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SHARE-BASED COMPENSATION
 3 Months Ended
Mar. 31, 2025
Share-Based Payment Arrangement [Abstract]  
SHARE-BASED COMPENSATION

11. SHARE-BASED COMPENSATION

 

On March 28, 2017, the Company adopted, and the Company’s stockholders approved, the Wrap Technologies, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which was adopted by the Board on November 12, 2024, subject to stockholder approval. Under the 2017 Plan as originally adopted, the Company initially reserved 2,000,000 shares of Common Stock for issuance as awards under the 2017 Plan. The 2017 Plan was amended by the First Amendment to the 2017 Plan to increase the total number of shares of Common Stock for issuance under the 2017 Plan to 4,100,000 shares, which was adopted by the Board on March 16, 2019, and by stockholders on May 23, 2019. The 2017 Plan was also amended by the Second Amendment to the 2017 Plan to increase the total number of shares of Common Stock for issuance under the 2017 Plan to 6,000,000 shares which was adopted by the Board on April 8, 2020, and by stockholders on June 5, 2020. The 2017 Plan was also amended by the Third Amendment to the 2017 Plan to increase the total number of shares of Common Stock for issuance under the 2017 Plan to 7,500,000 shares which was adopted by the Board on April 23, 2021, and by stockholders on June 22, 2021. The 2017 Plan was also amended by the Fourth Amendment to the 2017 Plan to increase the total number of shares of Common Stock for issuance under the 2017 Plan to 9,000,000 shares which was adopted by the Board on April 22, 2022, and by our stockholders on June 23, 2022.The 2017 Plan was amended by the Fifth Amendment to the 2017 Plan to increase the total number of shares of Common Stock for issuance under the 2017 Plan to 16,500,000 shares which was adopted by the Board on November 12, 2024, and by our stockholders on December 23, 2024.

 

 

As of March 31, 2025, there were 4,848,259 shares of Common Stock remaining available for grant under the 2017 Plan.

 

Stock Options

 

The following table summarizes stock option activity for the three months ended March 31, 2025:

  

       Weighted Average     
  

Options on

Common

Shares

  

Exercise

Price

  

Remaining

Contractual

Term

  

Aggregate

Intrinsic

Value

 
Outstanding January 1, 2025   3,944,284   $2.12    8.30   $1,486 
Granted   2,299,427   $2.06    -    - 
Exercised   -   $-    -    - 
Forfeited, cancelled, expired   (147,500)  $5.43    -    - 
Outstanding March 31, 2025   6,096,211   $2.02    8.98   $1,343 
Exercisable March 31, 2025   1,385,081   $2.64    7.62   $370 

 

As of March 31, 2025, there were 4,806,045 service-based stock options outstanding, and 1,290,166 performance-based stock options outstanding which were granted in October 2023 to the Company’s current Chief Executive Officer, subject to vesting based on future market capitalization targets.

 

The Company uses the Black-Scholes option pricing model to determine the fair value of the service-based options that have been granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and non-employees:

  

   For the Three Months 
   Ended March 31, 
   2025   2024 
Expected stock price volatility   76%   76%
Risk-free interest rate   4.28%   3.89%
Expected dividend yield   0%   0%
Expected life of options   6.00    6.00 
Weighted-average fair value of options granted  $1.47   $2.29 

 

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price. The Company records forfeitures as they are incurred.

 

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical exercise data.

 

Stock option expense was $387 and $484 for the three months ended March 31, 2025 and 2024, respectively.

 

 

Restricted Stock Units

 

The Plan provides for the grant of restricted stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs vest. The following table summarizes RSU activity for the three months ended March 31, 2025:

  

  

Service-Based

RSU’s

  

Weighted

Average

Grant Date

Fair Value

  

Weighted

Average

Vesting

Period

(Years)

 
Unvested at January 1, 2025   988,102   $2.25    3.67 
Granted - service based   585,359    2.03    - 
Vested   (74,157)   1.99    - 
Forfeited and cancelled   -    -    - 
Unvested at March 31, 2025   1,499,304    2.18    2.47 

 

The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 632,911 market condition performance RSUs granted in January 2024 to the Company’s Chief Executive Officer. The assumptions used in the Monte Carlo Simulation were stock price on the date of grant equal to $3.40, a contract term of 10 years, expected volatility of 78% and risk-free interest rate of 4.10%. Vesting is based on sustained market capitalization of $1 billion, and the derived service period is 4.3 years.

 

RSU expense was $1,278 and $191 for the three months ended March 31, 2025 and 2024, respectively.

 

Share-Based Compensation Expense

 

The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows:

  

   2025   2024 
  

Three Months Ended March 31,

 
   2025   2024 
Selling, general and administrative  $1,603   $647 
Research and development   62    28 
Total share-based expense  $1,665   $675 

 

As of March 31, 2025, total estimated compensation cost of stock options granted and outstanding but not yet vested was $5,304 which is expected to be recognized over the weighted average period of 3.03 years.

 

As of March 31, 2025, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,540, which is expected to be recognized over the weighted average period of 2.73 years.