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spk16: Not everyone who needs restraint is a suspect in a crime or has committed some act of violence. And as we've seen in many situations where our police officers must be involved, unnecessary escalation can lead to tragedy, community outrage, and even more violence. We've needed innovative solutions to the use of force issues we've seen for a long time now. Good police officers need the right tools for the best outcome. Here at RAP, we've invented just that. The bowl wrap isn't a weapon. In reality, it doesn't even look like one. Pain compliance is not part of the design. There's no chemical or electrical deterrent, no dangerous explosive charge. It's a simple remote restraint tool for safely and temporarily restraining someone. The BOLAR app is fast and can be deployed with either hand. It's now electronically deployed rather than mechanically like our first model. It's easy to aim, loads quickly, holsters easily and safely. And even without a perfect wrap, it buys officers time to deescalate the situation rather than resort to some higher use of force. On the other side of the situation, you have a person that's been raped. It could be a family member that's hard of hearing, a friend in a mental health, drug, or alcohol crisis. It could even be a violent suspect or a subject in distress that's posing a danger to themselves or others. Whoever it is, if they need to be restrained, the Bola Wrap is the right tool for the right situation. It's earning its place on every officer. In fact, from a UK study, the Bola Wrap ranks lower risk on the use of force continuum than handcuffs. where cuffing someone is always close range and can require physical force, the bowl wrapper strains from a safe distance.
spk02: It's going to secure them right where they're at, and then you can move in and safely take them into custody and get them help. So, I mean, I don't see any downsides to it.
spk16: It offers those few extra crucial moments officers need a window of opportunity to safely deescalate confrontations rather than resort to some higher pain compliance use of force.
spk09: I could think of many situations in the past that it could have been used.
spk16: We know the Bola Wrap can help get the job done before the job becomes dangerous. This is going to save lives. It's already saving lives. Thank you guys.
spk04: Thank you.
spk15: Good afternoon and welcome to the WRAP Technologies third quarter 2021 webcast. My name is Paul Manley and I'm Vice President of Investor Relations. Today we'll provide a report on our progress and performance during the third quarter and an update on our future strategy, which stems from our mission to deliver law enforcement technology and training for the de-escalation of potentially dangerous situations. As I walk through our headquarters here in Tempe, Arizona, with our new enhanced device, the Bola 150, I'd like to thank our amazing team of engineers who have worked so diligently to bring this next generation device to market for the apprehension of noncompliant suspects. Joining me on the call today are Tom Smith, our president and CEO, and Jim Barnes, our CFO. Following our prepared remarks, we'll conduct a question and answer session with Tom and Jim. I'd like to take a moment now to remind you that certain statements made during the call today constitute forward looking statements made to pursue it within the meaning of the safe harbor provisions of the Private Securities and Litigation Act of 1995 as amended. Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings press release and with our filings with the SEC. The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update the forward-looking statements. With that, I'd like to turn the call over to you, Tom.
spk16: Thank you, Paul, and good afternoon, everyone. Our entire company prides itself on hitting things head on. So I'd like to address our revenue performance in the quarter with my opening remarks, since I know that will be a top investor focus. We generated 79% revenue growth in the quarter over Q3 2020, which reflects strong performance. Our sales team is clearly making solid progress with many police agencies around the globe, and we are seeing that come through in orders and sales. This represents nearly double our revenue performance from last year we increase trained agencies by 18% 940 and we increase trained officers by 16% to 3,250 since June 30. We launched an incredible upgrade to our flagship product, we have continued to position rap as a recognized leader in law enforcement. Now, do I think we can do better? Unequivocally, the answer is yes. Our team has not been together long, so we will definitively come together more cohesively. We are constantly learning and improving, and we are focusing on long-term success. On that note, we just closed the largest order in our history, and we'll be releasing more information about this shortly. Plus, the feedback we are receiving from officers and agencies since we released the BOLORAP 150 has been fantastic. Like I said, we are positioned well and executing on our plan. Nothing worth doing is ever easy, especially in the early stages. We have tremendous pride in our mission and our responsibility to deliver our product for the betterment of society. We're just getting started. I will now move on to some more details on our recent progress. During the third quarter, we continue to build the foundation for the future of law enforcement. We introduced the next generation BoloDRAP 150 two weeks ago, which is the first upgrade of our original BoloWrap 100 device. Here is a short video which provides you with a visual of why we are so excited about this new generation. You know, I've talked many times as probably all of you have seen that Spider-Man doesn't wrap just one time. He wraps multiple times. And while our engineer staff has been working on this for over a year, it is something we're really excited about and it is available to ship now. Spider-Man would be proud.
spk14: Police from around the region gathered in Berks County to get a look at new technology that aims to keep officers safe by letting them restrain people from a distance.
spk05: Police use a force that's been a controversial topic for so many years across the country, but there's a new piece of technology that local officers of a local Maryland town are using. They say it could help de-escalate a tense situation.
spk14: Defiance Police have a new device that they say can help bring suspects in crisis and officers to a more peaceful resolution.
spk09: This is a tool police officers have never had before. It is called the Bola Wrap.
spk12: The new tech is called Bola Wrap.
spk09: Here it is. It's called the Bola Wrap. Deputies say that they can use this to safely de-escalate a dangerous situation.
spk12: It is called the Bola Wrap. The non-lethal device has been called a life-saving tool for officers across the country.
spk16: With over 12 months of research and development, this is an extremely important achievement for our company. As effective as the revolutionary original first generation model is, we enhanced many features, nearly all of which were the result of direct feedback from officers using our product in the field. We now have the benefit of increasing the number of real life field deployments, all of which helped us with our development efforts and to capture the voice of the customer. Accordingly, we considered the 150 as designed by police for police. This direct feedback loop is crucial to our ongoing research and development efforts, which we expect to lead to more innovative products in the future. The updates we applied for the BOLORAP 150 include our most recent and important upgrade is the switch to electronic development and deployment from mechanical. This reduced the steps to discharge for an officer from three down to two. an LED indicator that shows an officer when the device is ready. It is important to note that once turned on and activated, it performs an internal diagnostic check to become ready. However, when seconds matter, like in a confrontation with a subject, it's helpful to see the green ready light. Cassettes are powered by micro gas generators, which is the same technology used in the automotive industry to power airbags. This is just one example of the many changes we made to ensure that the reliability and quality of the Polarap 150 is up to the needs of law enforcement. We increased the battery life by a multiple of 10, which is significant. In addition, there is an automatic shutoff feature, which further saves the battery life. For aim enhancement, the BOLORAP 150 projects a multi-dot green laser which illuminates on its target versus the single line laser of the BOLORAP 100. This makes it easy to see where the BOLORAP will be deployed. New dual LED lights that automatically illuminate when the device is powered on, freeing up an officer's hands from needing a flashlight or other device for visibility in the dark. This capability can also be turned off in the event an officer or department prefers only the green laser. We also included integrated safety caps on the anchors to tether and protect further from the subject and the officer from any minor scrapes or cuts when removing the tether's anchors. The Bola Wrap 150 is also about 20% smaller and lighter with enhanced textured grip pads, making it more functional and easier to handle, especially when wet. I'm extremely pleased with these meaningful enhancements in the execution of our research and development, operations and manufacturing teams to deliver this upgraded product in a cost-effective manner. Our company is here to serve our global communities and the police officers who protect them. Incorporating their needs and feedback is essential to our overall R&D process. We see our customer-centric commitment to excellence as a distinct competitive advantage. From an officer field use perspective, the initial feedback on the BOLORAP 150 has been extremely positive to date. It has been particularly satisfying to return to agencies who initially showed interest but held off on those orders since the BOLORAP 100 did not have something that was important to them. Now that we have incorporated many of these enhancements and suggestions, we are starting to have success converting these agencies. The benefit of the updated products are expected to be financially accretive over time. First, we were able to incorporate all of the upgrades and maintain our existing end user pricing levels. Although price is not near the top of reasons for delayed purchase, it was still important not to raise prices in order to safeguard our product's value proposition. We believe we accomplished that based on the feedback and activity from our customer base so far. More importantly, the 150 positions us well to drive to our long-term gross margin targets. There are several reasons for this. Number one, we made the production of the BOLORAP 150 more efficient, allowing us to manufacture more units at a faster rate and a lower cost. Number two, the raw materials, supplies, and parts we use in the BOLORAP 150 are more cost-friendly. We expect to continue to invest in research and development. Adequate R&D is vital to driving our differentiation. The RAP culture is about commitment to excellence and market leadership. This includes future development of next generation BOLA RAPs, our RAP reality platform, or any other new police technology products that fit within our mission. Now, a couple of points on our BOLA RAP 100 model with the release of the 150. We have managed our inventory levels over the past couple of quarters in anticipation of the BolaWrap 150 launch. We discontinued manufacturing of the BolaWrap 100 over the summer and expect to sell through our remaining inventory over the next few months. We will continue to support the 100 into 2022, and we have implemented a trade-in program for our customers who currently have the BolaWrap 100 device. This is similar to the model used by other companies when they release technology upgrades. We expect this to be considered a nice benefit and strong customer service from police agencies we have done business with. Our other key product is RAP Reality. We made notable progress growing awareness of this newer product offering during the quarter. While we make outreach sales efforts, we are receiving multiple referrals and inquiries about this important product from a global audience. Our RAP Reality training platform is robust, and our objective is to become a global leader in this industry for law enforcement's virtual reality training. To do this, we are implementing a game-based learning model to our approach. This game-based learning model is more intuitive to the generation of recruits who are currently entering the National Police Academies. Plus, it is easier for seasoned officers to engage. Our virtual reality modules are immersive, interactive, and accessible to trainees of all levels or duty of tenure. We give training officers direct control over all of the elements in a scenario, allowing them to lead trainees through different variations and outcomes within a single scenario. We believe this leads to the best retention of the learning objectives. So just like a video game where several scenarios can play out within a single game, the modules for our training operate in the same way. Examples of these different scenarios options could include, is it day or night? How many characters are there? What type of situation are you in? And which tool are you using? The last one is very important. We not only provide training modules for the BOLA rep, but we also train officers on the many tools as well as verbal commands. Different situations call for different tools, and we want our virtual training to be versatile and comprehensive. This is vastly different from existing police training platforms which are static, predictable, and can result in going through the motions. Our goal is to incent officers to train more often, which will lead to better application of the desired learned behaviors. RAP Reality's mission is to provide training for any possible scenario a police officer might encounter during the course of their career. I'd like to give you a real life example. One of the modules in our current library trains officers on how to deal with a suspect who appears to be a nonviolent but is ignoring verbal commands. Like all of our scenarios, they can proceed in a variety of directions depending on the decisions being made by the officer, such as de-escalation through careful communication, the use of Ebola wrap, chemical spray, or any tool based on the objective being trained by the instructor. We firmly believe safer policing starts with training. We continue to be amazed by the fact that some professions, such as hairdressing, have more annual training options than police officers. We look at the continuing education of some other professions which have defined annual requirements based on time spent and or content covered. We see police training headed in this direction and even beyond, since people's lives are at stake. Moreover, we recognize that doing this is the most effective form of training as compared to the classroom model. RAP Reality combined with our BOLA RAP device creates a platform to provide our sales team and distribution network with a highly complimentary product portfolio to offer agencies. We believe this is leading to a synergistic opportunity for training and field operations when selling to agencies. Reverting back to our BolaWrap business, in the United States, we continue to focus our sales efforts on all size of agencies. However, we still see a heavier weighting of sales orders coming from smaller agencies with 100 officers or less since they typically have a shorter sales cycle due to quicker approvals. We continue to add new agencies who have BolaWrap devices. During the third quarter, we added just under 18% more new agencies to finish at more than 940 who have our products. we have a large and growing agency base, which is already familiar with our company and the BoloWrap 100. The all new BoloWrap 150 is the perfect catalyst for a follow-up call and is fertile ground for the introduction of our addition to newer wrap reality system. Our investment in our international business continues to pay off as well. Although the COVID headwinds and government shutdowns remain a factor in countries outside of the US due to surges in cases and ever changing travel restrictions. The ability to conduct virtual meetings and virtual demonstrations has been helpful in starting an initial dialogue, but onsite demonstrations remains important to reaching order placement. We will continue to travel as much as safely possible while following local and international guidelines. The international market is important for WRAP due to its size and consolidated decision-making with a typically nationalized process compared to the 18,000 plus decision makers here in the United States. As I've said in the past, the international total addressable market is 12 times the size of the US market. Actually, as I alluded to earlier, we just received our single largest purchase order ever, and it came from an international customer. The final key highlight from the quarter that I would like to touch on is my senior leadership team is now in place. Over the last few months, we have added several key executives to help drive the business in areas such as operations, training and international sales. Our team is seasoned with an incredible amount of diverse experience, both from within and outside the industry. In addition, we have bolstered our engineering team with additional talent. We are positioned well, and I look forward to our team's performance together over the coming months. With that, I'd like to turn the call over to Jim Barnes to discuss our financial results.
spk07: Thanks, Tom. I'll move straight into discussing the financial highlights for the quarter. First, we generated $1.8 million in revenue for the third quarter. That represented 79% growth over Q3 2020. International revenues represented 42% of third quarter 2021 revenues, compared to 70% for the third quarter of 2020. Revenue for the first nine months of 21 increased to 5.3 million, a 109% increase over the 2.5 million for the same period of 2020. International revenues represented 48% of our 21 year-to-date revenue compared to 72% for year-to-date 2020. Domestic revenues grew by 296% over the prior year, driven in part by Bola wrap success stories documented on body cam footage. These results also show that our 2021 international business has faced significant COVID headwinds. Over the past four quarters, we have consistently flagged that our revenue growth could be lumpy as we balance COVID related travel restrictions and limitations. This is particularly true with our international business that tends to be large national law enforcement agencies as the end user. But overall, we are focused on managing our business for continued growth, especially with the October launch of the BoloWrap 150. Our gross margin for the third quarter was 39% compared to 32% for Q3 of 2020. As a reminder, in the second quarter, we incurred a planned line exit expense of $747,000, preparing for the 150 launch. This affected year-to-date margin, which was 38% without the one-time charge. This compares to 34% for the same prior year period. We expect the Model 150 will have higher margins that will be realized in 2022 after a startup period and after phase out of the Model 100. But near term, margins are difficult to predict and could be lower due to the product transition and effects of sales channel and product mix. In addition, I'd like to make a few comments about our global supply chain challenges facing us. While we assemble product in Tempe, we rely on global suppliers. While most of our components are small and can be air freighted without undue cost impact, we do face availability risks since the Model 150 includes electronic components, laser, and battering materials. We proactively plan our materials inventory and work to diversify our suppliers. This may result in higher levels of raw material and parts inventory from time to time, intended to ensure we meet planned production needs. But we are at risk for shortages and unexpected delays of key components that could impact future results. r d expense was 2.1 million for the quarter compared to 927 000 last year the increase related primarily to increased staffing and outside consulting costs along with costs of bolarap 150 development and other research initiatives future r d costs will fluctuate primarily due to the timing of outside development costs on important research initiatives sgna expense was 4.7 million for q3 and included 1.1 million of non-cash share based compensation costs our main sgna investments are focused on sales demonstrations training and product awareness efforts targeting our worldwide customer base We have been able to decrease our expenditures on promotional costs as bull wrap awareness continues to grow and law enforcement use use demonstrates the utility of our early intervention solution. Our balance sheet remains strong with approximately 40 million of cash and short term investments to support our growth needs. With that, I will turn the call back over to Tom.
spk16: Thanks, Jim. As mentioned earlier, we grew US agencies with trained instructors to just over 940. That's up nearly 18% from the second quarter and over three times our number from a year ago. This is a leading indicator for our sales team. We have now certified 3,250 officers to train their departments, which is up 16% from the second quarter and 194% increase year over year. As of September 30th, 2021, we have products in 49 states and 50 countries. We believe 50 countries is an important milestone for our young company. We are already seeing early repeat orders and this will accelerate. As always, my final comments are directed to our team here at RAP. Thank you for your time and energy to help drive our mission. What we do is bigger than any individual. We are helping create renewed faith in one of the most needed and noble professions in the world. It has never been harder to be a police officer than in today's world. That needs to change. The men and women who devote, risk, and sometimes sacrifice their lives to protect our communities need to be supported. At RAP, we are making a difference one agency at a time. It is always easy to point out problems. RAP is focused on providing a platform of solutions to help law enforcement and their communities solve these problems. Right now, I invite you to watch a short video highlighting our activities during the third quarter. After the video, Paul will moderate our question and answer session.
spk12: It's the latest tool available to departments as a de-escalation tactic.
spk05: It could help de-escalate a tense situation.
spk00: This lasso-like tool acts as a set of remote handcuffs. A device that's not as intimidating as a taser or pepper spray.
spk12: It's an electronic-based tool that uses cord and fish hooks to stop someone. A less invasive remote restraint device. The device was designed for those with mental health issues in mind.
spk01: This may look like a gadget built for spies, but the Bolo Wrap is helping improve police work across the country.
spk09: Stopping a suspect from up to 25 feet away while also minimizing pain can help officers safely and humanely detain suspects. Can we help you?
spk04: No, you can't go back there.
spk10: The city of Miami Police Department has added a new tool to help capture suspected criminals in a non-violent manner.
spk06: 13 Colorado agencies, including the Greenwood Village Police, have purchased a new device that's meant to detain, not harm suspects.
spk00: The Hillsborough County Sheriff's Office says they will use a new non-lethal tool to de-escalate dangerous situations. you
spk11: The Princeton Police Department has entered into a virtual reality program. VR technology of note is created by a company named RAP and is a fully immersive state-of-the-art simulator that offers real-life situations for law enforcement officers. We did an assessment of some of the products out there, and by far, RAP Reality was the best product on the market for us.
spk16: It seems like technology is also sort of more accepted as a means of training.
spk04: Stop! Stop! Stop! Stop!
spk13: to a disorderly subject that was throwing items at vehicles that were passing by. The individual is hit in the thigh area. And in the video, you can see he tries to take a step and then stops looking down at the bolo rack to figure out what's going on. That gave officers the time and opportunity to move in quickly and place him in the handcuffs without anyone being injured. There was no resistance into getting him in the handcuffs, no injury to the officers, no injury to the suspect. And everyone got to go home happy and healthy.
spk15: Well, that is such a great video. Thank you to our marketing team for putting that together. So now let's move to the Q&A with Tom and Jim. As we've done in the past, we will start our questions from our three analysts who are currently writing research on us. Then after they have finished, we'll answer the questions that have come in from those on the call. if after the q a session your question has not been addressed please send me an email or give me a call and i'd be happy to answer it my contact information will be available on the last slide of this call with that being said our first question will come from greg gibbous from northland capital markets please go ahead greg hey good afternoon guys thanks for taking the questions um first in terms of the amount of demos or quotes that you guys are giving on a quarterly basis is that still
spk02: trending higher sequentially? Just trying to understand if metrics are still ramping there. And if so, you know, what do you attribute the sequential decline in sales to?
spk16: Yeah, it's a great question. And the short answer is yes. We did see a slowdown between July and August when that first Delta variant came and kind of hit the market. People were doing vacations. It's really slow. Europe shuts down for the month of August. So I think that's really what attributed to the slowdown that we saw. And then obviously domestically, that continues to do really well for us. I was very pleased with what happened in the domestic market. We are seeing an increase in the number of inquiries for quotes. Again, it's changed that conversation to seeing all the body cams that we have out there from before. And then internationally, we get a lot of information coming, you know, that they're seeing more and more information, how it's being used here versus elsewhere. And that's what's, I think, really driving a lot of this, but it certainly impacted us over the summer. And then we were really focused on the transition to the Bola Wrap 150. So that's something that we were really spending a lot of time on. And that's what really, you know, keeps us going, but we are seeing an increase we're doing it's almost a training a day now. As I mentioned, the number of agencies that are getting trained over 940 the number of officers over 3,250 those are all the trends that really are setting the future performance for us on where I think we're going to end up at so we do see a continuing to increase.
spk02: Okay, great. And you know nice to hear that you just received the single largest purchase order to date is that do you expect that to be recognized in Q4 and then, how should we think about kind of gauging the size of that order.
spk16: Yeah, great question. It was actually really nice because our single previous biggest order was back at the beginning of August that we announced. And then this one was exceeded that order. We expect it to go in Q4 and Q1. It's just going to come down to timing of the production and all of those types of things. So that's why we're taking a conservative approach with it to say Q4 and Q1. And it is for the BOLA 100. So it's something that we've been working on for an extended period. period of time. And it was really nice to get that over the goal line. There had been some delays, obviously, with that that we were hoping it would come in sooner. But we do think it's going to be a Q4 Q1 split, just like the one we announced earlier this year was kind of a Q2 Q3 split.
spk02: OK, got it. Great. And you mentioned margins being higher for the new 150 device versus the 100 model, but probably not till 2022. You know, do you expect there to be any other impacts on financials just on the cost side of the equation? And then how, I guess, how should we think about kind of the difference in margins between the two devices?
spk16: Yeah, so we, I have been talking about margins and our goal of getting, you know, above 50% in 2022. And it's because we knew that the 150 was coming. That's really what's been setting us up for that. So I don't think it's going to really impact much in Q4, especially with this large international order being the BOLA 100, the Gen 1. But 2022 we're very excited about the margins that we're seeing even better than the expectations I originally had so we do expect that to start rolling in next year but I think it's going to be a blend and a crossover as, as to how many people stay with the first generation versus move up to the second generation. And I think you know again from my history. i've seen this before because what the first generation really did for us was establish the market that this works that people wanted and now we came out with gen 2 which incorporates a lot of the feedback that people were asking for meaning customers uh it's getting the margins where they need to be it's the main it was designed for manufacture it was designed by the officers and gen 2 being 20 smaller and lighter really answered a lot of those questions and again i've lived this before i saw what it did for us and that's what i'm really excited about um for 22 and really having an impact on those margins.
spk02: OK, thank you. I'll pass it on.
spk15: OK, thank you, Greg, very much. Our next questions will come from John Hickman from Lindenburg. Go ahead, John.
spk03: Can you hear me OK?
spk15: Yes, sir, we can.
spk03: OK, so the new 150 is powered by electronics airbag technology. So in my mind, it shouldn't be regulated by the ATF anymore. Can you guys comment on that?
spk16: yeah it's a great question and that was actually the hope when we were originally designing this because it's regulated uh under a different category so when we went through the original process of development with this we still did have to go back and check with atf to make sure that they were going to uh not cover us under the national firearm act but because they are so backed up They're literally telling us it's a 12 to 18 month time frame for them to be able to give us a decision. So we did that back in the spring. And so that would tell us we're going to hear sometime in the spring of 22 to about a year from now. And of course, I asked, but with this new technology, can we go ahead and assume that it's not going to be covered under the National Firearm Act? And the answer was no. So actually the answer was you guys make the decision. So in talking with council, they said the best approach for us conservatively was to keep selling it the way we're selling it today with the same process in place. And then if we do get the ruling that we're hoping and expecting, then the ATF restrictions would go away on the firearm side and we would be, it would open up private security and all these other markets for us. But right now, because we don't have a definitive answer from ATF, we're taking again, uh conservative approach and making continuing to sell it the way we did with the first generation so you're saying there's a chance that it'll still be a firearm There is a chance there if ATF, because we're under their explosives division with the current technology, and we would be under the National Fire Act, both within ATF. So it doesn't make any sense to me that that would be the case. The explosive side is clearly the precedence here. However, because our previous device was under the firearms division, there is a possibility that they could cover us under both. I don't rule anything out when the government's going to make a decision, but we're hopeful that they will let it stay with just explosives.
spk03: So if they regulate you as a firearm with this new technology, that means automobiles are firearms too?
spk16: You're dead on on the argument logic that I had with them because those are millions of them. They're used by NASA and everybody else. So that's exactly the same argument we've had with them. But that's why they can't give us a definitive answer. We had to file a formal application. Again, that was done in the spring. And they're just taking 12 to 18 months to respond to those. We're continually asking. But until we get a formal response, we're not going to change the way we're doing it.
spk03: What happens if you sell it anyway?
spk16: So great question, because I had the same question. And what happens is if I sell it without going through the ATF process, and they do come back with a ruling that they are going to continue to regulate it there, then we would have to recall every device that's out there. Every one of them would have to physically come back to us. We could face... all kinds of really bad stuff from ATF, from fines and other things. And then we would have to do all the ATF transfers anyway. And since we're already in that process, that's why council suggested we continue doing it the way we're doing it and not risk having to go through a recall, fines and all the other things that they could do, because at that point they would say we were selling a firearm improperly or illegally.
spk03: OK, so let's assume you get your the regulation is changed, how will you sell it then?
spk16: Once the regulations change, then there's no restrictions.
spk03: Then we don't have to- I know, but you're not set up for that.
spk16: Right. We would change at that point. But until that comes down, we don't want to risk it or go through the cost and prepare. We've had conversations to be able to do that. But right now, until we know otherwise, we didn't want to distract from our current plan of execution with the law enforcement markets. And we've seen that overseas. You know, that was a big step in Canada that they are not regulating it as a firearm and they can sell to other than law enforcement. So we are seeing some progress in other countries that we're hoping are going to make a difference. But Even up there, the new BOLA 150 has to now be regulated or looked at again, which that could take another extended period of time for them to give a different ruling because it is a different device. So once that comes down and they give us a decision, then we'll scramble to do it. But I just don't want to distract the team right now on an unknown and an unnecessary time expenditure until we get confirmation.
spk03: Okay, one last question. You intimated in your prepared presentation
spk16: materials that there might have been some people who delayed purchase for the for the 150. can you um can you elaborate on that or quantify that yeah we we uh you know we had and i'll use lapd because that's an agency that everybody follows that approval was given back in may to start the trials and they had some definite requirements in those trials that they wanted to see and improve battery life uh and and lights on the device So we had been obviously in conversation with them. And the reason that the trial has not started yet is because they don't have the devices out there. So we've seen them delay as an example in starting this process. We've seen some other agencies that just that when they took a look at it, they knew that L.A. had made some requests. You know, whether they were talking with them, I'm not sure. But we certainly have had some customers that in the voice of the customer program. had made requests to us that those requests were incorporated into the BOLORAP 150, and now it's given us the chance to go back to them. And some of those agencies, you know, again, they were very anxious for us to get out the new device, and now it's restarted some of those conversations.
spk03: Okay, thanks.
spk16: Thanks, John.
spk15: Yes, John, thank you very much for those great questions. Our third analyst is Alan Klee from the Maxim Group. Please go ahead, Alan.
spk08: Good afternoon. Can you talk about the steps you're taking to overcome international headwinds? Perhaps a little bit, maybe how you're using dealers and as partners, and then also kind of a best guess on the timing to get the international markets to improve to levels that you would expect them to be at in more normal times. Thank you.
spk16: Yeah, thanks, Alan. So some of the things that we're doing, and I can use a recent trade show that just happened, Millipole, that was in Paris. As a matter of fact, it was last week. It was very challenging and almost impossible for us to go and attend with all of the requirements to get over there. So in building our team in London with Jags Gill, with Becky Newman, who just joined us, we're getting, you know, we're taking steps with people out of europe that they can go and travel and go and attend that trade show so i didn't go uh nobody from the us went we had our european team attend that and if you notice during the quarter you know in italy uh denmark um and some of the other belgium countries We actually are using the team that we're building in London to help service the European markets because the travel restrictions aren't as as difficult as they are here. Asia and the Middle East, that's still up and down on the travel. So really, it's it's I wish we could predict when it's going to change. But we are trying to supplement with different members on the team that are in different locations to try and travel. And then, you know, through the. zoom videos and the virtual conferences for example this order that we just got this week that's something that we've been working on for quite a while but we haven't visited that country in over a year uh and that so all the work was done by the distributor on the ground with the government through the tendering process and that's how we're also seeing some of these other countries and you know it's it is a challenge to get their attention when they're dealing with with covet or the different scenarios that are out there but we are seeing our distributors still being able to move these programs forward and that's you know it was really exciting to get a big order in in august and then this order coming uh this week to be able to announce it uh because those are things we've known about and getting them over the goal line you know is ultimately where we want to be that's great thank you um you mentioned so help us understand the process of uh
spk08: working down the inventory on the BOLORAP 100, how long do you think that takes and then the potential impact of that? I think you said trade-ins, but how does that work in terms of the impact on the financials?
spk16: Yeah, so one of the things that we had to do as we were preparing for the for the 150 as a team is we were starting to get a lot of restrictions on components from the Ebola 100 earlier in the year in the first half of the year. So at that point we had to make decisions and we had to actually stop purchasing a bunch of those components. but we had we built up the raw inventory to make sure it would carry us not only through the rollout of the new bola 150 but also into supporting it into next year for agencies that have that device that don't necessarily want to change to the 150 right away i can tell you this large international order that went with the old the first generation bola 100 uh certainly has changed the uh dynamic because they took a lot of the inventory and 500 devices and 50 000 cartridges because we had obviously been building those ahead of time because we transitioned our production over the summer to shut down the 100 line and put the 150 line in place. So it's been quite a group effort to make sure from supply chain to operations to sales and manufacturing to keep everything together because we didn't even let the sales group know the official launch of the 150 until it was literally out there and a lot of them watched the the official video on October 12. Because it was the timing was still unsure. So we built up on the inventory, you'll see the raw material, the finished goods inventory, I think will change, obviously, with these orders coming in and that inventory dwindling down. But at the same time, with some of the supply chain challenges, one of the ways we're mitigating that is to buy ahead on some of the materials for the bowl of 150. So you'll see a change between finished goods and raw materials as we are transitioning from the 100 to the 150.
spk08: Okay, last question. I mean, if we're looking over the next three to six months, what would you say would be the key things that we should be focused on as potential data points and catalysts for your company?
spk16: Yeah, so what I look at is the continued side, you know, the tip of the spear for me is the instructors, right? The continued number of instructors increasing because they're the subject matter experts in the agencies that are going to communicate with this command staff as well as with their communities on what they're doing. So obviously we get a lot of media attention around that, seeing the number of demos and trainings convert, seeing the number of trained departments increase. because that number is several hundred ahead of the agencies that have already purchased. So those are the things that we're going to watch. Like we, for example, just last week had our master instructor school where we brought out over 50 of the master instructors in one week to get them all trained on the new device so that we can roll over very quickly and start doing the demos and trainings for the second generation technology. And then obviously getting the international order was fantastic for us. to continue to continue to see that market grow uh and then just it's walking and tackling of of the growth and continued expansion of trainers agencies using this body cams coming in you know it's it's really it is wrap 2.0 it's the next generation of the company as we um expand in this new generation technology which is it literally the responses are just amazing from people that are that have seen the device and it's answered a lot of the questions that were nice to haves not need to haves and i think that's what's also going to change the dynamic as we get it out there because there's a lot of little tweaks behind the scenes that don't make it to the to the spotlight that really make a difference in that technology and again from my from watching this 20 years ago and what gen 1 to gen 2 did for us in my previous group i'm hoping and expecting we're going to see that same change here within the law enforcement community and the response has already been indicating that with the people that came out last week sight unseen never having seen it and gone through the training uh just rave reviews on it so i think That's those are the things you're going to want to watch and then you're going to watch next year those margins start to tick up because that 150 is. i've set that expectation it's been a goal internally that we can control to get the margins to increase. You know Q4 is going to be obviously impacted with this large first generation order but into 22 as we get into the new generation you're going to see those margins start to change and hopefully quite a bit.
spk08: Thank you. My last question, and I know you don't give guidance, but it sounded like some of the headwinds that were in this quarter, such as the peak in the Delta variant and the summer slowdown in Europe and transitioning your product, it sounds like some of them should lessen in the fourth quarter. all else being equal so that there's a potential of a stronger quarter. Is that a reasonable way to think about this?
spk16: Yeah, I certainly hope so. I mean, another thing that affected us in the third quarter is the biggest law enforcement trade show in the US and one of the biggest in the world, the International Association of Chiefs of Police Conference ended up having a hurricane hit New Orleans, so they canceled that trade show. So there's certainly been a number of different dynamics that have affected the market. Looking at a bunch of the headlines from other companies, supply chain, that's why Jim talked about that as something we're keeping a close eye on. But I do agree that as we try and get COVID, hopefully to get a little bit more controlled in these states to allow us to keep traveling. And then internationally, as we've got, you know, Jags, Becky, Alex, and the group over there, and the distributors that we're, I do expect us to continue growing. But I just don't know what the future holds with any of these challenges from this pandemic or the travel restrictions that may or may come or go.
spk08: Thank you very much.
spk15: Thanks again, Alan, and thank you again to all three of our analysts that are covering us right now at this time. We really appreciate your support. We do have a lot of questions that have come in. I'm going to try to get to some of them. A lot of them have been overlapped with some of the analysts as well. Tom or Jim, do you want to give any further update on kind of the LAPD trial, where it is now, what devices, and when it's going to start and when you expect it to end?
spk16: Yeah, so as I mentioned, the approval came back in May. Obviously, LAPD has been working with us on the BOLA 150. They have the devices. Their planning, I believe, is going to be to start rolling that out in late November and December. And then the original trial was given for a year. So we do talk to them on a very regular basis. They're very involved in what's going on. but we do expect that trial to start before the end of the year as they're as they're getting that program up and running and then it would take you know hopefully less than a year but the plan would be 12 months from that point once they actually get the two precincts and all the officers trained and out on the streets with the bull wrap all right great thank you a few questions are coming in about our monthly burn maybe that's a question for Jim what is your monthly burn and you expect that to stay the same go up go down you know over the next few quarters
spk07: Our cash operating expenses in Q3 were actually down from Q2, and we expect for the near term, we'll be adding a few people, but our cash operating expenses should... We're running at about a million and a half dollar per month cash burn at this point in time, and we don't see huge increases in the foreseeable quarter or two. Next year we could expand further, but we do expect our sales to ramp up and continue on our growth curve.
spk15: All right. Thank you, Jim. Here's a good one. How do you typically get the body cam videos from police agencies?
spk16: Yeah. So when we are conversing with the police departments through training and continual conversation and sending them new materials, we do have requests that they send us in field use reports and field use data. So we don't always get body cams with them. Or if there is a body cam, we'll ask if they can share that with us so that we can use it for training purposes. So it's just through a conversation, continual conversation. Sometimes we've offered to give them some equipment to help get the body cams, but it's really been around a training tool that we can share with other agencies so they can see how that works and then be able to share that with everybody when it gets released publicly. So each agency is different. The smaller ones move quicker, which is what we talked about, and that's how we've received so many so far.
spk15: All right, perfect. Thank you. With all the recent hires, what is your employee headcount currently? And do you see this changing? Do you have any holes to fill either in management or in other positions within the company?
spk16: So right now, we're about 50 people, plus or minus, as I said on the prepared remarks. We're confident where we're at on the command staff. So as we grow, we'll address it there. But right now, we feel really good. You know, there might be a couple of people here and there. And we are going to add to our team and wrap reality now with Clark on board, especially on the development side, to address some of the rollout there that we've been doing with Amazon Web Services. But right now, we're right around 50 employees here at the company.
spk15: A lot of questions have come in about COVID and how it's still affecting us internationally. Have we seen glimpses of it opening up or is it still pretty buttoned down internationally? How are your international salespeople traveling or doing the demonstrations or presentations to the different agencies or distributors overseas?
spk16: So within Europe, we've seen obviously a lot of the European community, they've been able to travel over there. That's one of the reasons we added with Becky Newman coming on, with Jags, with Alex, that they've been able to go to Italy. They've been able to go to France. They've been able to go to Denmark, Finland, a number of different countries. So within the European area, we've seen it. Other parts, as I mentioned, Asia and the Middle East have still been a lot more restrictive in terms of the travel. So we haven't been able to really make it to those parts of the world yet. hopefully if this variant settles down and the countries will open up and we can start really hitting those areas as well.
spk15: All right, thank you, Tom. Maybe one for Jim. It says this one just came in last quarter. You had some cash come in from the exercise of some warrants. Do you have any other warrants out there that can still be exercised?
spk07: Yes, we have about 1.3 million in warrants that become due in middle of next year that could provide about $8 million worth of additional proceeds. So we'll just have to see how that goes. But we have sufficient cash to manage and finance our growth and our continued operations for approximately two years or more. So we're in pretty good shape as a young company to manage our growth.
spk15: Great. Thank you, Jim. A few of them coming in wanting civilians to purchase. I know we kind of talked about that with John Hickman with the ATF, but when will civilians be able to purchase our device?
spk16: We do get a lot of inquiries from the civilian market as well as private security. But until we get that ruling back from ATF on from the firearms branch, whether they're going to continue us in that or not and let it just stay with explosives right now with this generation, we have to wait for that ruling to come in. So in the foreseeable future, there's no plans outside of what we're doing today with law enforcement. But in addition to the waiting for that ruling from ATF, that's something we're obviously taking a look at in the R&D area. as they continue to look at next generation technologies in the future.
spk15: Perfect. Thank you. With the interest of time, I think we have a couple more questions I'll get to right now. Here's a great one. When is your next device coming? How often do you plan to upgrade?
spk16: Great question. We get it all the time. And as you can tell, we're very quiet about it. Just like Apple doesn't tell anybody ahead of time, we're not going to be saying anything in terms of when the technology is coming out. But obviously with this one just hitting the market, the previous device hit production a little over two and a half, almost two and a half years ago. So there is a cycle between them, but we don't give any real advancements on when the next tech's coming. And we're super excited with Ebola 150. It answers so many questions, so many requests. This is, for me, previously what really took off for us and really set us on the map and, you know, at the previous company. And I believe this will help do the same here. So right now, we're just focused on getting the 150 out, getting it into production and getting it out to our customers. that was going to actually lead me to the last question tom a couple people actually asked what makes you most excited about the 150 product well it was a long time coming i'm not going to lie it was a little bit painful but it's now that it's out there it's so exciting because it reminds me it's just deja vu of what happened to us last time you know we established that the markets there we're seeing the body cams uh we've you know with a lot of the questions as i said before they've gone from how does this thing really work to now saying, hey, I saw a body cam that was really similar. How do I get it? And now they get this device in their hands that really feels good. It operates super simple. It incorporates a flashlight, incorporates all the changes that they wanted to see, even with the cassette now being made of plastic. And the biggest impact is that we were able to keep the price constant. We didn't have to increase the price just because we incorporated all this manufacturing technology and all this technology into the device itself to make it super simple for the officer in the street. um that was really really important that was one of our biggest design goals was to make sure we didn't have to increase the price on it and then allow us to also see the margin increases that we want uh and expect of ourselves so those are the things i'm really excited is now that the market we've got the bolo 150 here it's was just announced two weeks ago and the response has been tremendous with our instructors last week uh you've seen that on social media so keep following us there as the agencies now start to see it and get it in their hands in the field and give us that same feedback that I'm expecting and hoping for.
spk15: Great, thank you. And thank you everybody for sending in such great questions. I know I didn't get to all of them. Again, please reach out to me via email or my phone number will be on the last slide as well. Thanks again for all the questions that came in. They're great questions. We appreciate it. So with that, I'll turn the call back over to Tom for his closing comments.
spk16: Well, thanks, Paul, and thank you all for joining us today to review another quarter of continued innovation in community policing solutions. We look forward to the launch of Ebola 150 as the next step in ensuring our officers have the best tools to protect and serve our communities. I hope you felt our excitement for our enhanced updated device, our RAP reality, and the future of RAP technologies. We have the privilege and honor to be at the forefront of incredible opportunity to radically change the world of law enforcement for the better. And we will continue to our steadfast progress towards achieving our goal of setting a new standard in first level response tools with the Bolo app family of products and industry training with wrap reality. every employee from our great production line workers to senior management continue to be deeply passionate and driven to achieve our goals i hope you and your families have an enjoyable and safe holiday season and new year and i look forward to our next webcast in early march when we will provide you with our q4 and 2021 2021 year-end results and updates thank you again and have a great evening
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