WRAP

Business Context and Reporting Period

Company: Wrap Technologies, Inc. (WRAP)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2026
Business Overview: A global public safety technology company providing non-lethal tactical tools (BolaWrap), VR training (Wrap Reality), digital training platforms (WrapTactics), and body-worn camera solutions (WrapVision) to law enforcement and security personnel.

Key Financial Metrics

Note: Q1 2025 Net Income was driven by a non-recurring non-cash gain on warrant liabilities.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 45% to $1.1 million, driven by a 186% surge in product sales ($0.9M) due to higher BolaWrap device and cassette shipments. This was partially offset by a 50% decline in technology-enabled services revenue ($0.2M) following the wind-down of certain managed services.
• Margin Compression: Gross margin decreased from 77.8% to 62.2% due to a shift in revenue mix toward lower-margin hardware sales compared to the prior year's higher-margin service mix.
• Operating Expenses: SG&A expenses rose 29% to $5.4 million, primarily due to a $0.8 million increase in non-cash share-based compensation. R&D expenses dropped 72% to $0.1 million as core platforms moved to commercial deployment.
• Net Loss vs. Income: The company reported a net loss of $4.5 million compared to net income of $0.1 million in Q1 2025. The prior year income included a $4.0 million non-cash gain from the change in fair value of warrant liabilities, which did not recur as warrants were reclassified to equity in June 2025.
• Liquidity Improvement: Cash balances increased by $3.8 million to $7.3 million, fueled by $5.0 million in proceeds from a February 2026 private placement and $0.1 million from warrant exercises.
• Balance Sheet Restructuring: Total liabilities decreased significantly from $3.9 million to $2.3 million due to the derecognition of a $2.1 million long-term operating lease liability following the termination of the Miami office lease.

Guidance, Outlook, and Risks

• Outlook: Management expects to continue incurring operating losses until achieving sufficient scale and recurring revenue. Focus areas for 2026 include expanding BolaWrap deployments, increasing utilization of Wrap Reality and WrapTactics, and advancing WrapVision commercialization.
• Capital Resources: The company believes it has sufficient capital to fund operations for at least the next 12 months based on current cash balances and expected revenues.
• Risks:
  • Customer Concentration: One customer accounted for approximately 40% of revenue in Q1 2026.
  • Government Dependence: Revenue is heavily influenced by government budget cycles, procurement delays, and grant funding availability.
  • Inflation: Increased labor and material costs may impact margins if not offset by pricing adjustments or efficiencies.
  • Liquidity: Future capital needs may require additional equity or debt financing, which may not be available on acceptable terms.
• Unusual Items: A $227,000 non-cash gain on lease termination was recorded in Q1 2026. This is non-recurring.

Investor Verification Checklist

• Customer Concentration: Verify the identity and stability of the single customer representing ~40% of Q1 2026 revenue.
• Recurring Revenue Trajectory: Assess the timeline for the recovery of technology-enabled services revenue and the shift toward higher-margin subscription models.
• Cash Burn Rate: Monitor the $1.2 million cash used in operating activities against the $7.3 million cash balance to validate the 12-month runway assertion.
• Share-Based Compensation: Review the $2.4 million non-cash expense and its impact on future dilution and cash flow projections.
• Lease Obligations: Confirm the status of the new Southwest Virginia manufacturing lease and the month-to-month Miami service agreement.