What changed in this filing

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Item 1. Financial Statements

2024-10-15 compared with 2024-09-25 · 115 added, 101 removed, 437 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands, except par value and share amounts)

March 31, 2024

June 30, 2024

Current assets:

25 unchanged sentences

par value $ 0.0001 per share;

0 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

0 shares issued and outstanding at June 30, 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

45,793,112 and 43,855,503 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

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

8,207 and 9,898 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

6 unchanged sentences

(in thousands, except share and per share amounts)

Three Months ended March 31,

Three Months ended June 30,

Six Months ended June 30,

Product sales

8 unchanged sentences

Other income (expense):

Interest Income

Interest I ncome

Change in fair value of warranty liabilities

Total other income (expense), net

Net income (loss)

Convertible preferred stock dividends

C onvertible preferred stock dividends

Net loss attributable to common stockholders

2 unchanged sentences

Comprehensive loss:

Net income (loss)

Comprehensive loss

3 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2024

Preferred Stock

2 unchanged sentences

Comprehensive

Total Stockholders'

Stockholders'

Income (Loss)

Balance at January 1, 2023

Common shares issued upon exercise of stock options

Balance at April 1, 2024

Share-based compensation expense

Dividends on convertible preferred stock

Common shares issued upon vesting of restricted stock units

Settlement – US Treasury bills

Common shares issued upon convertible preferred stock exercising conversion rights

Net loss for the period

Balance at March 31, 2023

Balance at June 30, 2024

Six Months Ended June 30, 2024

Balance at January 1, 2024

5 unchanged sentences

Net income for the period

Balance at March 31, 2024

Balance at June 30, 2024

Three Months Ended June 30, 2023

Preferred Stock

Accumulated Other

Comprehensive

Stockholders'

Income (Loss)

Balance at April 1, 2023

Common shares issued upon exercise of stock options

Share-based compensation expense

Common shares issued upon vesting of restricted stock units

Net loss for the period

Balance at June 30, 2023

Six Months Ended June 30, 2023

Balance at January 1, 2023

Common shares issued upon exercise of stock options

Share-based compensation expense

Common shares issued upon convertible preferred stock exercising conversion rights

Settlement – US Treasury bills

Net loss for the period

Balance at June 30, 2023

Wrap Technologies, Inc.

1 unchanged sentence

(in thousands)

Three Months ended March 31,

Six Months ended June 30,

Cash Flows From Operating Activities:

Net income (loss)

Adjustments to reconcile net loss to net cash used in operating activities:

15 unchanged sentences

Deferred Revenue

Changes in other non-current assets

Net cash used in operating activities

4 unchanged sentences

Investment in patents and trademarks

Purchase of intangible assets

Proceeds from long-term deposits

91 unchanged sentences

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.

Stock options and restricted stock units exercisable or issuable for a total of 4,903,951 and 4,117,586 shares of Common Stock were outstanding as of June 30, 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.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

An adjustment has been made to the Consolidated Balance Sheet and Consolidated Statements of Cash Flows for fiscal year ended December 31, 2023, to reclassify the Convertible Preferred Stock at par value.

Recently Issued Accounting Guidance

28 unchanged sentences

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.

The table below details the activity in our contract liabilities during the six months ended June 30, 2024.

Balance at January 1, 2024

1 unchanged sentence

Transfer to revenue

Balance at March 31, 2024

Balance at June 30, 2024

Current portion

Long-term portion

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.

As of June 30, 2024, the Company’s deferred revenue of $ 585 consisted of $ 122 related to VR, $ 358 related to Intrensic, and $ 105 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.

12 unchanged sentences

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

The following table shows the Company’s short-term investments by significant investment category as of June 30, 2024 and December 31, 2023.

As of June 30, 2024

Money Market Funds

6 unchanged sentences

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.

During the six months ended June 30, 2024 as well as the six months ended June 30, 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 subsequent measurement of the warrant liabilities as of June 30, 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:

Fair value at inception or the beginning of the period

Fair value at inception for December 31, 2023 or the beginning of the period for June 30, 2024

Change in fair value of warrant liabilities

Fair value as of March 31, 2024

Fair value as of period end

The Company uses the modified Black-Scholes option pricing model to determine the fair value of warrant liabilities.

21 unchanged sentences

Property and equipment, net

Depreciation expense was $ 116 and $ 118 for the three months ended March 31, 2024 and 2023, respectively.

Depreciation expense was $ 114 and $ 230 for the three and six months ended June 30, 2024, respectively, and $ 118 and $ 236 for the three and six months ended June 30, 2023, respectively.

INTANGIBLE ASSETS AND GOODWILL

8 unchanged sentences

Total intangible assets, net

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:

Amortization expense was $ 113 and $ 220 for the three and six months ended June 30, 2024, respectively, and $ 85 and $ 167 for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, future amortization expense is as follows:

2024 (6 months)

Total estimated amortization expense

There has been no change to the value of goodwill from December 31, 2023 through the period ended March 31, 2024.

There has been no change to the value of goodwill from December 31, 2023 through the period ended June 30, 2024.

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.

Norris, a founder and former officer and current 5% or greater 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.

Accounts payable includes $ 81 and $ 14 due to Syzygy as of June 30, 2024 and December 31, 2023, respectively.

Accrued liabilities consist of the following:

4 unchanged sentences

Changes in our estimated product warranty costs were as follows:

Three Months Ended

Six Months Ended

Balance, beginning of period

2 unchanged sentences

Balance, end of period

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”).

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 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 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.

14 unchanged sentences

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:

Amortization expense was $ 72 and $ 143 for the three and six months ended June 30, 2024, respectively, and $ 27 and $ 53 for the three and six months ended June 30, 2023, respectively

Operating lease expense for capitalized operating leases included in operating activities was $ 166 and $ 415 for the three months and six months ended June 30, 2024 , and $ 26 and $ 76 for the three and six months ended June 30, 2023, respectively.

Operating lease obligations recorded on the balance sheet at June 30, 2024 are:

Operating lease liability- short term

1 unchanged sentence

Total Operating Lease Liability

Future lease payments included in the measurement of lease liabilities on the balance sheet at March 31, 2024 for future periods are as follows:

Future lease payments included in the measurement of lease liabilities on the balance sheet at June 30, 2024 for future periods are as follows:

2024 (6 months)

4 unchanged sentences

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 had $ 14 and $ 24 variable lease expenses for the three and six months ended June 30, 2024, respectively, and $ 6 and $ 25 for the three and six months ended June 30, 2023, respectively.

The Company had $ 4 and $ 15 short-term lease expense for the three and six months ended June 30, 2024, respectively, and $ 13 and $ 27 for the three and six months ended June 30, 2023, respectively.

The Company does not have any finance leases.

2 unchanged sentences

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 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 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 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.

1 unchanged sentence

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 Series A Preferred Stock cannot be converted to Common Stock if the holder, other than Scot Cohen, V4 Global LLC or their transferees, and its affiliates would beneficially own more than 4.99 %, or 9.99 % at the election of the holder, of the outstanding Common Stock.

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice.

Except as required by law (including without limitation, the Delaware General Corporation Law (the “DGCL”)), the holders of the Series A Preferred Stock are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be calculated assuming a conversion price of $ 1.414 per share, which was the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the Series A Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Series A Certificate of Designations.

To the extent that under the DGCL the vote of the holders of shares of Series A Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of a majority of the outstanding shares of Series A Preferred Stock, voting together in the aggregate and not in separate series unless required under the DGCL, represented at a duly held meeting at which a quorum is presented or by written consent of such majority (except as otherwise may be required under the DGCL) shall constitute the approval of such action by both the class or the series, as applicable.

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.

3 unchanged sentences

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 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, which was subsequently further amended by the October 2024 Certificate of Amendment (as defined below), 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.

On October 14, 2024, the Company entered into an Amendment Agreement (the “October 2024 Series A Amendment”) with the Required Holders (as defined in the Certificate of Designations).

Pursuant to the October 2024 Series A Amendment, the Required Holders agreed to amend the Certificate of Designations (the “October 2024 Certificate of Amendment”).

Pursuant to the October 2024 Certificate of Amendment, (i) the Series A Preferred Stock will be entitled to voting rights as described therein, (ii) certain holders of the Preferred Stock will not be subject to certain beneficial ownership limitations as described in the Certificate of Designations, and (iii) stockholder approval will not be required in connection with 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.

The October 2024 Certificate of Amendment was filed with the Secretary of State of the State of Delaware on October 14, 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.

During the three months ended December 31, 2023, 102 shares of the Series A Preferred Stock were converted into 76,440 shares of Common Stock and during the six months ended June 30, 2024 an additional 1,691 shares of Series A Preferred Stock were converted into 1,391,183 shares of Common Stock.

As of June 30, 2024, the Company has authorized and declared $ 700 in dividends during the year of which $ 500 was accrued in accounts payable as of June 30, 2024.

SHARE-BASED COMPENSATION

5 unchanged sentences

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.

As of June 30, 2024, there were 849,534 shares of Common Stock remaining available for grant under the Plan.

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2024:

The following table summarizes stock option activity for the six months ended June 30, 2024:

Weighted Average

1 unchanged sentence

Forfeited, cancelled, expired

Outstanding March 31, 2024

Exercisable March 31, 2024

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.

Outstanding June 30, 2024

Exercisable June 30, 2024

As of June 30, 2024, there were 2,510,893 service-based stock options outstanding, and 1,290,166 performance-based stock options outstanding which 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,

For the Six Months

Ended June 30,

Expected stock price volatility

12 unchanged sentences

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.

Stock option expense was ($ 33 ) and $ 434 for the three and six months ended June 30, 2024, respectively, and $ 255 and $ 567 for the three and six months ended June 30, 2023, respectively.

Restricted Stock Units

1 unchanged sentence

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:

The following table summarizes RSU activity for the six months ended June 30, 2024:

Service-Based

2 unchanged sentences

Forfeited and cancelled

Unvested at March 31, 2024

Unvested at June 30, 2024

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.

1 unchanged sentence

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.

RSU expense was $ 275 and $ 484 for the three and six months ended June 30, 2024, respectively, and $ 966 and $ 1,282 for the three and six months ended June 30, 2023, respectively.

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Selling, general and administrative

1 unchanged sentence

Total share-based expense

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.

As of June 30, 2024, total estimated compensation cost of stock options granted and outstanding but not yet vested was $ 2,772 which is expected to be recognized over the weighted average period of 2.33 years.

As of June 30, 2024, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $ 2,206 , which is expected to be recognized over the weighted average period of 5.19 years.

DEFINED CONTRIBUTION PLAN

3 unchanged sentences

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 .

The Company’s contributions for each of the six months ended June 30, 2024 and 2023 was $ 0 .

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

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.

The Company recorded $ 20 and $ 66 for the three and six months ended June 30, 2024, respectively, and $ 40 and $ 64 for the three and six months ended June 30, 2023, respectively related to such royalties.

The maximum payout has been satisfied as of June 30, 2024.

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.

As of June 30, 2024, the Company was committed for approximately $ 941 for future component deliveries that are generally subject to modification or rescheduling in the normal course of business.

Indemnifications and Guarantees

9 unchanged sentences

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.

As of June 30, 2024, the Company had no provision for liability under existing litigation.

RELATED PARTY TRANSACTIONS

4 unchanged sentences

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.

For the six months ended June 30, 2024, Mr.

Cohen earned dividends totaling $ 120 on 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.

2 unchanged sentences

During the three months ended March 31, 2024 and 2023, the Company incurred royalties to Syzygy of $ 46 and $ 24 , respectively.

During the three months ended June 30, 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.

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.

For the three months ended June 30, 2024, revenue from one distributor accounted for approximately 39 % of revenue with no other single customer accounting for more than 10% of total revenue.

For the three months ended June 30, 2023, revenue from two distributors accounted for approximately 21 % and 20 % of revenues, respectively, with no other single customer accounting for more than 10% of total revenue.

For the six months ended June 30, 2024, revenue from two distributors accounted for approximately 33 % and 20 % of revenue, respectively, with no other single customer accounting for more than 10% of total revenue.

For the six months ended June 30, 2023, revenue from three distributors accounted for approximately 15 %, 14 % and 13 % of revenue, respectively, with no other single customer accounting for more than 10% of total revenue.

At June 30, 2024, accounts receivable from one distributor accounted for 39 % 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.

2 unchanged sentences

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

Europe, Middle East and Africa

1 unchanged sentence

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.

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.

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.

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On October 14, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “October 2024 Certificate of Amendment”).

The October 2024 Certificate of Amendment amends the Certificate of Designations to, among other things, provide that, except as required by applicable law, the holders of the Series A Preferred Stock will be entitled to vote with holders of the Common Stock on an as converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be calculated assuming a conversion price of $ 1.414 per share, which was the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the Series A Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Certificate of Designations.

The October 2024 Certificate of Amendment further provides that (i) certain holders of the Series A Preferred Stock will not be subject to certain beneficial ownership limitations as described in the Certificate of Designations, and (ii) stockholder approval will not be required in connection with 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.

The Certificate of Amendment was filed with the Secretary of State, effective as of October 14, 2024.

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

What changed 10-Q

Item 1. Financial Statements