wrap20220930

wrap20220930_10q.htm

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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 September 30, 2022

☐ 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)

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 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 Act). Yes ☐ No ☒

As of November 9, 2022 a total of 41,124,312 shares of the Registrant’s common stock, par value $0.0001, (“Common Stock”) were issued and outstanding.

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WRAP TECHNOLOGIES, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (unaudited)	2
	Condensed Consolidated Statements of Stockholders Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	5
	Notes to Unaudited Condensed Consolidated Interim Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

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

SIGNATURES		30

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Wrap Technologies, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

	September 30,
	2022			December 31,
	(Unaudited)			2021
ASSETS
Current assets:
Cash and cash equivalents	$	3,828		$	4,937
Short-term investments		19,865			29,983
Accounts receivable and contract assets, net		2,222			3,859
Inventories, net		2,962			1,566
Prepaid expenses and other current assets		600			868
Total current assets		29,477			41,213
Property and equipment, net		819			976
Operating lease right-of-use asset, net		311			51
Intangible assets, net		1,900			1,982
Other assets		11			9
Total assets	$	32,518		$	44,231

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	945		$	1,779
Accrued liabilities		991			824
Customer deposits		-			43
Deferred revenue- short term		144			155
Operating lease liability - short term		106			56
Total current liabilities		2,186			2,857

Long-term liabilities:
Deferred revenue- long term		156			110
Operating lease liability - long term		221			-
Total long-term liabilities		377			110
Total liabilities		2,563			2,967

Commitments and contingencies (Note 11)

Stockholders' equity:
Preferred stock - 5,000,000 authorized; par value $0.0001 per share; none issued and outstanding		-			-
Common stock - 150,000,000 authorized; par value $0.0001 per share; 41,125,578 and 40,851,945 shares issued and outstanding each period, respectively		4			4
Additional paid-in capital		93,736			91,025
Accumulated deficit		(63,841	)		(49,759	)
Accumulated other comprehensive loss		56			(6	)
Total stockholders' equity		29,955			41,264
Total liabilities and stockholders' equity	$	32,518		$	44,231

See accompanying notes to unaudited condensed consolidated interim financial statements.

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Wrap Technologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenues:
Product sales	$	1,612		$	1,719		$	4,042		$	4,997
Other revenue		89			86			422			283
Total revenues		1,701			1,805			4,464			5,280
Cost of revenues:
Products and services		790			1,094			2,430			3,276
Product line exit expense		-			-			-			747
Total cost of revenues		790			1,094			2,430			4,023
Gross profit		911			711			2,034			1,257

Operating expenses:
Selling, general and administrative		3,586			4,654			11,952			16,210
Research and development		1,236			2,076			4,210			4,303
Total operating expenses		4,822			6,730			16,162			20,513
Loss from operations		(3,911	)		(6,019	)		(14,128	)		(19,256	)

Other income (expense):
Investment income		34			13			36			22
Other		12			15			10			14
		46			28			46			36
Net loss	$	(3,865	)	$	(5,991	)	$	(14,082	)	$	(19,220	)

Net loss per basic and diluted common share	$	(0.09	)	$	(0.15	)	$	(0.34	)	$	(0.50	)
Weighted average common shares used to compute net loss per basic and diluted common share		41,086,285			40,413,332			40,955,234			38,767,009

Comprehensive loss:
Net loss	$	(3,865	)	$	(5,991	)	$	(14,082	)	$	(19,220	)
Net unrealized gain (loss) on short-term investments		73			(2	)		62			(4	)
Comprehensive loss	$	(3,792	)	$	(5,993	)	$	(14,020	)	$	(19,224	)

See accompanying notes to unaudited condensed consolidated interim financial statements.

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Wrap Technologies, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

(unaudited)

	Three Months Ended September 30, 2022
										Accumulated
					Additional					Other			Total
	Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income			Equity
Balance at July 1, 2022		40,992,161	$	4	$	92,856	$	(59,976	)	$	(17	)	$	32,867
Common shares issued upon exercise of stock options		5,500		-		8		-			-			8
Share-based compensation expense		-		-		872		-			-			872
Common shares issued upon vesting of restricted stock units		127,917		-		-		-			-			-
Net unrealized gain on short-term investments		-		-		-		-			73			73
Net loss for the period		-		-		-		(3,865	)		-			(3,865	)
Balance at September 30, 2022		41,125,578	$	4	$	93,736	$	(63,841	)	$	56		$	29,955

	Nine Months Ended September 30, 2022
										Accumulated
					Additional					Other			Total
	Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income			Equity
Balance at January 1, 2022		40,851,945	$	4	$	91,025	$	(49,759	)	$	(6	)	$	41,264
Common shares issued upon exercise of stock options		55,500		-		83		-			-			83
Share-based compensation expense		-		-		2,628		-			-			2,628
Common shares issued upon vesting of restricted stock units		218,133		-		-		-			-			-
Net unrealized gain on short-term investments		-		-		-		-			62			62
Net loss for the period		-		-		-		(14,082	)		-			(14,082	)
Balance at September 30, 2022		41,125,578	$	4	$	93,736	$	(63,841	)	$	56		$	29,955

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	Three Months Ended September 30, 2021
										Accumulated
					Additional					Other			Total
	Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income			Equity
Balance at July 1, 2021		39,911,390	$	4	$	87,277	$	(38,539	)	$	13		$	48,755
Common shares issued upon exercise of stock options		758,338		-		1,399		-			-			1,399
Common shares issued upon vesting of restricted stock units		79,133		-		-		-			-			-
Share-based compensation expense		-		-		1,303		-			-			1,303
Net unrealized loss on short-term investments		-		-		-		-			(2	)		(2	)
Net loss for the period		-		-		-		(5,991	)		-			(5,991	)
Balance at September 30, 2021		40,748,861	$	4	$	89,979	$	(44,530	)	$	11		$	45,464

	Nine Months Ended September 30, 2021
										Accumulated
					Additional					Other			Total
	Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income			Equity
Balance at January 1, 2021		37,554,162	$	4	$	71,705	$	(25,310	)	$	15		$	46,414
Common shares issued upon exercise of warrants at $6.50 per share		1,661,320		-		10,799		-			-			10,799
Common shares issued upon exercise of warrants at $8.125 per share		153,692		-		1,249		-			-			1,249
Common shares issued upon exercise of stock options		915,404		-		1,678		-			-			1,678
Common shares issued upon vesting of restricted stock units		421,407		-		-		-			-			-
Common shares issued for services		42,876		-		239		-			-			239
Share-based compensation expense		-		-		4,310		-			-			4,310
Net unrealized loss on short-term investments		-		-		-		-			(4	)		(4	)
Net loss for the period		-		-		-		(19,220	)		-			(19,220	)
Balance at September 30, 2021		40,748,861	$	4	$	89,979	$	(44,530	)	$	11		$	45,464

See accompanying notes to unaudited condensed consolidated interim financial statements.

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Wrap Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2022			2021
Cash Flows From Operating Activities:
Net loss	$	(14,082	)	$	(19,220	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		574			336
Product line exit expense		-			747
Gain on sale of assets		-			(17	)
Warranty provision		55			23
Software impairment charge		-			170
Change in contingent liability		-			(23	)
Non-cash lease expense		75			67
Share-based compensation		2,628			4,310
Common shares issued for services		-			239
Provision for doubtful accounts		61			27
Changes in assets and liabilities:
Accounts receivable		1,576			(1,414	)
Inventories		(1,396	)		(160	)
Prepaid expenses and other current assets		268			231
Accounts payable		(834	)		271
Operating lease liability		(65	)		(71	)
Customer deposits		(43	)		19
Accrued liabilities and other		175			502
Warranty settlement		(63	)		10
Deferred revenue		35			224
Net cash used in operating activities		(11,036	)		(13,729	)

Cash Flows From Investing Activities:
Purchase of short-term investments		(23,119	)		(30,014	)
Proceeds from maturities of short-term investments		33,300			25,000
Capital expenditures for property and equipment		(201	)		(811	)
Investment in patents and trademarks		(133	)		(129	)
Purchase of intangible assets		-			(561	)
Proceeds from long-term deposits		(3	)		4
Net cash provided by (used in) investing activities		9,844			(6,511	)

Cash Flows From Financing Activities:
Proceeds from exercise of warrants		-			12,048
Proceeds from exercise of stock options		83			1,678
Repayment of debt		-			(275	)
Net cash provided by financing activities		83			13,451

Net decrease in cash and cash equivalents		(1,109	)		(6,789	)
Cash and cash equivalents, beginning of period		4,937			16,647
Cash and cash equivalents, end of period	$	3,828		$	9,858

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Change in unrealized gain on short-term investments	$	62		$	(2	)
Right-of-use asset and liability recorded during period	$	260		$	(66	)

See accompanying notes to unaudited condensed consolidated interim financial statements.

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Wrap Technologies, Inc.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands, except per share and share amounts)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business Description

Wrap Technologies, Inc., a Delaware corporation (the “Company”, “we”, “us”, and “our”), is a publicly traded company with our 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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), as filed with the SEC on March 10, 2022. The accompanying condensed consolidated balance sheet at December 31, 2021, has been derived from the audited consolidated balance sheet at December 31, 2021, 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 one wholly-owned subsidiary, Wrap Reality, Inc. formed in December 2020 that sells a virtual reality (“VR”) training system primarily targeting law enforcement agencies. The consolidated financial statements include the accounts of this subsidiary after elimination of intercompany transactions and accounts.

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 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.

Loss per Share

Basic loss per common share is computed by dividing net loss for the period by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per Common Share reflects the potential dilution of securities that could share in the earnings of an entity. The Company’s losses for the periods presented cause the inclusion of potential Common Stock instruments outstanding to be antidilutive. Stock options and restricted stock units exercisable or issuable for a total of 6,396,277 shares of Common Stock were outstanding at September 30, 2022. 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.

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Recent Issued Accounting Guidance

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), to require that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 should be applied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements and related disclosures.

The Company has reviewed other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected to cause a material impact on its financial condition or the results of operations.

2. REVENUE AND PRODUCT COSTS

On January 1, 2018, the Company adopted Topic 606 and, as it had no prior revenue or contracts with customers, there was no transition required nor any impact on prior results. Topic 606 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.

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 includes BolaWrap products and accessories. Other revenue includes VR revenues, service, training and shipping revenues.

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account in Topic 606. For contracts with a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts with multiple performance obligations, the Company allocates the contract transaction price to each performance obligation using the Company’s estimate of the standalone selling price (“SSP” or “SSPs”) of each distinct good or service in a contract. The Company determines SSPs based on the relative SSP. If the SSP is not observable through past transactions, the Company estimates the SSP considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Most of the Company’s products and accessories are sold through domestic and international distributors. Performance obligations to deliver products and accessories are generally satisfied at the point in time the Company ships the product, as this is when the customer obtains control of the asset under our standard terms and conditions. Periodically, certain customers request bill and hold transactions for future delivery as scheduled and designated by them. In such cases, revenue is not recognized until after control, title and risk of ownership has transferred which is generally when the customer has requested such transaction under normal billing and payment terms and has been notified that the product (i) has been completed according to customer specifications, (ii) has passed quality control inspections, and (iii) has been tagged and packed for shipment, separated from other inventory and ready for physical transfer to the customer. The value associated with custodial storage services is deemed immaterial in the context of such contracts and in total, and accordingly, none of the transaction price is allocated to such service.

The Company has elected to recognize shipping costs as an expense in cost of revenue when control has transferred to the customer.

Time-based VR system contracts generally include setup, training and the use of software and hardware for a fixed term, generally one to five years and support and upgrade services during the same period. The Company does not sell time-based arrangements without setup, training and support services and therefore revenues for the entire arrangement are recognized on a straight-line basis over the term. When hardware is bundled and not sold separately the Company allocates the contract transaction price to each performance obligation using the SSP of each distinct good and service in the contract.

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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 may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below details the activity in our contract liabilities during the nine months ended September 30, 2022.

	Customer			Deferred
	Deposits			Revenue
Balance at January 1, 2022	$	43		$	265
Additions, net		-			171
Transfer to revenue		(43	)		(136	)
Balance at September 30, 2022	$	-		$	300
Current portion	$	-		$	144
Long-term portion	$	-		$	156

At September 30, 2022, the Company’s deferred revenue of $300 consisted of $177 related to VR training and $123 related to BolaWrap extended warranties and services. At December 31, 2021, the Company’s deferred revenue of $265 consisted of $172 related to VR training and $67 related to extended warranties and services.

The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract and amortized consistent with the recognition timing of the revenue for any such underlying performance obligations. The Company had no such assets at September 30, 2022, and December 31 2021. The Company will apply the practical expedient to expense any sales commissions related to performance obligations with an amortization of one year or less when incurred within selling, general and administrative expense.

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.

3. FAIR VALUE MEASUREMENTS

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

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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 cash equivalent Money Market Funds and short-term investments consisting of U.S. Treasury bill securities are classified as Level I because they are valued using quoted market prices.

The following table shows the Company’s cash and cash equivalents, Money Market Funds and short-term investments by significant investment category as of September 30, 2022, and December 31, 2021.

	As of September 30, 2022
	Adjusted		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Level 1:
Money Market Funds	$	3,382	$	-	$	-	$	3,382
U.S. Treasury securities in short-term investments		19,803		62		-		19,865
Total Financial Assets	$	23,185	$	62	$	-	$	23,247

	As of December 31, 2021
	Adjusted		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Level 1:
Money Market Funds	$	1,670	$	-	$	-		$	1,670
U.S. Treasury securities in short-term investments		29,989		-		(6	)		29,983
Total Financial Assets	$	31,659	$	-	$	(6	)	$	31,653

Unrealized gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss. During the three and nine months ended September 30, 2022, a $73 gain and $62 gain was recorded to accumulated other comprehensive gain (loss), respectively. During the three and nine months ended September 30, 2021, a $2 loss and a $4 loss was recorded to accumulated other comprehensive loss, respectively

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

4. INVENTORIES, NET

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:

	September 30,		December 31,
	2022		2021
Finished goods	$	1,974	$	1,027
Work in process		-		2
Raw materials		988		537
Inventories, net	$	2,962	$	1,566

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5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

	September 30,		December 31,
	2022		2021
Production and lab equipment	$	500

SEC Form 10-Q filed by Wrap Technologies Inc.