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UNITED STATES SECURITIES

AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

 

 

Commission File Number: 000-55838

 

wrap20211231_10kimg001.jpg

 

Wrap Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

98-0551945

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

1817 W 4th Street

Tempe, Arizona 85281

(Address of principal executive offices) (Zip Code)

 

(800) 583-2652

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:  None

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

WRAP

Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   

☒ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐

Accelerated filer ☐

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No ☒

 

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $206,057,335 based on the closing price as reported on the Nasdaq Capital Market (“Nasdaq”). Shares of the registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 40,939,371 shares of common stock, par value $0.0001 per share, as of March 9, 2022.

 

Documents Incorporated by Reference

 

The registrant incorporates information required by Part III (Items 10, 11, 12, 13, and 14) of this report by reference to portions of the registrant’s definitive proxy statement with respect to its 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2021, pursuant to Regulation 14A.

 



 

 

 

TABLE OF CONTENTS

 

 

Page

     
 

PART I

 
     

ITEM 1.

Business

2

ITEM1A.

Risk Factors

15

ITEM 1B.

Unresolved Staff Comments

28

ITEM 2.

Properties

28

ITEM 3.

Legal Proceedings

28

ITEM 4.

Mine Safety Disclosures

28
     
 

PART II

 
     

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

29

ITEM 6.

Selected Financial Data

29

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

40

ITEM 8.

Financial Statements and Supplementary Data

40

ITEM 9.

Changes in and Disagreement with Accountants on Accounting and Financial Disclosure

40

ITEM 9A.

Controls and Procedures

40

ITEM 9B.

Other Information

40
 

PART III

 
     

ITEM 10.

Directors, Executive Officers and Corporate Governance

41

ITEM 11.

Executive Compensation

41

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

41

ITEM 13.

Certain Relationships and Related Transactions and Director Independence

41

ITEM 14.

Principal Accounting Fees and Services

41
     
 

PART IV

 
     

ITEM 15.

Exhibits, Financial Statement Schedules

42
 

Signatures

44
 

Financial Statements

F-1

 

 

 

 

 
 

PART I

 

FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this Annual Report on form 10-K (the Annual Report) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company desires to take advantage of the safe harbor provisions thereof. Therefore, the Company is including this statement for the express purpose of availing itself of the protections of such safe harbor with respect to all of such forward-looking statements. The forward-looking statements in this report reflect the Companys current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed herein, that could cause actual results to differ materially from historical results or those anticipated. In this report, the words anticipates, believes, expects, intends, future and similar expressions identify forward-looking statements. Readers are cautioned to consider the specific risk factors described below and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof.

 

For purposes of this Annual Report, the terms we, us, our Wrap and the Company refer to Wrap Technologies, Inc. and its consolidated subsidiary.

 

Use of Market and Industry Data

 

This Annual Report includes market and industry data that we have obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Annual Report are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Annual Report or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, references in this Annual Report to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this Annual Report.

 

Forecasts and other forward-looking information obtained from these sources involve risks and uncertainties and are subject to change based on various factors, including those discussed in sections entitled “Forward-Looking Statements,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

 

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

 

BolaWrap and Wrap are registered trademarks in the U.S. and certain other jurisdictions. They, along with our other common law trademarks, service marks or trade names appearing in this Annual Report are the property of the Company. Other trademarks, service marks or trade names appearing in this Annual Report are the property of their owners. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Annual Report.

 

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ITEM 1. BUSINESS

 

Overview

 

We are a global public safety technology and services company delivering modern policing solutions to law enforcement and security personnel. We began sales of our first public safety product, the BolaWrap 100 remote restraint device, in late 2018. In October 2021 we released a new generation product, the BolaWrap 150. The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100 that is being phased out.

 

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BolaWrap 150 Remote Restraint Device   BolaWrap 150 Remote Restraint Device and Cassette
     
     

 

As an alternative to more traditional means of restraint and detainment, BolaWrap represents a breakthrough in the development of a less-lethal tool on the low end of the applied force continuum. As communities continue to ask for more compassionate and safe policing practices, BolaWrap is rapidly gaining worldwide awareness and recognition through media exposure, trade show participation, product demonstrations and word of mouth. 

 

The immediate addressable domestic market for our solutions consists of approximately 900,000 full-time sworn law enforcement officers at over 15,300 federal, state and local law enforcement agencies in the United States. We are also exploring other domestic markets, including military and private security. Our international focus is on countries with the largest police forces. The 100 largest international police agencies are estimated to have over 12.1 million law enforcement personnel. According to 360iResearch, a market research firm, we participate in a segment of the non-lethal products global market expected to grow to $16.1 billion by 2027.

 

We focus our efforts on the following products, services and solutions:

 

BolaWrap Remote Restraint Device – is a hand-held remote restraint device that discharges an eight-foot bola style Kevlar tether to entangle an individual at a range of 10-25 feet. BolaWrap assists law enforcement to safely and effectively control encounters early in the use of force continuum without resorting to painful force options.

 

Wrap Reality – is a law enforcement training system utilizing immersive computer graphics virtual reality with proprietary software-enabled content. It allows up to two participants to enter a simulated training environment simultaneously, and customized weapons controllers enable trainees to engage in strategic decision making along the force continuum.

 

In addition to the United States law enforcement market, we have shipped our restraint products to 51 countries. We have established an active distributor network with 12 domestic distributors representing 49 states and one dealer representing Puerto Rico. We have distribution agreements with 47 international distributors covering 54 countries. We focus significant sales, training and business development efforts to support our distribution network.

 

We focus significant resources on research and development innovations and continue to enhance our products and plan to introduce new products. We believe we have established a strong branding and market presence globally and have established significant competitive advantages in our markets.

 

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Industry Background

 

The market for use-of-force related products and devices includes law enforcement agencies, correctional facilities, military agencies, private security guard companies and retail consumers. We believe law enforcement officials are the opinion leaders regarding market acceptance of new public safety products. We are focused on the law enforcement agency segment of the market for our BolaWrap remote restraint solution and the Wrap Reality virtual reality system.

 

A number of well-publicized national events, such as the death of George Floyd, the protesting thereafter, the Capitol riots and other publicized encounters and events throughout 2020 and 2021, have highlighted some of the challenges of modern policing and emphasized the need for more hands-off, less-lethal engagements and new approaches for more extensive officer training. Police reform and reorganization of police departments have now become a topic with heightened community focus and public engagement. We believe these events are garnering additional government funding and community support for new law enforcement solutions and more focused training. In conversations with industry leading organizations such as the Major City Chiefs Association ("MCCA"), International Association of Chiefs of Police ("IACP"), and others, police reform is a priority and area of focus in the Biden-Harris administration.

 

Currently, law enforcement agencies authorize a continuum of force options ranging from verbal commands to lethal force. Studies have concluded that most police officers never deploy lethal force in the course of their careers. Although a majority of law enforcement officers around the world are armed with firearms, only a small percentage will actually ever use them. Officers, however, use less-lethal force on a regular basis. Traditional tactics such as using a control hold, baton, club, or combat to control a suspect may result not only in a risk of injury to the suspect, but also a risk that the officer will be injured. Other force options including chemical spray, impact munitions and CEWs, not only risk injury, but are often controversial. Each weapon available to law enforcement has distinct advantages and disadvantages, and we believe law enforcement agencies require a variety of different tools for different situations.

 

We believe BolaWrap is a necessary tool to meet modern policing requirements when individuals do not respond to verbal commands. At the same time, the public is demanding less-lethal policing. This is even more apparent in police interactions with persons in crisis and the mentally ill. According to a report by The State of Mental Health in America, 2018, published by The Mental Health America an estimated 40 million adults in the U.S. suffer from mental health issues. And, in a 2015 report on The Role of Mental Illness in Fatal Law Enforcement Encounters, the Treatment Advocacy Center: Office of Research & Public Affairs, 7.9 million individuals have severe mental illness that affect their thinking and behavior. Amounting to somewhat fewer than four in every 100 adults in America, individuals with severe mental illness generate no less than one in ten calls for police service and occupy at least one in five prison and jail beds in the U.S. An estimated one in three individuals transported to hospital emergency rooms in psychiatric crisis are taken there by police. BolaWrap enables officers to more safely and humanely take subjects into custody without injury to get them the help they need. BolaWrap restraint of individuals at a distance may offer reduced frequency of deployment of other control techniques, including CEWs, especially in encounters with the mentally ill.

 

Litigation and insurance costs involving use of force for law enforcement agencies can be significant, with settlements in the millions of dollars for many departments. Reducing the frequency of need for other use of force tools and the number of injuries and fatalities caused by law enforcement officers may reduce the number of legal cases filed against agencies for excessive use of force, wrongful death and injury.

 

We believe BolaWrap increases goodwill between public safety agencies and their communities. Community relations considerations can be particularly important at a time when almost any interaction with public safety officers can be recorded and scrutinized by the media and the public.

 

The industry response to BolaWrap confirms the need to fill a gap between verbal commands and pain inducing compliance tools. During 2021 dozens of agency released body or dash camera videos from actual police uses which demonstrated the utility of BolaWrap to safely detain persons often for transport for medical help. Our goal is to equip every public safety officer with the BolaWrap remote restraint solution.

 

Markets

 

We participate in the global non-lethal market that, according to the January 2022 report by 360iResearch, was estimated to be $8.3 billion in 2020, $9 billion in 2021 and expected to grow to $16.1 billion in 2027. The following segments are our target markets:

 

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Domestic and International Law Enforcement

 

Federal, state and local law enforcement agencies in the United States currently represent the primary target market for our products and services. According to the FBI’s Criminal Justice Information Services Division in 2018 there were over 800,000 local and state full-time law enforcement officers in the U.S. In October 2019, the U.S. Department of Justice reported that based on 2016 data, there were over 100,000 full-time federal officers primarily providing police protection, and over 15,300 general purpose law enforcement agencies in the U.S.

 

Federal officers include over 37,000 customs and border patrol officers. We believe our product line can be an effective tool to safely assist in detention of individuals subject to the agency’s jurisdiction. The BolaWrap offers an additional tool for frontline agents to de-escalate encounters while effecting agent responsibilities.

 

Additionally, we have estimated an addressable international market of over 12.1 million police officers in the 100 largest police forces gathered from individual country statistics outside the U.S. We delivered our first international order in 2018 and in 2019 entered into agreements with our first international distributors. Through December 31, 2021, we have delivered BolaWrap products to 51 countries, with international revenues during 2021 representing 60% of total revenues. We currently anticipate that sales attributable to international markets will continue to represent significant sales in the fiscal year ending December 31, 2022. Our belief is based on the fact that sales of our products within the U.S. to larger agencies are characterized by longer sales cycles compared to international sales, where purchase decisions are largely centralized at the national level.

 

Correctional Facilities

 

In 2005, the United States Bureau of Justice statistics (“Census of State and Federal Correctional Facilities, 2005,” U.S. Department of Justice, Bureau of Justice Statistics, published October 2008) estimated that there were 295,000 correctional officers in over 1,800 federal and state correctional facilities in the United States, therefore representing a large potential market for our products and services.

 

Private Security Firms and Guard Services

 

According to 2019 Bureau of Labor Statistics estimates (“Occupational Employment Statistics,” United States Department of Labor), there were approximately 1.1 million privately employed security guards in the U.S. They represent a broad range of individuals, including those employed by investigation and security services, hospitals, schools, local government, and others. We believe that some security personnel armed with the BolaWrap could be effective to de-escalate some encounters without eliminating other devices available today. Providing guards with the BolaWrap may reduce the potential liability of private security companies and personnel in such encounters.

 

In most countries private security personnel outnumbers police officers. Research produced and reported by The Guardian suggests there were over 20 million private security workers worldwide in 2017 and that global spending on private security was anticipated to exceed $240 billion in 2020. Just the ten largest target countries outside the U.S. had approximately 17 million security workers in 2017.

 

Although there are use cases in private security, correctional facilities and in military policing, we are currently targeting our products and services for law enforcement. We do not currently plan a consumer version of the device.

 

Virtual Reality Training Market

 

According to a 2019 report published by Allied Market Research, the virtual training and simulation market size was valued at $204.41 billion in 2019 and is projected to grow to $601.85 billion by 2027. We believe virtual reality and simulation will expand in many nascent industries including law enforcement. Although a relatively small segment today, law enforcement and military are important segments of this market and the rise in awareness regarding virtual training and simulation drives market growth. Technology innovations now allow virtual reality to bring real world situations into the virtual space in a 360-degree immersion.

 

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Wrap Products and Services

 

BolaWrap Remote Restraint

 

The BolaWrap 100 was our first remote restraint product, with the BolaWrap 150 (collectively with the BolaWrap 100, the "BolaWrap") released in October 2021. The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100 that is being phased out. BolaWrap is a hand-held remote restraint device that discharges an eight-foot Kevlar tether to entangle an individual at a range of 10-25 feet. Inspired by law enforcement professionals, the device allows law enforcement to safely and effectively control encounters on the low end of the applied-force continuum.

 

 

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The BolaWrap functions by wrapping an individual’s arms and/or legs, impeding a subject from fleeing a scene, rapidly approaching an officer, or inducing harm to themselves or others. This device enables officers to safely and humanely help take subjects into custody without injury in order to get them the help they need.

 

The small, light, but rugged BolaWrap is designed to provide remote restraint while other use of force continuum options remain open. The design of the device ensures a wide device-effectiveness zone; it will impede a subject’s movement when deployed at the arms or legs. A guiding laser ensures accurate placement of the Kevlar tether, mitigating the risk of injury to subject and officer by quickly ending an encounter. Quick ejection and rapid replacement of BolaWrap cassettes allows one device to be reused in a single encounter or in multiple encounters.

 

There are limited effective options for remote engagement, so when verbal commands are ignored, law enforcement is faced with either going “hands on” or escalating to potentially injurious less-lethal forces or a firearm. The BolaWrap has shown to be effective in restraining individuals, hindering the flight ability and reducing the ability to fight, allowing effective officer action. We believe our tool is essential to meet modern policing requirements in working with subjects who are incapable of responding to verbal commands. With increased public attention paid to mental illness and implicit bias, there has also been increased agency demand for an effective non-lethal tool that does not rely on pain compliance. We believe our device minimizes the need to employ other uses of force, including hand-to-hand combat and other less-lethal weapons.

 

The BolaWrap does not rely on pain to gain compliance or electricity-enabled neuromuscular incapacitation for effectiveness. The wrapping effect is intended to impede flight while not inducing uncontrolled falls or injury. There is no issue of recovery time, as is the case with CEW, impact munitions or chemical devices. Other less-lethal weapons relying on “pain compliance” have been shown to have an adverse effect, sometimes causing an incident to escalate into one causing injury to both subjects and officers.

 

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We spend significant resources training law enforcement on the safe and effective use of the BolaWrap in conjunction with de-escalation and apprehension techniques. However, like any restraining action, injuries may result from the use of BolaWrap or as a consequence of its use. Our training includes primary use cases that fall into the three broad categories routinely encountered by law enforcement and security personnel:

 

 

To remotely restrain and limit the mobility of an individual who is experiencing a mental health crisis, narcotics-induced psychosis, or other crisis condition rendering them incapable of responding to law enforcement’s verbal commands but that presents a danger to law enforcement, the public or themselves if not restrained;

 

To remotely restrain and limit the mobility of an individual attempting to evade arrest or questioning, as well as individuals ignoring verbal commands from law enforcement. These individuals are commonly referred to as passively resistant or non-compliant; and

 

To assist in subduing individuals actively resisting arrest by limiting mobility, possibly making other engagement options less risky to officers and less injurious to individuals.

 

Law enforcement encounters with the mentally ill or those suffering a mental health crisis present a difficult challenge, often generating public controversy and costly consequences. According to the Treatment Advocacy Center: Office of Research & Public Affairs in a 2015 report on The Role of Mental Illness in Fatal Law Enforcement Encounters, one in ten police encounters involve the mentally ill and a minimum of one in four fatal police encounters involve the mentally ill.

 

Reports from dozens of field deployments by law enforcement agencies during 2020 and 2021, on stationary as well as moving targets, have been encouraging and we expect additional use data in 2022. A field deployment is generally considered ‘successful’ by law enforcement agencies if compliance is achieved, and no additional force is required after the BolaWrap is exposed or used. Agencies have reported achieving compliance by utilizing the BolaWrap in the following ways:

 

 

By pointing the BolaWrap’s line dot laser at the suspect in conjunction with verbal commands

 

Via the sound emitted by the BolaWrap upon deployment

 

Through the impact and/or restraint of the Kevlar cord around the suspect

 

When used in conjunction with other less-lethal tools

 

We request that all agencies fill out a Use of Device Report when the BolaWrap is used during an encounter in the field. However, not all field deployments are reported to us by law enforcement agencies, as many consider the deployment of the BolaWrap to be low level that does not constitute a reportable use of force. Some deployments to date have been captured on bodycam and shared with the public. Others were reported by the agency or the media but were not captured on bodycam. As more agencies adopt the BolaWrap onto their duty belts, we believe we will continue to see an increase in the rate of field deployments, which we anticipate will contribute to further adoption of the device by law enforcement worldwide.

 

BolaWrap 150

 

We announced a new generation BolaWrap 150 device in October 2021 and discontinued production of the legacy product, the BolaWrap 100. The BolaWrap 100 used removable cartridges, and we plan to continue to provide cartridges to customers as long as they are available; however, we have no plans to produce new cartridges. The BolaWrap 150 employs cassettes that are custom to the device and not interchangeable between models.

 

Since the October announcement of the BolaWrap 150, we have been developing a more automated supply chain in the production, quality control, and testing lines necessary to support the volume of production anticipated for the BolaWrap 150. We continue to make product improvements based on internal testing and field experience.

 

We believe the improved, fully electronic BolaWrap 150 offers important benefits, including:

 

 

Modern electronic deployment

 

Smaller size and less weight

 

Reduced production costs

 

LED status indicator for ease of operation

 

Long laser battery life

 

LED target illumination to improve accuracy

 

Hardened plastic for increased durability

 

Enhanced water resistance for harsh environments

 

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The BolaWrap 150 employs two micro-gas generators to individually expel each entangling projectile. Micro-gas generators are micro explosive parts used in a variety of industrial products, including automobile airbags.

 

We are unable to predict the market acceptance of the BolaWrap 150 product or the level of future sales. We believe we can grow orders and shipments during 2022. We plan to extend the product line with additional models and features in the future. However, there can be no assurance of the timing or quantity of orders or sales in future periods. See “Risk Factors” included below in this Annual Report for additional information regarding risks and uncertainties associated with our business.

 

Wrap Reality

 

During 2019, we partnered with an independent technology company to scope and configure a virtual reality system with training scenarios. We demonstrated the virtual reality system and training scenarios during two large trade shows in October and November 2019. In December 2020 we acquired NSENA Inc. (“NSENA”), a developer and provider of a law enforcement training system employing immersive computer graphics virtual reality with proprietary software-enabled content. The NSENA system leveraged high-quality enterprise head-mounted devices ("HMDs") and a high-GPU gaming personal computer to power proprietary software. We have rebranded the system, software and business as Wrap Reality Virtual Training, and believe our content library containing over 35 training scenarios is one of the largest available targeting law enforcement. Wrap Reality’s scenarios were developed by and for police officers, and cover a wide array of skills and scenarios including de-escalation, conflict resolution, and all levels of use-of-force.

 

Wrap Reality Virtual Training takes advantage of the most advanced virtual reality hardware available. The Wrap Reality system allows up to two participants to enter the simulated training environment simultaneously, and customized weapons controllers enable trainees to engage in strategic decision making along the force continuum.

 

In August 2021, we announced the development of a new expanded Wrap Reality Virtual Training platform powered by, and developed through, a collaboration with Amazon Web Services ("AWS") using AWS GovCloud (US). The new platform combines our advanced law enforcement simulator with secure cloud services to automatically track training progress and provide the ability to replay recorded training sessions. By embedding AWS storage services, we offer a fully-integrated training and training record management solution targeting agencies of all sizes. We believe these agencies have limited choices to meet the growing public safety training demands. This next generation platform is in beta testing and we expect to formally release the new platform by mid-2022.

 

While we are marketing and selling the Wrap Reality Virtual Training system, we continue to upgrade existing scenarios and develop de-escalation techniques into new scenarios. We also seek to enhance the Wrap Reality experience through continued software and platform innovation. The expanded platform developed with AWS is expected to enhance the scope of our offering to law enforcement customers.

 

Selling, Marketing and Training

 

Our sales, marketing and training organizations work together closely to drive revenue growth by enhancing market awareness of our solutions, generating leads, building a strong sales pipeline and cultivating customer and distributor relationships.

 

Sales

 

Law enforcement agencies represent our primary target market. In this market, we expect that the decision to purchase BolaWrap product and accessories will normally be made by a group of people including the agency head, his/her training staff, and use of force and weapons experts. The decision sometimes involves political decision-makers, such as city council members and various committees. Although we expect the decision-making process for a remote restraint device will be less complicated than for other less-lethal products such as CEWs, the process may take as little as a few weeks or as long as a year or more partially due to budgeting reasons and other distractions of agencies. For instance, during the summer of 2020, the U.S. had a significant number of protests in many major cities, which took agency time away from proactive planning actions.

 

We utilize demonstrations as a primary sales step with demonstrations scheduled from the over 12,000 law enforcement leads created by our marketing activities since 2018. Demonstrations are generally followed by sales activities or delivery of product for test and evaluation and training with appropriate selected agencies. Some of these deliveries are paid sales and some are issued as an incentive, with the goal and expectation of larger future sales of devices and cartridges/cassettes. We have demonstrated our products to more than 1,000 agencies and are achieving significant brand awareness among law enforcement. We and our distributors seek, when possible, to convert demonstration and training deliveries to sales or after a trial period to have the devices returned for use as further demonstration or training devices. We consider training as an integral element of our sales and marketing approach and believe that departments that have trained instructors to be knowledgeable about our product will be more likely to purchase devices. We provide our product training as a service to agencies; however, training may be fee-based in the future.

 

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Initial sales in 2018 and early 2019 were made by our executive and sales employees. In June 2019, we implemented a channel distribution strategy in which we sell our products to existing independent regional police equipment distributors who then sell to local law enforcement agencies. We are focusing our internal sales, sales support and business development resources on building relationships with large agencies and actively supporting distributors. Our sales force is currently comprised of 19 professionals. This team includes sales and business development personnel primarily in the field working directly with agencies, distributors and their customers and persons providing sales support including supporting demonstration and training contractors. In addition to full-time sales, sales support and business development personnel from time to time we utilize part-time consultants with law enforcement or government agency expertise to support our sales and marketing activities. Our 12 domestic distributors have an estimated 120 sales representatives that represent BolaWrap primarily to smaller agencies.

 

We currently have distribution agreements with 12 domestic distributors representing 49 states and one dealer representing Puerto Rico. These nonexclusive and cancelable agreements provide certain territorial rights to distributors but allow us to sell direct to certain agencies under certain terms.

 

We have distribution agreements with 47 international distributors covering 54 countries. These agreements are generally exclusive, require minimum performance and allow us to sell direct to customers subject to certain compensation. We focus significant sales and business development efforts to support our international distributors.

 

While management is focused on sales of Wrap Reality virtual reality systems, we are training our sales, distribution, demonstration, training and other staff and our distributors on our virtual reality training product to build awareness and grow sales. We are also seeking to partner with other organizations to enhance our virtual reality sales, marketing and technology. In 2021 we collaborated with the National Tactical Officers Association ("NTOA") to assist in creating virtual reality training scenarios responsive to the needs of their 40,000 members from specialties that include patrol, Tactical Emergency Medical Support ("TEMS"), crisis negotiations, canine, corrections, sniper, protective operations, explosives, command, tactical dispatchers, behavioral sciences and others. We work with other experts in law enforcement as part of our goal of making our virtual reality scenarios compliant with industry standards of engagement.

 

Marketing

 

Prospective customers learn about Wrap solutions through a variety of ways, including targeted social media, paid advertising, media, press releases, web site searches, sales calls and public relations. We have distributed agency body and dash camera videos demonstrating effective use of BolaWrap in a variety of policing encounters.

 

When a lead is generated through our marketing activities and qualified, we connect them with a sales representative and/or a distributor to discuss their needs and the solutions in which they are interested. We track our marketing and sales activities to provide immediate preview into activities, leads, quotes and pipeline opportunities. We believe we are developing a strong pipeline of opportunities for Wrap solutions.

 

Our marketing staff also engages with local, state and federal agencies and personnel both directly and through professional firms that advocate less-lethal engagements and increased education and training.

 

We work with risk management organizations serving law enforcement to educate on the benefits of BolaWrap remote restraint to reduce incidents and costs of escalation. In December 2021 the Arizona Municipal Risk Retention Pool (AMRRP) Board of Trustees voted funding to assist its 60 rural police agencies to procure BolaWrap devices for active-duty police officers. We are working with other similar entities to increase awareness of the BolaWrap solution.

 

We actively promote our brands and believe the Wrap and BolaWrap tradenames are becoming increasingly known world-wide as the pioneer and leader in remote restraint. We participate in a variety of domestic and international trade shows and conferences, both directly and with our distributors. We expect our marketing efforts will also continue to benefit from significant free media coverage.

 

We intend to increase the use of our trademarks throughout our product distribution chain and believe growing brand awareness will assist in expanding our business. We believe our reputation as a pioneer in the new category of remote restraint, strong training and product support provide us competitive advantages.

 

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Demonstration, Training and Support

 

The Company maintains a demonstration and training department as a part of its sales and marketing activities and does not charge for product demonstrations or training. Training is not a condition or requirement of sale as many sales are made through distributors to their end customers. The Company conducts local and regional in-person, webinar and on-line demonstrations and use of force and de-escalation training to support law enforcement agencies with no purchase requirement. Such training may occur before or after initial or subsequent purchase or field deployment of the Company’s products. The Company believes that law enforcement trainers and officers that have seen demonstrations or have been trained about its products are more supportive of their departments purchase and deployment of product.

 

Most law enforcement and corrections agencies will not purchase new use of force devices until a training program is in place to certify officers in their proper use. Generally, they also must adapt any new tools to their use of force policies and clear use with any relevant committees or review boards. We have developed and offer robust training and class materials that certify law enforcement officers and trainers as BolaWrap Instructors in the use and limitations of the BolaWrap solution.

 

Recognizing the need to provide robust training and sales support we launched the Wrap “Train the Trainer” program in October 2018. The program is designed such that our Master BolaWrap Instructors train local BolaWrap Instructors at local agencies who then train line officers in accordance with an agency’s policies.

 

BolaWrap Master Instructors are considered independent contractors and are required to have law enforcement training experience and be effective communicators. In order to be certified as a Master Instructor, candidates must complete a two-day Master Instructor school at our Tempe training facility, observe a Train the Trainer course and then be observed teaching a Train the Trainer Course. We have engaged 81 Master Instructors, residing in 30 states that have completed the two-day course allowing them to conduct Instructor Certification Training. In addition, we have nine Master Instructors who have been designated Senior Master Instructors qualified to assist with teaching and certifying other Master Instructors. Of these Senior Master Instructors, six also comprise our Training Advisory Board.

 

BolaWrap Instructors are generally sworn law enforcement officers, typically department trainers, defensive tactic instructors or SWAT officers. To be certified as a BolaWrap Instructor, individuals must attend a five-hour BolaWrap Instructor certification course, pass a written exam and show proficiency in deploying and using the BolaWrap. We also assist Instructors on lessons learned and best practices for teaching line officers in the use of BolaWrap. The nature and extent of line officer training is at each agency’s discretion. Instructor certification is effective for two years after which it requires renewal.

 

We employ a cloud-based software system, the Wrap Learning Management System, to schedule and organize training events, registration and training records. This software also hosts a Resource Library that distributors, purchasers and other interested parties are highly encouraged to utilize to educate themselves on BolaWrap use.

 

We have assembled a team of five experienced and well-known trainers from different regions across the U.S. that form the Wrap Training Academy Advisory Board. The Wrap Training Academy Advisory Board provides guidance to maintain a high-quality training program for Wrap products.

 

Since launching our ‘Train the Trainer’ program in October 2018, we now have at least one individual at over 1,000 U.S. police departments that has received formal training and over 3,000 officers are currently certified BolaWrap instructors qualified and certified to train line officers. We encourage training prior to use of the BolaWrap by individual departments but the nature and extent of training, if any, is at the discretion of each individual agency.

 

We also have two experienced trainers that install, demonstrate and provide training on our Wrap Reality platform and modules.

 

We believe our professional training and sales support team and systems provide both a competitive advantage and a barrier to new competition. The nature of modern policing requires that equipment and services be supported and that line officers have access to training and procedures to properly perform their duties and minimize the policing risks. We believe we have positioned our training and support teams to respond to agencies of all sizes.

 

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Our Strategy

 

Our product and training solutions continue to gain worldwide awareness and recognition through media exposure, product demonstrations, and word of mouth as a result of positive responses and increased acceptance of our solutions. We believe we have a strong global brand, technology and product foundation, which we continue to expand to serve new markets and customers for greater business growth. We believe we have strong market opportunities for our product solutions throughout the world in the law enforcement, defense, public safety and security sectors as a result of increasing threats by non-compliant individuals and the demand for less-lethal policing. We believe our training and virtual reality platform are positioned in rapid growth markets worldwide.

 

Our commercialization strategy focuses on the immediate addressable domestic market of approximately 900,000 full-time sworn officers in over 15,300 federal, state and local law enforcement agencies, and the 12.1 million plus police officers in the 100 largest police forces internationally. Our goal is to realize the potential of our entire suite of technology solutions targeting law enforcement and security personnel worldwide.

 

In 2022 we intend to continue operating with financial discipline in order to create value for our stockholders. We intend to continue the pursuit of domestic and international business opportunities with our network of well-established distributors and grow our revenues. We plan to develop improved and new products to our portfolio including products for use by security and related personnel. We also seek business initiatives and opportunities including acquisitions and collaborations that may be complementary to existing product and service offerings through our sales network.

 

Manufacturing and Suppliers

 

Manufacturing

 

We believe maintaining scalable assembly capabilities is essential to the performance of our products and the growth of our business. Our assembly processes involve unique systems and materials. We contract with third-party suppliers to produce various parts, components and subassemblies. We established initial startup production in a Las Vegas facility in 2018. In October 2019, we completed a move and started production at our new facility in Tempe, Arizona. This facility now includes our corporate administration, sales, training, engineering, manufacturing and warehousing. In our Tempe facility, we complete the final assembly, test and ship our products. We have refined our internal processes to improve how we design, test, and qualify products. We continue to implement rigorous manufacturing and quality processes to track production and field issues. We implement design and component changes periodically to reduce our product costs and improve product reliability and manufacturability.

 

Suppliers

 

We minimize inventories and maximize the efficiency of our supply chain by having a number of components and sub-assemblies produced by outside suppliers. In particular, a single supplier is currently the sole manufacturer of the BolaWrap 150 battery assembly and another single supplier is the sole manufacturer of the propulsion component for BolaWrap 150 cassettes. Other parts are sole sourced from other suppliers. We believe we have developed strong relationships with our key suppliers. Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of components for our products. Our global supply chain has been subject to component shortages, increased lead times, cost fluctuations, and logistics constraints. We expect these supply chain challenges to continue throughout 2022. Supplier shortages, quality issues and logistic delays affect our production schedules and could in turn have a material adverse effect on our financial condition, results of operation and cash flows.

 

Backlog

 

At December 31, 2021, we had backlog of approximately $268 thousand expected to be delivered in the first quarter of 2022. The amount of backlog at any point in time is dependent upon order timing, scheduled delivery dates to our customers and product lead times. Most orders are shipped shortly after order and backlog is typically associated with larger international orders. Because of our history of shipping shortly after order, at this time we do not believe backlog at any period end is predictive of future order volume or revenues beyond the reported amount. Distributor and customer orders for future deliveries are generally subject to modification, rescheduling or in some instances, cancellation in the normal course of business.

 

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Warranties

 

We warrant our products to be free from defects in materials and workmanship for a period up to one year from the date of purchase. The warranty will be generally a limited warranty, and in some instances impose certain shipping costs on the customer. Some jurisdictions require two-year or other warranty periods and we seek to comply with local or distributor requirements regarding warranties. We expect in most cases it will be more economical and effective to replace the defective device rather than repair.

 

Competition

 

We target the BolaWrap product as a new solution for law enforcement and not as a replacement for other devices currently in use. However, we do compete with other use of force products for budget dollar allocations. Law enforcement agencies may also determine that we are an alternative to other solutions despite such positioning.

 

Other use of force devices, including conducted electrical weapons (“CEWs”), pepper spray, batons, and impact weapons may compete with the BolaWrap product indirectly. Many law enforcement and corrections personnel consider such less-lethal weapons to be distinct tools, each best-suited to a particular set of circumstances. Consistent with this tool kit approach, purchasing any given tool does not preclude the purchase of one or several more. In other cases, budgetary considerations and limited space on officers’ belts dictate that only a limited number of devices will be purchased and carried. We believe the BolaWrap’s unique remote restraint use, effectiveness, and low possibility of injury will enable it to compete effectively against other alternatives.

 

There are a number of competitors offering virtual reality simulators for law enforcement to compete with Wrap Reality. We also compete against established video-based simulators. There are other virtual reality providers and developers focused on other applications that may in the future elect to develop and compete in the law enforcement training space.

 

Many of our present and potential future competitors have, or may have, substantially greater resources to devote to compete in the law enforcement market and to further technological and new product developments. Also, these competitors or others may introduce products with features and performance competitive to our product.

 

Government Regulation

 

Globally, we are subject to numerous domestic, federal, state and local laws and regulations and the laws and regulations of global jurisdictions relating to matters regarding shipments, customs, import, export, safe working conditions, manufacturing practices, environmental protection and disposal of hazardous or potentially hazardous substances. In addition, we have to ensure compliance with economic sanctions and/or restrictions on individuals, corporations or countries, and other government regulations affecting trade that may apply to our international cross border business activities. We may incur significant costs to comply with such laws and regulations now or in the future.

 

The BolaWrap 100 and the BolaWrap 150 are each classified as a “firearm” by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and are subject to federal firearms-related regulations. We hold two Federal Firearms Manufacturing Licenses that expire in 2022 through 2023. The BolaWrap 150, and the related BolaWrap 150 cassette, are also regulated as exempt special explosive devices by the ATF which requires adherence to explosive manufacturing and handling regulations. We hold one explosives manufacturing license and one explosives import license, both expiring in 2024.

 

ATF regulations are enforced by surveillance and inspection. If the ATF finds a violation, it can institute a wide range of enforcement actions, ranging from public warnings to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution.

 

Many states also have regulations restricting the sale and use of certain firearms and explosives and may determine their own classification and restrictions irrespective of ATF regulation. In most cases, the law enforcement and corrections market are subject to different ATF and state regulations or exemptions than the private citizen market, and we do not expect additional state restrictions or approvals for sales to law enforcement. Where different regulations exist, we expect that the regulations affecting the private citizen market may also apply to the private security markets, except as the applicable regulations otherwise specifically provide.

 

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Our BolaWrap cartridges, cassettes, and lithium-ion battery packs are generally considered dangerous goods for shipment regulation. The shipping of dangerous goods, whether via air or ground, falls under the jurisdiction of many state, federal and international agencies. The quality of the packaging that protects a product is critical in determining whether it will arrive at its destination in a satisfactory condition. Many of the regulations for transporting dangerous goods in the United States are determined by international rules formulated under the auspices of the United Nations. 

 

The International Civic Aviation Organization ("ICAO") is the United Nations organization that develops regulations (“Technical Instructions”) for the safe transport of dangerous goods by air. If shipment is by air, compliance with the rules established by the International Air Transport Association ("IATA") is required. The IATA is a trade association made up of airlines and air cargo couriers that publishes annual editions of the IATA Dangerous Goods Regulations. These regulations interpret and add to the ICAO Technical Instructions to reflect industry practices. When we ship dangerous goods, we follow strict and stringent guidelines.

 

We are subject to a variety of government laws and regulations that apply to companies engaged in international operations, including, among others, the Foreign Corrupt Practices Act, U.S. Department of Commerce export controls, local government regulations and procurement policies and practices (including regulations relating to import-export control, investments, exchange controls and repatriation of earnings). The BolaWrap 100 and the BolaWrap 150 devices are also considered a crime control product by the U.S. government. Accordingly, the export of our devices is regulated under export administration regulations. As a result, we must obtain export licenses from the Department of Commerce for all shipments outside the U.S. We do not expect the need to obtain these licenses will cause a material delay in our foreign shipments. Export regulations also prohibit the further shipment of our products from foreign markets in which we hold a valid export license to markets in which we do not hold an export license for our products. We are seeking export classification of our virtual reality training product but do not currently believe export licenses will be required. International goods in tholution-varite="fo:stylThis hNarevelops referent regues by te IATA is a tr0;

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CLink" style="font-vappt;font-varijustifyr providThe impact&T lthe COVID-19 pmntemic an mgeopoliticam conflicts, includp">&the recetalwar in Ukrsine, has cllated much uncertsinty in the global ';fketplace, withlthe COVID-19 pmntemic contp"up">&tolllstrict our ability toltrsvel it:nonsgplialty&mnt, tolalmore limitedlt;fent,ldomesticamly. Thesemcondigplis are eilocted tolcontp"ue&at least throughlthe first quarter&T l2022.text-a We are hazaefore unable tolpredict at thi tBK"lwhehazarour tto wstllcontp"ue&tolincrease durp">&fiscal year entp">&December 31, 2022 at the saK"lrsge&as the fiscal year ented December 31, 2021 due&tolthesemuncertsintie . Altioughlnolassurances canlbe given,ywe do belilve, howlver, that the ,hamlenge tolsubstantially increasp">& tto causedlby COVID-19 wstllabsge&as the pmntemic wanes,&especially given the number T lBolaWrap trials currently ongop">&a Sythe ,urrent environertalwhere node.&widely consideredlby law en;"rceertaldomesticamly a Syin:nonsgplialty.text-a As a resula,ywe belilve that llvenue&durp">&the fiscal year 2022 wstllincrease compared tolthe revenue&recorted durp">&2021,ya Sythis ="ficipsgeSyincrease is likety&tolbe msgerial,yaltioughlnolassurances canlbe given.lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providWe have eilorienced recetal,hange in widageerta. Change in widageertaya Syohazarkey perslinel have the pofential&toldisrupt our business,ya Syany&such disruptpli coul madversety&affect our revenue&growthlin future loriods,&especially in the ntar germ as we execute our MidageertayTransitpli&plan.lip text-alip < provide"font>  

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CLink" style="font-vappt;font-varijustifyr provid< vin#xa0;Gross Profitia vin>lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providOur , sa&T lllvenuey;"r Fiscal 2021 was $5.7 stlpliya Syincluded $747rtiousa SyT lllstructurp">&invent"ryl,harge. Excludp">&this nodecashl,harge,lthe gross providy;"r Fiscal 2021 was 36%. Our , sa&T lllvenuey;"r Fiscal 2020 was $2.6 stlpliyresulap">&in a gross providyT l34%. Durp">&the third quarter&ented September 30, 2021,ywe begai&productpli&T lour nylegenerstpli&BolaWrap 150 product withldifferent msgerial&input &In mwidufacturp">&process" ssuch that hist"ricam provids pry notlbe intpcaiive&T lfuture provids. We have limitedlwarr="fy , sa&eilorience&In mestimsgeSyfuture warr="fy , sas canlimpact&Tur gross provids.lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr provid< vin#xa0;S hf;">, GenersliIn mAdmitwstraiive Exlonsdin vin>lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providS hf;">, genersliIn madmitwstraiive (tex201c;SG&Aini>tex201d;) eilonsdyincrease mby $8.6 stlpliydurp">&Fiscal 2021, when compared tolFiscal 2020. The largesa&driver&T lthisyincrease was related tolanlincrease&Tf $2.6 stlpliyin shara-base mcomponssgpli, T lwhich $1.5 stlpliywas ;"r direct"r componssgpli, a Sythe remsinp">&$1.1 stlpliywas related tolincentivey;"r widageertaya Syemployee .lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providWe contp"ue&tolinvesa&in our ';fketp">&a Sypromogpli,lwhich augertas the media atfentiliywe receivey;romrt;ferial sourc" ,msuch as nyls broadcasts. Durp">&Fiscal 2021, we incurred increases&T l$325rtiousa Syrelated tolpublicyrelatplis inptiative &In m$111rtiousa Syrelated toldigital ';fketp">&,ampa-vas. C sas related toladvmatisp">&a Sypromogplial product &remsineSyflaty;romrFiscal 2020.lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providF"r Fiscal 2021, our publicyreportp">&eilonsdtext-aincrease mby $1.56 stlpli. Thisyincludes $818rtiousa Syin connectpli&withlactplis&by ay;"rmer executive&T ficer/sharaholtermseekp">&,hange in the , mpositpli&T lour BoarSyT lDirect"rs an mcan idato tolsta Sy;"r electpli&at the 2021 Annu llSharaholterstex2019; Meetp">,&,hange tolthe Executive&Chaint-i&positpli, a Syrelated matfers. There were no comparable , sas in 2020. This matferywas settled in March 2021,ya Sywe do notleiloct mporgplial , sas.lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providOhazarSG&A eilonsdyincreasesyincluded a $2.8 stlpliyincrease in cashl,omponssgpli, recruitp">&a Syconsulaancy , sas resulap">&fromr ur growthlin perslinel Tvma the pri"r year. In mporgpli, our trsvel eilonsdyrelated tol tto ,&temlistrsgplis an mtrsinp">&increase mby $523rtiousa Syas a resula&T lresumpgpli&T ltrsvel by tto an mtrsinp">&perslinel. In the secondya Sythird quarters&T l2020,ywe had virtu lly noltrsvel due&tolthe COVID-19 pmntemic an mthe " stousltrsvel llstrictplis that were ii&place. Despitelthe growthlin 2021, we are still well below hist"ricam fonts ;"r our trsvel eilonsdybutleiloct trsvel eilonsdytolincrease as it:nonsgplial trsvel llstrictplis ease.lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providIn 2022, we expect tolmonpt"r an mcot:rollthe amouna&T lresourc" we expe SyTn the ';fketp">&a Sys hf;">&T lour product ,mtrsinp">&dwstribut"rs an mcustomersiIn madmitwstraiivety&supportp">&our persgplis&tolllspond&tolincrease mopportunities,ybutlamounas coul m" sy&tepentp">&Tn tto l vels,lthe impact&T lthe COVID-19 pmntemic an mohazarfact"rs out ide&T lour cot:rol. We expect increase madmitwstraiive , sas due&tol, sas associated withlthe MidageertayTransitpli&butlcannotlestimsgemsuch , sas at thi tBK".lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr provid< vin#xa0;R oearch an mD veloperta Exlonsdin vin>lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providRpoearch an m" veloperta eilonsdyincrease mby $3.4 stlpliy;"r Fiscal 2021, when compared tolFiscal 2020. We incurred a $518rtiousa Syloriod Tvma loriod increase in nodecashlshara-base mcomponssgpli eilonsdy llocated tolrpoearch an m" veloperta eilonsdyas a resula&T lnyleaward grant &In mvesap">&timitg. The increase in c sas durp">&the Fiscal 2021 compared tolthe pri"r yearyincluded a $758rtiousa Syincrease in cashl,omponssgpli , sas resulap">&fromraiyincrease in headcouna&pri';fsty&associated withlproduct teveloperta. Out ide&consulap">&, sas increase mby $1.2 stlpliya Syprototypdyrelated , sas increase mby $570rtiousa Sy;"r Fiscal 2021, pri';fsty&due&tol, sas related tolthe ntlegenerstpli&BolaWrap 150 product, inptiative &toldevelop ntleproduct ,ma Syincrease m" veloperta T lvirtu llllality scen stos. We expect our reoearch an m" veloperta , sas tolrpmsin at ,urrent l velsm" spitelour plais&tolincrease perslinel,&as the increase in perslinel , sas isyeilocted tolbe T fsetlby lower , sas ;"r out ide&resourc" due&tolthe substantiall,omplegpli&T lBolaWrap 150 In ma ;"cus li , t:rolf;">&spentp">&Tn ntlereoearch inptiative .text-alip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr provid< vin#xa0;NetlLossin vin>lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providLoss fromr persgplis durp">&Fiscal 2021 increase mby $11.4 stlpliywhen compared tolFiscal 2020, resulap">&pri';fsty&fromrincrease mshara-base mcomponssgpli a Syincrease mopersgp">&, sas due&tolincrease mperslinel,&';fketp">&a Sys hf;">, publicycompany&, sas, a Sysupportp">&actpvities. We also incurred a one-tBK"lnodecashlproduct l#xaoexitteilonsd&T l$747rtiousa Sydurp">&the loriod that we do notleiloct tolrpcur.text-alip

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l;text-alip

Liquidity a SyCapital Resourc" iab>inor /di< 

l;text-alip

Ovmaviewini>inor /di< 

l;text-alip

&,apital T l$38 stlpliya Syhad sustsineSycumulaiive loss" sattributable tolstockholters T l$49.8 stlpli. We belilve that our cashlliyhandya Syshort-germ invesamrtas wstllsustsin&our persgplis&;"r at least the nt;f twelve mliths fromrthe dato&T lthisyReport.lip

l;text-alip

&Fiscal 2021, we receive m$13.7 stlpliyT lproceeds fromrthe exercisd&T lprevtously issue mstocklpurchase&warr="f sa Syfromrthe exercisd&T lstocklopgplis.lip

l;text-alip

&Fiscal 2020, we receive m$11.7 stlpliyT lnetlproceeds resulap">&fromrthe , nsummsgpli&T la registeredloffer;">&T lour Commli Stocklin&June 2020, $25.9 stlpliyT lnetlproceeds fromrthe exercisd&T lprevtously issue mwarr="f sa Systocklopgplis an mobtsineSy$414rtiousa Syinlproceeds fromra loaiyissue monterrthe PaychecklProtectpli&Act (the "PPPlLoanini>") (See Note/p>&tolthe Clisoli ated FinanciallStatomrtas T lthisyReport).lip

l;text-alip

&fromr ur stockholters fromrthe tto&T lequity spcurities an mthe exercisd&T lterivaiive spcurities, consisap">&T lopgplis an mwarr="f . We expect our pri';fy sourc" T lfuture liquidity wstllbe fromrthe tto&T lproduct ,mexercisd&T lstocklopgplis an mwarr="f a Syi lrequiredlfromrfuture equity "r debt financings.lip

l;text-alip

Capital Requiremetasinor /di< 

l;text-alip

&a Sysupport requiremetas, as wetllas the timitg In mamouna&T lfuture llvenue&and product , sas. We a"ficipsge that " ma Ss ;"r opersgp">&an mworkp">&,apital pry growltepentp">&Tn decisplis Tn tsffp">,m" veloperta,&productpli,&';fketp">, trsinp">&a Syohazarfuncgplis an mbase mliyThazarfact"rs out ide&T lour cot:rol. We belilve we have su ficirta ,apital tolsustsin&our persgplis&;"r the nt;f twelve mliths.inor /di< 

l;text-alip

, amligmohazarthings:inor /di< 

l;text-alip xt">  

l;tex25cf;inor litd  

l;The impact&a Syeffects&T lthe global outbreak&T lthe COVID-19 pmntemic,&a Syohazarpofential&pmntemics "r cot:agtousldisdases&Tr fearyT lsuch outbreaks, a Sygeopoliticam conflicts;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;Decisplis regartp">& tsffp">,m" veloperta,&productpli,&';fketp">&a Syohazarfuncgplis;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;The timitg In mt;fentyT l';fketmacceptance&T lour product ;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;C sas, timitg In moutcome T lplained productpliya Syrequiredlcustomer a Syregulai"ryl,ompliance&T lour product ;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;C sas&T lpreparp">,mfilp">&a Syprosecuti">&our psgetayapplicsgplis an mtefentp">&any&future it:nllectual property-related ,laim ;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;C sas&an mtimitg T laporgplial product teveloperta;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;C sas, timitg In moutcome T lany&future warr="fy ,laim &Tr litigsgpli agaiist us associated withlany&T lour product ;inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

">Ability tolcollectmaccounas receivable; In inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

">Timitg In m, sas associated withlany&ntlefinancing.inor litd litr> al; flitbody

l;text-alip

&fromrt;ercisd&T lout ta Sp">&warr="f a Syopgplis include:inor /di< 

l;text-alip xt">  

l;tex25cf;inor litd  

l;Volaiility in the ,apital prfkets; In inor litd litr> al; flitbody xt">  

l;tex25cf;inor litd  

l;M;fketmprice&In mtraSp">&volume&T lour commli stock.inor litd litr> al; flitbody

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l;text-alip

Off-Balance&SheetmArr="gemetasinb>inor /di< 

l;text-alip

l;text-alip

CashlFlowinb>inor /di< 

l;text-alip

Opersgp">&Actpvitiesinor /di< 

l;text-alip

&Fiscal 2021, netlcashlusedlin&opersgp">&actpvities was $18.2 stlpli.text-aThe nttlloss&Tf $24.4 stlpliywastext-adecrease mby nodecashleilonsd&T l$7.2 stlpli, consisap">&pri';fsty&T lshara-base mcomponssgpli eilonsdyT l$5.4 stlpli,lllstructurp">&invent"ryl,harges&T l$747rtiousa S,m" preciatpliya Syamortpzsgpli eilonsdyT l$478rtiousa S,ma Sysharasyissue m;"r smavices&T l$239rtiousa S. Ohazarmaj"r compoxatal,hange usp">&opersgp">&,ashlincluded anlincrease&Tf $2.1 stlpliyin accounas receivable,ya Syan increase in prepaid eilonsdyT l$109rtiousa S. A decrease in invent"ries&T l$559rtiousa S,ma increase in accounas payable In maccrued eilonsdyT l$492rtiousa S,text-aa Syan increase Tf $249rtiousa Syinlteferred llvenue&reduced the ,ashlusedlin&opersgp">&actpvities.inor /di< 

l;text-alip

&Fiscal 2020, netlcashlusedlin&opersgp">&actpvities was $12.2 stlpli.text-aThe nttlloss&Tf $12.6 stlpliywas decrease mby nodecashleilonsd&T l$2.1 stlpliyconsisap">&pri';fsty&T lshara-base mcomponssgpli eilonsdyT l$2.2 stlplii.&opersgp">&,ashlincluded anlincrease&Tf $1.7 stlpliyin accounas receivable,ya increase in invent"ries&T l$343rtiousa S,mal$342rtiousa Sydecrease in customer " positsiIn mal$508rtiousa Syincrease in prepaid eilonsdya Syohazar,urrent assets. Anlincrease&Tf $825rtiousa Syin accounas payable In manlincrease&Tf $493rtiousa Syin accrued liabilities&reduced the ,ashlusedlin&opersgp">&actpvities.inor /di< 

l;text-alip

Invesap">&Actpvitiesinor /di< 

l;text-alip

&Fiscal 2021, welusedl$55 stlpliyT l,ashltolpurchase&short-germ invesamrtas a Syhad proceeds fromrmaturities T lshort-germ invesamrtas T l$50 stlpli.inor /di< 

l;text-alip

&Fiscal 2020, we usedl$35 stlpliyT l,ashltolpurchase&short-germ invesamrtas a Sywe had proceeds fromrmaturities T lshort-germ invesamrtas T l$10 stlpli.inor /di< 

l;text-alip

&Fiscal 2021 In mFiscal 2020, respectivety. We invesae m$187rtiousa SyIn m$129rtiousa Syinlpsgetas durp">&Fiscal 2021 In mFiscal 2020, respectivety. Durp">&Fiscal 2020, we purchasedl$543rtiousa S&T lintefinpte life it:angible Issetsma Sysoftware&a Sypaid $210rtiousa Sy;"r the first iistallerta T lthe NSENA&acquisitpli.inor /di< 

l;text-alip

Financing&Actpvitiesinor /di< 

l;text-alip

&Fiscal 2021, welreceive m$12 stlpliifromrprevtously issue mstocklpurchase&warr="f , $1.7 stlpliyin proceeds fromrthe exercisd&T lprevtously issue mstocklopgplis an mpaid $275rtiousa Syinltebtyrelatp">&tolthe December 2020 acquisitpli&T lNSENA.inor /di< 

l;text-alip

&Fiscal 2020, we receive m$11.7 stlpliyT lnetlproceeds resulap">&fromra registeredloffer;">&T lour Commli Stocklin&June 2020, $25.9 stlpliyT lnetlproceeds fromrthe exercisd&T lprevtously issue mwarr="f sa Systocklopgplis an m$414rtiousa Syinlproceeds fromra PPPlLoan.inor /di< 

l;text-alip

CLinractual Obligsgplis an mCommitmetasinor /di< 

l;text-alip

,mLLC (tex201c;Syzygyini>tex201d;), we are obligsged tolpay tolSyzygy a 4% royalty fed&Tn future lroduct tto up tolanlaggregate amouna&T l$1.0 stlpliyin royalty paymetas "r unail September 30, 2026,lwhichever&Tc,urs earlier.inor /di< 

l;text-alip

l;text-alip

in the nt-fam course&T lbusiness.lip

l;text-alip

&agredertas withlLW Varner as our itgerim CEO,ya SyLawrence&Hirsch as our itgerim financiallconsulaant. Pursu="f&tolthelconsulap">&agredertas, un.&paymetas " l$225rtiousa SythroughlApril 17, 2022 a Syup tol$75rtiousa SyT lshara-base mcomponssgpli plusltrsvel c sas&an meilonsds.lip

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Effects&T lInflatpliinor /di< 

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&resulas&durp">&the loriodslpresetaed.lip

l;text-alip

RecetalAccounap">&Pronouncemetasinor /di< 

l;text-alip

&pronouncemetas "r change in accounap">&pronouncemetas durp">&the yearyented December 31, 2021,y"r subsequently hazaeto, that we belilve are ofrpofential&s-vaificsnce&tolour financiallstatomrtas.lip

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&Itom 15 commencing&li&Page F-1.lip

l;text-alip

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&dwsclosure onterrItomtext-a304(b)&T lRegulaipli&S-K.lip

l;text-alip

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Evalusgpli&T lDwsclosure Cot:rols&a SyProceduresinor /di< 

l;text-alip

our itgerim Chief Executive&O ficer an mChief FinanciallO ficer, tolallow tBK"ty&decisplis regartp">&requiredldwsclosures. In " s-vaitg In mtvalusgp">&the dwsclosure cot:rols&a Syprocedures,lmidageerta recUvaizes&that any&, t:rols&a Syprocedures,lno matferyhow wetll" s-vaedla Syopersg d,ycanlprovide&Tnly reasonable Issurance&T lachievp">&the d s-redlc t:rol objective ,ya Symidageerta is&requiredltolapply itsijudgerta inmtvalusgp">&the c sa-benefityrelatpliship ofrpossible , t:rols&a Syprocedures.lip

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Midageertatex2019;syReportmliyInferial Cot:rol Ovma FinanciallReportp">inor /di< 

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CLink" style="font-vappt;font-varijustifyr providWe are responsible ;"r esaablishitg In mmsintsinitg Idequate inferial c t:rol ovma financiallreportp">m(as defineSyin Rutotext-a13a-15(f)&onterrthe Exchange&Act). Our inferial c t:rol ovma financiallreportp">mis ayprocess " s-vaedltolprovide&reasonable Issurance®artp">&the reliability&T lfinanciallreportp">man mthe preparsgpli&T lfinanciallstatomrtas ;"r e;ferial purposes T lGAAP.lip

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CLink" style="font-vappt;font-varijustifyr providBecause&T lias inherent limitatplis, inferial c t:rol ovma financiallreportp">mpry notlpllvent "r detect misstatomrtas. There;"re, lvenrtiose&systoms determinedltolbe effective canlprovide&Tnly reasonable Issurance&T lachievp">&theirlc t:rol objective .text-alip

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CLink" style="font-vappt;font-varijustifyr providMidageerta is&responsible ;"r esaablishitg In mmsintsinitg Idequate inferial c t:rol ovma financiallreportp">m;"r the Company. Withlour psrticipsgpli,ya evalusgpli&T lthe effectivenmwas c tductedlas T lDecember 31, 2021,ybase mliythe framework a Sycrigeria esaablisheSyin Inferial Cot:rol Infegrated Framework (2013) issue mby themCommitted&T lSponsorp">&Organpzsgplis T lthe Treadwry Commisspli. Base mliythis evalusgpli,lour itgerim Chief Executive&O ficer an mChief FinanciallO ficer cotcluded thatlour inferial c t:rol ovma financiallreportp">mwas effective as T lDecember 31, 2021lip

l;text-alip

 

CLink" style="font-vappt;font-varijustifyr providThis AnnuallReport do" snotlincludelanlattestaipli&reportml lthe Companytex2019;s registeredlpublicyaccounap">&firmlbecause&the Company&is an tex201c;eerovidg growthlcompanytex201d;&onterrthe JOBS&Act. Anlattestaipli&reportml lthe Companytex2019;s intepentrta registeredlpublicyaccounap">&firmlregartp">&inferial c t:rol ovma financiallreportp">mis also notlrequiredlf"r st-vlerlreportp">mcompanies.inor /di< 

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CLink" style="font-vappt;font-varijustifyr providChange in Inferial Cot:rolsinor /di< 

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CLink" style="font-vappt;font-varijustifyr providThere have been nolchange in our inferial c t:rol ovma financiallreportp">mdurp">&the fiscal quarferyented December 31, 2021,ythatlhave msgerially affected,y"r are reasonably lik"ty&tolmigerially affect, our inferial c t:rol ovma financiallreportp">. Our process ;"r evalusgp">&cot:rols&a Syproceduresmis c tgp"uouslIn mtncompass" sconsaant&improveerta T lthe " s-va&a Syeffectiven&this process.inor /di< 

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&T lStockholters tolbe helSyinl2021 (the tex201c;ProxylStatomrtaini>tex201d;), which pustlbe filed nollai l;text-alip

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2.1ina>inor litd

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2.2ina>inor litd

litr> al; fontg> /div>

3.1ina>inor litd

litr> al; fontg> /div>

3.2ina>inor litd

litr> al; fontg> /div>

4.1ina>inor litd

litr> al; fontg> /div>

4.2ina>inor litd

litr> al; fontg> /div>

4.3ina>inor litd

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4.4ina>inor litd

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4.5ina>inor litd

&Ageta Warrsnt, dated June 18, 2019. Incorporatedlby reference&tolExhibiz 4.1&tolthe Currrta ReportmliyFt-f 8-K, ;iled li&June 18, 2019.inor litd litr> al; fontg> /div>

4.6ina>inor litd

litr> al; fontg> /div>

10.1ina>inor litd

&LLC. Incorporatedlby reference&tolExhibiz 10.1&tolthelRegistrsgpli&Statomrta li&Ft-f S-1, ;iled li&April 17, 2017.inor litd litr> al; fontg> /div>

10.2+ina>inor litd

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10.3ina>inor litd

litr> al; fontg> /div>

10.4ina>inor litd

litr> al; fontg> /div>

10.5ina>inor litd

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10.6ina>inor litd

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10.7ina>inor litd

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10.8ina>inor litd

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10.9ina>inor litd

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10.10ina>inor litd

&Agrederta by an mbetween the Company&an mV3, effective April 1, 2020. Incorporatedlby reference&tolExhibiz 10.1&tolthelRegistrsgpli&Statomrta li&Ft-f S-8, ;iled li&May 29, 2020.inor litd litr> al; fontg> /div>

10.11ina>inor litd

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10.12ina>inor litd

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10.13ina>inor litd

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10.14ina>inor litd

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10.15ina>inor litd

&thelgenerallnature T ltheirycot:tta.text-atext-aThe Company&ontertakesltolprovitr such schedufes an mexhibizs&tolthelSEC upli&requesa. Incorporatedlby reference&tolExhibiz 2.1&tolthelCurrrta ReportmliyFt-f 8-K, ;iled li&September 14, 2020.inor litd litr> al; fontg> /div>

10.16ina>inor litd

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10.17ina>inor litd

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10.18ina>text-alip

litr> al; fontg> /div> intd Separsgpli&Agredertambetween the Company&an mMr. Smith, dated January 24, 2022.text-a Incorporatedlby reference&tolExhibiz 10.1&tolthelCurrrta ReportmliyFt-f 8-K, ;iled li&January 26, 2022.intd litr> al; fontg> /div> intd Consultp">&Agrederta between the Company&an mLWV Consultp">, LLC, dated January 24, 2022.text-a Incorporatedlby reference&tolExhibiz 10.2&tolthe Currrta ReportmliyFt-f 8-K, ;iled li&January 26, 2022.intd litr> al; fontg> /div> intd Consultp">&Agrederta between the Company&an mLRHIRSH, LLC, dated January 24, 2022. Incorporatedlby reference&tolExhibiz 10.3&tolthe Currrta ReportmliyFt-f 8-K, ;iled li&January 26, 2022.intd litr> al; fontg> /div>

inor litd

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inor litd

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inor litd

&Firml-e="srtberg Rich Baker Be-fan, P.A. *inor litd litr> al; fontg> /div>

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inor litd

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&furnishedlsol"ty&tolaccompanylthis AnnuallReportmliyFt-f 10-K an mi snotlbep">&filed ;"r purp"srs T lSecgpli&18&T lthe Securities Exchange Aca l l1934, as amented, an mi snotltolbe incorporatedlby reference&into anyl;ili">&T lthe Company.*inor litd litr> al; fontg> /div> litr> al; fontg> /div>

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ina>WRAP TECHNOLOGIES, INC.inb>inor /dil 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTSinb>inor /dil 

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ina>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMinb>inor /dil 

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CLink" style="nt-fami providTolthe Board T lDirectors an

 

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CLink" style="nt-fami providOpinponmliythe FinanciallStatomrtasinb>inor /dil 

 

CLink" style="nt-fami providtext-alip

 

CLink" style="nt-fami providWe have audited the accompanyp">&balance sheets T lWrap Technamigies, Inc. (the tex201c;Companytex201d;) as T lDecember 31, 2021, an m2020, an mthe related statomrtas T lopersgplis an mcomprehetspve los ,mstockhol" sstex2019a equity, an mcash flows ;"r each&T lthe years in theltwo-year period entedlDecember 31, 2021, an mthe related notestext-a (famlectively referredlto asmthe financiallstatomrtas). In ourlopinpon,mthe financiallstatomrtas presrta fairly, inyall praeriallrespects,mthe financiallposptili&T lthe Company as T lDecember 31, 2021 an m2020, an mthe results T lizs&opersgplis an mizs&cash flows ;"r each&T lthe years in theltwo-year period entedlDecember 31, 2021, in con;"rmity withlaccounap">&principfes generally accepted in thelUnited Statos T lAmrrica.lip

 

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CLink" style="nt-fami providBasis ;"r Opinponinb>inor /dil 

 

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CLink" style="nt-fami providThesr financiallstatomrtas are the respotspbility&T lthe Companytex2019as prnageerta. Ourlrespotspbility&is&tolexpress anlopinponmliythe Companytex2019as financiallstatomrtas based li&ourlaudits. We are a publicyaccounap">&firmlregisteredlwithlthe PublicyCompany Accounap">&Ov ssfont Board (United Statos)l(PCAOB) an mare requiredlto be intepentrta withlrespect&tolthe Company in accordance&withlthe U.S. federallsecurities laws an mthe applicsble&rufes an mregulaiplis&T lthe Securities an mExchange Commissponman mthe PCAOB.lip

 

CLink" style="nt-fami providtext-alip

 

CLink" style="nt-fami providWe conducted ourlaudits in accordance&withlthe standards&T lthe PCAOB.mTh"se standards&requirelthaa we plan#an mper;"rmmthe audit&tolobtaii&reasonsble&assurance&aboua whethermthe financiallstatomrtas are free T lpraeriallmisstatomrta, whethermdue&tolerr"r "r fraud.mThe Company i snotlrequiredlto have,"nt- were we engagedlto per;"rm, an audit&T lizs&itaernallcot:rol over financiallreportp">. As partml lourlaudits, we are requiredlto obtaii&an onterstandi">&T litaernallcot:rol over financiallreportp">, bua notl;"r thelpurp"sr&T lexpressi">&anlopinponmliythe effectivexasslT lthe Companytex2019as itaernallcot:rol over financiallreportp">. Accordp">ly, we express no such opinpon.lip

 

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CLink" style="nt-fami providOurlaudits include mper;"rmp">&procedures&tolassess the risks T lpraeriallmisstatomrtalT lthe financiallstatomrtas, whethermdue&tolerr"r "r fraud,#an mper;"rmp">&procedures&thaa respotd&tolth"sr&risks. Such procedures&include mexp snp">, onma ptst basis, evitrnce®ardp">&thelamounas an mdisclosures&inlthe financiallstatomrtas. Ourlaudits also&include mevaluatp">&thelaccounap">&principfes used an ms-vaificstaltstimatos made by prnageerta, as well as evaluatp">&theloverall presrtaaipli&T lthe financiallstatomrtas. We believelthaa ourlaudits provitr a&reasonsble&basis ;"r ourlopinpon.lip

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Organizatili and Business Descriptiliinor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Wrap Technamigi" , Inc., a Delaware corporatili (the tex201c;Companytex201d;, tex201c;wetex201d;, tex201c;ustex201d;, and tex201c;ourtex201d;), is a publicly traded company spth our Commli Stock, par value $0.0001 per&share (tex201c;Commli Stocktex201d;), listed onythe Nasdaq Capiaal Market (tex201c;Nasdaqtex201d;) underythe tradrng"symbol tex201c;WRAPtex201d;. The Company is a developer&and supplier&of public safety producas and training servic" s;"r law en;"rceerta&and securi y personnel. The Companytex2019;s prifary produca is the BolaWraptexte; remtte restraint devic". The principal market s;"r the Companytex2019;s proprietary producas&and servic" sare inyNorth and South America, Europe, Middle&Easa&and Asia.lip>l 

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Principl" sof Cotsolidatiliinor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company has one wholly-owned subsidi sy, Wrap Re0ptty, Inc. ;"rmedyiny l inheri l; Deceeber 2020 (liemrsee Nttey l inheri l;3liemr) that sells a virtual re0ptty training system prifarily troveting law en;"rceerta&agenci" . The cotsolidated financial#xaateertas incluoe the accoont sof this subsidi sy afaer eliminatili&of itaercompany transactilis&and accoont .lip>l 

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Basis&of Presrtaatili&and Use&of Estimatesinor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The accompanyrng"financial#xaateertas have been preparedyinycot;"rmtty spth accoontrng principl" sgenerally acceptedyinythe UnitedySaates&of America (tex201c;U.S. GAAPtex201d;). The preparatili&of financial#xaateertas inycot;"rmtty spth accoontrng principl" sgenerally acceptedyinythe UnitedySaates&of America requires manageerta&to make estimates&and assumptilis (e.g., share-based compensatili&valuatili, allowances;"r doubtful accoont ,&valuatili&of itvrtaosy andyintangible&asset ,&warryley reserve, accrued cosas,&valuatili&allowancesrelatedyto deferred tax&asset andyrecognitili&and measureerta&of cot:rngenci" ) that affecaythe reported amfonts&of asset andyliabilities, and disclosure&of cot:rngent asset andyliabilities aaythe datesof the financial#xaateertas and affecaythe reported amfonts&of revenues and expenses during the reportrng period. Actual results&coold matestylly differ from those estimateslip>l 

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Cotcrtaratilis&of Riskinor l 

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Credit Risk tex2013; Financial#inspruertas that po:ttatylly subjecaythe Company toycotcrtaratili&of credit risk cotsisted prifarily of cash, cash equival l inheri l;twoliemr domestic financial#inspitutilis. The Company is exposedyto credit risk inythe evena&of default by a financial#inspitutiliyto the extrta&that cash and cash equival l inheri l;notliemr expestenced any losses li&its&cash and cash equival

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Cotcrtaratilis&of Accoont yReceivable&and Revenueini> tex2013; The Company has a limited number&of domestic andyinternatilial#customers. The Company l inheri l; may l inheri l;16

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Cotcrtaratili&of Suppliersini> tex2013; The Company assembl" sits&BolaWrap producas&in-house using componrtas and subassemblies from a limited number&of suppliers&and cotaracaysuppliers. In particular, a single&supplier&is currently the sole manufacaurersof the BolaWrap battery assembly andyanother&single&supplier&is the sole manufacaurersof the propulsili componrtas;"r BolaWrap cassett" . Other&partssare sole sourced from other&suppliers. If supplier&shortages&or migistic delays&occur,&or qu0ptty probl"mssarise,yproducaili schedul" scoold be#x-vaificantly delayed or cosasyx-vaificantly increased,&whichscoold inyturn have a matestyl adverse effecayonythe Companytex2019;s financial#cotditili, results&of operatili&and cash flows.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Impaca&of COVID- l inheri l;19text-atex2013;text-aIny l inheri l; Deceebertext-aliemr l inheri l;2019,liemr a novel#xarainylf corliavirus (tex201c;COVID- l inheri l;19tex201d;) eerrgedyinyChina. In l inheri l; Marchs2020, l inheri l; may l inheri l; may

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Cash and Cash Equivalinor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company cotsiders&all highly liquidyinvestertas purchased spth orividal maaurities of l inheri l;threeliemr mfnths&or mess from the purchase datestoybe#cash equivalU.S.tex201d;) Treasury bills&and are saated&at fair value.lip>l 

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Short-Term Investertasinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Companytex2019;s short-termyinvestertas cotsist of U.S. Treasury bills&spth orividal maaurities beyond l inheri l;threeliemr mfnths&aaythe datesof purchase and l inheri l;one l inheri l; Deceeber 31,s2021,

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;W<&adoptedtext-aAccoontrngySaandards Codificatili (tex201c;ASCtex201d;)text-aTopicy l inheri l;326FASBtex201d;)text-aeffecaive l inheri l; Janu sy 1,s2020, l inheri l;noliemr historical short-termyinvestertas. Because we do l inheri l;notliemr have any history of losses ;"r our short-termyinvestertas, our expecaedyloss allowancesmethodamigy is developed using published "r estimated credit default rates&;"r similaryinvestertas and current and fuaure economic andymarket#cotditilis.text-aAnyyunre0ptzed losses relatedyto credit loss facaors are recorded through an allowances;"r credit lossesyinyother&(expense) income, inyour cotsolidated xaateertas of operatilis, ratherythan as a reducaili to the amfrttzed cosaybasis&inyother&comprehetsive (loss) income, whet a decline&inyfair value has resulted from a credit loss. We determine&re0ptzed gain or misses li&the sale&of investertas li&a specific idettificatili method, andyrecord such gain or misses as other&(expense) income, inyour cotsolidated xaateertas of operatilis.text-aWe didyinspan>yrecord a credit loss reserve&;"r short-termyinvestertas during the years ended l inheri l; Deceeber 31,s2021 l inheri l;2020.l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l; l inheri l; l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Share-Based Compensatiliinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company&;"llows the fair value recognitili&provisilis issued by the FASB inyASC Topicy l inheri l;718,liemr Stock Compensatili (tex201c;ASCy l inheri l;718tex201d;) and has adopted#AccoontrngySaandards Updates(tex201c;ASUtex201d;) l inheri l;2018 l inheri l;07liemr ;"r share-based transactilis&spth ntn-eeploye" . Share-based compensatili&expense recognized during l inheri l;2021liemr and l inheri l;2020l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Loss per&Shareinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Basic loss per&commli&share isycomputed by dividrng"net loss f"r the period by the wefonted-average number&of share sof Commli Stock luasaanding during the period. Diluted net loss per&commli&share reflects the po:ttatyl dilutili&of securi ies that coold share inythe earnings of ai&etatty. The Companytex2019;s losses ;"r the periods presrtaed cause the inclusili&of po:ttatyl Commli Stock inspruertas luasaanding toybe#yleidilutive. Stock optilis,srestricted stock units and warryles exercisable&or issuable&for a toaal of 5,596,853 and 7,566,502 share sof Commli Stock were luasaanding at l inheri l; Deceeber 31,s2021 l inheri l;2020,liemr re pecaively. These securi ies are l inheri l;notliemr incluoedyinythe computatili&of diluted net loss per&commli&share ;"r the periods presrtaed as their inclusili&woold be#yleidilutive dueyto lossesyincurred by the Company.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Accoont yReceivable&and Allowances;"r Credit Lossesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;ASU l inheri l;No.liemr lem#xa0;

l inheri l;2016 l inheri l;13,liemrtext-ali>Financial#Inspruertas - Credit Losses (Topicy l inheri l;326 requires that financial#asset measured&at amfrttzed cosaybe presrtaed at the net amfont#expecaedytoybe#collected. The expecaedycredit lossesyare developed using an estimated loss ratesmethod that cotsiders&historical collectili expestence, current cotditilis, andyreasonable&and supportable&forecasas that affecaythe collectabilitysof the reported amfont. The estimated loss ratesyare applied to accoont yreceivables&spth similaryrisk characteststics such as the lengthsof tBK" the balanceshas been luasaanding and the locatili&of the customer. In crrtain&inspances,ythe Company l inheri l; may l inheri l;notliemr share risk characteststics spth other&accoont yreceivables, inywhichscase the Company record sits&expecaedycredit lossesyli&an individual assetybasis. If an accoont yreceivable&asset is evaluated li&an individual basis,ythe Company excluoes those asset from the portfolios of accoont yreceivables&evaluated li&a collectiveybasis.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;At l inheri l; Deceeber 31,s2021 l inheri l;2020,liemr the Company had an allowances;"r credit lossesyrelatedyto accoont yreceivable&of $134 and $10, re pecaively. If a maj"r customertex2019;s creditworthiness deteriorates,&or actual defaults exceed lur&historical expestence, such estimates&coold changeyandyimpaca&our fuaure reported financial#results.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> lixoexcluoe> ldiv class="PGFTR"#xa0; ldiv class="hf-row"> ldiv class="hf-cell"#xa0; < specifi99.9% displayl inline-block "> text-a lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell PGNUM"#xa0; < specifi99.9% displayl inline-block pt;font-varicrtaer< ;"> 

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Table&of Cot:ttasina> lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Wrap Technamigi" , Inc. lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Nttes toyCotsolidated Financial#Saateertas lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> (inythousands, except per&share and share amfonts) lidiv> lidiv> lidiv> lixoexcluoe>text-aliixoexcluoe> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Itvrtaosiesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Itvrtaosiesyare valued at the lower&of cosayor net re0ptzable&value. The cost of substatatylly all the Companytex2019;s itvrtaosy is determined by the FIFO cost method. Itvrtaosy is comprised lf raw matestyls, assemblies and finrshed producas&intended ;"r sale&toycustomers. The Company evaluates the need ;"r reserves ;"r excesssand obsoletesitvrtaosiesydetermined prifarily based upli&estimates&of fuaure demand f"r the Companytex2019;s producas.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;At l inheri l; Deceeber 31,s2021 l inheri l;2020liemr the Company had yreserve&;"r obsolescence.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Property, Equipertasand Depreciatiliinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Property and equipertasis saated&at cost. Depreciatili li&property and equipertasis computed overythe estimated useful lives of yyears using the xaraiont-line&method. On any retireerta&or dispositili&of property and equiperta, the relatedycost and accumulatedydepreciatili lr amfrttzatili&is remtved and a gainylr loss recorded.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Business Combinatilisinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Transactilis&inywhichsthe Company obtain scontrol of a business are accoonted ;"r according toythe acquisitili&method asydescribedyinyASCy l inheri l;805,liemrtext-aBusiness Combinatilis. The asset acquired andyliabilities assumed are recognized and measured at theirsfair values as of&the datescontrol is&obtained. The Company measures goodspll as the excesssof cotsideratili&transferred,ywhichsthe Company ylso measures at fair value, overythe net of the acquisitili&datesamfonts&of the idettifiable&asset acquired andyliabilities assumed. Acquisitili&relatedycosts inycotnectili spth a business combinatili are expensed as incurred. Cot:rngent cotsideratili&is recognized and measured at fair value at the acquisitili&datesand ontrl paidyis re-measured li&a recurring basis&and classified as ayliability.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ittangible Asset inspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ittangible&asset cotsisted of (a) capiaaltzed legal fees and filing costsyrelatedyto obtaining patrtas and trademarks, (b)ycustomer agreeertas, tradenam< , software, ntn-soliciaatili&and ntn-competesagreeertas acquired inybusiness combinatilis and valued at fair value at the acquisitili&date, (c) purchased software, and (d) the purchase cost of indefinrte-lived website domains. The estimated useful lives of idettifiable&intangible&asset spth definrte useful lives have been estimated toybe#between yand yyears. Purchased sebsite domain costsyspth an indefinrte useful life are l inheri l;notliemr subjecayto amfrttzatili,ybut are subjecayto ai&annual impairerta&test, by comparing their carryrng"amfont#spth their corre ponding fair value. F"r any given&intangible&assetyspth an indefinrte useful life,yif its&fair value exceed sits&carryrng"amfont# l inheri l;noliemr impairerta&loss shall be recognized.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The carryrng"value of intangibles is periodically reviewed and impairertas,yif any, are recognized whet the fuaure undiscoonted cash flows&re0ptzed from the asset is mess than its&carryrng"value.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Impairerta of Long-Lived Asset inspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Long-lived asset andyidettifiable&intangibles held ;"r use are reviewed ;"r impairerta&whetever evena or changes inycircumspances indicatesthat the carryrng"amfont# l inheri l; may l inheri l;notliemr be recoverable. If the xumyof undiscoonted expecaedyfuaure cash flows&is mess than the carryrng"amfont#of the assety"r if changes inyfacas&and circumspances indicate, an impairerta&loss is recognized and measured using the assettex2019;s fair value. An impairerta&charge&of $170 ;"r purchased software was recorded iny l inheri l;2021.liemr The Company didyinspan>yrecognize any other&impairerta&loss during the years ended l inheri l; Deceeber 31,s2021 l inheri l;2020.l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l; l inheri l; l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Classificatili and Valuatili&of Warrylesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company&accoont y;"r warryles as either&equityylr liabilities based upli&the characteststics and provisilis of e0chsparticular inspruerta. Warryles valued and classified as equityyare recorded as additilial paid-inycapiaal based li&the issue datesfair value and l inheri l;noliemr further&adjusterta&to valuatili&is made. As of l inheri l; Deceeber 31,s2021, l inheri l;noliemr warryles "r other&derivative financial#inspruertas that require separate accoontrng as liabilities and periodic revaluatili.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Advertising and Promotili&Costsinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Advertising costsyare charged toyexpense as incurred and were $145 and $287 ;"r the years ended l inheri l; Deceebertext-aliemr l inheri l;31,liemr lem#xa0;

l inheri l;2021liemr and l inheri l;2020,liemr re pecaively. The Company ylso incurred produca promotili&costsy;"r demonspratili&producas&delivered toyprospecaiveycustomers&of $924 and $747 ;"r the years ended l inheri l; Deceeber 31,s2021 l inheri l;2020,liemr re pecaively. Advertising and promotili&costsyare incluoedyinyselling, general and adminrsprative expensesyinythe accompanying xaateertas of operatilis.

 

;">&#" style=nt-famiprovid>> l;text-alip>l 

 

;">&#" style=nt-famiprovid>> l;lip> lixoexcluoe> ldiv class="PGFTR"#xa0; ldiv class="hf-row"> ldiv class="hf-cell"#xa0; < specifi99.9% displayl inline-block "> text-a lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell PGNUM"#xa0; < specifi99.9% displayl inline-block pt;font-varicrtaer< ;"> 

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F- l inheri l;9liemr lidiv> lidiv> lidiv> lhg#xa0; ldiv class="PGHDR"#xa0; ldiv class="hf-row"> ldiv class="hf-cell TOCLink"#xa0; < specifi99.9% displayl inline-block "> wefont> inrtiami ;"> <> inrtiami ;">&#" style="inrtiami ;"> 

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Table&of Cot:ttasina> lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Wrap Technamigi" , Inc. lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Nttes toyCotsolidated Financial#Saateertas lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> (inythousands, except per&share and share amfonts) lidiv> lidiv> lidiv> lixoexcluoe>text-aliixoexcluoe> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Demonspratili and Training&Costsinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company maintain sa demonspratili&and training&departerta&as a part of ias sales andymarketing acaivities and does l inheri l;notliemr charge&;"r produca demonspratilis "r training. Training&is l inheri l;notliemr a cotditili "r requireerta of sal<&as most sales are made through drspribuaors toytheir endycustomers. The Company cotducas&local andyregilial in-persli,ywebinar and on-line&demonspratilis and ose&of ;"rce and excalatili&training&to support law en;"rceerta&agencies&spth l inheri l;noliemr purchase requireerta. Such training, whet provided,y l inheri l; may

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Researchsand Developerta&Costsinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Researchsand developerta&costsyare expensed as incurred.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famiprovid>> l;Cot:ract Manufacaurersinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company eeploy scontract manufacaurers&;"r producaili&of crrtain&componrtas and sub-assemblies. The Company l inheri l; may l inheri l;noliemr revenue "r markup li&such transactilis.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Leasesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company adopted#ASC Topicy l inheri l;842,liemr Leasess(tex201c;Topicy l inheri l;842tex201d; l inheri l; Janu sy 1,s2019. l inheri l;842,liemr the Company recognizes lease liabilities and corre ponding riont-of-ose-asset flr all leases&spth terms&of greates than l inheri l;12liemr mfnths. Leasessspth a termyof l inheri l;12liemr mfnths&or mess spll be accoonted ;"r in a manner similarytoythe guidances;"r operating leases&prior toythe adoptili&of Topicy l inheri l;842.liemr Refer toyNtte l inheri l;9,liemr Leasess;"r more in;"rmatili.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;RevenueyRecognitiliinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;It& l inheri l; May 2014, l inheri l;2014 l inheri l;09,liemr Revenueyfrom Contractssspth Customers&(tex201c;ASU l inheri l;2014 l inheri l;09tex201d;) and ASC Subtopicy l inheri l;340 l inheri l;40,liemr Other Asset sand Deferred&Costs - Contractssspth Customers&(tex201c;ASCy l inheri l;340 l inheri l;40tex201d;), (collectively, tex201c;Topicy l inheri l;606tex201d;). On l inheri l; Janu sy 1,s2018, l inheri l;606 l inheri l;noliemr prior revenue "r contractssspth customers, there was l inheri l;noliemr transitili&required n"r any impaca&on prior results. ASU l inheri l;2014 l inheri l;09liemr requires etatties toyrecognize revenue through the applicatili&of a l inheri l;five l inheri l;2liemr ;"r additilial in;"rmatili.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Shipping andyHandling&Costsinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Shipping andyhandling&costsyare incluoedyinycost of revenue . Shipping andyhandling&costsyinvoiced&toycustomersyare incluoedyinyrevenue. Actual shipping andyhandling&costsywere $167 and $75 ;"r the years ended l inheri l; Deceeber 31,s2021 l inheri l;2020,liemr re pecaively. Actual revenue yfrom shipping andyhandling&were $88 and $63 ;"r the years ended l inheri l; Deceeber 31,s2021 l inheri l;2020,liemr re pecaively.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Exit Acaivity Expenseinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;During lem#xa0;

l inheri l;2021liemr the Company recorded $747 of produca line&exit costsyrelatedyto the wind down and closure of the BolaWrap l inheri l;100liemr produca line&relatedyto a shiftyinyproducaili&ef;"ras to a nyleBolaWrap l inheri l;150liemr generatili&produca requirrng"new tooling, new producaili&equipertasand processes and additilial licensing. These ntn-cash itvrtaosy costsyincluoedyend of life raw matestyl wrrte offs&of $641 and tooling retireerta&costsyof $106.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The $747 of exit costsywere recorded as a componrta&of cosayof revenue . There was noliixontnFractili> such expense recorded during the prior year. Developerta&and start-up expense of new producasyare expensed as incurred except ;"r capiaaltzed equipertasand tooling.lip>l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Warryley Reservesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company warryles its&producas&and accessosiesytoybe#freeyfrom defecasyinymatestyls and workwidship ;"r a periodyof l inheri l;one

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company establrshes a warryley reserve&based li&yleicipatedywarryley claims at the tBK" produca revenue yare recognized. Factors affecaing&warryley reserve&levelsyincluoeythe nueber of unias sold, aleicipatedycosayof warryley repairs&and aleicipatedyrates&of warryley claims. The Company evaluates the adequacysof the provisiliy;"r warryley costsye0chsreporting period. The warryley reserve&was $96 and $48 at l inheri l; Deceeber 31,s2021 l inheri l;2020.liemr Actual warryley costsycoold differ from estimates.

 

;">&#" style=nt-famiprovid>> l;text-alip>l 

 

;">&#" style=nt-famiprovid>> l;lip> lixoexcluoe> ldiv class="PGFTR"#xa0; ldiv class="hf-row"> ldiv class="hf-cell"#xa0; < specifi99.9% displayl inline-block "> text-a lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell PGNUM"#xa0; < specifi99.9% displayl inline-block pt;font-varicrtaer< ;"> 

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pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Wrap Technamigi" , Inc. lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> Nttes toyCotsolidated Financial#Saateertas lidiv> lidiv> ldiv class="hf-row"> ldiv class="hf-cell"#xa0;

 

pt;font-varicrtaer< ;">&#wefont> boldi provid> < specifi99.9% displayl inline-block "> (inythousands, except per&share and share amfonts) lidiv> lidiv> lidiv> lixoexcluoe>text-aliixoexcluoe> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Segerta In;"rmatiliinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;ASC Topicy l inheri l;280,liemr tex201c;Segerta Reporting,tex201d; requires ose&of the tex201c;widageerta&appro0chtex201d; model ;"r segerta reporting. The widageerta&appro0ch model is based li&the way a companytex2019;s widageerta&organizes segertassspthinythe companys;"r making operating decisilis andyassessing per;"rmance. The Company operates as a single segerta and wpll evaluate additilial segerta disclosure requireertas as it expands its&operatilis.

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Income Taxesinspan>inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l; l inheri l;Noliemr income tax expense was recorded ;"r the periods ended l inheri l; Deceeber 31,s2021 l inheri l;2020liemr due toylosses incurred. Deferred&tax asset andyliabilities are determined based li&tempor sy differences between the basessof crrtain&asset andyliabilities ;"r income tax and financial#reporting purposes.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company maintain sa valuatili&allowancesspth re peca toydeferred&tax asset . The Company establrshes a valuatili&allowancesbased upli&the po:ttaial likelihoodyof re0ptzing the deferred&tax assetsand taking into cotsideratili&the Companytex2019;s financial#positili&andyresults of operatilis ;"r the current period. Fuaure re0ptzatili of the deferred&tax benefia depends li&the existencesof sufficirta&taxable&income spthinythe carry-;"rward period underythe Federal tax law . Changes inycircumspances, such as the Company generating taxable&income,ycoold cause a change inyjudgerta aboutsthe re0ptzability of the relatedydeferred&tax asset. Any change inythe valuatili&allowancesspll be incluoedyinyincome inythe year of the change inyestimates.

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" naml 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Recently Issued Accoontrng Guidanceinspan>inor l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Adopted#First Quarter of lem#xa0;

l inheri l;2021:inor l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ittext-alem#xa0;

l inheri l; Deceeber 2019,text-aliemrthe FASB issued ASUtext-alem#xa0;

l inheri l;2019 l inheri l;12,liemrtext-aIncome Taxes (Topictext-alem#xa0;

l inheri l;740): Simplifying the Accoontrng ;"r Income Taxesini>text-a(tex201c;ASUtext-ali; l inheri l;2019 l inheri l;12tex201d;), whichsis intended to simplify " stous aspecasyrelatedyto accoontrng ;"r income taxes. ASUtext-alem#xa0;

l inheri l;2019 l inheri l;12liemrtext-areeoves crrtain&exceptilis toythe general principles inyTopictext-alem#xa0;

l inheri l;740 l inheri l;2019 l inheri l;12liemrtext-ainythe l inheri l;first l inheri l; Marchs31,s2021 l inheri l;not

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;li;Other Pronoonceertas:inor l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;It& l inheri l; August 2020, l inheri l;2020 l inheri l;06,liemrtext-aDebttex2014aDebtsspth Conversili&andyOther Optilis (tex201c;Subtopicy l inheri l;470 l inheri l;20tex201d;)sand Derivatives and Hedvidgtex2014aContractssinyEtattytex2019as OwnyEquityytex201c;(Subtopicy l inheri l;815 l inheri l;40tex201d;): Accoontrng ;"r Convertible&Inspruertas and ContractssinyanyEtattytex2019as OwnyEquity, whichssimplifies accoontrng ;"r convertible&inspruertas by reeovrng maj"r separatili&models&required underycurrent U.S. GAAP. The ASU reeoves crrtain&settleerta&cotditilis&that are required ;"r equityycontractsstoyqualify ;"r the derivative scope&exceptili and ia also simplifies the diluted earnings per&share calculatili&in crrtain&are0 . This guidancesis&ef;ecaiveyf"r ;ixcal years, and interim periods spthinythose ;ixcal years, bevidning&after&lem#xa0;

l inheri l; Deceeber 15,s2021,

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;It& l inheri l; May 2021, l inheri l;No.liemr lem#xa0;

l inheri l;2021liemr- l inheri l;05,liemrtext-aLeasess(Topicy l inheri l;842 l inheri l;1 l inheri l;not l inheri l;2 l inheri l; Deceeber 15,s2021. l inheri l;notliemr expecasthat the adoptili&of this&saandard&spll have a matestyl ef;eca li&the Companytex2019;s cotsolidated financial#xaateertas.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;It& l inheri l; October 2021, l inheri l;2021liemr- l inheri l;08liemr (tex201c;ASU l inheri l;No.liemr lem#xa0;

l inheri l;2021liemr- l inheri l;08tex201d; l inheri l;805 l inheri l;606,liemr Revenueyfrom Contractssspth Customers. At the acquisitili&date, an acquireryshoold accoont ;"r the relatedyrevenue contractssin accordancesspth Topicy l inheri l;606 l inheri l; Deceeber 15,s2022, l inheri l;not

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company has reviewed lther recently issued, but l inheri l;not l inheri l;notliemr believesthe fuaure adoptilis of any suchspronoonceertas spll be expecaed&toycause a matestyl impaca&on its&financial#cotditili "r the results of operatilis.

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;

 

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;">&#" style=nt-famiprovid>> l;text-alip> ldiv> text-a lidiv> lixontnNumericycot:txtRef="d_2021-01-01_2021-12-31" nam l 

 

;">&#" style=nt-famiprovid>> l; l inheri l;2.REVENUE AND PRODUCT COSTS

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;On l inheri l; Janu sy 1,s2018, l inheri l;606,liemr Revenueyfrom contractssspth customers (tex201c;Topicy l inheri l;606tex201d;)sand, as it had l inheri l;noliemr prior revenue "r contractssspth customers, there was l inheri l;noliemr transitili&required n"r any impaca&on prior results. Topicy l inheri l;606 l inheri l;five

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company etaers into cottractssthat incluoey" stous combinatilissof producas, accessosies, software and services, e0ch of whichsare generally distrnct and are accoonted ;"r as separate per;"rmancesobligatilis.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;A per;"rmancesobligatili is&a promise in a contract toytransfer a distrnct goodyor serviceyto a customer, and is the unit&of accoont in&Topicy l inheri l;606.liemr F"r contractssspth a single per;"rmancesobligatili, the etatre transactili#price is&allocatedyto the single per;"rmancesobligatili. F"r contractssspth multiple per;"rmancesobligatilis, the Company allocates the contract transactili#price toye0ch per;"rmancesobligatili using the Companytex2019;s estimate of the saandaltneyselling&price (tex201c;SSPtex201d;yor tex201c;SSPstex201d;) of e0ch distrnct goodyor serviceyin a contract. The Company determines SSPs based li&the relativeySSP. If the SSP&is l inheri l;notliemr observyble&through past transactilis, the Company estimates the SSP&cotsidering&available∈"rmatili such as market cotditilis&and internally approved pricrng guidelines relatedyto the per;"rmancesobligatilis.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Mosayof the Companytex2019;s producas&and accessosiesyare sold through domestic&and internatilial drspribuaors. Per;"rmancesobligatilis toydeliver producas&and accessosiesyare generally satisfied at the point in&tBK" the Company ships the produca, as this is whet the customersobtain scontrolyof the assetsunderyour saandard&terms&andyconditilis.text-aPeriodically, crrtain&customers request bpll andyhold transactilisyf"r ;uaure delivery as scheduled and designatedyby them. It such cases, revenue is l inheri l;notliemr recognized ontrl&after&control, title and risk of ownership has transferred whichsis generally whet the customershas requested&such transactilisunderynt-fam bplling andypayerta&terms&andyhas been notified that the produca (i)yhas been completed&according&to customers pecificatilis, (ii)yhas passedyqualityycontrol in pecailis, and (iii)yhas been tagged and packed ;"r shiperta, separatedyfrom lther itvrtaosy andyready ;"r physicalytransfer to the customer.text-aThe value associatedywpth custodial#xaorage servicessis deemed immatestyl in the contt;fsof such contractssand in total,&and accordingly, l inheri l;none

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company has elecaed&toyrecognize shipping costsyas an expense inycost of revenue whet control has transferred to the customer.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;TBK"-based virtual realityysystem contractssgenerally incluoeysetup, training andythe use&of software and hardware ;"r a fixed&term,sgenerally l inheri l;one l inheri l;five l inheri l;notliemr sell&tBK"-based arrylgeertassspthoutssetup, training andysupport servicessandytherefore revenues ;"r the etatre arrylgeertayare recognized li&y straiont-line&basis&overythe term. Whet hardware is bundled and l inheri l;notliemr sold separately the Company allocates the contract transactili#price toye0ch per;"rmancesobligatili using the SSP&of e0ch distrnct goodyand service in the contract.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The tBKing of revenue recognitili& l inheri l; may l inheri l; Deceeber 31,s2021 265 itcluoing $172 relatedyto virtual realityytraining andy$67 relatedyto extended warryleies. At l inheri l; Deceeber 31,s2020 16, of whichs$14 relatedyto virtual realityytraining andy$2 relatedyto extended warryleies.text-alip> l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company l inheri l; may

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company recognizes an asset&if there are increertaal#costsyof obtaining a contract spth a customers uch as commissilis. These costsyare ascribedyto lr allocatedyto the underlying per;"rmancesobligatilis in the contract and amortizedycotsisteta&spth the recognitili&tBKing of the revenueyf"r any uch underlying per;"rmancesobligatilis. The Company had noliixontnFractili> such asset at l inheri l; Deceeber 31,s2021 l inheri l; Deceeber 31,s2020. l inheri l;one

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Estimated costsy;"r the Companytex2019;s saandard& l inheri l;one 

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;">&#" style=nt-famiprovid>> l; l inheri l;3.

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;lb>ACQUISITION

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;On l inheri l; Deceeber 14, 2020,

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company paid&toyNSENA cash cotsideratili&of $210liixontnFractili> and recorded asshort-term business acquisitili&liability of $275. The liability was paidy$75 by l inheri l; Septeeber 15,s2021. 15 liability ;"r unearned&revenues. As additilial earn-outscotsideratili, the Company agreedyto payyNSENA contrngrta revenue-based cotsideratili&based li&crrtain&specific pro pecassthat became customersybefore l inheri l; Septeeber 30,s2021. 23liixontnFractili> additilial business acquisitili&liability but was revaluedyto $0liixontnFractili> inythe l inheri l;third l inheri l;2021liemr resulting in a $23liixontnFractili> gainyincluoedyinylther itcome.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The acquisitili&was accoonted ;"r underythe acquisitili&methodyof accoontrng. Underyacquisitili&accoontrng,ythe acquired&tangible&and intangible&asset andyliabilities of NSENA were recorded at their re pecaiveyfair values. The following table&summarizes the estimates of fair value of the asset acquired&andyliabilities assumed li& l inheri l; Deceeber 14, 2020:

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;A portili of the fair value of the consideratili&transferred was ass-vaedyto idettifiyble intangible&asset as follows:

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Accfonts payable&includes&$228liixontnFractili>yand $53liixontnFractili> due to related party Syzygy Licrtsing, LLC (tex201c;Syzygylii>tex201d;) asyof l inheri l; Deceeber 31,s2021 liemrand l inheri l;2020,liemr respectively. Accfonts payable&at l inheri l; Deceeber 31,s2020 liemralso&included $10liixontnFractili>ydue to related party l inheri l;V3liemr Capital Partners, LLC.

 

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;">&#" style=nt-famiprovid>> l;Accrued compensatili&includes&$305liixontnFractili>yand $563liixontnFractili> ii&employee bonuses and commissions payable&at l inheri l; Deceeber 31,s2021 liemrand l inheri l;2020,liemr respectively.lip> l/ixontnNumeric> l 

 

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;">&#" style=nt-famiprovid>> l; l inheri l;9.liemr
LEASES

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company determin" sif an arrylgeerta is a lerse&at inceptili. The guidance ii&Topicy l inheri l;842liemr defines a lerse&as a cot:ract, "r part of a cot:ract, that cotveys theyriont to cot:rol theyuse&of ide ified property, plyle, "r equiperta (an ide ified asset)y;"r a period of tBK" ii&exchylgey;"r consideratili. Operating lerse&ROU assets and lerse&liabiliti" are recogna0;d brsed oi&the presrta value&of future minimum lerse&payertas over&the lerse&term at comertceerta date. The Companytex2019;s lerses doy l inheri l;notliemr provide an implicit rate. Due to a l0pt&of financing history "r ability,&the Company uses an estimate&of low-grade debt rate publish;d by&the Federal Resrrve Bank&as its increertaal borrowing rate brsed oi&the in;"rmatili&available&at the comertceerta date ii&determining the presrta value&of future payertas. The ROU asset&includes&any lerse&payertas made and excludes lerse incentives and initiyl direct cosas incurrrd.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;F"r lerses bevidning li&or after l inheri l; January 1,s2019, liemrlerse componrtas are accfonted ;"r separately fromyntn-lerse componrtas ;"r all asset&classes. The Companytex2019;s lerses l inheri l; may liemrcot:aii&rrtewyl provisions and excalating rrtaal clauses and grterally require&the Company to pay utiliti" , insurance,&taxes and other operating expenses. The rrtewyl provisions of theyexisting lerse&agreeerta was& l inheri l;notliemr included ii&the determinatili&of the operating lerse&liabiliti" and the ROU assets.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;At l inheri l; Deceeber 31,s2021 liemrthe Company was&party toy l inheri l;onrliemr operating lerses ;"r office and productili&faciliti" under an agreeerta that expires in l inheri l; July 2022. liemrThe Company has&elected the short-term lerse&exemptili&such that the tew lerse&standard was&applied to lerses greater&than l inheri l;onrliemr year ii&duratili. Lerses with an initiyl term of l inheri l;twelveliemr mot:hs "r less are l inheri l;notliemr recorded oi&the balance sh;et. The Company recogna0;s lerse&expense ;"r these lerses li&a#xaraiont-line brsis over&the lerse&term.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Amortizatili&of ROU operating lerse&assets was&$88liixontnFractili>yand $122liixontnFractili> ;"r the years ended l inheri l; Deceeber 31,s2021 liemrand l inheri l;2020,liemr respectively.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Operating lerse&expense ;"r capitala0;d operating lerses included ii&operating activiti" was&$95liixontnFractili>yand $137liixontnFractili> ;"r the years ended l inheri l; Deceeber 31,s2021 liemrand l inheri l;2020,liemr respectively. Operating lerse&obligatilis recorded oi&the balance sh;et&at l inheri l; Deceeber 31,s2021 liemrare:lip> l 

 

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;">&#" style=nt-famiprovid>> l;Future lerse&payertas included ii&the mersureerta&of lerse&liabiliti" oi&the balance sh;et&at l inheri l; Deceeber 31,s2021 liemr;"r future periods are as ;"llows:lip> l 

 

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;">&#" style=nt-famiprovid>> l;The weionted average rrmaining lerse&term is lixontnNumericycot:txtRef="i_2021-12-31" nam0.6l/ixontnNumeric> years and the weionted average discfont rate is lixontnFractili&id="c81645850"ycot:txtRef="i_2021-12-31" unitRef="Pure" nam7liixontnFractili>%. V styble&lerse&payertas totyled $29liixontnFractili>yand are comprised of&taxes and other miscellaneous cosas.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company did:lispan> have&any short-term lerse&expense during the years ended l inheri l; Deceeber 31,s2021 liemrand l inheri l; Deceeber 31,s2020. liemrThe Company does l inheri l;notliemr have&any finance lerses.lip> l/ixontnNumeric> l 

 

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specif12.2549019607843%;provid-.

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;DEBT

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Companytex2019;s debt at l inheri l; Deceeber 31,s2021 liemrand l inheri l;2020liemr included operating lerse&liabiliti" (see Note l inheri l;9liemr). The Companytex2019;s debt at l inheri l; Deceeber 31,s2020 liemralso&included business acquisitili&liabiliti" (see Note l inheri l;3liemr).

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;On l inheri l; May 1,s2020, liemrthe Company received loan#proceeds of $414liixontnFractili> fromyBank&of America, N.A. (the tex201c;Lenderlii>tex201d;),&as a potrtaially ;"rgivyble&loan#(the tex201c;PPP Loanlii>tex201d;) fromythe U.S. Small Business Adminixaratili&pursuant to the Paycheck Protectili Program#(the tex201c;PPPlii>tex201d;) enacted by Congress under Division A, GBtle l inheri l;1liemr of&the Coronavirus Aid, Relief, and EcotomicySecurity Act ( l inheri l;15liemr U.S.C. l inheri l;636liemr(a)( l inheri l;36liemr))#(the tex201c;CARES Actlii>tex201d;),&which was&enacted l inheri l; March 27,s2020. liemrThe PPP Loan was&ii&the ;"rm of a -year Promissory Note dated l inheri l; May 1,s2020 liemrpayable&to the Lender#(the tex201c;PPP Notelii>tex201d;),&bearing iiaerest at a rate of 1liixontnFractili>% per annum.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Under#the terms of theyCARES Act,&the Company subsequrtaly applied ;"r and in l inheri l; Deceeber 2020 liemrwas&gryleed ;"rgiveness ;"r the PPP Loan plus iiaerest. The Companytex2019;s PPP Loan ii&the amfont of $414liixontnFractili> and accrued iiaerest was ;"rgiven ii&full by&the Small Business Adminixaratili. The Company recogna0;d $417liixontnFractili> ii&debt ;"rgiveness income&as a result of they;"rgiveness.lip> l/ixontnNumeric> l 

 

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specif28.9133986928105%;provid-.

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;STOCKHOLDERS

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Companytex2019;s authora0;d capital consisas of  

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l; l inheri l;2020liemr F"llow-On Public Offeringlispan>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;On l inheri l; June 2,s2020, liemrthe Company consummated a ;"llow-li&public offering#(the tex201c;Unit Offeringlii>tex201d;) whereby&the Company offered and xold cer:aii&securiti" consisaing lf 12.4liixontnFractili> stlili&and net&cash#proceeds of $ 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;During the year ended l inheri l; Deceeber 31,s2020 liemrthe Company received gros proceeds of $1,017liixontnFractili> as an agent fee&to facilitate exercise&lf cer:aii&warryles resulting ii&net&proceeds of $25,174liixontnFractili>. Elwood Norris was a Company officer at the tBK" he exercised 1,667liixontnFractili>.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;During the year ended l inheri l; Deceeber 31,s2021 liemrthe Company received proceeds of $12,047liixontnFractili> fromythe exercise&lf 1,815,012liixontnFractili> warryles.

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company hys outstanding Common Stock purchyse warryles as of l inheri l; Deceeber 31,s2021 liemras ;"llows:

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;On l inheri l; March 31,s2017, liemrthe Company adopted, and the stockholders approved, the l inheri l;2017liemr Stock Incrtaive Plan#(the tex201c;Planlii>tex201d;) authora0ing l inheri l; Mays2019, liemrthe stockholders ratified an increyse ii&the Plan#authora0ing an#additilial

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Share-Bysed Compensatili Expenselip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company recorded share-bysed compensatili ii its#xaateertas ofsoperatili s;"r the relevyle period s;"r optilis#and RSUs a s;"llows:

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;As ofs l inheri l;&Deceeber 31, 2021, liemrtotal#estimated compensatili cost ofsstock optilis#gryleed and outstanding buts l inheri l;notliemr yet vested was $3.0liixontnFractili> stlili&whichsis expected to be recogna0;d over the weionted average period ofs2.2liixontnNumeric> years. As ofs l inheri l;&Deceeber 31, 2021, liemrtotal#estimated compensatili cost ofsRSUs gryleed and outstanding buts l inheri l;notliemr yet vested was $1.4l/ixontnFractili> stlili&whichsis expected to be recogna0;d over the weionted average period ofs2.0liixontnNumeric> years.

 

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pt;font-varicrtaer< ;">&#weiont: bold provid> > specifi99.9% displayl inline-blockt"> Wrap Technamigi" , Inc.

 

pt;font-varicrtaer< ;">&#weiont: bold provid> > specifi99.9% displayl inline-blockt"> Not" sto Clisolidated Financial#Saateertas

 

pt;font-varicrtaer< ;">&#weiont: bold provid> > specifi99.9% displayl inline-blockt"> (in thousand , excepe per#share and share amfonts) liixoexclude; lixoexclude;text-aliixoexclude; liixontnNumeric>
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;">&#" style=nt-famiprovid>> l; l inheri l;13.liemr
COMMITMENTS AND CONTINGENCIES

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Facility Leyseslip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;See Not"s l inheri l;9.liemr

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Related Party Technamigy License Agreeertalispan>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company is obt-vated to pay royaltiessand developertasand patetascosts pursuyle to an#exclusive Aertded and Restated It:tllectual#Property License Agreeerta dated as ofs l inheri l;&Sepeeeber 30, 2016 liemrwith Syzygy, a company owned#and c rolled bysstockholder/c sultyle Mr. Elwood Norrissand stockholder/officer Mr. JaK" sBarnes. The agreeerta provide s;"r royalty payertas ofs4l/ixontnFractili>% ofsrevenue from products employing the licensed ensnareerta device technamigy up to an#aggrevate ofs$ l inheri l;&Sepeeeber 30, 2026, liemrwhichever occurs earlier. The Company recorded $278liixontnFractili>sand $143liixontnFractili>s;"r royaltiessincurred during the years rtded l inheri l;&Deceeber 31, 2021 liemrand l inheri l;2020,liemr respectively.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Purchyse Commitertaslispan>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ats l inheri l;&Deceeber 31, 2021 liemrthe Company was committed ;"r approximately $1,466liixontnFractili> ;"r fueure componrta deliveries#and c ract services thaasare generally subject to modificatili "r rexcheduling in the nt-fam c urse ofsbusiness.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Indemnificatilis#and Guaryleeeslip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Our officerssand directorssare indemnified as to personam liability as provided bysthe Delaware lawsand the Companytex2019;ssarticles#and bylaws. The Company l inheri l;&may liemralso undertake indemnificatili "bt-vatilis#in the ordinary c urse ofsbusiness related to its#operatili . The Company issunyble to estimate with any reasonable accuracy the liability thaas l inheri l;&may liemrbesincurred pursuyle to any suchsindemnificatili "bt-vatilis#now "r in the fueure. Because ofsthe uncertainty sur fonting these circumstanc" , the Companytex2019;sscurrele "r fueure indemnificatili "bt-vatilis#c uld rylge from immaterial#to having a material#adverse impact oi its#financial#posatili#and its#ability to c inue in the ordinary c urse ofsbusiness. The Company hyss l inheri l;noliemr liabilities#recorded ;"r suchsindemnities.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Regulatory Agencieslispan>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company is subject to oversiont from regulatory agencies regarting firearms thaasarises#in the ordinary c urse ofsits#business.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Litivatililispan>lip> l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Securities#Litivatililii>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ons l inheri l;&Noveeber 15, 2021, liemrthe Hon. Dolly M. Gee ofsthe United Saates District Courts;"r the Ce ral District ofsCnt-;"rnia (the tex201c;Courttex201d;) gryleed the motili#to dismiss#filed bysthe Company, David Norriss(tex201c;Norristex201d;), JaK" sA.sBarness(tex201c;Barnestex201d;), Th"wis Smith (tex201c;Smithtex201d;), Mike Rothanss(tex201c;Rothanstex201d;) and Marc Th"wis (tex201c;Th"wistex201d;) (collectively, tex201c;Defrtdylestex201d;) in the actili&captiliedtext-ali>In re Wrap Technamigi" , Inc. Securities#Exchylge Act Litivatililii>text-a(the tex201c;Securities#Actilitex201d;). text-aThe Courtsgryleed Defrtdylestex2019; motili#on the ; fonts thaasthe complaint failed to idenpify any saateerta bysDefrtdyles thaaswas either false or made with scietaer. Clicurrelely, the Courtsgryleed Plaintiff leave to file a l inheri l;secondliemr aertded complaint li "r be;"r"s l inheri l;&Deceeber 6, 2021, liemrnoting thaasa failure to file a l inheri l;secondliemr aertded complaint by thaasdate w uld result in dismissal ofsthe Securities#Actili with prejudice.text-aOns l inheri l;&Deceeber 20, 2021, liemr;"llowing Plaintifftex2019;ssfailure to file a l inheri l;secondliemr aertded complaint, the Courtsdismissed the Securities#Actili with prejudice.text-alip> l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Shareholder&Derivaaive#Litivatililii>lip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ons l inheri l;&Noveeber 13, 2020, liemrNaresh Rammohyl#filed a shareholder&derivaaive#actili&insthe United Saates District Courts;"r the Ce ral District ofsCnt-;"rnia against Smith,sBarnes, Rothans, Th"wis, and Norris, as well as directorssMessrs. Scot Cohen, Patrick Kinsella, Michyel Parris, and Wayne Walker, alleging unjust enricherta, breachsofsfiduciary duty, waste ofscorporate#assets, and c ributili&claims under the Securities#Exchylge Act ofs l inheri l;1934,liemr docketed as Cyse l inheri l;No.liemr l inheri l;2:20liemr-cv- l inheri l;10444liemr-DMG-PVCx (the tex201c;Rammohyl#Complaintlii>tex201d;).text-aThe Company is nam l inheri l;&January 20, 2021, liemrRay Weste-fal#filed a l inheri l;secondliemr derivaaive#complaint insthe sam< c urt against the sam< parties, alleging breachsofsfiduciary duty and c ributili&claims under the Securities#Exchylge Act ofs l inheri l;1934,liemr docketed as Cyse l inheri l;No.liemr l inheri l;2:21liemr-cv- l inheri l;00550liemr-DMG-PVCx (the tex201c;Weste-fal#Complaintlii>tex201d;). Ons l inheri l;&January 22, 2021, liemrJesse#Lowe#filed a l inheri l;thirdliemr derivaaive#complaint insthe sam< c urt against the sam< parties, alleging breachsofsfiduciary duty and asserting " stous&claims under the Securities#Exchylge Act ofs l inheri l;1934,liemr docketed as Cyse l inheri l;No.liemr l inheri l;2:21liemr-cv- l inheri l;00597liemr-DMG-PVCx (the tex201c;Lowe#Complaintlii>tex201d;).text-alip> l 

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Ons l inheri l;&January 27, 2021, liemrJudge Gee etaered#an order to show cause whysthe derivaaive#actilis should l inheri l;notliemr b< c isolidated and stayed penting the resolutili&ofsthe Securities#Actili, givensthe tex201c;apparrta substantial#overlaptex201d; b l inheri l;&February 16, 2021, liemrJudge Gee issued#an order c isolidating the derivaaive#actilis under the captilitext-ali>In re Wrap Technamigi" , Inc. Shareholder&Derivaaive#Litivatililii>, Cyse l inheri l;No.liemr l inheri l;2:20liemr- l inheri l;10444liemr-DMG-PVCx, (the tex201c;Derivaaive#Actililii>tex201d;), and stayed the Derivaaive#Actili at&least ontilsthe resolutili&ofsthe Securities#Actili, whichshyssbeensdismissed with prejudice.text-aThe Company believes thaasthe Derivaaive#Actili is without meriasand will vigo fosly defrtd against the claims raised therein.

 

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pt;font-varicrtaer< ;">&#weiont: bold provid> > specifi99.9% displayl inline-blockt"> Wrap Technamigi" , Inc.

 

pt;font-varicrtaer< ;">&#weiont: bold provid> > specifi99.9% displayl inline-blockt"> Not" sto Clisolidated Financial#Saateertas

 

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;">&#" style=nt-famiprovid>> l; l inheri l;14.liemr
RELATED PARTY TRANSACTIONS

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Commencing in l inheri l;&October 2017 liemrthe Company began reimbursing Mr. Elwood Norris, a co sultyle and stockholder&ofsthe Company, $1.5liixontnFractili> per#mot:h li a#mot:h-to-mot:h basi s;"r laboratory facility costs, ;"r an#aggrevate ofs$18liixontnFractili>sduring eachsyear rtded l inheri l;&Deceeber 31, 2021 liemrand l inheri l;2020,liemr respectively. Mr. Norrissretired as the Companytex2019;ssChief Technamigy Officer effectives l inheri l;&June 30, 2021 liemrand commencing l inheri l;&July 1 liemrwas engag l inheri l;10%liemr stockholder, Mr. Norrisswas paid a#mot:hly fee ofs$7.5liixontnFractili> per#mot:h ;"r aggrevate co sulting payertas ofs$45liixontnFractili> ;"r the l inheri l;sixliemr mot:h period rtded l inheri l;&Deceeber 31, 2021.liemr

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;From l inheri l;&April 2020 liemrth foghs l inheri l;&Deceeber 2020 liemrthe Company engag l inheri l;V3liemr Capital#Partners, LLC (tex201c; l inheri l;V3liemrlii>tex201d;), a company owned#and c rolled bysScot Cohen, the Companytex2019;ssExecutivesChai-fal, to provide certain investor, shareholder&and proketing services, in co sideratili ;"r the payerta to l inheri l;V3liemr ofs$175liixontnFractili> ;"r assi tanc" in a#financing thaaswas co summated in l inheri l;&July 2020.liemr

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;See Not"ss l inheri l;8,liemr l inheri l;11liemr and l inheri l;13liemr ;"r additilial#in;"rmatili#on related party transactilis and obt-vatilis.

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;">&#" style=nt-famiprovid>> l; l inheri l;15.liemr
INCOME TAXES

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;Untilsits#reverse recapitalizatili#on l inheri l;&Marchs31, 2017, liemrthe Company was treated as a#partnership ;"r federal#and saatesincome tax purposessand did l inheri l;notliemr incursincome taxes. The Company accfonts ;"r income taxes under ASC l inheri l;740.liemrsDefrrred income tax assetssand liabilities#are dete-fined#bysed uponsdiffrrenc" b l inheri l;not"liemrsthaassome componrta "r all ofsthe benefias ofsdefrrred tax assetsswill l inheri l;notliemr b< reala0;d.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company did l inheri l;notliemr provide any currele "r defrrred U.S. federal#income tax provisili "r benefia ;"r the period spreseleed because ofsoperating losses sinc" incepeion. As ofs l inheri l;&Deceeber 31, 2021, liemrthe Company hyssfederal#netsoperating loss carry;"rwards ofsapproximately $52,004l/ixontnFractili> to reduce fueure taxable income. Approximately $703liixontnFractili>swill expire in l inheri l;2037liemr with the balanc" having ansindefinite carry;"rward period. Certain chylges#in stock ownership can result in aslimitatili#on the amfont ofsnetsoperating loss and tax credia carryoverssthaascan b< utila0;d eachsyear. As ofs l inheri l;&Deceeber 31, 2021, liemrwidageerta hyss l inheri l;notliemr dete-fined#the extetasofsany suchslimitatilis, ifsany. The Company isssubject to taxatili&insthe U.S. and " stous&saatesjurisdictili . All ofsthe Companytex2019;sshistorical tax years are subject to examinatili&bysthe It:trial#Revenue Service and " stous&saatesjurisdictili due to the ;eneratili ofsnetsoperating losses#and credia carry;"rwards.

 

;">&#" style=nt-famiprovid>> l;text-alip> l 

 

;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company provided a#full valuatili allowanc" on the netsdefrrred tax asset, co sisting prifarsty ofsnetsoperating loss carry ;"rwards, because widageerta hyssdete-fined#thaasit is m"r"slikely than l inheri l;notliemrsthaasthe Company will l inheri l;notliemr earn#income sufficirta to reala0; the defrrred tax assetssduring the carry ;"rward period. As a#result ofsthe chylge insfueure Federal#saatutory tax rates due to the passing ofsthe Tax Cutssand Jobs Act ofs l inheri l;2017,liemr midageerta dete-fined#thaasthe defrrred tax assetssand liabilities#should b< valued aasa federal#saatutory rate ofs l inheri l;21%.liemr

 

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;">&#" style=nt-famipt;font-varjustifyiprovid>> l;The Company hyss l inheri l;notliemrstaken astax posatili#thaa, ifschyllelged, w uld have a material#effect onsthe financial#saateertas ;"r the period srtded l inheri l;&Deceeber 31, 2021 liemrand l inheri l;2020liemr applicable under FASB ASC l inheri l;740.liemrsThe Company did l inheri l;notliemr recogna0;sany adjusterta to the liability f"r oncertain tax posatili#and there;"r"sdid l inheri l;notliemr recordsany adjusterta to the beginning balanc" ofsaccumulated deficit onsthe balanc" sheet.

 

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