Wrap Technologies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Wrap develops public-safety products and training services, including BolaWrap, Wrap Reality VR training, and Intrensic body-worn camera and digital evidence solutions. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $1.476 million | $711,000 |
| Gross profit / margin | $836,000 / 57% | $352,000 / 50% |
| Operating expenses | $4.975 million | $4.612 million |
| Operating loss | $4.139 million | $4.260 million |
| Net income (loss) | $117,000 | $(4.028) million |
| Net loss attributable to common stockholders | $(72,000) | $(4.028) million |
| Cash used in operating activities | $3.724 million | $3.067 million |
- Revenue rose 108% year over year, principally from product sales, which increased 115% to $1.327 million. Gross margin improved to 57%, which management attributed to higher BolaWrap 150 volumes, product design changes, and improved pricing.
- Despite the reported $117,000 net income, operations remained loss-making. Net income included a $4.179 million noncash gain from revaluing warrant liabilities; after $189,000 of preferred dividends, the loss attributable to common stockholders was $72,000.
- Cash and cash equivalents were $3.179 million and short-term investments were $5.0 million at quarter-end, totaling $8.179 million. Operating cash use increased by $657,000 year over year, primarily because customer deposits declined.
- Current assets were $17.717 million and current liabilities were $18.453 million, producing reported negative working capital of $736,000, largely because $15.524 million of warrants were classified as current liabilities. Total liabilities were $20.289 million. The balance sheet lists $2.327 million of operating lease liabilities; no conventional borrowing balance is presented.
Material changes and notable items
- SG&A increased 19% to $4.220 million, mainly from occupancy costs and share-based compensation. Research and development expense fell 30% to $755,000. Overall operating expenses rose 8%.
- One distributor accounted for approximately 68% of Q1 revenue and 68% of accounts receivable at March 31, 2024, indicating significant customer concentration.
- Inventory increased to $6.366 million from $5.794 million at year-end. The company reported approximately $933,000 in commitments for future component deliveries and contract services.
- Common shares outstanding increased to 44.373 million from 43.856 million at December 31, 2023. The Series A preferred stock carries an 8% annual dividend, compounded monthly, and the associated warrants are liability-classified and subject to fair-value remeasurement.
Outlook, risks, and contingencies
- Management expects 2024 revenue to exceed 2023, citing anticipated domestic growth and a pipeline of international orders, but said timing and completion of major opportunities are uncertain. Q1 backlog was approximately $734,000 and was delivered in Q2.
- Management expects cost-containment efforts to lower operating costs and cash burn, and stated that available resources should fund operations for the next 12 months. The company also cautioned that it has incurred recurring operating losses and may need additional working capital or financing.
- Risks highlighted include supply-chain and component availability, inflation and labor costs, cash needs and access to capital, customer and distributor concentration, product acceptance, and potential effects of public scrutiny or changes in law-enforcement budgets. Management reported no litigation loss provision at March 31, 2024.
- Subsequent events disclosed in the filing include the auditor’s resignation in April 2024 and appointment of a replacement auditor in May; the President’s resignation; and Nasdaq notices for delayed filings. Nasdaq granted an extension through October 14, 2024, to regain filing compliance; the notices had no immediate effect on the listing, but continued compliance was not assured.
- In August 2024, the company amended Series A preferred dividend terms, including allowing certain dividends to be paid in common shares at specified pricing formulas. The filing also reports July dividends as delinquent and sets out payment arrangements for July and October amounts.
Important facts for investors to verify
- Whether revenue growth and improved product margins continue, and how much depends on the concentrated distributor and uncertain large orders.
- Cash burn, available liquidity, and whether management’s 12-month funding assessment remains supportable.
- The potential dilution and cash impact of Series A preferred dividends, conversion terms, and outstanding warrants.
- Progress on Nasdaq filing compliance and the implications of the auditor transition and management departures.
- Whether inventory, component commitments, and supply availability align with realized demand and forecast sales.