WRAP TECHNOLOGIES, INC. 10-Q

Item 1. Financial Statements Wrap Technologies, Inc. Condensed Consolidated Balance Sheets (in thousands, except par value and share amounts) March 31, 2024 (unaudited) December 31, 2023 (audited) ASSETS Current assets: Cash and cash equivalents $ 3,179 $ 3,955 Short-term investments 5,000 7,500 Accounts receivable and contract assets, net 2,347 3,025 Inventories, net 6,366 5,794 Prepaid expense and other current assets 825 953 Total current assets 17,717 21,227 Property and equipment, net 408 509 Operating lease right-of-use asset, net 2,185 2,256 Intangible assets, net 2,608 2,648 Goodwill 1,610 1,610 Other assets 244 251 Total assets $ 24,772 $ 28,501 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,092 $ 1,110 Accrued liabilities 835 692 Customer deposits 20 1,002 Deferred revenue - short term 363 407 Operating lease liability - short term 619 616 Warrants 15,524 19,703 Total current liabilities 18,453 23,530 Long-term liabilities: Deferred revenue - long term 128 137 Operating lease liability - long term 1,708 1,671 Total long-term liabilities 1,836 1,808 Total liabilities $ 20,289 $ 25,338 Commitments and contingencies (Note 13) Stockholders' equity: Preferred stock - 5,000,000 authorized; par value $ 0.0001 per share; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively - - Common stock - 150,000,000 authorized; par value $ 0.0001 per share; 44,373,107 and 43,855,503 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively $ 4 $ 4 Convertible Preferred Stock - 10,000 authorized, par value $ 0.0001 per share; 9,798 and 9,898 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 1,995 2,016 Additional paid-in capital 100,544 99,131 Accumulated deficit ( 98,060 ) ( 97,988 ) Total stockholders' equity 4,483 3,163 Total liabilities and stockholders' equity $ 24,772 $ 28,501 See accompanying notes to unaudited condensed consolidated interim financial statements. 1 Wrap Technologies, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) (unaudited) Three Months ended March 31, 2024 2023 Revenues: Product sales $ 1,327 $ 616 Other revenue 149 95 Total revenues 1,476 711 Cost of revenues 640 359 Gross profit 836 352 Operating expenses: Selling, general and administrative 4,220 3,540 Research and development 755 1,072 Total operating expenses 4,975 4,612 Loss from operations ( 4,139 ) ( 4,260 ) Other income (expense): Interest Income 78 236 Change in fair value of warranty liabilities 4,179 - Other ( 1 ) ( 4 ) Total other income (expense), net 4,256 232 Net income (loss) $ 117 $ ( 4,028 ) Less: Convertible preferred stock dividends ( 189 ) - Net loss attributable to common stockholders $ ( 72 ) $ ( 4,028 ) Net loss per basic and diluted common share $ - $ ( 0.10 ) Weighted average common shares used to compute net loss per basic and diluted common share 44,155,391 41,415,808 Comprehensive loss: Net income (loss) $ ( 72 ) $ ( 4,028 ) Comprehensive loss $ ( 72 ) $ ( 4,028 ) See accompanying notes to unaudited condensed consolidated interim financial statements. 2 Wrap Technologies, Inc. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited) 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, 2023 41,175,993 $ 4 - $ - $ 94,333 $ ( 67,376 ) $ 94 $ 27,055 Common shares issued upon exercise of stock options 250 - - - - - - - Share-based compensation expense - - - - 628 - - 628 Common shares issued upon vesting of restricted stock units 94,057 - - - - - - - Settlement – US Treasury bills - - - - - - ( 94 ) ( 94 ) Net loss for the period - - - - - ( 4,028 ) - ( 4,028 ) Balance at March 31, 2023 41,270,300 $ 4 - $ - $ 94,961 $ ( 71,404 ) $ - $ 23,561 Balance at January 1, 2024 43,855,503 $ 4 9,898 $ 2,016 $ 99,131 $ ( 97,988 ) $ - $ 3,163 Common shares issued upon exercise of stock options 232,081 - - - 588 - - 588 Share-based compensation expense - - - - 675 - - 675 Dividends on convertible preferred stock 128,233 - - - 129 ( 189 ) - ( 60 ) Common shares issued upon convertible preferred stock exercising conversion rights 74,484 - ( 100 ) ( 21 ) 21 - - - Common shares issued upon vesting of restricted stock units 82,806 - - - - - - - Net income for the period - - - - - 117 - 117 Balance at March 31, 2024 44,373,107 $ 4 9,798 $ 1,995 $ 100,544 $ ( 98,060 ) $ - $ 4,483 3 Wrap Technologies, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months ended March 31, 2024 2023 Cash Flows From Operating Activities: Net income (loss) $ 117 $ ( 4,028 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 223 200 Share-based compensation 675 628 Warranty provision 21 ( 33 ) Change in fair value of warrant liabilities ( 4,179 ) - Non-cash lease expense 71 26 Provision for doubtful accounts - ( 8 ) Inventory obsolescence reserve 12 - Changes in assets and liabilities: Accounts receivable 683 1,687 Inventories ( 584 ) ( 1,652 ) Prepaid expenses and other current assets 129 ( 83 ) Accounts payable ( 19 ) ( 42 ) Operating lease liability 39 ( 26 ) Customer deposits ( 982 ) 1 Accrued liabilities and other 164 306 Warranty settlement ( 42 ) ( 1 ) Deferred Revenue ( 52 ) ( 42 ) Net cash used in operating activities ( 3,724 ) ( 3,067 ) Cash Flows From Investing Activities: Purchase of short-term investments - ( 2,645 ) Proceeds from maturities of short-term investments 2,500 10,000 Capital expenditures for property and equipment ( 14 ) ( 15 ) Investment in patents and trademarks ( 66 ) ( 131 ) Proceeds from long-term deposits - 31 Net cash provided by investing activities 2,420 7,240 Cash Flows From Financing Activities: Proceeds from exercise of stock options 588 - Dividends settled in Cash ( 60 ) - Net cash provided by financing activities 528 - Net (decrease) increase in cash and cash equivalents ( 776 ) 4,173 Cash and cash equivalents, beginning of period 3,955 5,330 Cash and cash equivalents, end of period $ 3,179 $ 9,503 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Change in unrealized gain on short-term investments $ ( 94 ) Dividends on convertible preferred stock $ 189 $ - Dividends settled with common stock $ 129 $ - 4 Wrap Technologies, Inc. Notes to Condensed Consolidated Interim Financial Statements (in thousands, except per share and share amounts) (unaudited) 1. ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT DEVELOPMENTS Organization and Business Description Wrap Technologies, Inc., a Delaware corporation (the “ Company ”, “ we ”, “ us ”, and “ our ”), is a publicly traded company with 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. Basis of Presentation The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“ SEC ”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“ U.S. GAAP ”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “ Annual Report ”), as filed with the SEC on August 28, 2024. The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated balance sheet as of December 31, 2023, contained in the Annual Report. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year. Where necessary, the prior year’s information has been reclassified to conform to the current year presentation. Principles of Consolidation The Company has two wholly owned subsidiaries, Wrap Reality, Inc., an Arizona corporation, formed in December 2020 that sells a virtual reality (“ VR ”) training system primarily targeting law enforcement agencies and Intrensic, LLC (“Intrensic”), 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. Segment and Related Information The Company operates as a single segment. The Company’s chief operating decision maker is Scot Cohen, the Company’s Executive Chairman and Chief Executive Officer, who manages operations for purposes of allocating resources. Refer to Note 15. Major Customers and Related Information for further discussion. Goodwill Goodwill represents the difference, if any, between the aggregate consideration paid for an acquisition and the fair values of the underlying net assets and liabilities assumed from an acquired business. Goodwill is not amortized, but instead is tested for impairment. The Company tests goodwill for impairment on an annual basis during the fourth quarter, or more frequently if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process. Definite-lived Intangible Assets Definite-lived intangible assets represent certain trade names, patents, licenses, software, acquired technology and customer relationships. Definite-lived intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses, if any. Definite-lived intangible assets acquired through the business combination are measured at fair value at the acquisition date. The Company amortizes these acquired definite-lived intangibles assets with a finite life on a straight-line basis, over 6 years for technology; 7 years for customer relationships; and 8 years for trademarks and trade names. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions (e.g., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued expense, valuation of warrants, and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenue and expense during the reporting period. Actual results could materially differ from those estimates. 5 Warrants The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company accounts for the warrants issued in accordance with the guidance contained in ASC 815-40-15-7C, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations. Series A Preferred Stock The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 480 and ASC 815 to determine if those instruments or embedded components of those instruments qualify as derivatives and are subject to bifurcation accounting. The Company determines that the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host contract. The convertible instruments are accounted for as a single hybrid instrument. Additionally, the convertible instruments do not have any redemption features that would preclude permanent equity classification in accordance with the guidance contained in ASC 480-10-S99. The Company issued the Series A Warrants (as defined herein), which are classified as liabilities and measured at fair value on a recurring basis, and Series A Preferred Stock (as defined herein) in one transaction. The issuance proceeds were allocated by using the with-and-without method. Under this method, The Company first allocated the issuance proceeds to the Series A Warrants based on their initial fair value measurement, and then allocated the remaining proceeds to the Series A Preferred Stock. 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. 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 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 Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A 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 Preferred Stock, restricted stock units, and stock options. Stock options and restricted stock units exercisable or issuable for a total of 5,476,219 and 5,127,830 shares of Common Stock were outstanding as of March 31, 2024 and 2023, 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. Recently Issued Accounting Guidance In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating segment disclosures related to its annual report for fiscal year 2024. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2025. 6 2. REVENUE AND PRODUCT COSTS Revenue consists of product revenue and other revenue. Product sales include BolaWrap products and accessories. Other revenue includes VR revenue, service, training and shipping revenue. The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced, and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized subsequent to invoicing. The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract. The Company may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below details the activity in our contract liabilities during the three months ended March 31, 2024. Customer Deferred Deposits Revenue Balance at January 1, 2024 $ 1,002 $ 544 Additions, net 20 124 Transfer to revenue ( 1,002 ) ( 177 ) Balance at March 31, 2024 $ 20 $ 491 Current portion $ 20 $ 363 Long-term portion $ - $ 128 As of March 31, 2024, the Company’s deferred revenue of $ 491 consisted of $ 153 related to VR, $ 212 related to Intrensic, $ 7 related to training and $ 119 related to BolaWrap extended warranties and services. Estimated costs for the Company’s standard warranty, generally one-year, are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to the cost of products sold. 3. FINANCIAL INSTRUMENTS Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: 7 Level 1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 —Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 —Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. The Company’s short-term investments consisting of U.S. Treasury bill securities and Certificate of Deposits are classified as Level 1 because they are valued using quoted market prices. The following table shows the Company’s short-term investments by significant investment category as of March 31, 2024 and December 31, 2023. As of March 31, 2024 Adjusted Unrealized Unrealized Market Cost Gains Losses Value Level 1: Money Market Funds $ 2,219 - $ - $ 2,219 Certificate of Deposits 5,000 - - 5,000 Total Financial Assets $ 7,219 $ - $ - $ 7,219 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 Unrealized gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss as they are classified as available for sale. During the three months ended March 31, 2024 as well as the three months ended March 31, 2023, no gain (loss) was recorded to comprehensive loss, respectively. The warrant liabilities are measured at fair value on a recurring basis. The subsequent measurement of the warrant liabilities as of March 31, 2024, 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: March 31, 2024 December 31, 2023 Fair value at inception or the beginning of the period $ ( 19,703 ) $ ( 7,717 ) Change in fair value of warrant liabilities 4,179 ( 11,986 ) Fair value as of March 31, 2024 $ ( 15,524 ) $ ( 19,703 ) 8 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 the Company’s warrants: As of March 31, 2024 As of December 31, 2023 Expected stock price volatility 271 % 143 % Risk-free interest rate 4.28 % 3.85 % Dividends yield 0 % 0 % Expected life of warrants (years) 4.25 4.50 Exercise price $ 1.45 $ 1.45 Our other financial instruments also include accounts receivable, accounts payable, accrued liabilities and customer deposits. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the balance sheet. 4. INVENTORIES Inventory is recorded at the lower of cost or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventories consisted of the following: March 31, 2024 December 31, 2023 Finished goods $ 4,084 $ 3,521 Raw materials 2,759 2,738 Reserve for Obsolescence ( 477 ) ( 465 ) Inventories - net $ 6,366 $ 5,794 5. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: March 31, 2024 December 31, 2023 Production and lab equipment $ 542 $ 542 Tooling 572 562 Computer equipment 620 615 Furniture, fixtures and improvements 196 196 $ 1,930 $ 1,915 Accumulated depreciation ( 1,522 ) ( 1,406 ) Property and equipment, net $ 408 $ 509 Depreciation expense was $ 116 and $ 118 for the three months ended March 31, 2024 and 2023, respectively. 9 6. INTANGIBLE ASSETS AND GOODWILL Intangible Assets, net Intangible assets, net consisted of the following: March 31, 2024 December 31, 2023 Amortizable intangible assets: Patents $ 931 $ 873 Trademarks 256 248 Purchased software and technology 1,752 1,752 Customer Relationships 160 160 $ 3,099 $ 3,033 Accumulated amortization ( 912 ) ( 806 ) Total amortizable $ 2,187 $ 2,227 Indefinite life assets (non-amortizable) 421 421 Total intangible assets, net $ 2,608 $ 2,648 Amortization expense was $ 107 and $ 82 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, future amortization expense is as follows: 2024 (9 months) $ 320 2025 422 2026 335 2027 185 2028 185 Thereafter 740 Total estimated amortization expense $ 2,187 Goodwill There has been no change to the value of goodwill from December 31, 2023 through the period ended March 31, 2024. 7. 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 13). Accounts payable includes $ 61 and $ 14 due to Syzygy as of March 31, 2024 and December 31, 2023, respectively. Accrued liabilities consist of the following: March 31, 2024 December 31, 2023 Patent and legal costs $ 120 $ 21 Accrued compensation 295 325 Warranty costs 51 72 Taxes and other 369 274 Total $ 835 $ 692 Changes in our estimated product warranty costs were as follows: Three Months Ended March 31, 2024 2023 Balance, beginning of period $ 72 $ 125 Warranty settlements ( 42 ) ( 1 ) Warranty provision 21 ( 33 ) Balance, end of period $ 51 $ 91 10 8. 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 c ommon s tock, 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 per share, 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 Series A Offering occurred on July 3, 2023. The aggregate gross proceeds from the Series A Offering were $ 10,000 , of which $ 7,717 was allocated to the Series A Warrants. 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. 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 $ 71 and $ 26 for the three months ended March 31, 2024, and 2023, respectively. Operating lease expense for capitalized operating leases included in operating activities was $ 249 and $ 49 for the three months ended March 31, 2024, and 2023, respectively. Operating lease obligations recorded on the balance sheet at March 31, 2024 are: Operating lease liability- short term $ 619 Operating lease liability - long term $ 1,708 Total Operating Lease Liability $ 2,327 Future lease payments included in the measurement of lease liabilities on the balance sheet at March 31, 2024 for future periods are as follows: 2024 (9 months) $ 372 2025 567 2026 507 2027 522 2028 538 Thereafter 1,273 Total future minimum lease payments $ 3,779 Less imputed interest $ ( 1,452 ) Total $ 2,327 The weighted average remaining lease term is 6.60 years, and the weighted average discount rate is 14.3 %. 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 $ 9 and $ 14 variable lease expenses during the three months ended March 31, 2024, and 2023, respectively. The Company had $ 11 and $ 14 short-term lease expense during the three months ended March 31, 2024, and 2023, respectively. The Company does not have any finance leases. 11 10. 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. 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”), as filed with the Secretary of State of the State of Delaware on July 3, 2023. The Series A Preferred Stock is convertible into shares of c ommon s tock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $ 1.45 per share. 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 c ommon s tock, or securities convertible, exercisable or exchangeable for c ommon s tock, 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 be 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 Nasdaq Stockholder Approval (as defined herein) (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 that the Company has filed all reports required to be filed by it pursuant to the Securities Exchange Act of 1934, as amended, 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 Series A 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. 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 Series A Amendment 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. At the time of issuance, $ 2,036 of the net proceeds less transaction cost of the Series A Purchase Agreement was allocated to the 10,000 shares of Series A Preferred Stock initially issued. During the three months ended December 31, 2023, 102 shares of the Series A Preferred Stock were converted into 76,440 shares of c ommon s tock, and during the three months ended March 31, 2024 an additional 100 shares of Series A Preferred Stock were converted into 74,484 shares of c ommon s tock. As of March 31, 2024, the Company has authorized and declared $ 189 in dividends of which $ 60 was accrued in accounts payable as of March 31, 2024. 11. SHARE-BASED COMPENSATION On March 31, 2017 , the Company adopted, and the stockholders approved, the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Common Stock for issuance as awards to employees, directors or consultants. In May 2019 , the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock; in June 2020 ratified an additional 1,900,000 shares of Common Stock; in June 2021 ratified an additional 1,500,000 shares of Common Stock; and in June 2022 ratified an additional 1,500,000 shares of Common Stock; for a total of 9,000,000 shares subject to the Plan. As of March 31, 2024, there were 629,966 shares of Common Stock remaining available for grant under the Plan. 12 Stock Options The following table summarizes stock option activity for the three months ended March 31, 2024: Weighted Average Options on Common Shares Exercise Price Remaining Contractual Term Aggregate Intrinsic Value Outstanding January 1, 2024 4,657,635 $ 2.52 8.75 $ 3,979 Granted 535,000 $ 3.48 - - Exercised ( 232,081 ) $ 2.53 - - Forfeited, cancelled, expired ( 132,573 ) $ 2.14 - - Outstanding March 31, 2024 4,827,981 $ 2.64 8.63 $ 1,631 Exercisable March 31, 2024 938,138 $ 4.41 6.19 $ - As of March 31, 2024, there were 2,845,417 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 Three Months Ended March 31, 2024 2023 Expected stock price volatility 76 % 0 % Risk-free interest rate 3.89 % 0 % Expected dividend yield 0 % 0 % Expected life of options 6.00 0 Weighted-average fair value of options granted $ 2.29 $ 0 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. Stock option expense was $ 484 and $ 313 for the three months ended March 31, 2024 and 2023, respectively. 13 Restricted Stock Units The Plan provides for the grant of restricted stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs vest. The following table summarizes RSU activity for the three months ended March 31, 2024: Service-Based RSU's Weighted Average Grant Date Fair Value Weighted Average Vesting Period (Years) Unvested at January 1, 2024 810,588 $ 1.73 2.52 Granted - service based 686,296 $ 2.81 - Vested ( 43,900 ) $ 2.96 - Forfeited and cancelled ( 171,855 ) $ 2.00 - Unvested at March 31, 2024 1,281,149 $ 2.24 5.01 The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 632,911 market condition performance RSUs granted in January 2024 to the Company’s Chief Executive Officer. The assumptions used in the Monte Carlo Simulation were stock price on the date of grant of $ 3.40 , a contract term of 10 years, expected volatility of 78 % and risk-free interest rate of 4.10 %. Vesting is based on sustained market capitalization of $ 1 billion, and the derived service period is 4.3 years. RSU expense was $ 191 and $ 315 for the three months ended March 31, 2024 and 2023, respectively. Share-Based Compensation Expense The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows: Three Months Ended March 31, 2024 2023 Selling, general and administrative $ 647 $ 562 Research and development 28 66 Total share-based expense $ 675 $ 628 As of March 31, 2024, total estimated compensation cost of stock options granted and outstanding but not yet vested was $ 4,409 which is expected to be recognized over the weighted average period of 2.58 years. As of March 31, 2024, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $ 2,554 which is expected to be recognized over the weighted average period of 5.01 years. 12. DEFINED CONTRIBUTION PLAN The Company has a defined contribution savings plan for all eligible U.S. employees established under the provisions of Section 401(k) of the Internal Revenue Code. This plan was formed on January 1, 2022. Eligible employees may contribute a percentage of their salary subject to certain limitations. The Company’s contributions for each of the three months ended March 31, 2024 and 2023 was $ 0 . 13. COMMITMENTS AND CONTINGENCIES Related Party Technology License Agreement The Company is obligated to pay royalties and development and patent costs pursuant to the 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 $ 46 and $ 24 for royalties during the three months ended March 31, 2024 and 2023, respectively. The maximum payout still available under this arrangement is $ 35 as of March 31, 2024. 14 Purchase Commitments As of March 31, 2024, the Company was committed for approximately $ 933 for future component deliveries that are generally subject to modification or rescheduling in the normal course of business. Indemnifications and Guarantees Our officers and directors are indemnified as to personal liability as provided by the Delaware law and the Company’s articles and bylaws. The Company may also undertake indemnification obligations in the ordinary course of business related to its operations. The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to any such indemnification obligations now or in the future. Because of the uncertainty surrounding these circumstances, the Company’s current or future indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary course of business. The Company has no liabilities recorded for such indemnities. Regulatory Agencies The Company is subject to oversight from regulatory agencies regarding firearms that arise in the ordinary course of its business. Litigation The Company is subject to litigation and other claims in the ordinary course of business. The Company records a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter. As of March 31, 2024, the Company had no provision for liability under existing litigation. 14. 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 and 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 . For the three months ended March 31, 2024, Mr. Cohen earned dividends totaling $60 from his Series A Preferred Stock. 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 which was terminated in January 2024 and $ 7.5 per month on a month-to month basis for invention consulting services, which was terminated in February 2024 for an aggregate of $ 15 and $ 23 during each of the three months ended March 31, 2024 and 2023, respectively. The Company is obligated to pay royalties and development and patent costs pursuant to the License Agreement dated September 30, 2016, with 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 three months ended March 31, 2024 and 2023, the Company incurred royalties to Syzygy of $ 46 and $ 24 , respectively. See Notes 1, 7 and 13 for additional information on related party transactions and obligations. 15. MAJOR CUSTOMERS AND RELATED INFORMATION For the three months ended March 31, 2024, revenue from one distributor accounted for approximately 68 % of revenue with no other single customer accounting for more than 10% of total revenue. For the three months ended March 31, 2023, revenue from two distributors accounted for approximately 28 % and 15 % of revenues, respectively, with no other single customer accounting for more than 10% of total revenue. At March 31, 2024, accounts receivable from one distributor accounted for 68 % of net accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance. At December 31, 2023, accounts receivable from one distributor accounted for 67 % of net accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance. The following table summarizes revenue by geographic region. Revenue is attributed to countries based on customer’s delivery location: For the Three Months Ended March 31, 2024 2023 Americas $ 1,463 $ 710 Europe, Middle East and Africa 6 1 Asia Pacific 7 0 Total revenues $ 1,476 $ 711 15 16. SUBSEQUENT EVENTS 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 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 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 periods. 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 of the Company 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. 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 the Nasdaq Capital Market. 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 Q1 Form 10-Q, the “Delinquent Filings”) for the three months ended June 30, 2024, that the Company is not in compliance with the Listing Rule for continued listing on the Nasdaq Capital Market. 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. On August 28, 2024, the 2023 Form 10-K was filed with the SEC. Nasdaq granted 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 the 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 c ommon s tock on the Nasdaq Capital Market. 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 the Series A Amendment with the Required Holders. Pursuant to the Series A Amendment, the Required Holders agreed that (A) 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, using July 1, 2024, as the applicable date of determination in accordance with the Certificate of Designations; (B) the October Dividend Amount, 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, with respect thereto, if applicable, shall be delivered on October 1, 2024. The Company and the Required Holders further agreed pursuant to the Series A Amendment to amend (i) the Certificate of Designations, as described below, by filing 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. 16