wrap20240331

wrap20240331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 000-55838

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)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 20, 2024, a total of 45,869,390 shares of the Registrant’s common stock, par value $0.0001 per share (“Common Stock”), were issued and outstanding.

WRAP TECHNOLOGIES, INC.

INDEX

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 (audited)	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023 (unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)	4
	Notes to Condensed Consolidated Interim Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29

SIGNATURES		30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Wrap Technologies, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

	March 31, 2024 (unaudited)			December 31, 2023 (audited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,179		$	3,955
Short-term investments		5,000			7,500
Accounts receivable and contract assets, net		2,347			3,025
Inventories, net		6,366			5,794
Prepaid expense and other current assets		825			953
Total current assets		17,717			21,227
Property and equipment, net		408			509
Operating lease right-of-use asset, net		2,185			2,256
Intangible assets, net		2,608			2,648
Goodwill		1,610			1,610
Other assets		244			251
Total assets	$	24,772		$	28,501

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,092		$	1,110
Accrued liabilities		835			692
Customer deposits		20			1,002
Deferred revenue - short term		363			407
Operating lease liability - short term		619			616
Warrants		15,524			19,703
Total current liabilities		18,453			23,530

Long-term liabilities:
Deferred revenue - long term		128			137
Operating lease liability - long term		1,708			1,671
Total long-term liabilities		1,836			1,808
Total liabilities	$	20,289		$	25,338

Commitments and contingencies (Note 13)

Stockholders' equity:
Preferred stock - 5,000,000 authorized; par value $0.0001 per share; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		-			-
Common stock - 150,000,000 authorized; par value $0.0001 per share; 44,373,107 and 43,855,503 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	$	4		$	4
Convertible Preferred Stock - 10,000 authorized, par value $0.0001 per share; 9,798 and 9,898 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		1,995			2,016
Additional paid-in capital		100,544			99,131
Accumulated deficit		(98,060	)		(97,988	)

Total stockholders' equity		4,483			3,163
Total liabilities and stockholders' equity	$	24,772		$	28,501

See accompanying notes to unaudited condensed consolidated interim financial statements.

Wrap Technologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

	Three Months ended March 31,
	2024			2023
Revenues:
Product sales	$	1,327		$	616
Other revenue		149			95
Total revenues		1,476			711
Cost of revenues		640			359
Gross profit		836			352

Operating expenses:
Selling, general and administrative		4,220			3,540
Research and development		755			1,072
Total operating expenses		4,975			4,612
Loss from operations		(4,139	)		(4,260	)

Other income (expense):
Interest Income		78			236
Change in fair value of warranty liabilities		4,179			-
Other		(1	)		(4	)
Total other income (expense), net		4,256			232
Net income (loss)	$	117		$	(4,028	)

Less: Convertible preferred stock dividends		(189	)		-
Net loss attributable to common stockholders	$	(72	)	$	(4,028	)

Net loss per basic and diluted common share	$	-		$	(0.10	)
Weighted average common shares used to compute net loss per basic and diluted common share		44,155,391			41,415,808

Comprehensive loss:
Net income (loss)	$	(72	)	$	(4,028	)
Comprehensive loss	$	(72	)	$	(4,028	)

See accompanying notes to unaudited condensed consolidated interim financial statements.

Wrap Technologies, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

(unaudited)

	Common Stock				Convertible Preferred Stock						Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Shares			Amount			Capital		Deficit			Income (Loss)			Equity
Balance at January 1, 2023		41,175,993	$	4		-		$	-		$	94,333	$	(67,376	)	$	94		$	27,055
Common shares issued upon exercise of stock options		250		-		-			-			-		-			-			-
Share-based compensation expense		-		-		-			-			628		-			-			628
Common shares issued upon vesting of restricted stock units		94,057		-		-			-			-		-			-			-
Settlement – US Treasury bills		-		-		-			-			-		-			(94	)		(94	)
Net loss for the period		-		-		-			-			-		(4,028	)		-			(4,028	)
Balance at March 31, 2023		41,270,300	$	4		-		$	-		$	94,961	$	(71,404	)	$	-		$	23,561

Balance at January 1, 2024		43,855,503	$	4		9,898		$	2,016		$	99,131	$	(97,988	)	$	-		$	3,163
Common shares issued upon exercise of stock options		232,081		-		-			-			588		-			-			588
Share-based compensation expense		-		-		-			-			675		-			-			675
Dividends on convertible preferred stock		128,233		-		-			-			129		(189	)		-			(60	)
Common shares issued upon convertible preferred stock exercising conversion rights		74,484		-		(100	)		(21	)		21		-			-			-
Common shares issued upon vesting of restricted stock units		82,806		-		-			-			-		-			-			-
Net income for the period		-		-		-			-			-		117			-			117
Balance at March 31, 2024		44,373,107	$	4		9,798		$	1,995		$	100,544	$	(98,060	)	$	-		$	4,483

Wrap Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months ended March 31,
	2024			2023
Cash Flows From Operating Activities:
Net income (loss)	$	117		$	(4,028	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		223			200
Share-based compensation		675			628
Warranty provision		21			(33	)
Change in fair value of warrant liabilities		(4,179	)		-
Non-cash lease expense		71			26
Provision for doubtful accounts		-			(8	)
Inventory obsolescence reserve		12			-
Changes in assets and liabilities:
Accounts receivable		683			1,687
Inventories		(584	)		(1,652	)
Prepaid expenses and other current assets		129			(83	)
Accounts payable		(19	)		(42	)
Operating lease liability		39			(26	)
Customer deposits		(982	)		1
Accrued liabilities and other		164			306
Warranty settlement		(42	)		(1	)
Deferred Revenue		(52	)		(42	)
Net cash used in operating activities		(3,724	)		(3,067	)

Cash Flows From Investing Activities:
Purchase of short-term investments		-			(2,645	)
Proceeds from maturities of short-term investments		2,500			10,000
Capital expenditures for property and equipment		(14	)		(15	)
Investment in patents and trademarks		(66	)		(131	)
Proceeds from long-term deposits		-			31
Net cash provided by investing activities		2,420			7,240

Cash Flows From Financing Activities:
Proceeds from exercise of stock options		588			-
Dividends settled in Cash		(60	)		-
Net cash provided by financing activities		528			-

Net (decrease) increase in cash and cash equivalents		(776	)		4,173
Cash and cash equivalents, beginning of period		3,955			5,330
Cash and cash equivalents, end of period	$	3,179		$	9,503

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Change in unrealized gain on short-term investments				$	(94	)
Dividends on convertible preferred stock	$	189		$	-
Dividends settled with common stock	$	129		$	-

Wrap Technologies, Inc.

Notes to Condensed Consolidated Interim Financial Statements

(in thousands, except per share and share amounts)

(unaudited)

1. ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT DEVELOPMENTS

Organization and Business Description

Wrap Technologies, Inc., a Delaware corporation (the “Company”, “we”, “us”, and “our”), is a publicly traded company with its Common Stock, par value $0.0001 per share (“Common Stock”), listed on the Nasdaq Capital Market (“Nasdaq”) under the trading symbol “WRAP”. The Company is a developer and supplier of public safety products and training services for law enforcement and security personnel. The Company’s primary product is the BolaWrap® remote restraint device. The principal markets for the Company’s proprietary products and services are in North and South America, Europe, Middle East and Asia.

Basis of Presentation

The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), as filed with the SEC on August 28, 2024. The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated balance sheet as of December 31, 2023, contained in the Annual Report. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Where necessary, the prior year’s information has been reclassified to conform to the current year presentation.

Principles of Consolidation

The Company has two wholly owned subsidiaries, Wrap Reality, Inc., an Arizona corporation, formed in December 2020 that sells a virtual reality (“VR”) training system primarily targeting law enforcement agencies and Intrensic, LLC (“Intrensic”), which the Company acquired in August 2023, which specializes in Body Worn Camera and Digital Evidence Management solutions. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.

Segment and Related Information

The Company operates as a single segment. The Company’s chief operating decision maker is Scot Cohen, the Company’s Executive Chairman and Chief Executive Officer, who manages operations for purposes of allocating resources. Refer to Note 15. Major Customers and Related Information for further discussion.

Goodwill

Goodwill represents the difference, if any, between the aggregate consideration paid for an acquisition and the fair values of the underlying net assets and liabilities assumed from an acquired business. Goodwill is not amortized, but instead is tested for impairment. The Company tests goodwill for impairment on an annual basis during the fourth quarter, or more frequently if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process.

Definite-lived Intangible Assets

Definite-lived intangible assets represent certain trade names, patents, licenses, software, acquired technology and customer relationships. Definite-lived intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses, if any. Definite-lived intangible assets acquired through the business combination are measured at fair value at the acquisition date. The Company amortizes these acquired definite-lived intangibles assets with a finite life on a straight-line basis, over 6 years for technology; 7 years for customer relationships; and 8 years for trademarks and trade names.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions (e.g., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued expense, valuation of warrants, and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenue and expense during the reporting period. Actual results could materially differ from those estimates.

Warrants

The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company accounts for the warrants issued in accordance with the guidance contained in ASC 815-40-15-7C, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations.

Series A Preferred Stock

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 480 and ASC 815 to determine if those instruments or embedded components of those instruments qualify as derivatives and are subject to bifurcation accounting. The Company determines that the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host contract. The convertible instruments are accounted for as a single hybrid instrument. Additionally, the convertible instruments do not have any redemption features that would preclude permanent equity classification in accordance with the guidance contained in ASC 480-10-S99.

The Company issued the Series A Warrants (as defined herein), which are classified as liabilities and measured at fair value on a recurring basis, and Series A Preferred Stock (as defined herein) in one transaction. The issuance proceeds were allocated by using the with-and-without method. Under this method, The Company first allocated the issuance proceeds to the Series A Warrants based on their initial fair value measurement, and then allocated the remaining proceeds to the Series A Preferred Stock.

Revenue Recognition

The Company adopted ASC Topic 606, Revenue from Contracts with Customers on January 1, 2018. The Company enters into contracts that include various combinations of products, accessories, software and services, each of which are generally distinct and are accounted for as separate performance obligations. Product sales include BolaWrap products and accessories. Other revenue includes VR revenues, service, training and shipping revenues.

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced, and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized subsequent to invoicing. The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract. The Company may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met.

Estimated costs for the Company’s standard warranty, generally one-year, are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to cost of products sold.

Loss per Share

Basic loss per share (EPS) is computed by dividing net loss, less any dividends, accretion or decretion, redemption or induced conversion, if any, on our Series A Preferred Stock, by the weighted average number of shares outstanding during the reported period.

In computing diluted EPS, we adjust the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion, if any. We adjust the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of the Series A Preferred Stock, restricted stock units, and stock options. Stock options and restricted stock units exercisable or issuable for a total of 5,476,219 and 5,127,830 shares of Common Stock were outstanding as of March 31, 2024 and 2023, respectively. These securities are not included in the computation of diluted net loss per common share for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company.

Recently Issued Accounting Guidance

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating segment disclosures related to its annual report for fiscal year 2024.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2025.

2. REVENUE AND PRODUCT COSTS

Revenue consists of product revenue and other revenue. Product sales include BolaWrap products and accessories. Other revenue includes VR revenue, service, training and shipping revenue.

	Customer			Deferred
	Deposits			Revenue
Balance at January 1, 2024	$	1,002		$	544
Additions, net		20			124
Transfer to revenue		(1,002	)		(177	)
Balance at March 31, 2024	$	20		$	491
Current portion	$	20		$	363
Long-term portion	$	-		$	128

As of March 31, 2024, the Company’s deferred revenue of $491 consisted of $153 related to VR, $212 related to Intrensic, $7 related to training and $119 related to BolaWrap extended warranties and services.

3. FINANCIAL INSTRUMENTS

Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s short-term investments consisting of U.S. Treasury bill securities and Certificate of Deposits are classified as Level 1 because they are valued using quoted market prices.

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

	As of March 31, 2024
	Adjusted		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Level 1:
Money Market Funds	$	2,219		-	$	-	$	2,219
Certificate of Deposits		5,000		-		-		5,000
Total Financial Assets	$	7,219	$	-	$	-	$	7,219

	As of December 31, 2023
	Adjusted		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Level 1:
Money Market Funds		1,793		-		-		1,793
Certificate of Deposits		7,500		-		-		7,500
Total Financial Assets	$	9,293	$	-	$	-	$	9,293

Unrealized gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss as they are classified as available for sale. During the three months ended March 31, 2024 as well as the three months ended March 31, 2023, no gain (loss) was recorded to comprehensive loss, respectively.

The warrant liabilities are measured at fair value on a recurring basis. The subsequent measurement of the warrant liabilities as of March 31, 2024, is classified as Level 3 due to the use of an observable market quote in a non-active market and the management’s assumption of the expected stock price volatility.

The following table presents the fair value in the beginning of the period, the changes in the fair value, and the fair value at the end of the period of warrant liabilities:

Level 3:	March 31, 2024			December 31, 2023
Fair value at inception or the beginning of the period	$	(19,703	)	$	(7,717	)
Change in fair value of warrant liabilities		4,179			(11,986	)
Fair value as of March 31, 2024	$	(15,524	)	$	(19,703	)

The Company uses the modified Black-Scholes option pricing model to determine the fair value of warrant liabilities. The following table summarizes the assumptions used to compute the fair value of the Company’s warrants:

	As of March 31, 2024			As of December 31, 2023
Expected stock price volatility		271	%		143	%
Risk-free interest rate		4.28	%		3.85	%
Dividends yield		0	%		0	%
Expected life of warrants (years)		4.25			4.50
Exercise price	$	1.45		$	1.45

Our other financial instruments also include accounts receivable, accounts payable, accrued liabilities and customer deposits. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the balance sheet.

4. INVENTORIES

Inventory is recorded at the lower of cost or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventories consisted of the following:

	March 31, 2024			December 31, 2023
Finished goods	$	4,084		$	3,521
Raw materials		2,759			2,738
Reserve for Obsolescence		(477	)		(465	)
Inventories - net	$	6,366		$	5,794

5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

	March 31, 2024			December 31, 2023
Production and lab equipment	$	542		$	542
Tooling		572			562
Computer equipment		620			615
Furniture, fixtures and improvements		196			196
	$	1,930		$	1,915
Accumulated depreciation		(1,522	)		(1,406	)
Property and equipment, net	$	408		$	509

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

6. INTANGIBLE ASSETS AND GOODWILL

Intangible Assets, net

Intangible assets, net consisted of the following:

	March 31, 2024			December 31, 2023
Amortizable intangible assets:
Patents	$	931		$	873
Trademarks		256			248
Purchased software and technology		1,752			1,752
Customer Relationships		160			160
	$	3,099		$	3,033
Accumulated amortization		(912	)		(806	)
Total amortizable	$	2,187		$	2,227
Indefinite life assets (non-amortizable)		421			421
Total intangible assets, net	$	2,608		$	2,648

Amortization expense was $107 and $82 for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, future amortization expense is as follows:

2024 (9 months)	$	320
2025		422
2026		335
2027		185
2028		185
Thereafter		740
Total estimated amortization expense	$	2,187

Goodwill

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

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

We are obligated to pay royalties pursuant to an exclusive Amended and Restated Intellectual Property License Agreement (the “License Agreement”), dated as of September 30, 2016, with Syzygy Licensing, LLC (“Syzygy”), a private technology invention, consulting and licensing company owned and controlled by Elwood G. Norris, a founder and former officer and current 5% stockholder of the Company, and James A. Barnes, a former officer and stockholder of the Company (see Note 13). Accounts payable includes $61 and $14 due to Syzygy as of March 31, 2024 and December 31, 2023, respectively.

Accrued liabilities consist of the following:

	March 31, 2024		December 31, 2023
Patent and legal costs	$	120	$	21
Accrued compensation		295		325
Warranty costs		51		72
Taxes and other		369		274
Total	$

SEC Form 10-Q filed by Wrap Technologies Inc.