Wrap Technologies, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The 10-K was filed August 28, 2024, after the company’s filing deadline. Wrap sells the BolaWrap remote restraint device, Wrap Reality virtual-reality training, and, following its August 2023 acquisition of Intrensic, body-worn cameras and digital evidence management services.
Financial performance and position
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Total revenue | $6.13 million | $8.05 million | Down 24%; product sales fell 29% to $5.34 million, while other revenue rose 40% to $0.80 million. |
| Gross profit / margin | $2.91 million / 47% | $3.73 million / 46% | Gross profit declined with lower sales; margin edged higher. |
| Operating expenses | $21.63 million | $21.46 million | Up 1%; SG&A rose to $18.36 million, while R&D fell to $3.27 million. |
| Loss from operations | $18.72 million | $17.73 million | Operating loss widened. |
| Net loss | $30.22 million | $17.62 million | Includes an approximately $11.99 million non-cash expense from revaluing warrant liabilities; net loss attributable to common stockholders was $30.61 million, or $0.72 per share. |
| Cash used in operating activities | $16.70 million | $14.60 million | Cash use increased, with inventory and receivables among the working-capital factors. |
| Cash and short-term investments | $11.46 million | $19.28 million | At year-end: $3.96 million cash and $7.50 million short-term investments. |
| Working capital / liabilities | Negative $2.30 million reported | — | Primarily reflects a $19.70 million current warrant liability. Management separately reported working capital excluding that warrant liability of approximately $17.4 million. |
| Lease liabilities | $2.29 million | $0.30 million | Current and long-term operating lease obligations; the filing reports no other debt apart from lease liabilities. |
Material changes and unusual items
- International revenue was approximately $2.30 million, about 38% of total revenue, versus $2.70 million in 2022. One distributor represented approximately 37% of 2023 revenue and 67% of year-end net accounts receivable.
- Wrap acquired Intrensic for approximately $554,000 cash and 1.25 million common shares. The acquisition added body-worn cameras and evidence-management software; recorded goodwill was $1.61 million.
- The company raised $10 million gross in a July 2023 Series A preferred-stock and warrant offering. The preferred stock carries an 8% annual cumulative dividend, compounded monthly; the rate increased to 20% following late SEC filings. Warrants are liability-classified and subject to fair-value remeasurement and full-ratchet provisions.
- Wrap recorded a $700,000 impairment of software acquired for its Wrap Reality platform and a $465,000 inventory-obsolescence reserve. Inventory rose to $5.79 million from $3.98 million.
- Year-end backlog was approximately $209,000 and was delivered in Q1 2024. Deferred revenue was approximately $544,000.
Outlook, risks, and contingencies
- Management expects 2024 revenue to increase from 2023, SG&A to be slightly lower, and pricing and cost-control measures to improve margins and reduce cash burn. These are qualitative expectations; the filing gives no quantified revenue or earnings guidance. Management stated it believes available resources can fund operations for at least 12 months, while also warning that additional capital may be needed.
- Key execution risks include uneven government procurement and international order timing, long sales cycles, product acceptance, supply-chain dependence, and the company’s continuing losses. Several critical BolaWrap components have sole suppliers, and the company has no long-term supplier agreements.
- Series A terms create potential dilution: the preferred stock and warrants were initially convertible or exercisable into up to 6.90 million common shares each, subject to terms and adjustments. The preferred stock’s dividend and anti-dilution provisions could increase share issuance. The filing also discloses delinquent preferred dividends and an August 2024 amendment allowing certain dividend payments in common shares.
- Nasdaq notified Wrap that it was not compliant with timely-filing requirements after the 10-K and 2024 Q1 and Q2 10-Qs were late. The filing describes a compliance plan and possible extension, but states there is no assurance the company will regain compliance. The late filings also made Wrap temporarily ineligible to use Form S-3.
- Auditor Rosenberg Rich Baker Berman resigned in April 2024; HTL International audited the 2023 financial statements and issued an unmodified opinion. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; there was no auditor attestation of internal controls.
- Other material risks include product-injury and reputational claims, firearms/export regulation, customer concentration, acquisition integration, and dilution or financing constraints. The company reported no litigation liability provision at December 31, 2023.
Important facts for investors to verify
- Whether Wrap filed all delinquent reports and regained Nasdaq filing compliance, and whether the delay affected other listing requirements.
- Current cash, investment balances, operating cash burn, and funding needs, including the impact of preferred dividends and warrant-related terms.
- Whether the expected 2024 revenue recovery is supported by orders, collections, and reduced dependence on major distributors.
- Actual sales, retention, and recurring revenue contribution from Intrensic and Wrap Reality, and progress integrating Intrensic.
- Potential dilution from preferred-stock conversions, dividends, warrants, options, and other equity awards.