Wrap Technologies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are to FY2020. Wrap develops public-safety products and training services, led by its BolaWrap remote restraint device and Wrap Reality virtual-reality training platform. The BolaWrap 150 launched in October 2021 as the BolaWrap 100 was phased out.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $7.729 million | $3.944 million |
| Gross profit | $1.995 million | $1.343 million |
| Gross margin | Approximately 26% reported; 36% excluding $747,000 product-line exit expense | 34% |
| Operating expenses | $26.490 million | $14.420 million |
| Loss from operations | $24.495 million | $13.077 million |
| Net loss | $24.449 million | $12.580 million |
| Net loss per share | $0.62 | $0.37 |
| Cash used in operating activities | $18.223 million | $12.187 million |
Revenue increased 96%, but losses and operating cash use also rose substantially. SG&A increased 74% to $20.276 million, including higher share-based compensation, personnel, marketing, travel and public-company costs. R&D increased 123% to $6.214 million, reflecting BolaWrap 150 development, VR content and related staffing and consulting. Share-based compensation was $5.356 million, up from $2.237 million.
At year-end, cash and cash equivalents were $4.937 million and short-term investments were $29.983 million, totaling about $34.9 million. Working capital was approximately $38.4 million; total liabilities were $2.967 million. The company reported no conventional borrowings outstanding; liabilities included operating leases and other operating obligations. Management said available cash and investments should fund operations for at least 12 months from the report date. Financing activities provided $13.450 million, primarily from warrant and option exercises.
Material changes and unusual items
- FY2021 product sales were $7.381 million; other revenue was $348,000. International sales represented approximately 60% of total revenue.
- The company recorded $747,000 of non-cash product-line exit costs when shifting production from BolaWrap 100 to 150, including raw-material write-offs and tooling retirement costs.
- A $170,000 impairment charge was recorded for purchased software. The filing also reports a $23,000 gain from remeasurement of contingent acquisition consideration.
- Three distributors generated approximately 62% of revenue; three distributors accounted for 79% of year-end net receivables.
- Cash declined from $16.647 million to $4.937 million, while short-term investments increased from $24.994 million to $29.983 million.
Outlook, commentary and risks
Management expected FY2022 revenue to increase compared with FY2021 and described the increase as potentially material, but provided no quantified forecast and gave no assurance. It expected continuing operating losses and planned ongoing product development and sales investment. The Wrap Reality platform developed with AWS was in beta testing, with a formal release anticipated by mid-2022. Year-end backlog was approximately $268,000, expected to be delivered in the first quarter of 2022; orders may be rescheduled or canceled.
Management cited COVID-19-related travel, customer funding, supply-chain and logistics disruption, as well as social unrest, as factors that could adversely affect 2022 results. Additional risks include reliance on BolaWrap sales, uncertain acceptance of the new model and VR platform, long government sales cycles, sole-source components, international sales and collections, regulatory requirements, product-liability exposure, and continuing cash burn. The company also disclosed leadership changes in January 2022: an interim CEO was appointed, a permanent CEO search began, and the CFO was expected to retire when a successor is named.
The company pays a related-party royalty equal to 4% of qualifying product revenue, capped at $1 million in aggregate or ending September 30, 2026. It had approximately $1.466 million of commitments for future components and contract services at year-end. A securities class action was dismissed with prejudice in December 2021; consolidated shareholder derivative litigation remained stayed, and the company said it would defend the claims. No litigation liability provision was recorded at year-end. Management concluded internal control over financial reporting was effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether BolaWrap 150 production, quality, supply availability and customer adoption support the stated 2022 revenue outlook.
- Whether sales growth converts to improved gross margins and lower cash burn, given FY2021 operating cash use of $18.223 million.
- Customer and distributor concentration, receivable collection timing, and exposure to international markets.
- Availability and cost of sole-source components, and the status of the $1.466 million purchase commitments.
- Progress and commercial traction of Wrap Reality and the AWS-enabled platform; confirm the anticipated mid-2022 launch against subsequent filings.
- Outcome of the derivative litigation, leadership transition, and any related costs or operational disruption.
- Potential dilution from outstanding options, warrants and restricted stock units; the filing reports about 5.6 million potential shares at year-end.