Business Context and Reporting Period
Company: Wrap Technologies, Inc. (WRAP)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Wrap Technologies is a global public safety technology company focused on non-lethal solutions for law enforcement, corrections, and defense. The company is transitioning from a single-product model to a diversified portfolio including the BolaWrap non-lethal device, Wrap Reality VR training, WrapTactics digital training, WrapVision body-worn cameras, and emerging counter-unmanned aircraft system (C-UAS) technologies. The company operates as a single segment and is classified as a smaller reporting company.
Key Financial Metrics
| Metric | 2025 (in thousands) | 2024 (in thousands) |
|---|---|---|
| Total Revenues (Gross) | $5,203 | $4,507 |
| Total Revenues (Net) | $4,672 | $4,507 |
| Gross Profit | $2,699 | $2,465 |
| Gross Margin | 57.8% | 54.7% |
| Operating Loss | $(13,485) | $(15,567) |
| Net Loss | $(10,335) | $(5,875) |
| Cash and Cash Equivalents (Year End) | $3,468 | $3,610 |
| Net Cash Used in Operating Activities | $(10,289) | $(8,125) |
| Net Cash Provided by Financing Activities | $10,534 | $468 |
Debt and Liquidity: The company has no material long-term debt obligations as of December 31, 2025. Liquidity is primarily supported by cash balances and recent equity financings. Management believes existing resources are sufficient to fund operations for at least the next twelve months.
Material Changes vs. Prior Period
- Revenue Growth: Gross revenue increased 15.4% to $5.2 million, driven by an 85.0% increase in technology-enabled services revenue ($1.7 million vs. $0.9 million). However, net revenue growth was only 3.7% due to $0.5 million in sales returns and allowances related to a distributor strategy change.
- Product Sales Decline: Product sales decreased 2.3% to $3.5 million, attributed to lower distributor orders and variability in international demand.
- Operating Expenses: Total operating expenses decreased 10.2% to $16.2 million. This was primarily due to a 97.6% reduction in Research and Development (R&D) expenses ($56 thousand vs. $2.3 million) resulting from cost containment and strategic shifts. Selling, General, and Administrative (SG&A) expenses increased slightly by 2.8% to $16.1 million, driven by higher share-based compensation ($4.0 million vs. $2.4 million) and a non-cash impairment charge.
- Net Loss Increase: Net loss widened to $10.3 million from $5.9 million. The increase was primarily due to lower non-cash income from changes in the fair value of warrant liabilities compared to 2024, despite the reduction in operating expenses.
- Warrant Liability Reclassification: In mid-2025, the company amended warrant agreements, resulting in the reclassification of warrant liabilities to equity, eliminating future non-cash fair value adjustments.
Guidance, Outlook, and Risks
Outlook and Strategy:
- The company expects to continue incurring operating losses until it achieves sufficient scale and recurring revenue to offset fixed costs.
- Strategic focus for 2026 includes expanding agency-wide BolaWrap deployments, increasing utilization of WrapTactics and Wrap Reality, and advancing WrapVision commercialization.
- Counter-UAS initiatives (MERLIN program) remain in development and evaluation stages; revenue timing is uncertain and dependent on government testing and procurement.
Recent Financing:
- February 2026 Private Placement: Closed February 3, 2026, raising approximately $5.0 million through the issuance of common stock, pre-funded warrants, and investor warrants.
- 2025 Financing: Raised aggregate gross proceeds of $10.2 million through various private placements and preferred stock issuances.
Key Risks and Contingencies:
- Profitability: History of operating losses; future profitability is not guaranteed and may require additional capital, potentially causing dilution.
- Product Dependence: Substantial dependence on the BolaWrap product line; failure to achieve broad market acceptance would significantly harm growth.
- Regulatory: BolaWrap is classified as a firearm ("Any Other Weapon") by the ATF, subjecting the company to strict licensing and transfer restrictions. C-UAS products face evolving FAA and export control regulations.
- Government Procurement: Sales cycles are lengthy and subject to budget constraints and political changes. International sales are lumpy and difficult to forecast.
- Intellectual Property: Risks related to patent infringement claims and the ability to protect proprietary technology globally.
- Preferred Stock Dilution: Series A and Series B Preferred Stock contain anti-dilution provisions and dividend rights that may result in significant dilution to common stockholders.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $3.5 million cash balance against the $10.3 million annual operating cash burn rate.
- Revenue Quality: Investigate the $0.5 million in sales returns and allowances and the concentration of revenue (one distributor accounted for ~38% of 2025 revenue).
- Dilution Impact: Assess the dilutive effect of the Series A and Series B Preferred Stock, including the "full ratchet" anti-dilution provisions and the recent February 2026 private placement.
- Warrant Liability: Confirm the accounting treatment of the reclassified warrant liabilities and the absence of future fair value volatility in earnings.
- Regulatory Status: Monitor ATF classification of BolaWrap and FAA regulations regarding the MERLIN C-UAS program, as these directly impact market access.
- Related Party Transactions: Review transactions involving the CEO (Scot Cohen) and related entities (V4 Global), who participated significantly in recent financings and hold substantial preferred stock.