Wrap Technologies Inc (WRAP) 2019 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Wrap Technologies Fourth Quarter and Full Year 2019 conference call.

(Operator Instructions)

Before we get started, we'll be referring to the press release file today, which details the company's fourth quarter full year 2019 results and can be downloaded from the company's events and presentation page at www.wraptechnologies.com.

Finally, a recording of the call will be available on the same events and presentations section of the company's website later this evening. Please be aware that some of the comments made during this call may include forward looking statements within the meaning of the federal security laws.

Statements about the company's beliefs and expectations, containing words such as may, will, could, believe, expect, anticipate and similar expressions constitute forward looking statements. These statements involve risk and uncertainties regarding the company's operation and [feature] results that could [warp] that cause Wrap Technologies' results to differ materially from the management's current expectations.

The company encourages you to review the Safe Harbor statements and risk factors contained on today's press release and the company's filings with the Securities and Exchange Commission, including without limitation, the company's most recent annual report on the 10K and other [periodic reports] which identify specific risk factors that may cause actual results of events to differ materially from the described and forward looking statements.

The company does not undertake publically, update or revise any forward looking statements after the date of this conference call. The company also notes that on this call, they'll be discussing certain non-GAAP operational metrics such as backlog, number of trainers, agencies and distributors. The company is providing that information as a supplement to information prepared in [all accordance] with accounting principles generally accepted in the United States or GAAP.

And now, I'll turn the call over to David Norris, the company's Chief Executive Officer. Sir, please proceed.

Thank you, [Justin] and thank you everyone, for joining us today. After the market closed, we issued our fourth quarter and full year results for the period ended December 31st, 2019, a copy of which is available on the Investor page on our web page www.wraptechnologies.com.

We'll start out by turning the call over to Jim Barnes, our CFO.

Thank you, David, and good afternoon, everyone. Our detailed operating results were set forth in the press release filed today and our annual report on form 10-K also filed today.

As a reminder, we are still in the early stage of addressing a large worldwide market for our remote restraint product and accessories.

Fourth quarter revenues increased from a mix of agency distributor and international order fulfillment. Revenues were $251,000 for the fourth quarter, 2019, compared to $21,000 in the fourth quarter of 2018.

For the full year ended December 31st, 2019, revenues were $697,000 compared to revenues of $23,000 in 2018. At the end of Q4, 2019, we had $344,000 of customer deposits and a backlog of orders of approximately $1.7 million, expected to be delivered over the next 12 months.

As a reminder, distributor and customer orders for future deliveries are generally subject to modification, rescheduling or in some instances, cancelation in the normal course of business. We do not have enough insight into the timing and the nature of large international and domestic orders to determine exactly how periodic backlog will relate to future revenues.

Gross profit margin was 34% for the fourth quarter, 2019 compared to 20% in the fourth quarter of 2018. For the full year 2019, gross profit margin was 39.7%, compared to 19.6% in 2018.

We rely on direct and distributor sales, both domestically and internationally [and] changes and sales channel mix can significantly impact product margins.

Other factors that impact margins, including product updates, raw material and component changes and warranty costs. Due to the startup nature of our sales and production activities, we do not believe historical margins should be relied upon as an indicator of future margins.

The recent move to our larger facility in Tempe, Arizona may also impact margins, again dependent on volume and mix.

SG&A costs for the fourth quarter 2019 were $2.1 million compared to $1 million during the year ago quarter. SG&A quarter for the full year ended December 31st, 2019 were $6.7 million, compared to $2.6 million for the prior year.

For both the quarter and the year, the increase in SG&A is predominantly due to planned expansions and sales, training and other activities to support future growth. In the near term, we expect to expend additional resources on the marketing and selling of our products, training distributors and customers and supporting our domestic and international operations.

R&D cost for the fourth quarter, 2019 were $616,000 compared to $277,000 during the year ago quarter. Research and development costs from full year ended December 31st, 2019 were $2.2 million, compared to $735,000 in the prior year.

We expect our R&D costs will continue to vary depending on specific research projects and levels of internal and external staffing.

The GAAP net loss for the fourth quarter 2019 was $2.5 million or 9 cents per share, compared to $1.3 million or 5 cents per share during the prior year's fourth quarter.

Net loss for the full year 2019 was $8.3 million or 29 cents per share compared to $3.3 million or 14 cents per share for the prior year. The net loss for each year included approximately $1.5 million and $513,000 respectively of non-cash stock based compensation expenses.

We ended the fourth quarter 2019 with $17 million in cash and cash equivalents, which compares to cash and cash equivalents of $12.4 million at the end of 2018.

Working capital, as of December 31st, 2019 was $18.6 million. We have [minimal] debt and stockholders' equity was $19.2 million at yearend.

For a more detailed analysis of our financial results, please reference our form 10-K filed earlier today.

David, back over to you.

Thank you, Jim. Two thousand nineteen was a banner year for Wrap and it marked the business' transition from a development state of the product into an actual growth phase. In 2018, much of our focus was on research and develop - and development and refining our product to ensure it was commercially viable.

However, in (inaudible) - or in May 2019 with our product ready for market and much of the necessary infrastructure in place, we transitioned our business to focus on sales and strategically positioned the company to capitalize on the large market opportunities ahead of us.

As those of you who have followed our story will be readily aware, we made substantial operational progress during 2019, which has begun to be reflected in our - in our improved revenue performance and which I'd like to provide an overview of today.

At the end of Q1, Tom Smith, who's on the call with us today and will be speaking next, joined our team as President. Many of you are familiar with his background as the co-founder and former President of TAISER [and why is he - he is uniquely] qualified to lead our sales initiative.

Since joining our company, he's done an amazing job scaling both our domestic and international sales, which should be evident for the uptick - from the uptick and revenues, order volume and the $1.7 million backlog that we built up by the end of the year.

With a very strong management team and great leaders in place, we then opened our 11,000 square foot manufacturing facility in Tempe, Arizona. By consolidating our manufacturing into a single location, we're able to operate more efficiently and we're able to more effectively scale to meet market demand.

Currently, our facility is operating at about 225 device capacity a week and about 1,800 cartridges per week, [yet full] scale, with all of our lines running, we can build 54,000 cartridges a year and 324 - or actually, sorry about that - 54,000 devices a year, 324,000 cartridges a year, before we would need to move to a new facility.

That also will be increasing as we devote engineering talent and our manufacturing team makes the line more efficient. So, we'll only see these numbers improve.

As more agencies become aware of BolaWrap and its unique ability to fill a critical gap, these increased volumes [we'll] be able to achieve through these efficiencies and this investment in manufacturing and operations.

Also, we made the decision in 2019 to pursue a distributor model as our primary go to market strategy. By leveraging distributors, we're able to target a much broader customer base much more quickly. We're also able to keep our internal costs lower and our organization more flexible.

So far, this has proved to be an effective strategy for us, as evidenced by the increasing revenues relative to 2018 and the contract momentum we generated in the second half of 2019, which has carried us to the start of 2020.

I'm going to let Tom fill you in on some of the details here, but before I do, I'd like to focus on some other factors that have contributed to our recent success, that is our brand strategy.

It's hard to underestimate the impact of a successful band - brand awareness campaign and what it can have on our sales growth. In our industry and for our product, there's no better evangelist than the line level officer who has had the opportunity to use the BolaWrap in the field, because then they immediately get it.

They're the ones who every day, deal with the gap we're trying to fill, so the more we can do to educate the public and the broader law enforcement community on our product and its viability, the more we'll drive our topline growth. And in 2019, we began to see tangible evidence of this strategy gaining traction.

BolaWrap features aired across national and international television networks more than 1,000 times in 2019. The product was featured on networks such as CNN, ABC World News, Fox News, CBS, USA Today, Fox Business, Yahoo Finance, Business Insider and many other major networks.

Additionally, we generate 10s of millions of views across multiple social media platforms including Facebook, Instagram, LinkedIn, Twitter, YouTube and Snapchat. In large part, due to the buzz created from successful marketing campaigns, we've now demonstrated the BolaWrap to over 490 law enforcement agencies to date, across the country - when I say demonstrated, I mean our actual people that have done demonstration.

This [is] (inaudible) - this has not only resulted in 100s of media reports, but over 1,900 inquiries from domestic and international prospects in 2019 - [maybe] as an excellent [means] of introducing our new - our product to new audiences, but at the end the day, officers need to actually use the BolaWrap to see it in action to become customers and ultimately advocates, therefore, we've also doubled the number of BolaWrap master instructors since the third quarter of 2019.

As a reminder, a master instructor teaches the seminars at which they train line level officers. At the end of these seminars, these line level officers become BolaWrap instructors - [can then] go back to their department to train their colleagues.

So, while we may run a lean internal sales team at Wrap, the reality is that each officer who has received training from us to become an instructor functions as an advocate for our company and the broader adoption of BolaWrap.

During 2019, we conducted 53 train the trainer courses in 26 states. Today, we've added 50 BolaWrap masters instructors and the total number of officers certified as BolaWrap instructors who are qualified to train their department increased over 520.

As a result of our marketing and training initiatives, we've also noticed a material shift in the type of conversations we're having at trade shows. In 2018, [we were] spending a great deal of time at industry events explaining the product and the need for high level prospects and peers, 2019 we mostly had people coming to us.

Regardless of whether we're at [MilPol], IACP or any other industry event, the conversations were much more advanced and questions more nuanced. Suffice it to say, more and more people understand who we are, what we do and why our solutions are critical to improving the efficacy of law enforcement and the safety of our communities.

We're extremely pleased with the (inaudible) [sediment] we've seen as a result of our marketing initiatives, but at the end of the day, these initiatives need to drive sales. So, to provide an overview of how we're leveraging our operational progress to convert prospects into partners, I'm going to turn the call over to Tom Smith, our President.

Thanks, David. Good afternoon, everyone. As David mentioned, last May we came out with our production ready products and started really focusing in the market to get the sales started for the company.

To assist with that endeavor, we have added a distribution model to our business for a variety of reasons as David touched on.

In 2018, our sales came directly from the management team, led primarily by Mike Rothans and Don DeLuca, and by having the distributors now onboard, focusing on doing those demonstrations as well, that management team and Mike and Don can really focus on the major agencies, the influential agencies and agencies that we deem as strategic areas and locations and yet much more refined in how we're presenting the models.

We've also seen an exponential increase in the demonstrations and exposures to law enforcement agencies, now that we're working with the distributors. And one of the big factors distributors have for us is the relationship that they already have with buyers. They are - they're in the business of selling and they're partnering with us on the opportunity that they'll have to grow their business in addition or ours through these existing relationships.

I can comment on my previous experience with only a handful of sales people using the distribution model, the sales was able to grow to over $100 million - so without a lot of increase in direct costs, we were able to really exponentially increase the sales volumes through a distributor model.

Since launching this strategy last summer, we've signed agreements with 11 domestic and 16 international law enforcement distributors - they cover 45 states and 26 countries, and within the first two months of implementing this strategy, we received our first large international distributor order which was valued at over $1 million.

And as we have discussed before, we do expect that our initial large orders to come from the overseas markets were typically departments [that were more] centralized and much larger, so here in the United States, we have 18 to 20,000 different agencies, that means 18 to 20,000 decision makers, where when you go overseas, it's much more centralized to just a handful of decision makers, representing at least that many officers.

As a result, the sales cycle is longer and more complex, but the average dollar value of each contract is [a much larger opportunity]. The international market continues to hold great potential for the BolaWrap, because in many countries, officers have fewer tools at their disposal than their US counterparts.

In the United States, many officers carry a baton, pepper spray, a taser, a firearm - while none of these are substitutes for a Wrap's ability to restrain someone from a distance without causing harm, they are options. However, in many countries, [line officers] are not authorized to [carry] firearms or other tools and they're usually having to do their jobs by just hands on restraint and taking someone into custody.

Therefore, many countries are looking desperately for our kind of a device, a remote restraint solution that enables them to establish compliance early in the confrontation early before it escalates, requiring a higher level of force. And the BolaWrap is the only tool that allows someone to be restrained without [pain compliance] compared to all the other devices and technology available to them.

That being said, international agencies tend to look to the US and follow suit. So, to expedite these international sales processes, it's important to first prove the viability of our products here in the United States.

We are seeing an increase in the actual number of field uses, and that's obviously the best news for us, because we've conceptually talked about it for years. We saw it in the prototypes. We've done numerous demonstrations, but now that the BolaWraps are getting into the hands of the line level officers, the guys that are walking the beat, and [there we're starting] to see an increase in the number of uses, just really proves out the model and where we believe the tool is.

The other thing that we [know - also noticed] is we kind of started from a flat start last year without agencies being aware of our remote restraint device or having budgets set aside to spend the money to buy this. So, if you look at the sales increases that we've had, I'm very excited about that. The budgets and the larger agencies obviously take a lot longer and the smaller agencies can react much quicker.

Therefore, we're continuing to focus on selling to those smaller domestic law enforcement agencies, which have less than 100 officers, and that's really where the distributors add a huge help for us to have contact with those size agencies.

This has been and will probably remain our bread and butter in the short term as larger agencies will take time to go through T&E, that's test and evaluation processes as well as get their budgets aligned to purchase our equipment.

Through our distribution partners, we've been able to accelerate the sales by targeting these agencies more efficiently, and since partnering with distributors, we've seen that increased number of quotes and orders from smaller agencies, who are now coming forward and purchasing our products.

As an example, in the past, where people used to come to our demonstrations to learn about the product, we now have seen a transition where actually some of the agencies are showing up at our demos with a purchase order in hand. As a result, we were able to build a $1.7 million backlog by the end of 2019, and today, we already delivered product to more than 180 law enforcement agencies and distributors for demonstrations, testing and evaluations.

As we shift to the end of 2020, we saw much of this momentum continue through the start of the year. In January of 2020, we received an international purchase order for 200 BolaWraps and 2,000 cartridges that had been worked on for many months and finally came to fruition. Given our ongoing discussion with prospects, we're optimistic that we're going to be able to continue building momentum throughout 2020.

And before I turn the call back over to David, I'd like to briefly touch on one of the highlights from our fourth quarter. During the fourth quarter, the Los Angeles Police Department announced they would be conducting field testing with the BolaWrap.

LAPD is the epitome of forward thinking police departments and the third largest in the country. They are constantly evaluating and testing new technology and they're notoriously diligent, in particular in any technology that they're going to implement.

Therefore, we're extremely encouraged by the positive reviews they've given the BolaWrap to date and for (inaudible) - for perspective, the BolaWrap is the first tool from the restraint system that they considered since adopting the Taser, which was nearly 20 years ago - and actually, they had it even prior to that, but it's obviously been a long, long time since they've [had any new tool].

LAPD began field testing our product with hundreds of officers across LA County in early February this year and we intend to share progress updates on this with [this - from] the Department as they materialize, but please bear in mind, because they are large, it is going to take time.

This is a very large agency, the decision making process is therefore much longer than it would be for a smaller department however, that doesn't mean the opportunity - that does mean that the opportunity is much, much larger, and we look forward to supporting them throughout their evaluations where we can.

And one final comment on the quarter, already this quarter, it's going to be our best quarter to date, and I look forward to talking to you [in] another month or so about the results of our first quarter of 2020.

And with that, I'll turn the call back over to David.

Thank you, Tom. As evidenced by the contract momentum and the improvement in our financial performance from 2018 to 2019, we're clearly making progress in the business and moving in the right direction. But as we all know past performance does not necessarily beget future success, so before we open the call to questions, I'd like to take a few moments to speak about our expectations for 2020.

As you're all aware, the second order effects of COVID-19 - [colloquially] referred to as the Coronavirus, have a - have had a material impact on supply chains and markets worldwide. We'd like everyone - we, like everyone have felt the effects, but they have been very minimal for our business. The primary challenges that have arisen from that - from your perspective are more logistical rather than operational.

With less international travel and lighter international [commerce] attendance - attendances, we have a few additional hurdles to clear and to sell internationally. But at the end of the day, the need hasn't changed and the opportunity remains intact.

Operationally, we don't see any negative impacts to our business. Consolidating our manufacturing in the Tempe facility was incredibly timely. Today, most of the parts that we - that we receive are all manufactured within the US, the only piece that really is a standout is the laser diode, which is manufactured in Germany.

And we have placed a forward supply order and have inventory to suffice for this year's [order, though] we do not expect the Coronavirus to have any material cost increases due to [kind of - and] current macro events. We do however, anticipate continuing to scale our business to capitalize on the opportunities ahead of us and the opportunity remains vast.

For us, the primary difference between 2018, 2019 and 2020 is that we're much better positioned now than we were even a year ago. We have a commercially viable product. We have a robust expanding network of distributors ready to help drive our product to market. We have a solid brand that is only getting stronger. We're generating momentum for high volume and high profile demonstrations which are converting into orders.

And as a result, we're starting the year with a $1.7 million backlog, which we're working to expand. So ultimately, we're confident that we're entering 2020 in a strong position to deliver continued growth. We look forward to continuing our work to make police officers more effective and all of us safer.

With that, I'd like to turn the call over to the operator and questions.

(Operator Instructions)

And our first question comes from [Greg Gibbis] from [Northwind Security]. Your line is now open.

Good afternoon, guys, thanks for taking my questions. And nice to see the progress that you made this quarter...

Thank you.

Thanks, [Greg].

I guess first of all, with the - with the current backlog, I guess as we think about that, the $1.7 million, which you said is going to be recognized in 2020, how should we think about the timing of that? I know you said it's difficult but what [do you think] about that on maybe a quarterly basis? [When should] (inaudible)?

Hey, [Greg], it's Tom - so, I would say if you kind of look at that that a fair number of those are some of the international orders, so I would say it's going to be spread over the next couple of three quarters, you know, in terms of timing (inaudible) to remain how much Coronavirus is going to impact that in terms of the government response for that.

But I would say in terms of timing, you know, over the next one to three quarters would be a good marker.

Great. That's super helpful. And then now that you've made quite a bit of progress just expanding the distribution network, what are kind of your top priorities with respect to how you're going to continue to expand that channel.

I mean I think you're in 11 distributors in the US, 16 internationally, I guess [do you have] any goals as to where you'd like these numbers to be going forward?

Well - you know, obviously in the US, we just got five more states we need to get covered, so now it's really just tightening up the relationships with the distributors as they get out there and they're doing their demonstrations.

Internationally, with the 26 countries we've got covered, that'll obviously expand as we go forward, but we want to focus our efforts to make those current distributors in those countries successful, because again, they'll be the thought leaders in other countries in their region, because we do have distributors pretty much on - you know, the Africa and South America, Asia.

So, we've got the world covered and they're the countries that are going to be looked at as people that are going to be progressive. So, you know, we did the [MilPol] trade show. [David] and I went over there with [us - with four] or five of our staff and the - you know, the booth [is] just swamped, so there's a huge interest, a huge need for this technology.

So, we want to make sure that we're having the sales revenue numbers grow as we're expanding this distribution model and just making that more efficient and more up to speed. So, you know, the distributors, they're not 100 focused on this like our team is with [Mike], [Don] [Rove], [Stacey], [Jose], the whole group.

We're living [it] - you know, and breathing every day for this so we're making sure that the distributors are getting the follow up [in place], that all the communications are connecting with the customers. We're establishing those relationships.

So, it's not so much the numbers that we're going to look for increasing, it's the sales revenue numbers that we're going to increase through the distribution model, and then internationally, making the ones that we have a success, because obviously they're the ones, as I mentioned, that are going to be the leaders there.

All sales ultimately have to start with a demonstration, because the law enforcement agency needs to be able to see the product before they can buy the product. Currently, our - you know, our team led by Mike Rothans is doing probably 10 to 15 demonstrations a month, and usually there's a three to seven departments [attend those] demonstrations [at one time].

We really focus our energies on major and strategic departments [with their - on top] of [their] - say 10 to 15 a month, we're probably adding another 100 demonstrations a month that the distributors are able to do as well, and so it's really just starting that sales process.

It's - you know, starts out with a demonstration of the product. It also explains the why of the product, helps them position and understand the need and so that - without them, it would be very hard to [tackle an] 18,000 department country like the US, let alone the international support we get from distribution.

And that ties back into our training. We got our training processes done with the learning management system in place to really synthesize the information we're sharing to the officers and to the instructors so that the different policies can be shared, the different experiences, the training that's standardized [is] being delivered, and so it's really - you know, kind of rolling everybody together from the sales operations with the distributors, the demos, the trainings and ensuring [a] smooth process for the departments.

Got it. That makes a lot of sense and it's good to hear, appreciate all the detail. I guess - I mean you talked about this on the call already, but you said it's going to be a long process, but is there anything you can really provide us with how talks are going with the LAPD? Just regarding them furthering the BolaWrap deployment? Just given they're - I think they're still doing the field trials right now?

Yes, there's been - they're - clearly they have - you know, [they're experienced] the product. They're seeing how the product works. They've gone through significant training on - [I have no exact] numbers, but about 1,100 officers, they have 200 devices, but we need to wait for them to come back with official results of that test.

And our next question comes from [John Eglin] from [Ladenburg Dalmen]. Your line is now open.

Hey, [John], how are you doing?

I'm good. Hey, my question, if you could - I want to circle back on the LA test, can you tell me what kind of stats or information that the department is looking for to decide if this is going to be like purchased or not? Like do they want officers saying oh, this is a great tool, I use it all the time? I mean what are they - what formal information are they looking to come back?

(Inaudible).

(Inaudible) lesson - actually, when Chief Moore let us Wrap him live on television, and one of the reporters asked him that exact same question, said you know, how are you going to be evaluating this thing? He says at the end of the day, if my officers are using it, then this is a tool we're going to want to have.

So, they clearly see the value of it, because they put tremendous resources into putting it out into the field. And I'm sure there's going to be more quantitative measures as we move forward, as Wraps occur, right, we - they share - you know, those incidences with us, so that we can all learn together.

And - but ultimately [the officer is going want to - want the tool]. You know, we talked - you know, two calls ago, that we needed to be able to move the devices that are out in the field from the supervisor, from the squad officer to more the first responder line level officer, you know, LAPD and a couple other departments now, we've had the opportunity to have that happen and that has significantly increased the number of actual Wraps we were getting. And we've learned a lot.

And you know, to our understanding, things are going extremely well.

Could you - they have 200 devices, right [did you]...

Correct.

... (inaudible) tell me how many - [do you] - how many cartridges did you ship initially?

I believe for training and everything it was 3,600 or something - total cartridges - I'd have to get you the number exactly offline...

OK, but...

Yes, they trained roughly 1,000 officers with a couple of cartridges each there, and then they had some - the other cartridges were for the field deployment.

So, you're hoping that you get (inaudible) orders fast, is that what you're hoping?

Well, I'm just hoping [for uses]...

Yes we - (inaudible)...

(Inaudible) [are using] it right now.

Uses are important. And...

[OK].

... you know, because - you know, as - [you know], while we're making I think tremendous progress, every time the device is used, we learn something. Now, a big plus for us is what we're learning has not been that we need to go make modification of product. The product seems to be working extremely well, but we're definitely having learnings around holster options, so how to improve how an officer carries it, making it more readily available for them.

So, it's - you know, this has been very healthy for us. This is definitely the next step. We went from - you know, kind of developing the product alongside [law enforcement], taking their feedback, incorporating it in, making a commercialized product, doing demonstrations and doing training then going through the test phase, then being delivered to the field and mostly squad and supervisors.

Now, we're at the line level and we're learning a lot, and a lot of that's very, very positive and (inaudible) [engaged]. It also allows us to make sure that you know, we're continually following you with our customer service and engaging with departments.

And if I can elaborate on that, this is not unlike what I went through (inaudible) 20 years ago when we came out with our first product, the [TASER M26].

It was a large device, but the officers weren't carrying it on their persons, they were [keeping them] in their trunk or they were waiting for a supervisor to show up with them, and - whereas in the - in the case here, David mentioned [a whole strings of - key] (inaudible) [part of the] success of the device so that the officers have a way to conveniently carry it with them, with all the other tools that they have.

So, that's - obviously a focus for us is making sure that it's on the offices so they can use it early in that intervention before [it requires] a higher level of force. Because if the tool's not there, they most - almost every time they aren't going to have the opportunity to go back to a car - go somewhere and get it and bring it back to them, so that's on - one of the things we're really focused on right now.

And some of the agencies - for example, their mandatory policy in their trial is to carry it and some are leaving it [at the] discretion of the officer, so we're doing everything we can to make it easy and convenient to carry and get it on the officers so that it's available as many opportunity as possible to get those field uses so the command staff can have data to look at.

OK. And then I have one financial question, could you tell us anything about warrants - conversion on the $5 warrants, because the stock price was well above that for a period of time.

I'm just really glad they finally asked Jim a [call] - or a question.

[Hang on. I'm going through] some paper work here, real quick here...

Yes, since yearend, we've had over $600,000 worth of warrants that's reported in the 10_K, so we have seen some warrants exercised in the first couple of months of 2020, so that's a...

OK.

... number that we've reported and the future exercises will be based upon the stock price and shareholder activity I guess. So (inaudible)...

... so those with $5 (inaudible) - those $5 warrants expire in June, right?

In October.

(Inaudible) in October? Oh, OK...

Right.

And our next question comes from [Jim McIllivry], from Bradley Woods. Your line is now open.

Yes, thank you and good afternoon. Can you share with us how many certified trainers you expect to have by the end of this year?

By the end of this year, it'll - it - you know, we got to over what, 500 instructors this year, so we'll - it'll be in the 1,000s this year. And again, that's really going to relate to the number of agencies adopting and expanding the use.

The 50 master instructors are where we wanted to get to, because that's going to carry us to be able to get to those numbers, and actually, the number of instructors continues to increase, but that'll be just directly proportional to the number of agencies implementing the product.

And on top of that...

Got it.

... you know, Tom's answer I think was domestic and international both, [in his number]. And you know, I [can tell] the whole group how impressed I am with the level - the caliber of our master instructors. We just - we truly got the A team here and it's been amazing.

And the number of master instructors, it's expected to grow this year? Or is that - you're satisfied with where you are?

No, I'm satisfied with where we're at, but - and the master instructors - you know, kind of if you look at it from a level - so the master instructors, we have 50 of them, they can go out and train - do the - what we call the train the trainer course. It's a five hour course for the instructors, and at that point, you know, the agency may have one or two instructors per department to train and implement the products.

So, with those 50 master instructors, we have no - we have plenty of coverage domestically and - you know, for sure on doing the train the trainer program. And then as the international market starts to increase again, because of the consolidation of the way the training departments work overseas, you - we won't need a big increase in the number of master instructors to train the trainers.

But you'll see - you know, thousands of instructors over time coming from that master instructor base of 50 that's not going to really grow too much.

[Oh, OK], thank you. The...

Sure.

... the 26 countries that you cover internationally, can you give us an estimate of how many law enforcement officers are in those 26 countries?

I can't break that number down, but what I can tell you is like in the US, there's roughly 800,000 to 1 million just in ballpark law enforcement, depending on fluctuation. Internationally, it's 12 million - you know, law enforcement officers worldwide.

So, the 26 countries that we have right now are obviously the - I would call them the larger countries at the moment. The one country that we continually do get asked about is China. That's a country that our Department of Commerce will not allow - not only us, but any police products to be sold to.

So, if you take that one out of the map and look at the other major players out there, it's a - it's a huge country - as an example, one of the - one of the 26 represents one third of the officers here in the United States, so the opportunity, when you add those 26 together is obviously much larger than the US in proportion. And again, it's a 12X number in total officers worldwide versus US.

OK. Two more if I might, is there any change on the pricing strategy for either the cartridges or the devices?

No, we've not had an impact on our costs or anything, so we're just focusing on product improvements for margins increase in the pricing - the costing [on the] pricing is not changing.

All right. And, Jim, in your commentary, you talked about SG&A increasing in this year, can you ballpark that? Is - are we talking about an increase that's driven by sales increases? Or is it proceeding sales increases? Is it just a - kind of a - just looking for kind of a back of the envelope what it might get to for the year?

Yes, it's not a big increase in some of the fixed costs. It'll be more if we have to train a lot more departments, you'll have the variable cost of travel and so forth. So, we're not looking for huge increases in SG&A, other than driven by activity. So, that's the primary focus.

Understood. OK, that's it for me. Thanks a lot. Good luck with everything.

(Operator Instructions)

And our next question comes from Rich Abbe from Iroquois. Your line is now open.

Thank you. Congratulations, David and Tom. Great (inaudible) successful year.

Thank you, [Rick Abbe].

(Inaudible). Let me ask you guys a question, how do you determine success in - with the - in the field - with deployment? You know, how successful have the deployments been today in the field - or to date, should I say, in the field? And how do you [ace] success is it based on a - on a successful Wrap? Is it based on just the escalation? But how would you - how do you - how do you look at that today? And what kind of data do you have to back that up of saying whether it's being deployed in the field currently?

Yes, so great question, and that's one that's always debated within the law enforcement community. So, the way we look at success in the field is if the tool, the BolaWrap is used, did it prevent a higher level of force being required to end the confrontation for the officer? So, that - that's kind of like the - a benchmark.

So, if the device came out and it was used and it didn't require a higher level of force, that's a - successful use of the product. And to give you an example, just because I was over there last week in United Kingdom, they just published annually, and they do track all of their use of force, so they had - I think it was over [400,000 - actually] over 600,000 incidents of people being arrested in a one year span, 400,000 of those required a use of force. And then they break down those use of force models.

So, if we look at their - as an example, their taser use, they had - I think it was 24,000 documented uses in that one year span, 85% of those gained compliance or what they consider a success without ever even having to deploy it, meaning they just pulled it out of the holster, put the red dot on somebody and they complied without ever having to deploy - [to deploy] the device so they were considering that a success because they didn't require in that case, the use of force.

So, with the BolaWrap, just the fact that we're a remote restraint device, which by the way, that was [90 nearly 80%] I think of the use of force in the UK was restraint device - [a] restraint techniques, so we're going to fit into that much broader category in terms of the use of force.

So, we talk in our demos about this being a - you know, throwing handcuffs on someone from a distance. The earlier implementation and use of this again, [if it prevents] that escalation of a higher level of force being used, means that was a successful use, because you didn't have to use the pain compliance tool to [hand that] confrontation and take someone into custody.

[We also in] - you know, and clearly this was not an exact science, but we look at all the reports, even down to a department level and try and get an idea how often is everything besides the [guns or the less] lethal tools used, whether it be pepper spray and [asp], a taser or any other product? And then we look at how many of those are actually deployed out in the field?

And then how many uses do they actually get to kind of get a benchmark of is our product that's in the field today getting used more or less than other products in the field?

Today, our product seems to be - uses seem to be on par with - you know, the most used other non lethal tools that are out there today.

It's - you know, some things that we've got [against us such as] we're a brand new tool, you're - you know, we spoke [to one officer, we] - he wrapped the arms, so he says you know, that works, but the legs probably would have been better and the responses to him was yes, I was pretty ramped up [though] when I did it so - you know, it's a new tool, they're getting used to it. They're getting comfortable with it.

The other side to that is because it's a new and exciting tool and it's so easy to use and so easy to aim, maybe they're using it more than they would. So, you know, right now, the number is based on every other product that they have in their belt seems to be - you know, looking in our favor and we'll learn more over time.

Do you - do you - I appreciate that, thank you both. Do you know if LAPD who [has - who's] been rolling it out, do you know if they look at it the same way as that the UK does? So, if - Tom, if you were to pull it out and point it at someone in a situation and that individual listens to the police and drops his weapon or does whatever they're asking him to do, would that be considered a successful use? Or would that be - or are they going to - or is LAPD looking at it from successful use as a actual Wrap?

They're looking at it as a successful use that it [ended] the confrontation without a higher level of force being used. And I think that's the vast majority of agencies out there. we're obviously going to be more self critical on ourselves, compared to everyone else, but that - that's ultimately at the end of the day - if that tool was the only tool that had to be uses and it ended that confrontation without any other tool or force having to be used, then that was a successful outcome.

I want to...

And you guys (inaudible) [are tracking that] internally as well?

As much as we can, yes.

Whenever we get the data, but you know, (inaudible)...

Do they give you the data?

... department - every department that's gone from - you know, buying a couple of devices to fully outfitting their department, not one of them today has actually had a physical Wrap, but they love the product, because they - when they put the [line on somebody], it's actually [giving an encouragement it actually] did what they wanted them to do.

So, it's - clearly departments are still making buying decisions on the de-escalation rather than the act of the Wrap itself, but for us, you know, we're very focused on the Wrap internally, because we need that to work at a very, very high rate.

One more question and I'll let you guys go, are - is LAPD giving you the actual data on the Wraps as they use them or are they just - is it - is it only [come - getting] public based on individuals using their cell phones? Will they show you a video of all - if something happens that there's been no individuals around to video it? Or are they keeping that private?

LA's been very forthcoming with the Wraps. [They're actually calling] - call our team usually Mike Rothans or [Lee] and let us know that they did a Wrap and they give us kind of a - you know, a verbal play by play. And then - I (inaudible) - I can't tell you to date that we've actually seen a [body] (inaudible) for them, but we have for many other departments.

OK, great. Well listen, I - again congratulations last year. You guys are [great though - something] great here, and I look forward to the future.

(Inaudible).

Us too. We're looking forward to the next call we get to have together. It's - we're moving in a good direction, so thank you.

No, this is - this is great. Thank you.

And operator, I would say that's a wrap.

So, we aren't having any other questions?

(Inaudible).

I think - I think we have one more questions, [and then that was it. There] (inaudible)...

OK. OK, got it.

So, our next question comes from [Denis Laval] from [Lantern]. Your line is now open.

[Gee], I thought you guys were ignoring me. But anyways, nice [color] appreciate that. Did I just hear you say about the Wrap that you haven't had any successful wraps, but just the fact that it's out there has de-escalated the situation? Because I'm in my bomb shelter, I haven't - couldn't hear it right?

No, we've had a number of successful wraps, we're just saying that even when they don't deploy the product and they just use the line laser, that can also be considered successful by...

OK, OK...

... the officer and the command (inaudible), but yes, we've had a number of successful Wraps.

Well, that's what I thought. Anyway, the - can you get us a...

(Inaudible).

... quantifiable utilization rate of placed product in the field currently?

Ask that one more - say that one more time?

The utilization rate of the product placed in the field - in other words, you've got a - you have 180 agencies that had the product in the field now, of those have 10% of them used the device? Or is it too early to tell? Or - you know, compared to other non-lethal devices [as the] pepper spray bullets et cetera - or rubber bullets et cetera?

I can't really give you an answer, and in large part, it's because departments many times consider this a non reportable use of force, so we don't...

OK.

... we don't always hear about it...

OK.

... so (inaudible) - we don't know.

OK, very good. And then...

[And then] I refer to the - to the UK because there, they do mandate the tracking where the US doesn't so, for us it's a lot of the smaller agencies we may never hear from or only hear it tangentially. It's usually the large ones that'll be more directly communicating with us.

OK. And then the UK information, is that online where anybody can get it or do you have (inaudible)...

[No it] (inaudible) - they publish that data online. If you search use of force it was published between - you know, the dates of that use of force report were from April of 2018 through March of 2019, so...

OK.

... I'll actually be updating that again here in the next couple of months. But they...

(Inaudible).

... actually it's a 24 pate document that goes through - breaks down a number of different ways how they use force in their 43 agencies in England and Wales.

OK, very good. And of the 180 law enforcement agencies, you said something that shocked the hell out of me, OK, and that is when a taser first came up, they maybe had to go back to the trunk of the car to get it, et cetera, et cetera (inaudible) - just [a minute, wait] let me look at my [taser] so I can stop you from doing what you're doing - I mean is that serious?

Oh, yes, yes. (Inaudible)...

Are they really thinking that - they're not doing that - I mean (inaudible) [from that] and they're not doing that with the BolaWrap are they?

I wish I could say that they learned, but no we still have some agencies doing that, so that's why we're focusing on holster carry options and making sure it's on the officer, because like he's pointed out, there's not - they can't call a time out and go back and get with the tools, so whether it was in the trunk or in the car, we need to make sure we're making it convenient to carry on the person.

OK, and have you worked with a consultant [or something] to figure out where in the hell they should put this on their body for ease of use and convenience?

[Yes, there is a number]...

(Inaudible).

... yes there is a number of companies that are specialized in manufacturing holsters for all different kinds of tools, so we're working with a - five or six different companies right now, including - the departments are doing the same.

So, as an example, LAPD they have their vendors that they prefer and have relationships with, so we're - it's coming at it from a number of different aspects and ways to carry it [we it - be it - so] leg holsters, on the vest, on the belt, so it's being looked at - you know, by us and by the end users.

OK, my final question is of the 180 law enforcement agencies that you have placed product with, whether or not you gave it to them or they paid for it, what percent of those 180 agencies are putting (inaudible) [the line officers]? How many are [wasting the product - I shouldn't say that - but wasting the product] by giving it to the SWAT or you know, the superiors? Because it belongs to the line officers hands to get the usage.

That's my personal opinion, so (inaudible) [enforcement agencies] can you give us some color on that?

So, just because there's some miscommunication on the first question, I want to make sure this one's clear. We have a number of [holster] options today. Every single one of those [holster options] is being used in the field, we're just continuing to refine that. Because our goals are obviously the same, to put it on every belt of every officer and utilize it often.

(Inaudible).

And we don't know that - we don't know the actual number of - that have - you know, have it on their belt or not. Some departments leave it optional at the officer level. Some you know, mandate that the officer carry it and they tell them exactly how and when they're going to carry it. So, it's different for every department.

And to answer your question on the 180, it's - we - I can't quantify that. I can tell you some of the departments it's just their policy internally that the SWAT team is going to test any new technology, and then other departments will go right to the line level guys.

So, obviously that's our push because that's the guys that are going to have the most benefit from this type of a remote restraint device, but it just really is going to depend on how the department handles it internally, their evaluation of any new technology.

OK, well I guess I understand that...

We...

... [I do] (inaudible) if you know what I mean, but thank you for the hard work. You guys keep wrapping away.

We will do, we'll keep wrapping because it's (inaudible)...

OK, thanks guys. OK.

... and a great way to leave our mark on the world, so thank you.

And again, we highly, highly, highly recommend as hard as we can that they have it on the officers, so - but thank you for the questions, and I think we'll turn it back to [Justin] the operator.

At this time, this concludes our question and answer session.

I'd now like to turn the call back over to Mr. Norris for [his] closing remarks.

No actual closing remarks, so we can just go ahead and wrap it up, but thank u very much, operator.

Thank you.

And thank you for joining us today for Wrap Technologies' Fourth Quarter and Full Year 2019 Conference Call.

You may all now disconnect.

Thank you.