WRAP TECHNOLOGIES, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including our Executive Chairman and Chief Executive Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our Executive Chairman and Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 and, based on this evaluation, our Executive Chairman and Chief Executive Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023. Management ’ s Report on Internal Control Over Financial Reporting We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting refers to the process designed by, or under the supervision of, our Executive Chairman and Chief Executive Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the disposition of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and board of directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2023, based on the framework and criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on this evaluation, our Executive Chairman and Chief Executive Officer concluded that our internal control over financial reporting was effective as of December 31, 2023. This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting due to our status as an emerging growth company under the JOBS Act, which permits the Company to provide only management’s report in this Annual Report on Form 10-K. Changes in Internal Controls There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. - 44 - Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Board of Directors The Company’s Board of Directors (the “Board”) is currently composed of five members of the Board. Under the amended and restated Bylaws of the Company, the number of Directors will be fixed by the Board or the stockholders at an annual meeting of the stockholders, and directors serve until the next annual election and their successors are duly elected and qualified, or until their earlier resignation, removal or death. Below is a list of the names, ages as of August 26, 2024, and positions of the individuals who currently serve as our directors. Name Age Position Scot Cohen 54 Chief Executive Officer and Executive Chairman of the Board Bruce Bernstein(1)(2) 60 Director Marc Savas(1)(3) 56 Director Rajiv Srinivasan(1)(2)(3) 38 Director Vice Admiral Tim Szymanski(2)(3) 61 Director (1) Member of our Audit Committee. (2) Member of our Compensation Committee. (3) Member of our Nominating Committee. Director Biographies Information concerning our directors is set forth below. The biographical description of each director includes the specific experience, qualifications, attributes and skills that led the Board to conclude that such person should serve as a director. Scot Cohen – Mr. Cohen cofounded the Company in March 2016, and has previously served as a non-independent Director of the Company from June 2021 until October 2023 and Executive Chairman of the Company from July 2017 until June 2021 and then again beginning in October 2023, and currently serves as Chief Executive Officer, Principal Executive Officer and interim Principal Financial Officer and Principal Accounting Officer. Mr. Cohen has over 20 years of experience in institutional asset management, wealth management, and capital markets. He currently manages several operating partnerships that actively invest in the energy sector in addition to maintaining an active investment portfolio in various public companies, early-stage private companies, hedge funds and alternative assets including real estate. Mr. Cohen is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring LLC, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves on the board of directors of Charlie’s Holding, Inc. (OTCQB: CHUC), and has served as Executive Chair of the board of directors of Petro River Oil Corp. since 2012. Mr. Cohen earned his Bachelor of Science degree from Ohio University in 1991. The Board believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community and financial expertise strengthens the Company’s efforts to raise capital to fund the continued implementation of its business plan. Bruce Bernstein - Mr. Bernstein was appointed as a director of the Company in April 2023. Mr. Bernstein has over thirty-five years of experience in the securities industry, primarily as senior portfolio manager for two alternative finance funds as well as in trading and structuring of arbitrage strategies. Mr. Bernstein has served as President of Rockmore Capital, LLC since 2006, the manager of a direct investment and lending fund with peak assets under management of $140 million. Previously, he served as Co-President of Omicron Capital, LP, an investment firm based in New York, which he joined in 2001. Omicron Capital focused on direct investing and lending to public small cap companies and had peak assets under management of $260 million. Prior to joining Omicron Capital, Mr. Bernstein was with Fortis Investments Inc., where he was Senior Vice President in the bank’s Global Securities Arbitrage business unit, specializing in equity structured products and equity arbitrage and then President in charge of the bank’s proprietary investment business in the United States. Prior to Fortis, Mr. Bernstein was Director in the Equity Derivatives Group at Nomura Securities International specializing in cross-border tax arbitrage, domestic equity arbitrage and structured equity swaps. Mr. Bernstein started his career at Kidder Peabody, where he rose to the level of Assistant Treasurer. Mr. Bernstein serves as a member of the Board of Directors of Xwell, Inc. (Formerly XpresSpa Holdings, Inc.) the leading airport spa company in the world, based in New York, serves as a Director for Neurotrope since November 14, 2016 and, Petros Pharmaceuticals, Inc. Mr. Bernstein holds a Bachelor of Business Administration from City University of New York (Baruch). - 45 - Table of Contents The Board believes that Mr. Bernstein’s experience in finance, audit, capital markets and in advising public companies provides significant benefit to the Company and as a member of the Board. Marc Savas – Mr. Savas was appointed as a director of the Company in April 2023. Mr. Savas has over 35 years of experience in accelerating revenue for companies, and is skilled in developing and guiding leadership teams, executing tactical, strategic and technical plans, and brings a comprehensive understanding of organizational efficiency. Mr. Savas currently serves as President of Vector97, a privately held waste hauling and recycling consulting firm, since February 2012. He has overseen Vector97 from a startup company through engineering its sale to SIB in June of 2022. Mr. Savas remains President of Vector97 and has joined the SIB leadership team. He currently serves as a Director of SRAX since October 2015. Previously, he founded Unfair Advantage, Inc. and Living Full Blast, Inc., a management and efficiency consulting firm serving the Venture Capital and Legal vertical markets serving as Chief Executive officer until January 2012. Mr. Savas has also served as a member of the Board of Directors of Motivational, Inc., a charitable organization, from July 2020 to present, and as a member of the Board of Directors of RMP, a charitable organization, from December 2022 to present. Mr. Savas holds a Bachelor of Science in Marketing from Northern Arizona University of Flagstaff Arizona, and completed the Executive Development Program of the Marshall School of Business of the University of Southern California. The Board believes that Mr. Savas’ experience in organizational efficiency and effectiveness, together with his extensive knowledge in finance, scalability and implementing successful business strategies, makes him a valuable member of the Board. Rajiv Srinivasan – Mr. Srinivasan was appointed director in October 2023. Mr. Srinivasan served at LinkedIn by Microsoft (NYSE:MSFT) from 2019 to 2023, as the Director of the NAMER Globals Program from 2021 to 2023, and the Director of Global Clients from 2019 to 2021. Prior to that, he served as a Global Account manager at VMware (NYSE: VMW) from 2016 to 2019, and as a sales manager at MobileIron (NYSE: MOBL) from 2013 to 2015. Mr. Srinivasan’s startup experience includes Investor and Sales Advisor at Nirmata since 2017, Interim VP of Sales at Intuition Machines during 2022, Interim VP of Sales at Myally from 2018 to 2020 and Co-Founder and Head of Sales at Morta Security from 2011 to 2013. Mr. Srinivasan served as a Captain of the U.S. Army from 2004 to 2011 and is a contributor and commentator on miliary and veterans affairs, is on the board of directors and finance committee of Families Against Mandatory Minimums, a lobby to end mass incarceration, and is a Resource & Development Board Member on the California Council on Science and Technology. Mr. Srinivasan earned a Bachelor of Science in Arabic and Comparative Politics from the U.S. Military Academy, a Master of Science in Applied Mathematics with a focus on Data Science and Numerical Methods from Columbia University, and a Masters of Business Administration from the Wharton School of Business. The Board believes that Mr. Srinivasan’s experience in technology based companies and early stage growth firms, together with his extensive knowledge and experience in implementing successful business strategies, makes him a valuable member of the Board. Vice Admiral Tim Szymanski – Mr. Szymanski was appointed a director in October 2023. Mr. Szymanski is a distinguished retired United States Navy vice admiral, with thirty-seven years of military service. Mr. Szymanski currently provides consulting services to Pallas Advisors as a principal, a strategic advisory firm specializing in navigating complex national and international security dynamics, which he joined in August 2023, Odyssey Group International, Inc., Senseye, Inc., and Q30 Sports Science, LLC. Mr. Szymanski further serves as an advisor for Cohen Veterans Bioscience on the Veteran Advisory Committee, at NanoDx Inc. on the Military Advisory Board, and at Verkada Inc., on the Federal Advisory Board. Prior to his retirement from the United States Navy, Mr. Szymanski last served as deputy commander of United States Special Operations Command and as the Commander of Naval Special Warfare (NSW). Mr. Szymanski also served on the Joint Staff as the J3 deputy directorate for Special Operations, as the Global War on Terror branch chief and as chief staff officer of Pakistan-Afghanistan Coordination Cell. Mr. Szymanski currently serves on the Military Advisory Board of Odyssey Health, Inc. Mr. Szymanski graduated from the United States Naval Academy in 1985. He completed a Master of Joint Campaign Planning and Strategy at the Joint Advanced Warfighting School. - 46 - Table of Contents The Board believes that Vice Admiral Szymanski’s experience in organizational efficiency and effectiveness, together with his military leadership experience, makes him a valuable member of the Board. Executive Officers Below is a list of the names, ages as of August 26, 2024, positions, and a brief account of the business experience of the individuals who serve as our executive officers. Name Age Position Scot Cohen 54 Chief Executive Officer and Executive Chairman of the Board Jared Novick 40 Chief Operating Officer Executive Officer Biographies Jared Novick - Mr. Novick joined the Company as Chief Operating Officer in December 2023. From June 2023 to December 2023, Mr. Novick served as Chief Operating Officer and Senior Vice President of Strategy and Special Projects at Sidus Space, Inc. (NASDAQ:SIDU), where he oversaw diverse areas such as manufacturing, sales, product development, supply chain management, marketing, and human resources. Since 2018, he has also served on the Board of Advisors at BlueVoyant LLC (“Blue Voyant”), where he also served as Head of Strategy from 2017 until 2018. Before his tenure in public companies, Mr. Novick experienced success with two early-stage technology ventures, each culminating in notable exits. He co-founded and served as Chief Executive Officer of BitVoyant, a cybersecurity threat monitoring product and service provider for commercial enterprises, later acquired by cybersecurity unicorn BlueVoyant. Additionally, he founded and led CurvedSkies LLC, serving as Chie Executive Officer of a professional services firm catering to classified U.S. Federal Government customers in the aerospace and defense sectors. Mr. Novick's professional career includes significant roles as a U.S. Intelligence Community Civil Servant and a contractor for Special Projects to the Office of the Secretary of Defense. He collaborated extensively with the U.S. Intelligence Community, the Department of Defense, and international partners to then deploy and operationally support critical National Security challenges across South America, Central-Asia and Africa. In the early stages of his career, Mr. Novick trained as a NASA Aircrew Member, operating High-Altitude Technologies above 60,000 feet and necessitating NASA pressure suit operations. He has logged over 2,000 hours of flight time in various fixed-wing aircrafts. During Operation Enduring Freedom, he accumulated over 400 combat flight hours while supporting special military units of the Special Operations community. Mr. Novick actively contributes to board activities, including a gubernatorial appointment by Florida Governor Ron DeSantis to the Department of Business & Professional Regulation. Mr. Novick holds a Bachelor of Arts in Physics from the University of Florida in Gainesville. Mr. Cohen’s biography is incorporated by reference from Item 10 of this Annual Report above. There is no arrangement or understanding between any of the directors or officers identified above and any other person pursuant to which he was selected as a director or officer. None of the directors or officers identified above is, or has been, a participant in any transaction involving the Company, and is not a participant in any proposed transaction with the Company, in each case, required to be disclosed pursuant to Item 404(a) of Regulation S-K, other than as described in the “Certain Relationships and Related Transactions, and Director Independence” section contained herein. Family Relationships There are no family relationships among our directors or executive officers. Involvement in Certain Legal Proceedings None of our directors or executive officers has been involved in any of the following events during the past ten years: ● any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; ● any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); - 47 - Table of Contents ● being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or ● being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. Director Independence Our Board has reviewed the independence of our directors based on the listing standards of the Nasdaq Stock Market (“ Nasdaq ”). Based on this review, the Board of Directors determined that Messrs. Bernstein, Savas, Srinivasan and Vice Admiral Szymanski are independent, as defined in Rule 5605(a)(2) of the Nasdaq rules. In making this determination, our Board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our Board deemed relevant in determining their independence. Committees of the Board of Directors Our Board currently has three standing committees which consist of the Audit Committee, Compensation Committee and Nominating and Governance Committee. Our Board has adopted written charters for each of the Audit Committee, Compensation Committee, and Nominating and Governance Committee, copies of which are publicly available on our website at https://ir.wrap.com/ under the “Governance” tab. Our Board may establish other committees from time to time as it deems necessary or appropriate. Audit Committee The Audit Committee assists our Board in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The Audit Committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy that the accountants are independent of management. The Audit Committee currently consists of Messrs. Bruce Bernstein, Savas and Srinivasan, with Mr. Bernstein serving as the Chair of the Audit Committee, each of whom is a non-management member of our Board that we believe meets the criteria for independence under the applicable Nasdaq rules and SEC rules and regulations. Our Board has determined that Mr. Bernstein is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication under the applicable rules and regulations of Nasdaq Compensation Committee The Compensation Committee determines our general compensation policies and the compensation provided to our directors and officers. The Compensation Committee also reviews and determines bonuses for our officers and other employees. In addition, the Compensation Committee reviews and determines equity-based compensation for our directors, officers, employees and consultants and administers the 2017 Plan. The Compensation Committee currently consists of Messrs. Szymanski, Bernstein and Srinivasan with Mr. Bernstein serving as Chair of the Compensation Committee, each of whom is a non-management member of our Board that we believe meets the criteria for independence under the applicable Nasdaq rules and SEC rules and regulations. Nominating and Governance Committee The Nominating and Governance Committee is responsible for making recommendations to our Board regarding candidates for directorships and the size and composition of our Board. In addition, the Nominating and Governance Committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the full Board concerning corporate governance matters. The Nominating and Governance Committee currently consists of Messrs. Savas, Srinivasan and Szymanski, with Mr. Savas serving as Chair of the Nominating and Governance Committee. - 48 - Table of Contents Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics (the “Code”) applicable to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code is available to security holders in the “Investors’’ section on our website, https://ir.wrap.com/. We intend to disclose any amendments to, or waivers from, our Code at the same website address provided above. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires that each of our directors and executive officers, and any other person who owns more than ten percent (10%) of our common stock, file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. To our knowledge, based solely on information furnished to us and written representations by such persons that no such other reports were required to be filed, we believe that all such SEC filing requirements were met in a timely manner during 2023 other than with respect to the following: On February 3, 2023, a Form 4 for Glenn M Hickman was filed late to report forfeiture of shares of Common Stock to satisfy certain tax withholding obligations on January 3, 2023. On March 9, 2023, a Form 4 for TJ Kennedy was filed late to report forfeiture of shares of Common Stock to satisfy certain tax withholding obligations on March 9, 2023 and on March 1, 2023. On April 26, 2023, a Form 4 for Bruce Bernstein was filed late to report a grant of stock options granted on April 21, 2023. On April 27, 2023, a Form 4 for Marc Savas was filed late to report a grant of stock options granted on April 21, 2023. On October 19, 2023, a Form 4 for each of Bruce Bernstein, Scot Cohen, Marc Savas, Kevin Sherman, Wayne Walker, and Michael Parris was filed late to report a grant of Common Stock that was granted on September 30, 2023. On October 19, 2023, a Form 4 for each of Michael Parris and Wayne Walker was filed late to report grants of Common Stock that were granted on September 30, 2023 and October 12, 2023. On October 19, 2023, a Form 4 for Rajiv Srinivasan to report a grant of stock options granted on October 12, 2023. On October 24, 2023, a Form 4 for Timothy Szymanski was filed late to report a grant of stock options granted on October 12, 2023. On December 29, 2023, a Form 4 for Jared Novick was filed late to report a grant of stock options on December 26, 2023. - 49 - Table of Contents ITEM 11. EXECUTIVE COMPENSATION. Summary Compensation Table The following table sets forth information regarding the compensation awarded to or earned by the current and former executive officers listed below during the years ended December 31, 2023, and 2022. We have opted to comply with the reduced executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for only our principal executive officers, the two most highly compensated executive officers other than our principal executive officer and up to two additional executive officers during the year. Throughout this document, the officers below are referred to as our “Named Executive Officers” or “NEOs”. Name and Principal Position Year Salary Bonus Stock Awards(1) Option Awards(2) All Other Compensation(3) Total Scot Cohen 2023 $ 39,312 - $ 675,000 $ 1,801543 - $ 2,515,855 Chief Executive Officer and Executive Director Jared Novick 2023 $ - - - $ 443,622 - $ 443,622 Chief Operating Officer Kevin Mullins (4) 2023 $ 300,000 $ 75,000 $ 75,000 $ - - $ 450,000 Former Chief Executive Officer and Director 2022 $ 200,000 - $ 506,250 $ 1,721,691 $ 2,427,941 Chris DeAlmeida (5) 2023 $ 275,000 $ 28,646 $ 28,646 - $ 332,292 Former Chief Financial Officer, Treasurer and Secretary 2022 $ 103,125 - $ 227,500 $ 318,500 - $ 649,125 TJ Kennedy (6) 2023 $ 157,417 $ 115,625 $ 328,296 $ 601,338 Former Chief Executive Officer and Director 2022 $ 276,667 $ 50,000 $ 742,982 $ 2,293,879 - $ 3,363,528 Glenn Hickman (7) 2023 $ 75,000 $ 22,500 $ 22,500 - $ 112,500 232,500 Former Chief Operating Officer 2022 $ 225,000 $ 25,000 $ 106,500 - - 356,500 (1) Amounts reported in this column do not reflect the amounts actually received by our named executive officers. Instead, these amounts reflect the aggregate grant date fair value of restricted stock units (“ RSUs ”) granted to the named executive officers during the fiscal year ended December 31, 2022, as computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification 718 (“ ASC 718 ”). Assumptions used in the calculation of these amounts are included in the notes to our financial statements included in this Annual Report. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Specifically, the number in the table above includes: ● for Mr. Cohen, RSUs granted in October 2023, as part of an Inducement grant in connection with being named Chief Executive Officer; ● for Mr. Mullins, RSUs granted in April 2023 in connection with annual bonus and RSUs granted in April 2022, as part of an Inducement grant in connection with being named President; ● for Mr. DeAlmeida, RSUs granted in April 2023 in connection with annual bonus and RSUs granted in July 2022, in connection with being named Chief Financial Officer; ● for Mr. Kennedy, $725,000 for RSUs granted in April 2022, in connection with being named Chief Executive Officer and $17,982 for RSUs granted for Board responsibilities from January 1, 2022 through April 17, 2022; ● for Mr. Hickman, RSUs granted in April 2023 in connection with annual bonus and RSUs granted March 2022 for continued service. - 50 - Table of Contents (2) Amounts reported in this column do not reflect the amounts actually received by our named executive officers. Instead, these amounts reflect the aggregate grant date fair value of each stock option granted to the named executive officers during each fiscal year, as computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included in the notes to our financial statements included in our Annual Report. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent the trading price of our Common Stock is greater than the exercise price of such stock options. Specifically, the number in the table above includes: ● for Mr. Cohen, options granted in October 2023, as part of an Inducement grant in connection with being named Chief Executive Officer; for Mr. Novick options granted in December 2023, as part of an Inducement grant in connection with being named Chief Operating Officer; ● for Mr. Mullins, $856,193 for options granted in April 2022 and $865,498 for Performance Options granted in April. 2022 in connection with begin named President.; ● for Mr. DeAlmeida, options granted in July 2022, in connection with being named Chief Financial Officer; ● for Mr. Kennedy, $1,141,589 for options granted in April 2022 and $1,152,290 for Performance Options granted in April 2022 in connection with being named Chief Executive Officer; ● for Mr. Hickman, options granted in March 2021 for continued service. (3) Amounts reported in this column represent other compensation paid to executive officers. Amounts for Mr. Hickman include $41,918 for his consulting agreement in 2021. For Mr. Varner, the amount reflects the consulting payments made to his consulting firm, LWV Consulting, LLC. For his services as Interim Chief Executive Officer during 2022. Amounts for Mr. Smith represent the severance payments made per his Separation Agreement. (4) Kevin Mullins was appointed as the Company’s President on April 18, 2022, as the Company’s Chief Executive Officer on April 14, 2023, and was appointed as a member of the Board of Directors on April 21, 2023. (5) Chris DeAlmeida served as the Company’s Chief Financial Officer and Treasurer from July 25, 2022, to January 5, 2024 and served as Secretary from April 21, 2023 to January5, 2024. (6) TJ Kennedy served as the Company’s Chief Executive Officer from April 18, 2022, to April 14, 2023. (7) Glenn Hickmann served as the Company’s Chief Operating Officer from July 2021 to April 17, 2023. He was paid $41,918 for consulting services in 2021 prior to becoming an employee. - 51 - Table of Contents Employment Arrangements Scot Cohen . On October 12, 2023, the Board of Directors appointed Scot Cohen to the position of Executive Chairman, effective October 12, 2023. In connection with Mr. Cohen’s appointment as Executive Chairman, the Company and Mr. Cohen entered into an agreement on October 12, 2023 (the “Cohen Employment 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 (the “Initial Term”). On the second anniversary of such effective date of appointment (if Mr. Cohen’s employment has not been earlier terminated), and on each subsequent anniversary thereafter, the Cohen Employment Agreement will automatically renew and extend for a period of twelve (12) months (each such twelve (12)-month period, a “Renewal Term”) unless written notice of non-renewal is delivered by either party to the other not less than sixty (60) days prior to the expiration of the then-existing Initial Term or Renewal Term, as applicable, or the Cohen Employment Agreement has been earlier terminated in accordance with its terms. As compensation for Mr. Cohen’s services to the Company, the Cohen Employment 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. In the event Mr. Cohen’s employment is terminated by either party for any reason, Mr. Cohen will be entitled to: (i) any earned but unpaid Base Salary earned during his employment and applicable to all pay periods prior to the termination date; (ii) any documented and actually incurred unreimbursed business expenses, so long as Mr. Cohen makes any reimbursement request within 30 days following termination; and (iii) any employee benefits to which Mr. Cohen may be entitled under the Company’s employee benefit plans or programs in which Mr. Cohen participates as of the date of termination of Mr. Cohen’s employment. If Mr. Cohen’s employment is terminated by the Company without Cause (as defined in the Cohen Employment Agreement), or by Mr. Cohen for Good Reason (as defined in the Cohen Employment Agreement), or upon the end of the Initial Term or a Renewal Term, as applicable, as the result of the Company’s issuance of a notice of non-renewal, then, subject to certain conditions set forth in the Cohen Employment Agreement (including the execution and non-revocation of a general release of claims), Mr. Cohen will be entitled to: (i) severance payments in a total amount equal to 12 months’ worth of the Base Salary; (ii) any earned but unpaid annual bonus in respect of any completed year that has ended prior to the date of termination; and (iii) receive reimbursement, for a period of up to 12 months, for a portion of the premiums that Mr. Cohen elects to pay for continuation coverage under the Company’s group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, subject to Mr. Cohen’s timely submission of applicable documentation. On December 12, 2023, the Board of Directors appointed Mr. Cohen to the position of Principal Executive Officer. On January 14, 2024, the Board of Directors appointed Mr. Cohen, who previously served as the Company’s Executive Chairman and Principal Executive Officer, to the position of Executive Chairman and Chief Executive Officer. In connection therewith, the Company and Mr. Cohen entered into an amendment, dated January 14, 2024, to the Cohen Employment Agreement, dated October 12, 2023, to, among other things, reflect Mr. Cohen’s new title. On April 5, 2024, the Board of Directors appointed Scot Mr. Cohen, who serves as the Company’s Executive Chairman and Chief Executive Officer, and as its Principal Executive Officer, to the position of Interim Principal Financial Officer and Principal Accounting Officer. Jared Novick . On December 26, 2023, the Board of appointed Jared Novick to the position of Chief Operating Officer. In connection with Mr. Novick’s appointment, on December 26, 2023 (the “Novick Effective Date”), the Company entered into an employment agreement (the “Novick Employment Agreement”) with Mr. Novick setting forth the terms and conditions of Mr. Novick’s employment as the Company’s Chief Operating Officer. Pursuant to the Novick Employment Agreement, Mr. Novick will serve as the Chief Operating Officer of the Company for a two-year initial term commencing on the Effective Date, which term automatically renews each year for successive one-year terms, unless earlier terminated by either party in accordance with the terms of the Novick Employment Agreement. The Novick Employment Agreement provides that Mr. Novick will be entitled to receive an annual base salary of two hundred thousand dollars ($200,000) (“Base Salary”), payable in equal installments pursuant to the Company’s customary payroll practices. Mr. Novick is entitled to a one-time sign-on bonus of $75,000, payable in two equal installments as follows, subject to Mr. Novick’s continued service on such dates: (i) 50% on the first payroll date following the Novick Effective Date, and (ii) 50% on the first payroll date following the six-month anniversary of the Novick Effective Date. Mr. Novick is also eligible to receive for each fiscal year during the term of his employment, an annual discretionary bonus, with the actual amount determined by the Board in its sole discretion (“Annual Bonus”), payable prior to March 15 of the fiscal year following the fiscal year to which the bonus relates. The Novick Employment Agreement also entitles Mr. Novick to receive customary benefits and reimbursement for reasonable out-of-pocket business expenses. The Company may terminate Mr. Novick’s employment due to death or disability, for cause (as defined in the Novick Employment Agreement) at any time, and without cause at any time upon written notice. Mr. Novick may terminate his employment without good reason (as defined in the Novick Employment Agreement) at any time upon thirty days’ written notice or with good reason, which requires delivery of a written notice to the Board of Directors of the existence of condition(s) giving rise to the good reason within forty-five days after the initial occurrence of such condition(s), and failure of the Company to cure such condition(s) within thirty days following the Board of Director’s receipt of such notice. If Mr. Novick’s employment is terminated by either the Company or Mr. Novick for any reason, Mr. Novick shall receive any earned but unpaid Base Salary and expenses required to be reimbursed pursuant to the Novick Employment Agreement and any employee benefits Mr. Novick is entitled to under the Company’s employee benefit plans or programs in which Mr. Novick participates. In addition, if Mr. Novick’s employment is terminated by the Company without cause (as defined in the Novick Employment Agreement) or upon non-renewal or by Mr. Novick for good reason (as defined in the Novick Employment Agreement), then, subject to compliance with the restrictive covenants set forth in the Novick Employment Agreement and the execution of a release of claims in favor of the Company, the Company will pay the following severance payments and benefits: (i) an amount equal to twelve months’ Base Salary, payable in equal monthly installments over a twelve-month severance period; (ii) an amount equal to any earned, but unpaid, Annual Bonus for services rendered during the year preceding the date of termination; and (iii) an amount intended to assist Mr. Novick with his post-termination health coverage, provided however, he is under no obligation to use such amounts to pay for continuation of coverage under the Company’s group health plan pursuant to COBRA. - 52 - Table of Contents Kevin Mullins . On April 13, 2022, the Company entered into an employment agreement with Mr. Mullins (as amended, the “ Mullins Employment Agreement ”) for Mr. Mullins to serve as the Company’s President, effective April 18, 2022. Mr. Mullins was appointed as Chief Executive Officer on April 14, 2023 and was appointed as a member of the Company’s Board of Directors on April 21, 2023. On January 14, 2024, the Board appointed Kevin Mullins, who previously served as the Company’s Chief Executive Officer, to the position of President. In connection therewith, the Company and Mr. Mullins entered into an amendment, dated January 14, 2024, to the Mullins Employment Agreement, dated April 13, 2022 (the “Mullins Amendment”) to, among other things, reflect Mr. Mullin’s new title. On May 7, 2024, Mr. Mullins resigned from his position as President of the Company, effective May 23, 2024. On May 28, 202, Mr. Mullins resigned from his role as director of the Company, effective May 28, 2024. Pursuant to the Mullins Employment Agreement, unless earlier terminated pursuant to the terms therein, Mr. Mullins will serve as the Company’s President for a term of two years from the effective date of his appointment. On the second anniversary of such effective date of appointment (if Mr. Mullins’s employment has not been earlier terminated or a written notice of non-renewal has not been provided in the time provided to do so), and on each subsequent anniversary thereafter, the Mullins Employment Agreement will automatically renew and extend for a period of 12 months, unless otherwise terminated in accordance with its terms. As compensation for Mr. Mullins’s services to the Company, the Mullins Employment Agreement entitled Mr. Mullins to the following cash payments: (i) an annualized base salary of $300,000 (the “ Mullins Base Salary ”) and (ii) eligibility for a discretionary cash bonus, with a target amount initial set at 75% of the Mullins Base Salary, but with the final amount to be determined at the sole discretion of the Board. Pursuant to the Mullins Employment Agreement, in the event Mr. Mullins’ employment is terminated by either party for any reason, Mr. Mullins is entitled to: (i) any earned but unpaid Base Salary earned during his employment with the Company and applicable to all pay periods prior to the termination date; (ii) any unreimbursed business expenses properly incurred, so long as Mr. Mullins makes any reimbursement request within 30 days following termination; and (iii) any employee benefits to which Mr. Mullins may be entitled under the Company’s employee benefit plans or programs which Mr. Mullins participates as of the date of termination of Mr. Mullins’ employment. Chris DeAlmeida . On July 25, 2022, the Board of Directors appointed Chris DeAlmeida as Chief Financial Officer of the Company. On January 5, 2024, Mr. DeAlmeida’s employment as Chief Financial Officer of the Company was terminated without cause pursuant to a Separation Agreement and Mutual Release of Claims (the “DeAlmeida Separation Agreement”). Pursuant to the DeAlmeida Separation Agreement, Mr. DeAlmeida is entitled to receive severance payments in a total amount equal to $137,500, representing six months of Mr. DeAlmeida’s base salary as in effect immediately prior to the Termination Date, payable in substantially equal installments over a six-month period in accordance with the Company’s payroll schedule, beginning after any applicable revocation period has expired without exercise. TJ Kennedy . On April 13, 2022, the Company entered into an employment agreement with Mr. Kennedy (the “ Kennedy Employment Agreement ”) for Mr. Kennedy to serve as the Company’s Chief Executive Officer, effective April 18, 2022. Effective April 13, 2023 (the “ Resignation Date ”), TJ Kennedy resigned as Chief Executive Officer and as a member of the Board of Directors of the Company pursuant to a separation agreement entered into by and between the Company and Mr. Kennedy (the “Kennedy Separation Agreement ”). Under the terms of the Kennedy Separation Agreement, Mr. Kennedy is entitled to (i) a one-time payment of $115,625 for the achievement of certain business objectives in 2022; (ii) severance in an amount equal to six months of his base salary paid in installments over a period of six months following the Resignation Date; (iii) the issuance of 122,670 shares of the Company’s Common Stock in connection with the continued vesting of certain equity-based awards previously granted to Mr. Kennedy; (iv) the immediate vesting of nonqualified options to purchase 158,554 shares of Common Stock, (v) an extension of the time period during which Mr. Kennedy may exercise outstanding vested stock options through the first anniversary of the Resignation Date (or, if earlier, through the original expiration date of the applicable stock option); and (vi) reimbursement for the Company portion of any healthcare premiums provided to Mr. Kennedy and any covered dependents under the Consolidated Omnibus Reconciliation Act of 1986, as amended (“ COBRA ”), for a period of 12 months following the Resignation Date, subject to Mr. Kennedy’s election of coverage under COBRA. As part of the Kennedy Separation Agreement, Mr. Kennedy entered into a general release of claims in favor of the Company and affirmed his obligations to abide by restrictive covenants. - 53 - Table of Contents Glenn Hickman . On July 1, 2021, the Board appointed Glenn Hickman as Chief Operating Officer of the Company. Effective April 17, 2023 (the “Hickman Resignation Date”), Glenn Hickman’s employment with the Company as Chief Operating Officer was terminated effective April 17, 2023 (the “Hickman Separation Date”) pursuant to a Severance Agreement and Release of Claims, dated as of May 8, 2023 (the “Hickman Severance Agreement”). Pursuant to the Hickman Severance Agreement, Mr. Hickman was entitled to (i) a one-time payment of $22,500, less applicable taxes, deductions and withholdings required by law less applicable taxes and withholdings; and (ii) 16,605 shares of Common Stock pursuant to the Plan on the Hickman Separation Date. Additionally, pursuant to the Hickman Severance Agreement, Mr. Hickman was entitled to a total severance payment of $112,500, (the “Severance Payment”), over the six-month period following the Separation Date, and reimbursement for any portion of any healthcare premiums and any covered dependents under the Consolidated Omnibus Reconciliation Act of 1986, as amended (“COBRA”), for a period of 3 months following the Hickman Separation Date. Outstanding Equity Awards at 2023 Fiscal Year-End The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2023. Option Awards Stock Awards Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price Option Expiration Date Number of Shares of Stock That Have Not Vested (#) Market Value of Shares of Stock That Have Not Vested ($) (1) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) Scot Cohen 10/12/2023 - 482,143 (2) $ 1.40 10/12/2033 10/12/2023 - 1,290,165 (3) $ 1.40 10/12/2033 482,143 (4) $ 1,494,643 - - 9/29/2023 - - - 5,294 (5) $ 16,410 - 6/30/2023 - - - - 2,720 (6) $ 8,430 - 4/1/2021 100,000 (7) - $ 5.56 4/1/2031 - - - Jared Novick 12/23/2023 - 250,000 (8) $ 3.10 12/26/2033 - - - Kevin Mullins 4/20/2023 - - - - - - 4/19/2022 - 692,398 (9) $ 2.89 4/19/2032 - - - 4/19/2022 118,915 (10) 237,832 $ 2.89 4/19/2032 - - - Chris DeAlmeida 4/20/2023 - - - - - - 7/25/2022 58,333 (11) 116,667 $ 1.82 7/25/2032 - - - TJ Kennedy 4/13/2023 - - - - - - - 4/19/2022 158,554 (12) - $ 2.89 4/19/2032 - - - 4/23/2021 30,000 (13) - $ 5.23 4/23/2031 Glenn Hickman 4/17/2023 - - - - 16,605 (14) $ 51,476 - 1. The market value is computed based on the closing market price of our Common Stock on December 29, 2023 of $3.10 per share. 2. Mr. Cohen was awarded stock options which vest in four substantially equal installments at the end of each of the Company’s fiscal years beginning on December 31, 2024 and ending on December 31, 2027, provided Mr. Cohen is employed by or providing services to the Company or an affiliate on the applicable vesting date. 3. Mr. Cohen nonqualified stock options issued in connection with Mr. Cohen’s appointment as Executive Chairman. The stock options will vest, subject to Mr. Cohen’s continued employment with the Company through each vesting date, as follows: (i) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $100 million for each trading day during 2 consecutive months; (ii) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $150 million for each trading day during 2 consecutive months; and (ii) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $200 million for each trading day during 2 consecutive months, subject to accelerated vesting upon the occurrence of certain events. 4. Mr. Cohen was granted restricted shares of common stock of the Company issued in connection with Mr. Cohen’s appointment as Executive Chairman. The restricted shares will be issued upon vesting and shall vest, subject to Mr. Cohen’s continued employment, (i) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $100 million for each trading day during 2 consecutive months; (ii) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $150 million for each trading day during 2 consecutive months; and (iii) 1/3rd on the date on which the Company’s market capitalization meets or exceeds $200 million for each trading day during 2 consecutive months. 5. Mr. Cohen was awarded restricted shares of common stock of the Company in connection with Mr. Cohen’s service on the Board. 30% of such shares were vested as of the date of the grant, with the remainder vesting ratably in eight monthly tranches beginning November 1, 2023. - 54 - Table of Contents 6. Mr. Cohen was awarded restricted shares of common stock of the Company in connection with Mr. Cohen’s service on the Board. 30% of the Shares were vested as of the date of the grant, with the remainder vesting ratably in eight monthly tranches beginning August 1, 2023. 7. Mr. Cohen was awarded stock options in connection with his previous position with the Company. 8. Mr. Novick was granted stock options in connection with the Novick Employment Agreement. The stock options vest in three substantially equal installments at the end of each of the Company’s first through third fiscal years beginning on December 31, 2024 and ending on December 31, 2026, provided that Mr. Novick is employed by or providing services to the Company through the applicable vesting date. 9. Mr. Mullins received nonqualified options to purchase shares of common stock. The options will vest, subject to Mr. Mullin’s continued employment with the Company through each vesting date, (x) with respect to 1/3rd of the award on the date on which the Company’s market capitalization meets or exceeds $250 million for each trading day during three consecutive months, (y) with respect to 1/3rd of the award on the date on which the Company’s market capitalization meets or exceeds $500 million for each trading day during three consecutive months, and (z) with respect to the remaining 1/3rd of the award on the date on which the Company’s market capitalization meets or exceeds $1 billion for each trading day during three consecutive months.. 10. Mr. Mullins was awarded nonqualified option to purchase shares of the Company’s common stock, which will (x) vest in substantially equal installments on each of the first through third anniversaries of the Commencement Date, subject to Mr. Mullins’ continued employment with the Company through each vesting date, (y) upon the later of (I) Mr. Mullins’ satisfaction of the Release Condition following a Qualifying Termination and (II) the consummation of a Corporate Transaction (as defined in the Equity Plan), in each case, during the Change in Control Protection Period. 11. Mr. DeAlmeida was granted restricted stock units which shall vest in three equal annual installments beginning July 25, 2023, subject to Mr. DeAlmeida’s continued employment through each vesting date 12. Pursuant to the terms of the Kennedy Separation Agreement, following his resignation, shares of the Company’s Common Stock were issued to Mr. Kennedy in connection with the continued vesting of certain previously issued equity-based awards, and nonqualified options to purchase shares of Common Stock were immediately vested and must be exercised, if at all, prior to the first anniversary of the Resignation Date (or, if earlier, through the original expiration date of the applicable stock option). 13. In Connection with the Kennedy Employment Agreement, Mr. Kennedy was granted nonqualified options to purchase shares of the Company’s common stock, which will (x) vest in substantially equal installments on each of the first through third anniversaries of the Commencement Date, subject to Mr. Kennedy’s continued employment with the Company through each vesting date, (y) upon the later of (I) Mr. Kennedy’s satisfaction of the Release Condition following a Qualifying Termination and (II) the consummation of a Corporate Transaction (as defined in the Equity Plan), in each case, during the Change in Control Protection Period. 14. A total of 30,000 RSUs were held by Mr. Hickman on the date of his appointment as Chief Operating Officer, with one-third, or 10,000 shares, vesting on July 1, 2022, and the balance vesting ratably every six months over the two-year period thereafter, subject to continued service. Mr. Hickman’s employment with the Company terminated on April 17, 2023. As a result of his termination, all unvested RSUs held by Mr. Hickman terminated. - 55 - Table of Contents Director Compensation Program The following table sets forth the compensation awarded to, earned by, or paid to each person who served as a director during the fiscal year ended December 31, 2023 Fees Earned Stock Option or Paid in Awards Awards Name (1) Cash ($) (2) ($) (3) ($) (4) Total ($) Scot Cohen $ 47,875 $ 63,508 $ - $ 111,383 Wayne R. Walker $ 88,000 $ 93,757 $ - $ 181,757 Michael Parris $ 60,600 $ 93,757 $ - $ 154,357 Kimberly Sentovich $ 40,250 $ 48,585 $ - $ 88,835 Kevin Sherman $ 52,875 $ 138,739 $ - $ 191,614 Bruce Bernstein $ 26,926 $ 26,643 $ 181,867 $ 235,436 Marc Savas $ 29,426 $ 26,643 $ 181,867 $ 237,936 Rajiv Srinivasan $ - $ - $ 29,138 $ 29,138 Timothy Szymanski $ - $ - $ 29,138 $ 29,138 (1) On June 28, 2023, Ms. Sentovich resigned from the Board. On October 12, 2023, Mr. Walker and Mr. Parris resigned from the Board. On December 31, 2023, Mr. Sherman resigned from the Board. Messrs. Srinivasan and Szymanski were appointed to the Board on October 12, 2023. (2) Mr. Cohen, Mr. Parries, Mr. Walker, Ms. Sentovich, Mr. Sherman, Mr. Bernstein and Mr. Savas received 38,187, 59,794, 59,794, 29,237, 70,37, 18,166 and 18,166 shares of Common Stock, respectively, for their respective services to the Board. The number of shares was calculated based on the amount due to such Board members at the end of each quarter, divided by the closing price of the stock on the applicable grant date. (3) As of December 31, 2023, the aggregate number of shares of Common Stock underlying outstanding options held by our directors were as follows: Mr. Bernstein 130,000 shares; Mr.Savas, 130,000 shares; Mr. Srinivasan 30,000 shares; and Mr. Szymanski, 30,000 shares. Additional Director Compensation Information On April 1, 2021, the Board approved a new director compensation plan payable to all non-employee independent directors (“Amended Board Plan”). As revised, under the terms of the Amended Board Plan, non-employee independent directors received $121,000 annually effective January 1, 2021, payable one-half in cash and one half in restricted stock units to be settled in shares of the Company’s Common Stock, with 30% vesting immediately, and the remaining 70% vesting in monthly installments throughout the remainder of the year following the date of grant. In addition, each independent director that chairs a standing committee of the Board will received an additional annual cash payment of $10,000, and any independent director serving as lead independent director of the Board received additional annual cash compensation of $25,000. In lieu of director compensation, the Executive Chairman, if any, was to be paid $121,000 annually, effective January 1, 2021, in addition to the grant of an option to purchase 100,000 shares of Common Stock with 30% vesting immediately and the remaining 70% vesting in equal monthly installments over the twelve months from the date of grant. In addition to annual compensation paid to each member of the Board, each new director appointed to the Board received an initial grant of options to purchase 30,000 shares of Common Stock at an exercise price based on the closing price of the Company’s Common Stock as reported on the Nasdaq Capital Market on the date of grant, which options shall expire, if not previously exercised, ten years from the date of grant, and shall vest as follows: (i) 50% on the one-year anniversary of the date of grant, and (ii) the remaining 50% in four equal quarterly installments over the following year. In October 2023, the Board approved a revised director compensation plan payable to all non-employee independent directors, effective October 1, 2023 (“Revised Board Plan”). As revised, under the terms of the Revised Board Plan, non-employee independent directors receive $121,000 annually, payable in restricted stock units to be settled in shares of the Company’s Common Stock, with 30% vesting immediately, and the remaining 70% vesting in monthly installments throughout the remainder of the year following the date of grant. In addition, each independent director that chairs a standing committee of the Board will receive an additional annual payment of $10,000, payable in restricted stock units to be settled in shares of the Company’s Common Stock, with 30% vesting immediately, and the remaining 70% vesting in monthly installments throughout the remainder of the year following the date of grant. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Equity Compensation Plan Information On March 31, 2017, the Company adopted, and the stockholders approved, the 2017 Stock Incentive Plan (as amended from time to time, the “Plan”). The Plan reserved 2.0 million shares of our Common Stock for issuance as one of four types of equity incentive awards: (i) stock options, (ii) shares of Common Stock, (iii) restricted stock awards, and (iv) restricted stock units. Stockholders authorized an increase to the shares authorized under the plan of an additional 2,100,000 shares in May 2019, an additional 1,900,000 shares in June 2020, an additional 1,500,000 shares in June 2021, and an additional 1,500,000 shares in May 2022, for a total of 9,000,000 shares authorized for issuance under the Plan as of the date of this Report. At December 31, 2023, there were 1,391,183 shares of Common Stock available for grant under the Plan. - 56 - Table of Contents The following table sets forth information as of December 31, 2023, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows: ​ ​ ​ (c) Number of securities ​ ​ ​ ​ remaining available for ​ ​ (a) Number of securities ​ (b) Weighted-average ​ future issuance under ​ to be issued upon exercise ​ exercise price of ​ equity compensation plans ​ of outstanding options, ​ outstanding options, ​ (excluding securities Plan Category warrants and rights ​ warrants and rights ​ reflected in column (a)) Equity compensation plans approved by security holders 4,657,635 ​ $ 2.61 1,391,183 Equity compensation plans not approved by security holders - ​ - - Total 4,657,635 ​ $ 2.61 1,391,183 ​ Security Ownership of Certain Beneficial Owners and Management The following table sets forth information regarding beneficial ownership of our common stock as of August 26, 2024 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our named executive officers and directors; and (iii) by all of our executive officers and directors as a group. Unless otherwise indicated in the following table, the address for each person named in the table is 1817 W 4th Street, Tempe, Arizona 8528. ​ Amount and Nature of ​ Name and Address of Beneficial Owner Beneficial Ownership (1) Percent of Class (2) 5% Stockholders Elwood G. Norris (3) 6,451,957 14.02 % Named Executive Officers and Directors ​ Scot Cohen (4) 4,780,055 10.40 % Timothy Szymanski (5) 47,616 * % Bruce Bernstein (6) 174,554 * % Marc Savas (7) 174,454 * % Rajiv Srinivasan (8) 47,616 * % Jared Novick - - All directors and executive officers as a group (6 persons) 5,224,295 11.30 % * Less than one percent. (1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares set forth in the above table. (2) A total of 45,860,545 shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of August 26, 2024. (3) Based on the Schedule 13D/A filed jointly with the SEC on March 9, 2021, by the Norris Family 1997 Trust (the “Norris Trust”), Elwood G. Norris and Stephanie A. Norris and certain information made available to the Company. The shares of Common Stock are directly held by the Trust and Mr. Norris. The shares of Common Stock directly held by Mr. Norris and the Norris Trust are also indirectly beneficially owned by Stephanie A. Norris, as a trustee of the Norris Trust. The amount reported herein consists of (i) 6,301,957 shares of Common Stock, and (ii) stock options to purchase 150,000 shares of Common Stock. The address of each of the parties herein is 15891 Blue Crystal Trail, Poway, CA 92064. (4) The amount reported herein consists of (i) 4,679,906 shares of common stock, (ii) 100,000 shares of common stock underlying stock options that were vested as of August 26, 2024, or will vest within 60 days thereafter, and (iii) 149 shares of common stock underlying RSUs that were vested as of August 26, 2024, or will vest within 60 days thereafter. The address of Mr. Cohen is 3480 Main Highway, 2nd Floor, Miami, Florida 33133. (5) The amount reported herein consists of (i) 29,370 shares of common stock, (ii) 15,000 shares of common stock underlying stock options that were vested as of August 26, 2024, or will vest within 60 days thereafter and (iii) 3,246 shares of common stock underlying RSUs that were vested as of August 26, 2024, or will vest within 60 days thereafter. - 57 - Table of Contents (6) The amount reported herein consists of (i) 48,706 shares of common stock, (ii)122,500 shares of common stock underlying stock options that were vested as of August 26, 2024, or will vest within 60 days thereafter, and (iii) 3,348 shares of common stock underlying RSUs that were vested as of August 26, 2024, or will vest within 60 days thereafter. (7) The amount reported herein consists of (i) 48,606 shares of common stock, (ii) 122,500 shares of common stock underlying stock options that were vested as of August 26, 2024, or will vest within 60 days thereafter and (iii) 3,348 shares of common stock underlying RSUs that were vested as of August 26, 2024, or will vest within 60 days thereafter. (8) The amount reported herein consists of (i) 29,370 shares of common stock, (ii) 15,000 shares of common stock underlying stock options that were vested as of August 26, 2024, or will vest within 60 days thereafter and (iii) 3,246 shares of common stock underlying RSUs that were vested as of August 26, 2024, or will vest within 60 days thereafter. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. Transactions with Related Persons SEC rules require us to disclose any transaction or currently proposed transaction in which we are a participant and in which any related person has or will have a direct or indirect material interest involving an amount that exceeds the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons. Series A Preferred Stock On June 29, 2023, the Company entered into the Series A Purchase Agreement with certain investors, including Scot Cohen, the Company’s Chief Executive Officer, and V4 Global LLC (“V4”). Mr. Cohen has voting and dispositive control with respect to the securities as is deemed to be the beneficial owner of the securities held by V4. Pursuant to the Series A Purchase Agreement, the Company issued Mr. Cohen and V4 an aggregate of 3,000 shares of Series A Preferred Stock and Series A Warrants to purchase up to an aggregate of 2,068,966 shares of Common Stock for aggregate gross proceeds of $3,000,000. Consulting Services Commencing in October 2017, the Company began reimbursing Mr. Elwood Norris, a former officer, current 5% stockholder and consultant of the Company, $1,500 per month on a month-to-month basis for laboratory facility costs and $7,000 per month on a month-to month basis for invention consulting services, for an aggregate of $108,000 during each of the years ended December 31, 2022, and 2021. The Company is obligated to pay royalties and development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated September 30, 2016, with Syzygy Licensing, LLC (“Syzygy”), a company owned and controlled by a 5% stockholder of the Company, Mr. Elwood Norris, and a former officer of the Company, 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 $1,000,000 in royalties or until September 30, 2026, whichever occurs earlier. During the years ended December 31, 2023, and 2022 the Company incurred royalties to Syzygy of $199,718 and $270,520, respectively. Intrensic Acquisition On August 9, 2023, the Company entered into the Intrensic Purchase Agreement with the Sellers, including Kevin Mullins, the Company’s former Chief Executive Officer. Under the terms of the Intrensic Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell, 100% of the Membership Interests of Intrensic for the following consideration upon 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. The Intrensic Acquisition closed on August 16, 2023, in accordance with the terms of the Intrensic Purchase Agreement. Director Independence See “Directors, Executive Officers and Corporate Governance - Director Independence” and “Directors, Executive Officers and Corporate Governance - Board Committees” above. - 58 - Table of Contents ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Independent Registered Public Accounting Firm On April 24, 2024, the Company received notice from Rosenberg Rich Baker Berman, P.A. (“RRBB P.A.”) that it had resigned as the Company’s independent registered public accounting firm, effective immediately. The Audit Committee, effective as of May 7, 2024, appointed HTL International, LLC (“HTL”) as the Company's independent registered public accounting firm for the Company's fiscal year ended December 31, 2023. Audit and Non-Audit Fees The Company engaged RRBB P.A. as its independent auditors from March 8, 2017, to April 24, 2024. The Company engaged HTL from May 7, 2024, to present. The following table presents fees for professional audit services rendered by RRBB P.A for audit and other services provided for the fiscal years ended December 31, 2023 and December 31, 2022. 2023 2022 Audit Fees $ 171,697 $ 109,200 Audit Related Fees(1) - 3,897 Tax Fees(1) - - All Other Fees(1) - - Total $ 171,697 $ 113,097 (1) There were no audit related, other fees or tax related fees. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Consistent with SEC policies and guidelines regarding audit independence, the Audit Committee is responsible for the pre-approval of all audit and permissible non-audit services provided by our principal accountants. Our Audit Committee has established a policy regarding approval of all audit and permissible non-audit services provided by our principal accountants. No non-audit services were performed by our principal accountants during the fiscal years ended December 31, 2023 and 2022. Our Audit Committee pre-approves these services by category and service. Our Audit Committee has pre-approved 100% of the services provided by our principal accountants. - 59 - Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) List of documents filed as a part of this report: (1) Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 7000) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 89) F-3 Balance Sheets as of December 31, 2023 and 2022 F-4 Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and 2022 F-5 Statements of Stockholders’ Equity for the Years Ended December 31, 2023 and 2022 F-6 Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-7 Notes to Financial Statements F-8 (2) Financial Statement Schedules All schedules have been omitted because the information is not applicable, is not material or because the information required is included in the financial statements or the notes thereto. (3) Index to Exhibits The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Form 10-K. (a)(2) Consolidated Financial Statement Schedules: Schedules not filed are omitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements or the notes thereto. - 60 - Table of Contents Exhibit Number Description 2.1 Stock Purchase Agreement, dated March 22, 2017, by and between Wrap Technologies, LLC, Petro River Oil Corp., and Megawest Energy Montana Corp (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 17, 2017). 2.2 Merger Agreement between Wrap Technologies, LLC and Megawest Energy Montana Corp., dated March 30, 2017 (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 17, 2017). 3.1 Amended and Restated Certificate of Incorporation of Wrap Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 17, 2017). 3.2 Amended and Restated Bylaws of Wrap Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2023). 3.3 Amendment No.1 to the Amended and Restated Bylaws of Wrap Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2023). 3.4 Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2023). 3.5 Certificate of Amendment of Certificate of Designations of Series A Convertible Preferred Stock. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2024). 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on May 30, 2017). 4.2 Form of Investor Warrant, dated October 30, 2018 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2018). 4.3 Form of Placement Agent Warrant, dated October 30, 2018 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2018). 4.4 Form of Investor Warrant, dated June 18, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2019). 4.5 Form of Offering Agent Warrant, dated June 18, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2019. 4.6 Form of Warrant Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2020). 4.7 Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2023). 4.8* Description of Securities. 10.1 Amended and Restated Intellectual Property License Agreement, dated September 30, 2016, by and between Wrap Technologies, LLC and Syzygy Licensing LLC (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 17, 2017). 10.2+ Wrap Technologies, Inc. 2017 Equity Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 17, 2017). 10.2.1+ Amendment No. 1 to the Wrap Technologies, Inc. 2017 Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 24, 2019). 10.2.2+ Amendment No. 2 to the Wrap Technologies, Inc. 2017 Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 17, 2020). 10.2.3+ Amendment No. 3 to the Wrap Technologies, Inc. 2017 Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on November 5, 2021). - 61 - Table of Contents 10.4+ Form of At-Will Employment, Confidential Information, Non-Compete/ Non-Solicitation, Invention Assignment, and Arbitration Agreement between the Key Employees and the Company dated December 14, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2020). 10.5 Cooperation Agreement by and between the Company and Elwood G. Norris and certain of his affiliates dated March 4, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2021). 10.6 Consulting Agreement between the Company and LWV Consulting, LLC, dated January 24, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission filed on January 26, 2022). 10.7 Consulting Agreement between the Company and LRHIRSH, LLC, dated January 24, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022). 10.8+ Employment Agreement between Wrap Technologies, Inc. and TJ Kennedy, dated April 13, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2022). 10.9+ Employment Agreement between Wrap Technologies, Inc. and Kevin Mullins, dated April 13, 2022. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2022). 10.9.1+ First Amendment to Employment Agreement, by and between Kevin Mullins and Wrap Technologies, Inc. dated January 14, 2024 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2024). 10.10+ Letter Agreement by and between Wrap Technologies, Inc. and Chris DeAlmeida, executed July 20, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2022). 10.11 Professional Services and Technology Acquisition Agreement, dated November 22, 2022, by and between Wrap Technologies, Inc., Lumeto, Inc. and Spatial Industries Group, Inc (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 2022). 10.12 Separation Agreement between the Company and Mr. Kennedy (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2023). 10.13 Severance Agreement and Release of Claims, dated May 8, 2023, by and between Wrap Technologies, Inc. and Glenn Hickman (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2023). 10.14 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2023). 10.15 Engagement Letter, dated June 29, 2023 by and between Wrap Technologies, Inc. and Katalyst Securities LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2023). 10.16** Membership Interest Purchase Agreement, dated August 9, 2023, by and among Wrap Technologies, Inc., Buford Ortale, and the sellers signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 21, 2023). 10.17+ Employment Agreement by and between Scot Cohen and Wrap Technologies, Inc. dated October 12, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 2023). 10.17.1+ First Amendment to Employment Agreement, by and between Scot Cohen and Wrap Technologies, Inc. dated January 14, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2024). 10.18+ Employment Agreement, by and between the Company and Jared Novick, effective as of December 26, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 26, 2023). 10.19 Separation Agreement and Mutual Release of Claims, dated January 5, 2024, by and between Wrap Technologies, Inc. and Chris DeAlmeida (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2024). 10.20 Form of Amendment, dated August 19, 2024, by and between Wrap Technologies, Inc. and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2024). 14.1 Code of Ethics of the Registrant Applicable to Directors, Officers and Employees (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2021). 21.1 Subsidiaries of Wrap Technologies, Inc (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2021). 23.1* Consent of Independent Registered Public Accounting Firm - HTL International, LLC. 23.2* Consent of Independent Registered Public Accounting Firm - Rosenberg Rich Baker Berman, P.A. 31.1* Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 32.1*** Section 1350 Certification - Principal Executive Officer and Principal Financial Officer. - 62 - Table of Contents 97.1* Wrap Technologies, Inc. Compensation Recovery Policy Extensible Business Reporting Language (XBRL) Exhibits* 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) + Management contract or compensatory plan or arrangement. * Filed concurrently herewith. ** Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Company has determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to the Company if publicly disclosed. *** Furnished herewith. Item 16. Form 10-K Summary. None. - 63 - Table of Contents WRAP TECHNOLOGIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Audited Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID: 7000 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 89) F-3 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and 2022 F-5 Consolidated Statements of Stockholders’ Equity for Years Ended December 31, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Wrap Technologies Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Wrap Technologies Inc. (the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation and estimation of warrants and convertible preferred stock As discussed in Note 1, 4, 10 and 12 to the consolidated financial statements, on June 29, 2023, the Company sold for $10 million in gross proceeds via private placement: (i) warrants to acquire the Company’s Common Stock, and (ii) the Company’s Series A Convertible Preferred Stock. The warrants are classified as liabilities at their fair value using the modified Black-Scholes option pricing model whereas the preferred stock are classified as equity. We identified the evaluation and estimation of the warrants and convertible preferred stock as a critical audit matter. Evaluating the Company’s estimation of stock price volatility, dividend yield and expected life, involved auditor judgment. The following are the primary procedures we performed to address this critical audit matter. We evaluated the appropriateness of the Company’s evaluation and estimation of the warrants and the preferred stock by; ● evaluating the design and testing the implementation of certain internal controls related to the process of accounting and estimating the value of the warrants and the preferred stock ● reviewing the agreements pertaining to the offering transaction ● evaluating the method and certain assumptions used ● testing the application of the method and certain assumptions used /s/ HTL International, LLC We have served as the Company’s auditor since 2024. Houston, TX August 28, 2024 F-2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Wrap Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of Wrap Technologies, Inc. (the Company) as of December 31, 2022, and the related statements of operations and comprehensive income, stockholders’ equity, and cash flows for the one-year in the period ended December 31, 2022 and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the one-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the audit of the consolidated financial statements for the year ended December 31, 2022 that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Rosenberg Rich Baker Berman, P.A. We have served as the Company’s auditor since 2016. Somerset, New Jersey March 2, 2023 F-3 Table of Contents Wrap Technologies, Inc. Consolidated Balance Sheets (in thousands, except par value and share amounts) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 3,955 $ 5,330 Short-term investments 7,500 13,949 Accounts receivable and contract assets, net 3,025 2,830 Inventories, net 5,794 3,975 Prepaid expense and other current assets 953 775 Total current assets 21,227 26,859 Property and equipment, net 509 758 Operating lease right-of-use asset, net 2,256 285 Intangible assets, net 2,648 2,569 Goodwill 1,610 - Other assets 251 100 Total assets $ 28,501 $ 30,571 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,110 $ 1,419 Accrued liabilities 692 1,463 Customer deposits 1,002 - Deferred revenue - short term 407 166 Operating lease liability - short term 616 108 Warrants 19,703 - Total current liabilities 23,530 3,156 Long-term liabilities: Deferred revenue - long term 137 167 Operating lease liability - long term 1,671 193 Total long-term liabilities 1,808 360 Total liabilities $ 25,338 $ 3,516 Commitments and contingencies Stockholders' equity: Preferred stock - 5,000,000 authorized; par value $ 0.0001 per share - - Common stock - 150,000,000 authorized; par value $ 0.0001 per share; 43,855,503 and 41,175,993 shares issued and outstanding at December 31, 2023 and 2022, respectively 4 4 Convertible Preferred Stock - 10,000 authorized, par value $ 0.0001 per share; 9,898 and 0 issued and outstanding at December 31, 2023 and 2022, respectively 2,016 - Additional paid-in capital 99,131 94,333 Accumulated deficit ( 97,988 ) ( 67,376 ) Accumulated other comprehensive income - 94 Total stockholders' equity 3,163 27,055 Total liabilities and stockholders' equity $ 28,501 $ 30,571 See accompanying notes to consolidated financial statements. F-4 Table of Contents Wrap Technologies, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2023 2022 Revenues: Product sales $ 5,337 $ 7,481 Other revenue 796 568 Total revenues 6,133 8,049 Cost of revenues 3,227 4,315 Gross profit 2,906 3,734 Operating expenses: Selling, general and administrative 18,361 16,386 Research and development 3,267 5,078 Total operating expenses 21,628 21,464 Loss from operations ( 18,722 ) ( 17,730 ) Other income (expense): Interest income 375 52 Change in fair value of warranty liabilities ( 11,986 ) - Other 113 61 Total other income (expense), net ( 11,498 ) 113 Net loss $ ( 30,220 ) $ ( 17,617 ) Less: convertible preferred stock dividends ( 392 ) - Net loss attributable to common stockholders $ ( 30,612 ) $ ( 17,617 ) Net loss per basic and diluted common share $ ( 0.72 ) $ ( 0.43 ) Weighted average common shares used to compute net loss per basic and diluted common share 42,324,190 41,174,812 Comprehensive loss: Net loss $ ( 30,612 ) $ ( 17,617 ) Net unrealized gain on short-term investments - 100 Comprehensive loss $ ( 30,612 ) $ ( 17,517 ) F-5 Table of Contents Wrap Technologies, Inc. Consolidated Statements of Stockholders' Equity (in thousands, except share and per share amounts) Common Stock Convertible Preferred Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Deficit Income (Loss) 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 - - - - 3,225 - - 3,225 Common shares issued upon vesting of restricted stock units 268,548 - - - - - - - Net unrealized gain on short-term investments - - - - - - 100 100 Net loss for the period - - - - - ( 17,617 ) - ( 17,617 ) Balance at December 31, 2022 41,175,993 $ 4 - $ - $ 94,333 $ ( 67,376 ) $ 94 $ 27,055 Common shares issued upon exercise of stock options 123,056 - - $ 208 - - $ 208 Share-based compensation expense - - - 2,400 - - 2,400 Dividends on convertible preferred stock 173,654 - - 232 ( 392 ) - ( 160 ) Convertible preferred stock issued, net of offering costs - 10,000 2,036 - - - 2,036 Common shares issued upon convertible preferred stock exercising conversion rights 76,440 ( 102 ) ( 20 ) 20 - - - Common shares issued upon vesting of restricted stock units 1,056,360 - - - - - - Issuance of common stock for acquisition 1,250,000 - - 1,938 - - 1,938 Settlement – US Treasury bills - - - - - ( 94 ) ( 94 ) Net loss for the period - - - - ( 30,220 ) - (30,220 ) Balance at December 31, 2023 43,855,503 $ 4 9,898 $ 2,016 $ 99,131 $ ( 97,988 ) $ - $ 3,163 See accompanying notes to consolidated financial statements. F-6 Table of Contents Wrap Technologies, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2023 2022 Cash Flows From Operating Activities: Net loss $ ( 30,220 ) $ ( 17,617 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 823 762 Write off of intangibles 700 - Share-based compensation 1,985 3,225 Warranty provision 116 210 Change in fair value of warrant liabilities 11,986 - Non-cash lease expense 177 101 Provision for doubtful accounts 180 72 Write off of accounts receivable 413 - Inventory obsolescence reserve 465 - Changes in assets and liabilities: Accounts receivable ( 696 ) 957 Inventories ( 2,224 ) ( 2,410 ) Prepaid expenses and other current assets ( 179 ) 93 Accounts payable ( 617 ) ( 360 ) Operating lease liability ( 160 ) ( 91 ) Customer deposits 1,002 ( 43 ) Accrued liabilities and other ( 344 ) 611 Warranty settlement ( 169 ) ( 181 ) Deferred R evenue 210 68 Changes in other non-current assets ( 151 ) - Net cash used in operating activities ( 16,703 ) ( 14,603 ) Cash Flows From Investing Activities: Purchases of short-term investments ( 10,000 ) ( 30,466 ) Proceeds from maturities of short-term investments 16,355 46,600 Capital expenditures for property and equipment ( 230 ) ( 256 ) Investment in patents and trademarks ( 393 ) ( 173 ) Purchase of intangible assets - ( 700 ) Net cash paid for acquisition of Intrensic ( 554 ) - Proceeds from long-term deposits - ( 92 ) Net cash provided by investing activities 5,178 14,913 Cash Flows From Financing Activities: Proceeds from exercise of stock options 208 83 Proceeds from issuance of warrants and convertible preferred stock 10,000 - Dividends settled in cash ( 58 ) - Net cash provided by financing activities 10,150 83 Net (decrease) increase in cash and cash equivalents ( 1,375 ) 393 Cash and cash equivalents, beginning of period 5,330 4,937 Cash and cash equivalents, end of period $ 3,955 $ 5,330 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Change in unrealized gain on short-term investments $ ( 94 ) $ 100 Right-of-use asset and liability recorded during period $ 2,109 $ 234 Issuance of common stock for acquisition $ 1,938 $ - Net assets acquired from acquisition $ 2,491 $ - Dividends on convertible preferred stock $ ( 334 ) $ - Dividends settled with common stock $ 232 $ - See accompanying notes to consolidated financial statements. F-7 Table of Contents Wrap Technologies, Inc. Notes to Consolidated Financial Statements (in thousands, except per share and share amounts) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Description Wrap Technologies, Inc., a Delaware corporation (the “ Company ”, “ we ”, “ us ”, and “ our ”), is a publicly traded company with its 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. Principles of Consolidation The Company has two wholly owned subsidiaries, Wrap Reality, Inc., an Arizona corporation, 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. Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“ US GAAP ”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued costs, valuation allowance related to deferred tax assets 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 revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Concentrations of Risk Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash, cash equivalents, US treasury bills and accounts receivable from customers. The Company maintains its cash and cash equivalent deposits at two domestic financial institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company places its cash and cash equivalents with high-credit quality financial institutions and are managed within established guidelines to mitigate risks. To date, the Company has not experienced any losses on its cash and cash equivalents. Concentrations of Accounts Receivable and Revenue – The Company has a limited number of domestic and international customers. The Company may experience concentrations in both accounts receivable and revenue due to the timing of sales and collections of related payments (see Note 18). Concentration of Suppliers – The Company assembles its BolaWrap products in-house using components and subassemblies from a limited number of suppliers and contract suppliers. In particular, a single supplier is currently the sole manufacturer of the BolaWrap battery assembly, and another single supplier is the sole manufacturer of the propulsion component for BolaWrap cassettes. Other parts are solely sourced from other suppliers. If supplier shortages or logistic delays occur, or quality problems arise, production schedules could be significantly delayed or costs significantly increased, which could in turn have a material adverse effect on the Company’s financial condition, results of operation and cash flows. F-8 Table of Contents Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in Money Market Funds and US (“ US ”) Treasury bills and are stated at fair value. Short-Term Investments The Company’s short-term investments consist of certificates of deposits and US Treasury bills with original maturities beyond three months at the date of purchase and one year or less from the balance sheet date. As of December 31, 2023, all of the Company’s short-term investments were classified as available-for-sale and are carried at estimated fair value with any unrealized gains and losses, unrelated to credit loss factors, included in other comprehensive income in our consolidated statements of stockholders’ equity. Share-Based Compensation The Company follows the fair value recognition provisions issued by the FASB in ASC Topic 718, Stock Compensation (“ ASC 718 ”) and has adopted Accounting Standards Update (“ ASU ”) 2018-07 for share-based transactions with non-employees. Share-based compensation expense recognized during 2023 and 2022 includes stock option and restricted stock unit compensation expense. The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The grant date is the date at which an employer and employee or non-employee reach a mutual understanding of the key terms and conditions of a share-based payment award and approved by the Company’s Board of Directors. The Black-Scholes option-pricing model requires inputs including the market price of the Company’s Common Stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several publicly traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of restricted stock units is based upon the market price of the Company’s Common Stock on the date of the grant. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest and account for forfeitures as they occur. The fair value of share-based compensation is amortized to compensation expense over the vesting term. 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 5,468,223 and 6,413,731 shares of Common Stock were outstanding at December 31, 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. Accounts Receivable and Allowance for Credit Losses ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The expected credit losses are developed using an estimated loss rate method that considers historical collection experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The estimated loss rates are applied to accounts receivables with similar risk characteristics such as the length of time the balance has been outstanding and the location of the customer. In certain instances, the Company may identify individual accounts receivable assets that do not share risk characteristics with other accounts receivables, in which case the Company records its expected credit losses on an individual asset basis. If an accounts receivable asset is evaluated on an individual basis, the Company excludes those assets from the portfolios of accounts receivables evaluated on a collective basis. At December 31, 2023 and 2022, the Company had an allowance for credit losses related to accounts receivable of $ 386 and $ 205 , respectively. If a major customer’s creditworthiness deteriorates, or actual defaults exceed our historical experience, such estimates could change and impact our future reported financial results. F-9 Table of Contents Inventories Inventories are valued 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. Inventory is comprised of raw materials, assemblies and finished products intended for sale to customers . The Company evaluates the need for reserves for excess and obsolete inventories determined primarily based upon estimates of future demand for the Company’s products. As of December 31, 2023 and 2022 the Company had $ 465 and $ 0 reserves, respectively for obsolescence. Property, Equipment and Depreciation Property and equipment is stated at cost. Depreciation on property and equipment is computed over the estimated useful lives of three years using the straight-line method. On any retirement or disposition of property and equipment, the related cost and accumulated depreciation or amortization is removed, and a gain or loss recorded. 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. Intangible Assets Intangible assets consist of (a) capitalized legal fees and filing costs related to obtaining patents and trademarks, (b) tradenames and software, (c) purchased software, and (d) the purchase cost of indefinite-lived website domains. The estimated useful lives of identifiable intangible assets with definite useful lives have been estimated to be between one and twenty years. Purchased website domain costs with an indefinite useful life are not subject to amortization, but are subject to an annual impairment test, by comparing their carrying amount with their corresponding fair value. For any given intangible asset with an indefinite useful life, if its fair value exceeds its carrying amount no impairment loss shall be recognized. F-10 Table of Contents The carrying value of intangibles is periodically reviewed and impairments, if any, are recognized when the future undiscounted cash flows realized from the assets is less than its carrying value. Impairment of Long-Lived Assets Long-lived assets and identifiable intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset or if changes in facts and circumstances indicate, an impairment loss is recognized and measured using the asset’s fair value. In December 2023, it was determined that the intangible related to development of proprietary software by Lumeto, Inc. would not have future economic value and was written down; the Company recognized an impairment loss of $ 700 . The Company did not recognize any impairment loss during the year ended December 31, 2022. 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 stock 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. Advertising and Promotion Costs Advertising costs are charged to expense as incurred and were $ 925 and $ 426 for the years ended December 31, 2023 and 2022, respectively. The Company also incurred product promotion costs for demonstration products delivered to prospective customers of $ 225 and $ 688 for the years ended December 31, 2023 and 2022, respectively. Advertising and promotion costs are included in selling, general and administrative expenses in the accompanying statements of operations. Demonstration and Training Costs The Company maintains a demonstration and training department as a part of its sales and marketing activities and does not charge for product demonstrations or training. Training is not a condition or requirement of sale as most sales are made through distributors to their end customers. The Company conducts local and regional in-person, webinar and on-line demonstrations and use of force and escalation training to support law enforcement agencies with no purchase requirement. Such training, when provided, may occur before or after initial or subsequent purchase or field deployment of the Company’s products. The Company believes that law enforcement trainers and officers that have seen demonstrations or have been trained about its products are more supportive of their departments purchase and deployment of product. F-11 Table of Contents Research and Development Costs Research and development costs are expensed as incurred. Contract Manufacturers The Company employs contract manufacturers for production of certain components and sub-assemblies. The Company may provide parts and components to such parties from time to time but recognizes no revenue or markup on such transactions. Leases The Company adopted ASC Topic 842, Leases (“ Topic 842 ”) on January 1, 2019. In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842. Refer to Note 9, Leases for more information. Revenue Recognition The Company adopted ASC Topic 606, Revenue from Contracts with Customers on January 1, 2018. The Company enters into contracts that include various combinations of products, accessories, software and services, each of which are generally distinct and are accounted for as separate performance obligations. Product sales include BolaWrap products and accessories. Other revenue includes VR revenues, service, training and shipping revenues. 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. 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 cost of products sold. Shipping and Handling Costs Shipping and handling costs are included in cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs were $ 200 and $ 296 for the years ended December 31, 2023 and 2022, respectively. Actual revenues from shipping and handling were $ 37 and $ 109 for the years ended December 31, 2023 and 2022, respectively. Warranty Reserves The Company warrants its products and accessories to be free from defects in materials and workmanship for a period of one year from the date of purchase. The warranty is generally limited. The Company currently provides direct warranty service. International market warranties are generally similar to the US market. The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenues are recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period. The warranty reserve was $ 72 and $ 125 at December 31, 2023 and 2022. Actual warranty costs could differ from estimates. F-12 Table of Contents Segment Information ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. Income Taxes No income tax expense was recorded for the periods ended December 31, 2023 and 2022 due to losses incurred. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimates. Recently 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. 2. REVENUES AND PRODUCT COSTS Revenues consist of product revenue and other revenue. Product sales include BolaWrap products and accessories. Other revenue includes VR revenues, service, training and shipping revenues. The table below details the activity in our contract liabilities during the year ended December 31, 2023. Customer Deferred Deposits Revenue Balance at January 1, 2023 $ - $ 333 Additions, net 1,002 407 Transfer to revenue - ( 196 ) Balance at December 31, 2023 $ 1,002 $ 544 Current portion $ 1,002 $ 407 Long-term portion $ - $ 137 As of December 31, 2023, the Company’s deferred revenue of $ 544 consisted of $ 139 related to BolaWrap extended warranties and services, $ 216 related to Intrensic extended warranties and services, $ 171 related to VR, and $ 18 related to training. As of 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. F-13 Table of Contents 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 and amortized consistent with the recognition timing of the revenue for any such underlying performance obligations. The Company had no such assets as of December 31, 2023 and 2022 . The Company will apply the practical expedient to expense any sales commissions related to performance obligations with an amortization of one year or less when incurred within selling, general and administrative expense. 3. ASSET ACQUISITIONS Pursuant to the Professional Services and Technology Acquisition Agreement (the “Services Agreement”), dated as of November 22, 2022, and as amended on April 2, 2023, by and among the Company, Lumeto, Inc. (“Lumeto”) and Spatial Industries Group, Inc. (collectively, “Service Provider”), the Service Provider provides 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 one-time cash payment upon the execution of the Services Agreement of $ 700 , The Company determined during 2023 that the intangible related to software developed by Lumeto would not have future economic benefit and the value of the intangible was written off as a loss on impairment of $ 700 . On August 9, 2023, the Company entered into a Membership Interest Purchase Agreement (the “Intrensic Purchase Agreement”) by and among the Company, certain members of Intrensic, including Kevin Mullins, the Company’s former Chief Executive Officer (collectively, “Sellers”) and Buford Ortale, as the Seller’s representative. Under the terms of the Intrensic 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 the “Intrensic Acquisition”). The Intrensic Acquisition closed on August 16, 2023, in accordance with the terms of the Purchase Agreement. 4. FINANCIAL INSTRUMENTS Assets and liabilities recorded at fair value on a recurring basis in the 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: 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 US Treasury bill securities and Certificate of Deposits are classified as Level 1 because they are valued using quoted market prices. F-14 Table of Contents The following table shows the Company’s short-term investments by significant investment category as of December 31, 2023 and 2022. As of December 31, 2023 Adjusted Unrealized Unrealized Market Cost Gains Losses Value Level 1: Money Market Funds $ 1,793 $ - $ - $ 1,793 Certificate of Deposits 7,500 - - 7,500 Total Financial Assets $ 9,293 $ - $ - $ 9,293 As of December 31, 2022 Adjusted Unrealized Unrealized Market Cost Gains Losses Value Level 1: Money Market Funds $ 3,004 $ - $ - $ 3,004 U.S. Treasury securities in short-term investments 9,849 100 - 9,949 Certificate of Deposits 4,000 - - 4,000 Total Financial Assets $ 16,853 $ 100 $ - $ 16,953 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 year ended December 31, 2023 and 2022, $ 0 and $ 100 was recorded to accumulated other comprehensive loss and gain, respectively. Warrant liabilities are measured at fair value on a recurring basis. The subsequent measurement of the warrant liabilities as of December 31, 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: Level 3: December 31, 2023 Fair value at inception or the beginning of the period $ ( 7,717 ) Change in fair value of warrant liabilities ( 11,986 ) Fair value as of December 31, 2023 $ ( 19,703 ) 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 December 31, 2023 Expected stock price volatility 143 % Risk-free interest rate 3.85 % Dividends yield 0 % Expected life of warrants (years) 4.50 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. 5. 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: December 31, 2023 2022 Finished goods $ 3,521 $ 2,293 Raw materials 2,738 1,682 Reserve for Obsolescence ( 465 ) - Inventories – net $ 5,794 $ 3,975 F-15 Table of Contents 6. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: December 31, 2023 2022 Production and lab equipment $ 542 $ 513 Tooling 562 448 Computer equipment 615 531 Furniture, fixtures and improvements 196 181 1,915 1,673 Accumulated depreciation ( 1,406 ) ( 915 ) Property and equipment, net $ 509 $ 758 Depreciation expense was $ 479 and $ 475 for the years ended December 31, 2023 and 2022, respectively. 7. INTANGIBLE ASSETS AND GOODWILL Intangible Assets Intangible assets consisted of the following: December 31, 2023 2022 Amortizable intangible assets: Patents $ 873 $ 575 Trademarks 248 150 Purchased software and technology 1,752 1,962 Customer Relationship 160 - 3,033 2,687 Accumulated amortization ( 806 ) ( 462 ) Total amortizable 2,227 2,225 Indefinite life assets (non-amortizable) 421 344 Total intangible assets, net $ 2,648 $ 2,569 Amortization expenses were $ 345 and $ 287 for the years ended December 31, 2023 and 2022, respectively. The purchase of Intrensic in August 2023 resulted in several intangible assets recognized on the balance sheet including $ 80 in trademarks, $ 490 in purchased technology and $ 160 in customer relationships. The Company determined in December 2023 that the intangible related to software developed by Lumeto would not have future economic benefit and the value of the intangible was written down, incurring a loss on impairment of $ 700 . At December 31, 2023, annual amortization of intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following: 2024 $ 427 2025 422 2026 335 2027 185 2028 185 Thereafter 673 Total estimated amortization expense $ 2,227 F-16 Table of Contents Goodwill The table below summarizes the changes in the carrying amount of goodwill: Balance at January 1, 2023 $ - Acquired goodwill 1,610 Balance at December 31, 2023 $ 1,610 Goodwill acquired in 2023 relates to the purchase of Intrensic in August 2023. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES We are obligated to pay royalties pursuant to an exclusive Amended and Restated Intellectual Property License Agreement (the “License Agreement”), dated as of September 30, 2016, with Syzygy Licensing, LLC (“Syzygy”), a private technology invention, consulting and licensing company owned and controlled by Elwood G. Norris, a founder and former officer and current 5% stockholder of the Company, and James A. Barnes, a former officer and stockholder of the Company (see Note 16). Accounts payable includes $ 14 and $ 127 due to Syzygy pursuant to the License Agreement as of December 31, 2023 and 2022, respectively. Accrued liabilities consist of the following: December 31, 2023 2022 Patent and legal costs $ 21 $ 135 Accrued compensation 325 1,100 Warranty costs 72 125 Taxes and other 274 103 $ 692 $ 1,463 Accrued compensation includes $ 0 and $ 1,022 in employee bonuses and commissions payable at December 31, 2023 and 2022, respectively. Changes in our estimated product warranty costs were as follows: Year Ended December 31, 2023 2022 Balance, beginning of period $ 125 $ 96 Warranty settlements ( 169 ) ( 181 ) Warranty provision 116 210 Balance, end of period $ 72 $ 125 9. LEASES The Company determines if an arrangement is a lease at inception. The guidance in FASB ASC Topic 842, Leases defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease right of use ( “ ROU ”) assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. Due to a lack of financing history or ability, the Company uses an estimate of low-grade debt rate published by the Federal Reserve Bank as its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred. F-17 Table of Contents For leases beginning on or after January 1, 2019 , lease components are accounted for separately from non-lease components for all asset classes. On January 21, 2023, the Company’s lease was amended to extend the expiration date to July 31, 2025. Upon execution of the amendment, which was deemed a lease modification, the Company reassessed the lease liability using the discount rate determined at the modification date and recorded an additional ROU asset for the same amount. The Company’s lease contains renewal provisions and escalating rental clauses and generally requires the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of the existing lease agreement were not included in the determination of the operating lease liabilities and the ROU assets. The Company also reassessed the lease classification and concluded that the lease continues to be an operating lease. Amortization of ROU operating lease assets was $ 138 and $ 101 for the years ended December 31, 2023 and 2022, respectively. Operating lease expense for capitalized operating leases included in operating activities was $ 177 and $ 118 for the years ended December 31, 2023 and 2022, respectively. Operating lease obligations recorded on the balance sheet at December 31, 2023 are: Operating lease liability- short term $ 616 Operating lease liability - long term 1,671 Total Operating Lease Liability $ 2,287 Future lease payments included in the measurement of lease liabilities on the balance sheet at December 31, 2023 for future periods are as follows 2024 $ 443 2025 567 2026 507 2027 522 2028 538 Thereafter 1,271 Total future minimum lease payments 3,848 Less imputed interest ( 1,561 ) Total $ 2,287 The weighted average remaining lease term is 6.77 years, and the weighted average discount rate is 14.2 %. Certain leases contain provisions for payment of real estate taxes, insurance and maintenance costs by the Company. These expenses are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. The Company had $ 8 and $ 39 variable lease expenses during the year December 31, 2023 or 2022. The Company had $ 92 and $ 11 short-term lease expense during the year December 31, 2023, or 2022. The Company does not have any finance leases. 10. WARRANTS On June 29, 2023, the Company entered into a Securities Purchase Agreement (the “Series A Purchase Agreement”) with certain directors of the Company and certain accredited and institutional investors (collectively, the “Series A Investors”), pursuant to which it agreed to sell to the Series A Investors in a registered direct offering (the “Series A Offering”) (i) 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 (the “Series A Preferred Stock”), initially convertible into up to 6,896,553 shares of the Company’s common stock, at an initial conversion price of $ 1.45 per share (the “Conversion Price”), and (ii) warrants to acquire up to an aggregate of 6,896,553 shares of Common Stock (the “Series A Warrants”). Each Series A Warrant has an exercise price of $ 1.45 , became exercisable after the date that was six months from the date of issuance and will expire 5 years following the date of issuance. The exercise price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions). The closing of the Offering occurred on July 3, 2023. The aggregate gross proceeds from the Offering were $ 10,000 , of which $ 7,717 was allocated to the Warrants. The Company expects to use the net proceeds from the Offering for general corporate purposes. F-18 Table of Contents 11. DEBT The Company’s debt at December 31, 2023 and 2022 included operating lease liabilities (see Note 9). 12. 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”), of which 10,000 are designated as Series A Preferred Stock. On July 3, 2023, the Company filed the Certificate of Designations with the State of Delaware, designating 10,000 shares of its Preferred Stock as Series A Convertible Preferred Stock. The terms of the Series A Preferred Stock are as set forth in the form of Certificate of Designations of the Series A Preferred Stock (the “Certificate of Designations”). The Series A Preferred Stock is convertible into shares of common stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $ 1.45 . The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The holders of the Series A Preferred Stock are entitled to dividends of 8 % per annum, compounded monthly, which are payable in cash or shares of Common Stock, or a combination thereof, at the Company’s option in accordance with the terms of the Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Series A Preferred Stock will accrue dividends at the rate of 20 % per annum. If the Company elects to pay any dividends in shares of Common Stock, the Conversion Price used to calculate the number of shares issuable will equal to the lower of (i) the then applicable Conversion Price and (ii) 85% of the arithmetic average of the three (3) lowest closing prices of the Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the dividend payment date, provided that such price shall not be lower than the lower of (x) $0.2828 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events ) and (y) 20% of the “Minimum Price” (as defined in Nasdaq Stock Market Rule 5635) on the date of the Stockholder Approval (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market. The holders of the Series A Preferred Stock have no voting rights, other than with respect to certain matters affecting the rights of the Series A Preferred Stock. The Company may require holders to convert their shares of Series A Preferred Stock into shares of Common Stock if the closing price of the Company’s Common Stock exceeds $ 8.00 per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the Common Stock exceeds $ 2,000,000 per day during the same period, provided that certain equity conditions described in the Certificate of Designations are satisfied. At any time beginning 18 months from the date of the issuance, provided that provided that that the Company has filed all reports required to be filed by it pursuant to the Exchange Act on a timely basis for a continuous period of one year and provided further that certain equity conditions described in the Certificate of Designations are satisfied, the Company has the right to redeem in cash all or some of the shares of the Series A Preferred Stock outstanding at such time at a redemption price equal to the product of (x) 125% multiplied by (y) the sum of (A) the stated value of the Series A Preferred Stock plus (B) all declared and unpaid Dividends on such Preferred Stock and any other unpaid amounts then due and payable hereunder with respect to such Series A Preferred Stock, plus (C) the make-whole amount, plus (D) any accrued and unpaid late charges with respect to such stated value and amounts payable pursuant to clause (B) as of such date of determination. F-19 Table of Contents On August 19, 2024, the Company entered into an Amendment Agreement (the “Series A Amendment”) with the Required Holders (as defined in the Certificate of Designations). Pursuant to the Series A Amendment, the Required Holders agreed that (A) the unpaid and accrued dividends on the Series A Preferred Stock due July 1, 2024 (the “July Delinquent Dividend Amount”), shall be payable, at the option of the Company, in (i) cash and/or (ii) shares of Common Stock, at a price per share of Common Stock equal to the lower of (x) $1.00 and (y) the Dividend Conversion Price (as defined in the Certificate of Designations), using July 1, 2024, as the applicable date of determination in accordance with the Certificate of Designations; (B) the dividends due on October 1, 2024 (the “October Dividend Amount” and, together with the July Delinquent Dividend Amount, the “Delinquent Dividend Amounts”), shall be payable in shares of Common Stock based on a per share price of Common Stock equal to 80% of the arithmetic average of the three (3) lowest closing sale prices of the Common Stock during the month of September 2024; and (C) such Delinquent Dividend Amounts and any Dividend Balance Shares (as defined in the Certificate of Designations), with respect thereto, if applicable, shall be delivered on October 1, 2024. The Company and the Required Holders further agreed pursuant to the Agreement to amend (i) the Certificate of Designations, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “Certificate of Amendment”) and (ii) the Series A Purchase Agreement to amend the definition of “Excluded Securities.” The Certificate of Amendment amends the Certificate of Designations to, among other things, (A) allow for the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company; provided that such issuance is approved by the Company’s stockholders prior to such issuance, and (B) amend certain conditions required for (i) a mandatory conversion of the Series A Preferred Stock, and (ii) the Company’s right to redeem, all or a portion, of the Series A Preferred Stock outstanding pursuant to an optional redemption, in each case, pursuant to the terms of the Certificate of Designations. The Certificate of Amendment was filed with the Secretary of State of the State of Delaware on August 23, 2024. $ 2,036 of the net proceeds less transaction cost of the Series A Purchase Agreement was allocated to the Series A Preferred Stock. For the year ended December 31, 2023, authorized and declared dividends totaling $ 392 of which $ 58 was paid in cash $ 232 was paid in shares of the Company’s Common Stock and the balance of $ 102 was accrued in payables as of December 31, 2023. As of December 31, 2023, 102 Shares of Series A Preferred Stock were converted into approximately 77 thousand shares of Common Stock. The Company’s failure to timely file its Annual Report on Form 10-K for the year ended December 31, 2023, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, each constituted a Triggering Event (the “Filing Triggering Events”) and equity conditions failures pursuant to the terms of the Certificate of Designations. As a result, the dividend rate of the Series A Preferred Stock was automatically increased to 20 % per annum beginning on April 16, 2024, or the filing deadline of the Form 10-K for the year ended December 31, 2023, and shall continue until such date as the Filing Triggering Event is cured. As of the date of this Annual Report on Form 10-K for the year ended December 31, 2023, the Filing Triggering Event has not been cured. 13. 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 authorized an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock, in June 2020 authorized an additional 1,900,000 shares of Common Stock, in June 2021 authorized an additional 1,500,000 shares of Common Stock and in June 2022 authorized an additional 1,500,000 shares of Common Stock, for a total of 9,000,000 shares subject to the Plan. At December 31, 2023, there were 1,391,183 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 $ 112 of share-based compensation expense resulting from the resignation of the Company’s former 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. The following table summarizes stock option activity for the year ended December 31, 2023: Weighted Average Options on Remaining Aggregate Common Exercise Contractual Intrinsic Shares Price Term Value Outstanding January 1, 2023 5,491,399 $ 3.72 5.96 $ 92 Granted 2,592,309 $ 1.68 Exercised ( 123,056 ) $ 1.69 Forfeited, cancelled, expired ( 3,303,017 ) $ 3.80 Outstanding December 31, 2023 4,657,635 $ 2.52 8.75 $ 3,979 Exercisable December 31, 2023 1,160,580 $ 4.02 7.86 $ 274 F-20 Table of Contents At December 31, 2023, there were 2,675,071 service-based stock options outstanding, and 1,982,564 performance-based stock options outstanding, of which 692,398 performance-based stock options were granted in April 2022 to the Company’s previous Chief Executive Officer and 1,290,166 were granted in October 2023 to the Company's current Chief Executive Officer subject to future market capitalization targets. 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 Year Ended December 31, 2023 2022 Expected stock price volatility 76 % 49 % Risk-free interest rate 4.21 % 2.47 % Forfeiture rate 0 % 0 % Expected dividend yield 0 % 0 % Expected life of options – years 6.00 5.96 Weighted-average fair value of options granted $ 1.33 $ 0.88 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 1,290,166 market condition performance options granted in October 2023 to the Company’s Chief Executive Officer. The assumptions used in the Monte Carlo Simulation were stock price on date of grant of $ 1.40 , contract term of 10 years, expected volatility of 76 % and risk-free interest rate of 4.65 %. Vesting is based on sustained market capitalization of $ 100 million, $ 150 million and $ 200 million and expected to be exercised at the midpoint of the vesting period resulted in implied service periods ranging from approximately 1 to 3 years. Stock option expense was $ 967 and $ 1,770 for the years ended December 31, 2023 and 2022, respectively. The following table summarizes information about stock options outstanding at December 31, 2023: Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life (Years) Price Exercisable Price 1.00 – 2.00 2,084,503 9.59 $ 1.44 75,527 $ 1.79 2.01 – 3.00 1,675,699 8.00 $ 2.76 487,967 $ 2.69 3.01 – 4.00 250,000 10.00 $ 3.10 - $ - 4.01 – 25.00 647,433 5.57 $ 5.39 597,086 $ 5.39 F-21 Table of Contents 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 years ended December 31, 2023 and 2022: Weighted Average Weighted Average Service-Based Grant Date Vesting RSU's Fair Value Period (Years) Unvested at January 1, 2022 269,303 $ 6.47 2.0 Granted - service based 988,850 $ 2.49 Vested ( 268,548 ) $ 4.13 Forfeited and cancelled ( 67,273 ) $ 6.45 Unvested at December 31, 2022 922,332 $ 2.88 2.11 Granted - service based 1,289,784 $ 1.41 Vested ( 1,056,360 ) $ 1.83 Forfeited and cancelled ( 345,168 ) $ 2.70 Unvested at December 31, 2023 810,588 $ 1.73 2.52 482,143 of the 1,289,784 RSUs granted included in the table above were granted in October 2023 are performance based RSUs, subject to vesting terms based on future market capitalization. RSU expense was $ 1,018 and $ 1,455 for the years ended December 31, 2023 and 2022, respectively. Share-Based Compensation Expense The Company recorded share-based compensation in its statements of operations for the relevant periods for options and RSUs as follows: For the Year Ended December 31, 2023 2022 Selling, general and administrative $ 1,696 $ 2,684 Research and development 289 541 Total share-based expense $ 1,985 $ 3,225 As of December 31, 2023, total estimated compensation cost of stock options granted and outstanding but not yet vested was $ 3,103 which is expected to be recognized over the weighted average period of 2.65 years. As of December 31, 2023, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $ 1,144 which is expected to be recognized over the weighted average period of 1.81 years. 14. 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 the years ended December 31, 2023 and 2022, was $ 0 and $ 0 , respectively. 15. COMMITMENTS AND CONTINGENCIES Facility Lease In November 2023, the Company commenced a lease in an office building located at 3480 Main Highway, Coconut Grove, Florida. The lease of 4,487 square feet for an initial term of 94 months, including 5 months of rent abatement in the first two years of the lease. The aggregate monthly payments will restart in 2024 for $ 40 per month, increasing 3 % each year through the lease term, plus other certain costs and charges as specified in the lease agreement. F-22 Table of Contents Our executive offices, sales, training, assembly, and warehouse facilities are located at 1817 West 4th Street, Tempe, Arizona. The lease of 11,256 square feet commenced in June 2019 and was for an initial lease term through July 2022. In January 2022 we renewed this lease for three years with aggregate monthly payments of $ 10 commencing August 2022, increasing 4 % annually through the term ending July 31, 2025. 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 $ 199 and $ 274 for royalties incurred during the years ended December 31, 2023 and 2022, respectively. Maximum payout still available under this arrangement is $ 81 . Purchase Commitments At December 31, 2023 the Company was committed for approximately $ 662 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 arises 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 December 31, 2023, we had no provision for liability under existing litigation. 16. RELATED PARTY TRANSACTIONS Series A Preferred Stock On June 29, 2023, the Company entered into the Series A Purchase Agreement with certain investors, including Scot Cohen, the Company’s Chief Executive Officer, and V4 Global LLC (“V4”). Mr. Cohen has voting and dispositive control with respect to the securities as is deemed to be the beneficial owner of the securities held by V4. Pursuant to the Series A Purchase Agreement, the Company issued Mr. Cohen and V4 an aggregate of 3,000 shares of Series A Preferred Stock and Series A Warrants to purchase up to an aggregate of 2,068,966 shares of Common Stock for aggregate gross proceeds of $ 3,000 . F-23 Table of Contents Consulting Services Commencing in October 2017, the Company began reimbursing Mr. Elwood Norris, a former officer, current 5% stockholder and consultant of the Company, $ 1.5 per month on a month-to-month basis for laboratory facility costs and $ 7.5 per month on a month-to month basis for invention consulting services, for an aggregate of $ 108 during each of the years ended December 31, 2023, and 2022. The Company is obligated to pay royalties and development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated September 30, 2016, with Syzygy Licensing, LLC (“Syzygy”), a company owned and controlled by a 5% stockholder of the Company, Mr. Elwood Norris, and a former officer of the Company, 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. During the years ended December 31, 2023, and 2022 the Company incurred royalties to Syzygy of $ 199 and $ 274 , respectively. Intrensic Acquisition On August 9, 2023, the Company entered into the Intrensic Purchase Agreement with the Sellers, including Kevin Mullins, the Company’s former Chief Executive Officer. Under the terms of the Intrensic Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell, 100 % of the Membership Interests of Intrensic for the following consideration upon the Intrensic Closing: (i) $ 554 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. The Intrensic Acquisition closed on August 16, 2023, in accordance with the terms of the Intrensic Purchase Agreement. See Notes 8 and 15 for additional information on related party transactions and obligations. 17. INCOME TAXES Until its reverse recapitalization on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. The Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized. The provision/(benefit) for Income Taxes for the years ended December 31, 2023 and 2022, consists of the following: Year Ended December 31, 2023 2022 Current Tax Expense/(Benefit) Deferred Tax Expense/(Benefit) $ ( 4,333 ) $ 3,756 Change in Valuation Allowance 4,333 ( 3,756 ) Income Tax Provision/(Benefit) $ - $ - The Company’s effective income tax rate is different from the federal statutory tax rate in 2023 predominantly due to the valuation allowance, permanent differences, and state taxes. A reconciliation of the statutory U.S. Federal Tax Rate to the Company's Effective Tax Rate is as follows: Year Ended December 31, 2023 2022 U.S. Statutory Federal Income Tax Rate $ ( 6,355 ) $ 3,700 State Income Taxes, net of Federal Income tax Benefit ( 421 ) 345 Permanent differences and other 2,433 ( 289 ) Valuation Allowance 4,333 ( 3,756 ) Income Tax Provision/(Benefit) $ - $ - F-24 Table of Contents Deferred income taxes represent the tax effect of transactions that are reported in different periods for financial and tax reporting purposes. The combined temporary differences and carryforwards of each tax paying component of the Company that give rise to a significant portion of the deferred income tax benefits and liabilities are as follows as of December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Deferred income tax assets: Net operating loss carryforwards $ 17,002 $ 14,898 Sec. 174 capitalization 1,494 - Research and development credits 81 65 Stock Based Compensation 1,447 1,216 Accruals and Other 995 324 Total deferred tax assets (gross) 21,018 16,503 Less valuation allowance ( 20,302 ) ( 15,969 ) Net deferred tax assets 716 534 Deferred income tax liabilities: - - Depreciation and other ( 716 ) ( 534 ) Net deferred tax liabilities $ ( 716 ) $ ( 534 ) Net deferred income taxes $ - $ - As of December 31, 2023, the Company had available federal net operating loss carryforwards of approximately $ 703 which begin to expire in 2037, and approximately $ 78.8 million which will never expire. The Company has available state net operating loss carryforwards of approximately $ 30.8 million as of December 31, 2023, which begin to expire in 2037. As of December 31, 2023, the Company has federal research and development tax credits of approximately $ 81 . The Company has provided a valuation allowance against the Company’s deferred tax assets, since, in the opinion of management, based upon the earnings history of the Company, it is not more likely than not that the benefits will be realized. All or a portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has no material uncertain tax positions that qualify for either recognition or disclosure in consolidated financial statements. It is the Company's policy to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2023 and 2022, the Company has accrued no interest and no penalties related to uncertain tax positions. The Company does not have any federal, or state and local income tax returns currently under examination. F-25 Table of Contents 18. MAJOR CUSTOMERS AND RELATED INFORMATION Major Customers For the year ended December 31, 2023, revenues from one distributor accounted for approximately 37 % of revenues with no other single customer accounting for more than 10% of total revenues. Accounts receivable from one distributor accounted for 67 % of net accounts receivable at December 31, 2023. For the year ended December 31, 2022, revenues from two distributors accounted for approximately 36 % and 25 % of revenues with no other single customer accounting for more than 10% of total revenues. Accounts receivable from one distributor accounted for 70 % of net accounts receivable at December 31, 2022. The following table summarizes revenue by geographic region. Revenue is attributed to countries based on customer’s delivery location. For the Year Ended December 31, 2023 2022 Americas $ 3,773 $ 5,315 Europe, Middle East and Africa 2,302 2,487 Asia Pacific 58 247 Total revenues $ 6,133 $ 8,049 See Note 1 – Concentrations of Risks for information on reliance on suppliers. 19. BUSINESS COMBINATION On August 8, 2023, the Company entered into the Intrensic Purchase Agreement with the Sellers. The Intrensic Closing occurred on August 16, 2023. Under the terms of the Intrensic Purchase Agreement, the Company agreed to purchase, and Sellers agreed to sell, the Membership Interests for the following consideration at the Intrensic Closing: (i) $ 554 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 valued at approximately $ 1,938 . The Company assessed the historical financial information of Intrensic to determine if it would materially impact the Company’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 table below sets forth the 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. Intangible assets were valued using established valuation techniques, as follows: Technology and trade names and trademarks were valued using the relief-from-royalty method, whereby the benefit of ownership of the intellectual property is valued as the relief from the royalty expense that would otherwise be incurred. Customer relationships were valued using the multi-period excess earnings method under the income approach. Cash and cash equivalents $ 3 Accounts receivable 91 Inventory 61 Technology (included in Intangibles) 490 Customer relationships (included in Intangibles) 160 Trademarks and trade names (included in Intangibles) 80 Goodwill 1,610 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. F-26 Table of Contents 20. SUBSEQUENT EVENTS On January 5, 2024, Chris DeAlmeida’s employment as Chief Financial Officer of the Company was terminated without cause, effective immediately, pursuant to a Separation Agreement and Mutual Release of Claims. The termination of Mr. DeAlmeida’s employment was not the result of any disagreement regarding any matter relating to the Company’s operations, policies, or practices. On January 14, 2024, the Board of Directors appointed Scot Cohen the position of Executive Chairman and Chief Executive Officer. In connection therewith, the Company and Mr. Cohen entered into an amendment, dated January 14, 2024, to Mr. Cohen’s Employment Agreement, dated October 12, 2023, to among other things, reflect Mr. Cohen’s new title. In connection with Mr. Cohen’s appointment as Chief Executive Officer, on January 14, 2024, the Board of Directors approved an amendment to the Non-Statutory Stock Option Agreement, dated as of October 12, 2023, between the Company and Mr. Cohen, providing that the stock options issued thereunder shall vest in four annual installments, provided that Mr. Cohen is still employed by the Company or an affiliate of the Company on the applicable vesting date. The other terms of the stock options remain unchanged. In addition, on January 18, 2024, the Board granted Mr. Cohen an award of 632,911 restricted shares of Common Stock of the Company under the Company’s 2017 Equity Compensation Plan, vesting upon the achievement of certain performance goals. On January 14, 2024, the Board of Directors appointed Kevin Mullins to the position of President. In connection therewith, the Company and Mr. Mullins entered into an amendment, dated January 14, 2024, to Mr. Mullins’s Employment Agreement, dated April 13, 2022 to, among other things, reflect Mr. Mullin’s new title. On April 5, 2024, the Board of Directors appointed Mr. Cohen to the position of Interim Principal Financial Officer and Principal Accounting Officer. On April 24, 2024, the Company received notice from Rosenberg Rich Baker Berman, P.A. (“RRBB P.A.”) that it had resigned as the Company’s independent registered public accounting firm, effective immediately. The reports of RRBB P.A. on the Company’s financial statements for the fiscal years ended December 31, 2022 and December 31, 2021, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended December 31, 2022, and December 31, 2021, and the subsequent interim period through April 24, 2024, there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S K) with RRBB P.A. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of RRBB P.A., would have caused RRBB P.A. to make reference to the subject matter of the disagreements in connection with its reports on the Company’s financial statements for such years. Also during this time, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S K. On May 7, 2024, Kevin Mullins notified the Company of his intention to resign from his position as President of the Company, effective May 23, 2024. Mr. Mullins’ resignation was not the result of any disagreement regarding any matter relating to the Company’s operations, policies, or practices. On May 7, 2024, the Audit Committee of the Board of Directors engaged HTL International, LLC (“HTL”) as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2023, effective May 7, 2024. During the fiscal years ended December 31, 2023, 2022 and 2021, and the subsequent interim period from January 1, 2024 through May 7, 2024, neither the Company nor anyone on its behalf has consulted with HTL regarding (i) the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, and neither a written report nor oral advice was provided to the Company that HTL concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement” as defined in Item 304(a)(1)(iv) of Regulation S-K, or a “reportable event” as defined in Item 304(a)(1)(v) of Regulation S-K. On May 28, 2024, Kevin Mullins, tendered his resignation from his role as director of the Company, effective as of May 28, 2024. Mr. Mullins’s resignation from the Board of Directors was not in connection with any disagreement between Mr. Mullins and the Company, its management, the Board of Directors or any committee of the Board of Directors on any matter relating to the Company’s operations, policies or practices, or any other matter. F-27 Table of Contents Nasdaq Deficiency Notice On April 18, 2024, the Company received a notice (the “Initial Notice”) from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that as it has not yet filed its Annual Report on Form 10-K (the “2023 Form 10 K”) for the year ended December 31, 2023, the Company is not in compliance with Listing Rule 5250(c)(1) (the “Listing Rule”) for continued listing on Nasdaq. Additionally, on May 17, 2024, the Company received a notice (the “May Notice") from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “Q1 Form 10 Q”) for the three months ended March 31, 2024, that the Company is not in compliance with the Listing Rule. On August 16, 2024, the Company received a notice (the “August Notice," and collectively with the Initial Notice and the May Notice, the “Notices”) from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “Q2 Form 10 Q,” and collectively with the 2023 Form 10-K and Q1 Form 10-Q, the “Delinquent Filings”) for the six months ended June 30, 2024, that the Company is not in compliance with the Listing Rule for continued listing on Nasdaq The Company previously submitted a plan to Nasdaq to regain compliance with respect to the delinquent 2023 Form 10-K and Q1 Form 10-Q (the “Plan”), and Nasdaq granted an exception until August 30, 2024, to file the delinquent 2023 Form 10-K and Q1 Form 10-Q. Pursuant to the August Notice, the Company is required to submit an update to the Plan to Nasdaq no later than September 3, 2024, to regain compliance with respect to the filing requirements. Nasdaq may grant the Company an additional exception of up to a maximum of 180 calendar days from the filing due date of the 2023 Form 10-K to file all Delinquent Filings, or until October 14, 2024, to regain compliance. The Notices do not have an immediate effect on the listing of the Company’s common stock. The Company is currently evaluating its options for regaining compliance. There can be no assurance that the Company will regain compliance with the Nasdaq’s rules or maintain compliance with any of the other Nasdaq continued listing requirements. Series A Preferred Stock Amendment On August 19, 2024, the Company entered into an Amendment Agreement (the “Series A Amendment”) with the Required Holders (as defined in the Certificate of Designations). Pursuant to the Series A Amendment, the Required Holders agreed that (A) the unpaid and accrued dividends on the Series A Preferred Stock due July 1, 2024 (the “July Delinquent Dividend Amount”), shall be payable, at the option of the Company, in (i) cash and/or (ii) shares of Common Stock, at a price per share of Common Stock equal to the lower of (x) $ 1.00 and (y) the Dividend Conversion Price (as defined in the Certificate of Designations), using July 1, 2024, as the applicable date of determination in accordance with the Certificate of Designations; (B) the dividends due on October 1, 2024 (the “October Dividend Amount” and, together with the July Delinquent Dividend Amount, the “Delinquent Dividend Amounts”), shall be payable in shares of Common Stock based on a per share price of Common Stock equal to 80% of the arithmetic average of the three (3) lowest closing sale prices of the Common Stock during the month of September 2024; and (C) such Delinquent Dividend Amounts and any Dividend Balance Shares (as defined in the Certificate of Designations), with respect thereto, if applicable, shall be delivered on October 1, 2024. The Company and the Required Holders further agreed pursuant to the Agreement to amend (i) the Certificate of Designations, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “Certificate of Amendment”) and (ii) the Series A Purchase Agreement to amend the definition of “Excluded Securities.” The Certificate of Amendment amends the Certificate of Designations to, among other things, (A) allow for the payment of dividends in the form of Common Stock to a holder of the Series A Preferred Stock who serves as a director, officer or employee of the Company; provided that such issuance is approved by the Company’s stockholders prior to such issuance, and (B) amend certain conditions required for (i) a mandatory conversion of the Series A Preferred Stock, and (ii) the Company’s right to redeem, all or a portion, of the Series A Preferred Stock outstanding pursuant to an optional redemption, in each case, pursuant to the terms of the Certificate of Designations. F-28 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tempe, State of Arizona, on the 28th day of August, 2024. WRAP TECHNOLOGIES, INC Date: August 28, 2024 By: /s/ Scot Cohen Scot Cohen (Principal Executive Officer and Interim Principal Financial Officer and Principal Accounting Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Position Date /s/ Scot Cohen Chief Executive Officer and Director August 28, 2024 Scot Cohen (Principal Executive Officer and Interim Principal Financial Officer and Principal Accounting Officer) /s/ Bruce Bernstein Director August 28, 2024 Bruce Bernstein /s/ Marc Savas Director August 28, 2024 Marc Savas /s/ Rajiv Srinivasan Director August 28, 2024 Rajiv Srinivasan /s/ Timothy Szymanski Director August 28, 2024 Timothy Szymanski