Wrap Technologies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; interim financial statements are unaudited. Wrap develops security products for law enforcement and security personnel, led by its BolaWrap 100 remote restraint device.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $117,811 | $0 |
| Gross profit / margin | $56,591 / 48% | $0 / not applicable |
| Operating expenses | $1,532,769 | $435,152 |
| Net loss | $1,480,781 | $435,378 |
| Net loss per share | $0.05 | $0.02 |
| Cash used in operations | $1,588,977 | $526,355 |
- Cash was $10.69 million at March 31, down from $12.36 million at December 31, 2018. Working capital was $10.87 million; total assets were $12.08 million.
- Total liabilities were $943,876, including $82,468 in operating lease liabilities. The filing reports no financing cash flows in the quarter and no off-balance-sheet arrangements.
- Cash used in investing activities was $76,440, primarily for equipment and patent costs. Cash declined by $1.67 million during the quarter.
- Inventory rose to $692,691 from $158,267, principally reflecting increased raw materials. Accounts payable and accrued liabilities also increased.
Changes versus the prior comparable period
- Revenue began to appear in Q1 2019, primarily from product deliveries; the company reported no revenue in Q1 2018. Management described sales as limited while it establishes volume production.
- Net loss increased by about $1.05 million. SG&A rose to $1.16 million from $339,167, and R&D increased to $374,819 from $95,985, reflecting higher staffing, consulting, demonstrations, marketing and product development.
- Operating cash use increased by about $1.06 million, including cash investment in inventory and prepaid expenses. The company adopted lease accounting in January 2019 and recognized lease assets and liabilities.
Outlook, risks and unusual items
- Management said cash on hand was expected to support operations for at least 12 months, while cautioning that there was no assurance and additional capital might be needed. No quantified revenue or earnings guidance was provided.
- Management anticipated initial deliveries of the BolaWrap product with a green-line laser accessory in Q2 2019 and said it believed orders could accelerate in 2019; timing and sales volumes were expressly uncertain.
- The company reported deliveries to 20 additional law-enforcement agencies in Q1 and more than 300 devices provided at no cost for evaluation and feedback. It cited limited personnel and execution, market-acceptance, production, and financing risks.
- Gross margin may not indicate future margins because sales were low-volume and product changes, sales channels and limited warranty experience may affect costs. A 4% royalty on relevant product revenue is payable to related-party Syzygy, subject to a $1 million aggregate cap or September 30, 2026 cutoff.
- Component-supplier concentration may create shortage, quality and cost risks. The company had approximately $1.4 million of component purchase commitments, generally subject to modification or rescheduling.
- After quarter-end, warrant exercises generated $966,450 in cash. At March 31, options and warrants exercisable into 8,084,681 common shares were outstanding and excluded from diluted loss per share as antidilutive. The company also recorded $227,047 in Q1 share-based compensation.
- Management reported no pending material legal proceedings and concluded disclosure controls were effective at a reasonable-assurance level. The filing states that the 2019 stock-plan share increase remained subject to shareholder approval.
Important facts for investors to verify
- Whether Q2 accessory deliveries and subsequent orders materialized, and whether reported revenue reflects paid sales versus evaluation activity.
- Cash burn, inventory conversion, production capacity and the adequacy of the stated 12-month cash runway.
- Actual product gross margins and warranty costs as sales scale and product updates continue.
- Exposure to the $1.4 million supplier commitments, single-source components, and the related-party royalty arrangement.
- Potential dilution from outstanding options and warrants, including the terms and approval status of the stock-plan increase.