has been tagged and packed for shipment, separated from other inventory and ready for physical transfer to the customer. The value associated with custodial storage services is deemed immaterial in the context of such contracts and in total, and accordingly, none of the transaction price is allocated to such service.   The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced, and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized subsequent to invoicing. The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract. The Company may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below details the activity in our contract liabilities during the nine months ended September 30, 2023.       Customer     Deferred       Deposits     Revenue   Balance at January 1, 2023   $ -     $ 333   Additions, net     2       229   Transfer to revenue     -       ( 197 ) Balance at September 30, 2023   $ 2     $ 365   Current portion   $ 2     $ 189   Long-term portion   $ -     $ 176     At September 30, 2023, the Company’s deferred revenue of $ 365 consisted of $ 199 related to VR, $ 6 related to training and $ 160 related to BolaWrap extended warranties and services. At December 31, 2022, the Company’s deferred revenue of $ 333 consisted of $ 198 related to VR, $ 11 related to training and $ 124 related to BolaWrap extended warranties and services.   Estimated costs for the Company’s standard warranty, generally one-year, are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to the cost of products sold.      3.            FINANCIAL INSTRUMENTS   Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:   8     Level 1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;   Level 2 —Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and   Level 3 —Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.   The Company’s short-term investments consisting of U.S. Treasury bill securities and Certificate of Deposits are classified as Level 1 because they are valued using quoted market prices.   The following table shows the Company’s short-term investments by significant investment category as of September 30, 2023, and December 31, 2022.       As of September 30, 2023       Adjusted     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value   Level 1:                                 Certificate of Deposits     10,000       -       -       10,000   Total Financial Assets   $ 10,000     $ -     $ -     $ 10,000         As of December 31, 2022       Adjusted     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value   Level 1:                                 U.S. Treasury securities in short-term investments     9,849       100       -       9,949   Certificate of Deposits     4,000       -       -       4,000   Total Financial Assets   $ 13,849     $ 100     $ -     $ 13,949     Unrealized gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss as they are classified as available for sale. During the three and nine months ended September 30, 2023, no gain (loss) was recorded to other comprehensive gain (loss). During the three and nine months ended September 30, 2022, a $ 73 gain and $ 62 gain was recorded to other comprehensive gain (loss), respectively.   The warrant liabilities are measured at fair value on a recurring basis. The subsequent measurement of the warrant liabilities as of September 30, 2023, is classified as Level 3 due to the use of an observable market quote in a non-active market and the management’s assumption of the expected stock price volatility.   The following table presents the fair value in the beginning of the period, the changes in the fair value, and the fair value at the end of the period of warrant liabilities (in thousands):   Level 3:   September 30, 2023     December 31, 2022   Fair value at inception or the beginning of the period   $ 7,717       -   Change in fair value of warrant liabilities     117       -   Fair value as of September 30, 2023   $ 7,834       -     9     The Company uses the modified Black-Scholes option pricing model to determine the fair value of warrant liabilities. The following table summarizes the assumptions used to compute the fair value of Warrants:       As of September 30, 2023     As of December 31, 2022   Expected stock price volatility     100 %     - % Risk-free interest rate     4.49 %     - % Dividends yield     0 %     - % Expected life of warrants     4.75       -   Exercise price   $ 1.45     $ -     Our other financial instruments also include accounts receivable, accounts payable, accrued liabilities and business acquisition liabilities. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the balance sheet.      4.            INVENTORIES   Inventory is recorded at the lower of cost or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventories consisted of the following:       September 30, 2023     December 31, 2022   Finished goods   $ 2,921     $ 2,293   Work in process     -       -   Raw materials     2,895       1,682   Inventories - net   $ 5,816     $ 3,975        5.            PROPERTY AND EQUIPMENT, NET   Property and equipment consisted of the following:       September 30, 2023     December 31, 2022   Production and lab equipment   $ 536     $ 513   Tooling     505       448   Computer equipment     587       531   Furniture, fixtures and improvements     190       181         1,818       1,673   Accumulated depreciation     ( 1,285 )     ( 915 ) Property and equipment, net   $ 533     $ 758     Depreciation expense was $ 122  and $ 358 for the three and nine months ended September 30, 2023, respectively, and $ 121 and $ 359 for the three and nine months ended September 30, 2022, respectively.   10        6.            INTANGIBLE ASSETS AND GOODWILL   Intangible Assets, net   Intangible assets, net consisted of the following:       September 30, 2023     December 31, 2022   Amortizable intangible assets:                 Patents   $ 841     $ 575   Trademarks     241       150   Purchased software and technology     2,452       1,962   Customer Relationships     160       -         3,694       2,687   Accumulated amortization     ( 778 )     ( 462 ) Total amortizable     2,916       2,225   Indefinite life assets (non-amortizable)     403       344   Total intangible assets, net   $ 3,319     $ 2,569     Amortization expense was $ 150  and $ 317  for the three and nine months ended September 30, 2023, respectively, and $ 72 and $ 215  for the three and nine months ended September 30, 2022, respectively.   At September 30, 2023, future amortization expense is as follows:   2023 (3 months)   $ 164   2024     655   2025     650   2026     427   2027     180   Thereafter     840   Total estimated amortization expense   $ 2,916       Goodwill   The table below summarizes the changes in the carrying amount of goodwill:   Balance at January 1, 2023   $ -   Acquired goodwill     1,611   Balance at September 30, 2023   $ 1,611        7.            ACCOUNTS PAYABLE AND ACCRUED LIABILITIES   Accounts payable includes $ 122 and $ 127 due to related party Syzygy Licensing, LLC (“ Syzygy ”) as of September 30, 2023, and December 31, 2022, respectively. See Note 11 for additional information on this related party.   Accrued liabilities consist of the following:       September 30, 2023     December 31, 2022   Patent and legal costs   $ 61     $ 135   Accrued compensation     786       1,100   Warranty costs     109       125   Taxes and other     172       103   Total   $ 1,128     $ 1,463     Accrued compensation includes $ 139 and $ 1,022 in employee bonuses and commissions payable at September 30, 2023 and December 31, 2022, respectively.   Changes in our estimated product warranty costs were as follows:       Nine Months Ended September 30,       2023     2022   Balance, beginning of period   $ 125     $ 96   Warranty settlements     ( 8 )     ( 63 ) Release of warranty provision     ( 8 )     55   Balance, end of period   $ 109     $ 88     11        8.            WARRANTS   On June 29, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain directors of the Company and certain accredited and institutional investors (collectively, the “Investors”), pursuant to which it agreed to sell to the Investors in a private placement (the “Offering”): (i) warrants to acquire up to an aggregate of 6,896,553 shares of Common Stock (the “Warrants”) and (ii) Series A Convertible Preferred Stock (Note 9). 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 closing of the Offering occurred on July 3, 2023. The aggregate gross proceeds from the Offering were $ 10,000 . $ 7,717 of $ 10,000 was allocated to the Warrants.      9.            STOCKHOLDERS' EQUITY   The Company’s authorized capital consists of 150,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $ 0.0001 per share (“ Preferred Stock ”).   On July 3, 2023, the Company filed a Certificate of Designations (the “ Series A COD ”) with the State of Delaware, designating 10,000 shares of its Preferred Stock as Series A Convertible Preferred Stock, $ 0.0001 per share (the “ Series A Preferred ”). Shares of Series A Preferred are convertible into Common Stock (the “ Conversion Shares ”) at an initial conversion price of $ 1.45 (the “ Conversion Price ”), subject to customary adjustments and price-based as defined in the Series A COD. Holders of Series A Preferred Shares are entitled to dividends of 8 % per annum, payable quarterly, subject to adjustment upon the occurrence of certain events in accordance with the terms of the Series A COD. The holders of Series A Preferred have no voting rights on account of the Preferred Shares, other than with respect to certain matters affecting the rights of the Preferred Shares.   On June 29, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain directors of the Company and certain accredited and institutional investors (collectively, the “Investors”), pursuant to which it agreed to sell to the Investors in a private placement (the “Offering”): (i) the Warrants Note 8 and (ii) an aggregate of 10,000 shares of the Company’s newly designated Series A Convertible Preferred Stock, with par value $ 0.0001 per share and a stated value of $ 1,000 per share, initially convertible into up to 6,896,553 shares of the Company’s common stock, par value $ 0.0001 per share at a conversion price of $ 1.45 per share, subject to customary adjustments and price-based as defined in the Series A Certificate of Designations (the “Convertible Preferred Stocks”). The customary adjustments include: (i) additional amounts related to declared and unpaid Dividends and any other unpaid amounts due and payable and (ii) make-whole amounts related to the accrual of any additional dividends that would have accrued up to the date of conversion including the one-year anniversary from the date of conversion. Each preferred stock has a stated value of $ 1,000 per share, and holders thereof are entitled to cumulative dividends of 8 % per annum on the stated value, payable quarterly in arrears, subject to adjustment upon the occurrence of certain events in accordance with the terms of the Convertible Preferred Stocks. The holders of Convertible Preferred Stocks have no voting rights on account of the Convertible Preferred Stocks, other than with respect to certain matters affecting the rights of the Convertible Preferred Stocks. $ 2,036 of the aggregate gross proceeds was allocated to the Convertible Preferred Stocks. In September 2023, the Company authorized and declared $ 193 dividend which was an accrued in accounts payable as of September 30, 2023.      10.            SHARE-BASED COMPENSATION   On March 31, 2017 , the Company adopted, and the stockholders approved, the 2017 Stock Incentive Plan (the “ Plan ”) authorizing 2,000,000 shares of Common Stock for issuance as awards to employees, directors or consultants. In May 2019 , the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock; in June 2020 ratified an additional 1,900,000 shares of Common Stock; in June 2021 ratified an additional 1,500,000 shares of Common Stock; and in June 2022 ratified an additional 1,500,000 shares of Common Stock; for a total of 9,000,000 shares subject to the Plan. At September 30, 2023, there were 4,438,539 shares of Common Stock remaining available for grant under the Plan.   The Company generally recognizes share-based compensation expense on the grant date and over the period of vesting or period that services will be provided. In April 2023 the Company recognized severance acceleration of $ 178 of share-based compensation expense resulting from the resignation of the Company’s Chief Executive Officer and Chief Operating Officer due to a reduction in force that resulted in changes in the composition of the executives of the Company. In January 2022 the Company recognized severance acceleration of $ 242 of share-based compensation expense resulting from the resignation of the Company’s Chief Executive Officer as part of a management transition plan.   12     Stock Options   The following table summarizes stock option activity for the nine months ended September 30, 2023:               Weighted Average               Options on Common Shares     Exercise Price     Remaining Contractual Term     Aggregate Intrinsic Value   Outstanding January 1, 2023     5,491,399     $ 3.72       5.96     $ 92   Granted     60,000     $ 1.34                   Exercised     ( 250 )   $ 1.50                   Forfeited, cancelled, expired     ( 3,329,476 )   $ 5.54                   Outstanding September 30, 2023     2,221,673     $ 3.56       7.65     $ 10   Exercisable September 30, 2023     1,033,504     $ 4.37       7.02     $ -     At September 30, 2023, there were 1,529,275 service-based stock options outstanding, and 692,398 performance-based stock options outstanding, which performance-based stock options were granted in April 2022 to the Company’s former Chief Executive Officer and President, subject to future market capitalization targets. 1,207,698 of the 2,221,673 stock options granted included in the table above were granted in April 2022 outside the Plan as an employment inducement grant but are subject to the terms and conditions of the Plan.   The Company uses the Black-Scholes option pricing model to determine the fair value of service-based options granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and non-employees:       For the Nine Months       Ended September 30,       2023     2022   Expected stock price volatility     49 %     49 % Risk-free interest rate     3.64 %     1.17 % Expected dividend yield     0 %     0 % Expected life of options     6.66       3.46   Weighted-average fair value of options granted   $ 0.55     $ 1.25     Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price. The Company records forfeitures as they are incurred.   The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical exercise data.   The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 1,614,230 market condition performance options granted in April 2022 to the Company’s former Chief Executive Officer and President. The assumptions used in the Monte Carlo Simulation were stock price on date of grant of $ 2.89 , contract term of 10 years, expected volatility of 49 % and risk-free interest rate of 2.9 %. Vesting is based on sustained market capitalization of $ 250 million, $ 500 million and $ 1 billion and resulted in implied service periods ranging from approximately 4 to 7 years. At September 30, 2023, 921,832 of the 1,614,230 market condition performance options granted in April 2022 were cancelled.   Stock option expense was $( 169 ) and $ 399 for the three and nine months ended September 30, 2023, respectively, and $ 308 and $ 1,448 for the three and nine months ended September 30, 2022, respectively.   13     Restricted Stock Units   The Plan provides for the grant of restricted stock units (“ RSUs ”). RSUs are settled in shares of the Company’s Common Stock as the RSUs become vested. The following table summarizes RSU activity for the nine months ended September 30, 2023:       Service-Based RSU's     Weighted Average Grant Date Fair Value     Weighted Average Vesting Period (Years)   Unvested at January 1, 2023     922,057     $ 2.88       2.11   Granted - service based     686,394     $ 1.33           Vested     ( 862,993 )   $ 2.87           Forfeited and cancelled     ( 298,381 )   $ 2.47           Unvested at September 30, 2023     447,077     $ 2.00       1.74     RSU expense was $ (33) and $ 1,249 for the three and nine months ended September 30, 2023, respectively, and $ 564 and $ 1,180 for the three and nine months ended September 30, 2022, respectively.   Share-Based Compensation Expense   The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows:       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Selling, general and administrative   $ ( 149 )   $ 700     $ 1,404     $ 2,180   Research and development     ( 53 )     172       244       448   Total share-based expense   $ ( 202 )   $ 872     $ 1,648     $ 2,628     As of September 30, 2023, total estimated compensation cost of stock options granted and outstanding but not yet vested was $ 1,168 which is expected to be recognized over the weighted average period of 2.73 years.   As of September 30, 2023, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $ 757 which is expected to be recognized over the weighted average period of 1.61 years.     11.            DEFINED CONTRIBUTION PLAN   The Company has a defined contribution savings plan for all eligible U.S. employees established under the provisions of Section 401(k) of the Internal Revenue Code. This plan was formed on January 1, 2022. Eligible employees may contribute a percentage of their salary subject to certain limitations. The Company’s contributions for each of the three and nine months ended September 30, 2023, and year ended December 31, 2022, was $ 0 .      12.            COMMITMENTS AND CONTINGENCIES   Related Party Technology License Agreement   The Company is obligated to pay royalties and development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated as of September 30, 2016, with Syzygy, a company owned and controlled by stockholder/consultant Mr. Elwood Norris and stockholder/consultant Mr. James Barnes. The agreement provides for royalty payments of 4 % of revenue from products employing the licensed ensnarement device technology up to an aggregate of $ 1,000 in royalties or until September 30, 2026 , whichever occurs earlier. The Company recorded $ 122 and $ 185  for royalties during the three and nine months ended September 30, 2023, respectively, and $ 61  and $ 147  for royalties during the three and nine months ended September 30, 2022, respectively. The maximum payout still available under this arrangement is $ 95 as of September 30, 2023.   Service Provider Agreement   Pursuant to the Professional Services and Technology Acquisition Agreement (the “ Agreement ”) entered into with Lumeto, Inc. and Spatial Industries Group, Inc. (collectively, “ Service Provider ”) on November 22, 2022, as amended on April 2, 2023, the Service Provider provided 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 ”) in consideration for a cash payment of $ 700 to the Service Provider, which was completed as of June 30, 2023. The Company has no ongoing or future commitments, responsibilities, or obligations related to this matter.   14     Purchase Commitments   At September 30, 2023, the Company was committed for approximately $ 1,690 for future component deliveries that are generally subject to modification or rescheduling in the normal course of business.   Indemnifications and Guarantees   Our officers and directors are indemnified as to personal liability as provided by the Delaware law and the Company’s articles and bylaws. The Company may also undertake indemnification obligations in the ordinary course of business related to its operations. The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to any such indemnification obligations now or in the future. Because of the uncertainty surrounding these circumstances, the Company’s current or future indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary course of business. The Company has no liabilities recorded for such indemnities.   Regulatory Agencies   The Company is subject to oversight from regulatory agencies regarding firearms that arise in the ordinary course of its business.   Litigation   The Company is subject to litigation and other claims in the ordinary course of business. The Company records a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter. At September 30, 2023, we had no provision for liability under existing litigation.   13.            RELATED PARTY TRANSACTIONS   Commencing in October 2017 the Company began reimbursing Mr. Elwood Norris, a former officer, current 10% stockholder and consultant of the Company, $ 1.5 per month on a month-to-month basis for laboratory facility expense, for an aggregate of $ 4.5 and $ 13.5 during the three and nine months ended September 30, 2023, and 2022, respectively. Mr. Norris retired as the Company’s Chief Technology Officer effective September 30, 2021, and commencing July 1, 2021, was engaged as a month-to-month consultant. Mr. Norris was paid a monthly fee of $ 7.5 per month for aggregate consulting payments of $ 22.5 and $ 67.5 during each of the three and nine months ended September 30, 2023, and 2022.   On June 29, 2023, we entered into the Purchase Agreement with certain investors, including Mr. Scot Cohen, the Executive Chairman of the Company, and V4, an entity over which Mr. Cohen exercises control and whose securities are beneficially owned by Mr. Cohen (the “ Affiliated Offering ”), pursuant to which the Company issued to Mr. Cohen and V4 an aggregate of 3,000 Series A Preferred and warrants to purchase up to an aggregate of 2,068,966 shares of Common Stock for aggregate gross proceeds of $ 3,000,000 (excluding the proceeds the Company may receive from the exercise of the warrants issued in the Affiliated Offering) (the “ Affiliated Proceeds ”). The Certificate of Designation for the Series A Preferred provides that Series A Preferred held by a holder who serves as a director, officer or is an employee of the Company shall only be convertible into shares of Common Stock following receipt of approval of a majority of the Company’s stockholders (“ Stockholder Approval ”). Similarly, any warrant issued to one of our directors may not be exercised prior to date that is the later of (x) the date on which the Company received Stockholder Approval and (y) the date that is six months from the date of issuance). Stockholder Approval was attained at a special meeting of stockholders held on September 19, 2023.    On August 9, 2023, the Company entered into the Purchase Agreement with Intrensic and the Sellers, including Kevin Mullins, a director of the Company and its Chief Executive Officer. Under the terms of the Purchase Agreement, the Company agreed to purchase, and Sellers, including Mr. Mullins, agreed to sell, 100 % of the Membership Interests of Intrensic for the following consideration: (i) $ 554 in cash, subject to adjustment based upon the outstanding indebtedness of Intrensic and Intrensic’s working capital; and (ii) 1,250,000 shares of Common Stock of the Company. Kevin Mullins owns approximately 9.53% of the Membership Interests, and as such, has a financial interest in the sale of Intrensic to the Company.   See Notes 1, 7 and 12 for additional information on related party transactions and obligations.   14.            MAJOR CUSTOMERS AND RELATED INFORMATION   For the three months ended September 30, 2023, revenue from two distributors accounted for approximately 62 % and 12 % of revenue with no other single customer accounting for more than 10% of total revenue. For the three months ended September 30, 2022, revenue from one distributor accounted for approximately 59 % of revenue with no other single customer accounting for more than 10% of total revenue.   15     For the nine months ended September 30, 2023, revenue from one distributor accounted for approximately 41 % of revenue with no other single customer accounting for more than 10% of total revenue. For the nine months ended September 30, 2022, revenue from one distributor accounted for approximately 39 % of revenue with no other single customer accounting for more than 10% of total revenue.   At September 30, 2023, accounts receivable from one  distributor accounted for 51 % of net accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance. At December 31, 2022, accounts receivable from one distributor accounted for 70 % of net accounts receivable.   The following table summarizes revenue by geographic region. Revenue is attributed to countries based on customer’s delivery location:       For the Three Months     For the Nine Months       Ended September 30,     Ended September 30,       2023     2022     2023     2022   Americas   $ 1,347     $ 1,478     $ 3,225     $ 3,484   Europe, Middle East and Africa     2,284       220       2,320       435   Asia Pacific     -       3       ( 1 )     545   Total revenues   $ 3,631     $ 1,701     $ 5,544     $ 4,464        15.           BUSINESS COMBINATION   The Company entered into the Purchase Agreement with Intrensic and the Sellers with an effective date of August 9, 2023 (the (“Closing”).  The Closing was consummated on August 16, 2023.  Under the terms of the Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell the  Membership Interests for the following consideration at Closing: (i) $554 in cash, subject to adjustment based upon the outstanding indebtedness of Intrensic and Intrensic’s working capital as of the Closing; and (ii) 1,250,000 shares of Common Stock of the Company valued at approximately $1,938.   The Company assessed the historical financial information of Intrensic to determine if it would materially impact Wrap's historical financial statements for the purposes of disclosing proforma financial information. The Company determined that in the current or prior reporting periods the acquired business contributed immaterially to the Company’s financial statements . Therefore, a pro forma disclosure of the Company as if the business combination had occurred is not warranted under ASC 805.   The preliminary purchase price is not finalized. The Company is still evaluating the impact of the income tax provision related to the acquisition and assessing the assumed contracts related to deferred revenue.   The table below sets forth the preliminary allocation of the fair value of Intrensic’s net assets acquired and the corresponding line item in the Company’s consolidated balance sheet at the date of acquisition.    Cash and cash equivalents   $ 3   Accounts receivable     90   Inventory     61   Net property, plant and equipment     -   Technology     490   Customer relationships (included in Intangibles)     160   Trademarks and trade names (included in Intangibles)     80   Goodwill     1,611   Total assets   $ 2,495             Liabilities     3   Equity     2,492   Total liabilities and equity   $ 2,495             Purchase Price:         Cash     554   Equity     1,938   Liabilities assumed     3   Total   $ 2,495     Legal fees incurred in connection with the transaction totaled approximately $ 38 and have been expensed as incurred.   16        16.            SUBSEQUENT EVENTS   Appointment of Executive Chairman   On October 12, 2023, the Board of Directors (the “ Board ”) appointed Scot Cohen, the Company’s current Chairman of the Board, to the position of Executive Chairman, effective October 12, 2023 (the “ Effective Date ”). Mr. Cohen cofounded the Company in March 2016, and has previously served as the Executive Chairman of the Company from July 2017 until June 2021.   In connection with Mr. Cohen’s appointment as Executive Chairman, the Company and Mr. Cohen entered into an agreement on October 12, 2023 (the “ Agreement ”). Pursuant to the Agreement, unless earlier terminated pursuant to the terms therein, Mr. Cohen will serve as the Company’s Executive Chairman for an initial term of two years from the effective date of his appointment. As compensation for Mr. Cohen’s services to the Company, the Agreement entitles Mr. Cohen to an annualized base salary of $ 200,000 (the “ Base Salary ”) and eligibility to participate in customary benefits offered to other executives of the Company.   The Agreement further provides for:   ● A grant of that number of restricted shares (“ RSAs ”) of the Company’s Common Stock equal to $ 675,000 divided by $1.40, representing the closing price of Common Stock as reported on the Nasdaq Capital Market on October 12, 2023 (the “ Closing Price ”) for the date of grant (the “ Grant Date ”), which RSAs are subject to certain vesting conditions based on the achievement of certain targets based on total market capitalization of the Company.   ● A nonqualified option to purchase up to that number of shares of Common Stock with a Grant Date fair value equal to $ 675,000 divided by the Closing Price (the “ Option ”), an exercise price equal to the Closing Price, and a term of 10 years, which Option vests based on Mr. Cohen’s continued employment with the Company and the achievement of certain budgeted revenue targets established by the Board; and   ● A nonqualified option to purchase up to 2.25 % of the number of shares of the Company’s Common Stock that are issued and outstanding (determined on a fully-diluted basis, including, without limitation, any shares issuable upon the conversion or exercise of any outstanding warrants or preferred stock) as of the Effective Date (the “ Performance Option ”), at an exercise price equal to the Closing Price, and a term of 10 years, which Performance Option vests, subject to Mr. Cohen’s continued employment with the Company through each vesting date, in accordance with the same vesting conditions as provided for in the RSAs.   The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by the full text of the Agreement, a copy of which is filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 2023.   Resignations of Michael Parris and Wayne Walker   Effective October 11, 2023 (the “ Mr . Parris Resignation Date ”), and October 12, 2023 (the “ Mr. Walker Resignation Date ”), Michael Parris and Wayne Walker, respectively, resigned from their positions as members of the Board. Neither director’s decision to resign was the result of any dispute or disagreements with the Company on any matter relating to the Company’s operations, policies or practices.   Appointment of Rajiv Srinivasan and Timothy Szymanski   On October 12, 2023, Rajiv Srinivasan and Timothy Szymanski were appointed to serve as members of the Board to fill the vacancies created as a result of the resignations of Messrs. Parris and Walker, until the Company’s next annual meeting of stockholders or until their respective successors are duly elected and qualified.   Miami Office Lease   The Company has entered into an 89 -month lease for 4,487 square feet of office space in Miami, Florida, starting from November 1, 2023. This leasing arrangement aims to enhance the Company's footprint on the East Coast and in international markets.   In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the filing date and determined that no additional subsequent events occurred that were reasonably expected to impact the consolidated condensed financial statements presented herein.   17