WRAP TECHNOLOGIES, INC. 10-Q

Item 1. Financial Statements Wrap Technologies, Inc. Condensed Consolidated Balance Sheets (in thousands, except par value and share amounts) (unaudited) June 30, 2026 December 31, 2025 ASSETS Current assets: Cash and cash equivalents $ 4,781 $ 3,468 Accounts receivable and contract assets, net 3,378 2,787 Inventories, net 4,308 4,971 Prepaid expenses and other current assets 729 194 Total current assets 13,196 11,420 Property and equipment, net 89 123 Operating lease right-of-use asset, net 426 2,175 Intangible assets, net 1,603 1,572 Other assets 25 128 Total assets 15,339 15,418 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 764 620 Accrued liabilities 310 407 Customer deposits 98 62 Deferred revenue — short term 378 408 Operating lease liability — short term 91 320 Total current liabilities 1,641 1,817 Non-current liabilities: Deferred revenue — long term 7 14 Operating lease liability — long term 345 2,097 Total non-current liabilities 352 2,111 Total liabilities 1,993 3,928 Commitments and Contingencies (Note 13) Stockholders' equity: Preferred stock - 5,000,000 authorized; par value $ 0.0001 per share; 11,707 and 12,707 shares issued and outstanding at June 30, 2026, and December 31, 2025, respectively. - - Common stock - 200,000,000 authorized; par value $ 0.0001 per share; 55,857,933 and 51,733,217 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively 5 5 Series A convertible preferred stock - 10,000 authorized, par value $ 0.0001 per share; 8,107 and 8,207 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively - - Series B convertible preferred stock - 4,500 authorized, par value $ 0.0001 per share, 3,600 and 4,500 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively - - Additional paid-in-capital 136,868 127,804 Accumulated deficit ( 123,527 ) ( 116,319 ) Total stockholders' equity 13,346 11,490 Total liabilities and stockholders' equity $ 15,339 $ 15,418 The accompanying notes are an integral part of these financial statements. 1 Wrap Technologies, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Revenues: Product sales $ 1,747 $ 50 $ 2,630 $ 359 Technology enabled services 305 962 533 1,419 Total revenues 2,052 1,012 3,163 1,778 Cost of revenues 507 525 927 695 Gross profit 1,545 487 2,236 1,083 Operating expenses: Selling, general and administrative 3,644 3,181 8,999 7,266 Research and development 152 162 257 594 Total operating expenses 3,796 3,343 9,256 7,860 Loss from operations ( 2,251 ) ( 2,856 ) ( 7,020 ) ( 6,777 ) Other income (expense): Interest income 2 2 3 3 Change in fair value of warrant liabilities - ( 871 ) - 3,158 Gain on lease termination - - 227 - Other ( 8 ) ( 2 ) ( 7 ) ( 2 ) Total other income (expense), net ( 6 ) ( 871 ) 223 3,159 Net loss $ ( 2,257 ) $ ( 3,727 ) $ ( 6,797 ) $ ( 3,618 ) Less: Convertible preferred stock dividends ( 162 ) ( 164 ) ( 411 ) ( 328 ) Net loss attributable to common stockholders $ ( 2,419 ) $ ( 3,891 ) $ ( 7,208 ) $ ( 3,946 ) Net loss per basic and diluted share $ ( 0.04 ) $ ( 0.07 ) $ ( 0.13 ) $ ( 0.07 ) Weighted average common shares — basic and diluted 55,731,095 50,609,509 54,871,126 49,439,838 Comprehensive loss: Net loss ( 2,257 ) ( 3,727 ) ( 6,797 ) ( 3,618 ) Comprehensive loss: ( 2,257 ) ( 3,727 ) ( 6,797 ) ( 3,618 ) The accompanying notes are an integral part of these financial statements. 2 Wrap Technologies, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) (unaudited) Common Stock Preferred Stock Additional Total Series A Convertible Series B Convertible Paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2025 51,733,217 $ 5 8,207 $ - 4,500 $ - $ 127,804 $ ( 116,319 ) $ 11,490 Share-based compensation expense - - - - - - 2,384 - 2,384 Dividends on convertible preferred stock 462,656 - - - - - 249 ( 249 ) - Common Stock issued upon vesting of restricted stock units 72,888 - - - - - - - - Common Stock issued upon conversion of preferred stock 668,965 - ( 100 ) - ( 900 ) - - - - Common Stock and pre-funded warrants issued with Private Placement 2,500,000 - - - - - 5,000 - 5,000 Common Stock issued upon warrant exercise 68,966 - - - - - 100 - 100 Net loss - - - - - - - ( 4,540 ) ( 4,540 ) Balance at March 31, 2026 55,506,692 $ 5 8,107 $ - 3,600 $ - $ 135,537 $ ( 121,108 ) $ 14,434 Share-based compensation expense - - - - - - 1,019 - 1,019 Common stock issued for professional services 96,775 - - - - - 150 - 150 Dividends on convertible preferred stock 162,836 - - - - - 162 ( 162 ) - Common Stock issued upon vesting of restricted stock units 91,630 - - - - - - - - Net loss - - - - - - - ( 2,257 ) ( 2,257 ) Balance at June 30, 2026 55,857,933 $ 5 8,107 $ - 3,600 $ - $ 136,868 $ ( 123,527 ) $ 13,346 The accompanying notes are an integral part of these financial statements. 3 Wrap Technologies, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) (unaudited) Common Stock Preferred Stock Additional Total Series A Convertible Series B Convertible Paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2024 47,101,631 $ 5 8,207 - - - $ 105,326 $ ( 105,081 ) $ 250 Share-based compensation expense - - - - - - 1,665 - 1,665 Dividends on convertible preferred stock 113,205 - - - - - 164 ( 164 ) - Common Stock issued upon vesting of restricted stock units 63,199 - - - - - - - - Common Stock issued — Private Placement 3,216,666 - - - - - 543 - 543 Net income for the period - - - - - - - 109 109 Balance at March 31, 2025 50,494,701 $ 5 8,207 $ - - $ - $ 107,698 $ ( 105,136 ) $ 2,567 Share-based compensation expense - - - - - - 770 - 770 Dividends on convertible preferred stock 139,431 - - - - - 164 ( 164 ) - Common Stock issued upon vesting of restricted stock units 94,403 - - - - - - - - Reclassification of warrant liability due to warrant amendment - - - - - - 12,151 - 12,151 Net loss - - - - - - - ( 3,727 ) ( 3,727 ) Balance at June 30, 2025 50,728,535 $ 5 8,207 $ - - $ - $ 120,783 $ ( 109,027 ) $ 11,761 The accompanying notes are an integral part of these financial statements. 4 Wrap Technologies, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended June 30, 2026 2025 Cash Flows From Operating Activities: Net loss $ ( 6,797 ) $ ( 3,618 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 111 304 Share-based compensation 3,403 2,435 Common stock issued for professional services 150 - Warranty provision 31 2 Gain on lease termination ( 227 ) - Change in fair value of warrant liabilities - ( 3,158 ) Non-cash lease expense 75 ( 199 ) Provision for credit losses 76 60 Inventory obsolescence reserve 73 187 Changes in assets and liabilities: Accounts receivable and contract assets ( 667 ) ( 453 ) Inventories 590 79 Prepaid expenses and other current assets ( 535 ) ( 156 ) Accounts payable 144 ( 34 ) Operating lease liabilities ( 80 ) 197 Customer deposits 36 - Accrued liabilities and other ( 123 ) ( 523 ) Warranty settlements ( 5 ) ( 10 ) Deferred revenue ( 37 ) ( 180 ) Other non-current assets 103 58 Net cash used in operating activities ( 3,679 ) ( 5,009 ) Cash Flows From Investing Activities: Capital expenditures for property and equipment ( 11 ) ( 8 ) Investment in patents, trademarks and other intangibles ( 97 ) ( 145 ) Net cash used in investing activities ( 108 ) ( 153 ) Cash Flows From Financing Activities: Proceeds from private placement 5,000 - Proceeds from warrant exercise 100 - Proceeds from issuance of common stock and warrants, net - 5,729 Net cash provided by financing activities 5,100 5,729 Net increase in cash and cash equivalents $ 1,313 $ 567 Cash and cash equivalents, beginning of period $ 3,468 $ 3,610 Cash and cash equivalents, end of period $ 4,781 $ 4,177 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Reclassification of warrant liabilities to additional paid in capital $ - $ 12,159 Dividends declared on convertible preferred stock $ ( 411 ) $ ( 328 ) Dividends settled with common stock $ 411 $ 328 The accompanying notes are an integral part of these financial statements. 5 Wrap Technologies, Inc. Notes to Condensed Consolidated Interim Financial Statements (in thousands, except per share and share amounts) (unaudited) 1. ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT DEVELOPMENTS Organization and Business Description Wrap Technologies, Inc., a Delaware corporation (the “Company”, “we”, “us”, and “our”), is a publicly traded company with its common stock, par value $ 0.0001 per share (“Common Stock”), listed on the Nasdaq Capital Market (“Nasdaq”) under the trading symbol “WRAP.” The Company is a developer and supplier of public safety technologies, products, and training services for law enforcement and security personnel. The Company’s principal product is the BolaWrap® 150, a handheld remote restraint device sold together with recurring consumable cassettes and related accessories. The Company also offers technology-enabled services, including Wrap Reality, a virtual reality training simulator, WrapTactics™, a subscription-based digital training platform, WrapVision™, a body-worn camera and digital evidence management solution, and managed services and policy support. As described under Recent Developments, the Company is developing WrapShield™, an integrated detection, orchestration, and response architecture for public safety and security applications, together with additional non-lethal response products that remain in development. The principal markets for the Company's proprietary products and services are in North and South America, Europe, the Middle East, Africa and Asia. Basis of Presentation The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“ SEC ”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“ U.S. GAAP ”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2025, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “ Annual Report ”), as filed with the SEC on March 26, 2026. The accompanying unaudited condensed consolidated balance sheet as of June 30, 2026 has been derived from the audited consolidated balance sheet as of December 31, 2025, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year. Principles of Consolidation The Company has three wholly owned subsidiaries, Wrap Reality, Inc., that sells a virtual reality (“ VR ”) training system primarily targeting law enforcement agencies, Intrensic, LLC (“Intrensic”), specializing in Body Worn Camera and Digital Evidence Management solutions and Wrap Federal, LLC, formed to support federal government clients in federal agencies. The condensed consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts. Segment and Related Information The Company operates as a single operating and reportable segment. The Company's Chief Operating Decision Maker is its Chief Executive Officer, who manages operations for purposes of allocating resources on a consolidated basis. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could materially differ from those estimates. 6 Revenue Recognition The Company recognizes revenue under ASC Topic 606 - Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive. The Company's revenues consist of product sales (BolaWrap devices, cassettes, and accessories) and technology-enabled services (software subscriptions, body-worn cameras, managed services, policy support, training, and shipping). Warrants As of June 30, 2026, all outstanding warrants (Series A Warrants, PIPE Warrants, Series B Warrants, and February 2026 Common Warrants each defined herein) are classified within permanent equity (additional paid-in capital) following amendments executed on June 30, 2025 that enabled equity classification under ASC 815-40 as discussed further in Note 8. These warrants are not subject to subsequent fair value remeasurement and no warrant liability is recorded as of June 30, 2026 or December 31, 2025. Loss per Share Basic loss per share (EPS) is computed by dividing net loss, less any dividends, accretion or decretion, redemption or induced conversion, if any, on the Company’s Series A Convertible Preferred Stock ("Series A Preferred Stock"), by the weighted average number of shares outstanding during the reported period. In computing diluted EPS, the Company adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A and Series B Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A and Series B Convertible Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion, if any. The Company adjusts the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of the Series A and Series B Convertible Preferred Stock, restricted stock units, and stock options. Stock options and restricted stock units exercisable or issuable for a total of 11,077,429 shares and 7,856,142 sh ares of Common Stock were outstanding as of June 30, 2026 and 2025, respectively. These securities are not included in the computation of diluted net loss per share of Common Stock for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss, total assets, total liabilities, stockholders’ equity, or cash flows. Recently Issued Accounting Guidance Not Yet Effective In November 2024, the FASB issued ASU 2024-03, which requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of ASU 2024-03 on its financial statements. 7 2. REVENUE AND PRODUCT COSTS Revenues consist of product sales and technology-enabled services. Product sales include BolaWrap devices, cassettes, and accessories. Technology-enabled services include software subscriptions, body-worn cameras, managed services, policy and training support, and shipping revenue. The table below details the activity in our contract liabilities during the six months ended June 30, 2026. SCHEDULE OF CONTRACT LIABILITIES Customer Deposits Deferred Revenue Balance at January 1, 2026 $ 62 $ 422 Additions, net 65 409 Transfer to revenue ( 29 ) ( 446 ) Balance at June 30, 2026 $ 98 $ 385 Current portion $ 98 $ 378 Long-term portion $ - $ 7 As of June 30, 2026, the Company’s deferred revenue of $ 385 consisted of $ 8 related to BolaWrap extended warranties and services, $ 27 related to WRAP Ready, $ 323 related to Intrensic extended warranties and services, $ 15 related to VR, $ 4 related to training and $ 8 related to Wrap Tactics. 3. FINANCIAL INSTRUMENTS Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: Level 1 -Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 -Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 -Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. 8 The following table shows the Company’s short-term investments by significant investment category as of June 30, 2026, and December 31, 2025. As of June 30, 2026 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: $ $ $ $ Money Market Funds $ 641 $ - $ - $ 641 Total financial assets $ 641 $ - $ - $ 641 As of December 31, 2025 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: $ $ $ $ Money Market Funds $ 639 $ - $ - $ 639 Total financial assets $ 639 $ - $ - $ 639 As of June 30, 2026 and December 31, 2025, the Company has no warrant liabilities. All outstanding warrants are classified within permanent equity following amendments completed on June 30, 2025. Refer to Note 8 for further discussion. Other financial instruments, including accounts receivable, accounts payable, accrued liabilities and customer deposits, are carried at cost which approximates fair value due to their short-term nature. 4. INVENTORIES Inventory is recorded at the lower of cost or net realizable value using the weighted average cost method. Inventories consisted of the following: SCHEDULE OF INVENTORY June 30, 2026 December 31, 2025 Finished goods $ 3,174 $ 3,509 Raw materials 1,628 1,978 Reserve for obsolescence ( 494 ) ( 516 ) Inventories, net $ 4,308 $ 4,971 Inventory reserve expense was $ 73 and $ 73 for the three and six months ended June 30, 2026, respectively, and $ 169 and $ 187 for the three and six months ended June 30, 2025, respectively. 5. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT June 30, 2026 December 31, 2025 Production and lab equipment $ 391 $ 391 Tooling 570 570 Computer equipment 194 183 Furniture, fixtures and improvements 81 81 Property and equipment, gross $ 1,236 $ 1,225 Accumulated depreciation ( 1,147 ) ( 1,102 ) Property and equipment, net $ 89 $ 123 Depreciation expense was $ 22 and $ 45 for the three and six months ended June 30, 2026, respectively, and $ 27 and $ 67 for the three and six months ended June 30, 2025, respectively. 9 6. INTANGIBLE ASSETS Intangible Assets, net Intangible assets, net consisted of the following: June 30, 2026 December 31, 2025 Amortizable intangible assets: Patents $ 1,206 $ 1,142 Trademarks 400 367 Purchased software and technology 512 512 Gross amortizable intangibles $ 2,118 $ 2,021 Accumulated amortization ( 936 ) ( 870 ) Total amortizable, net $ 1,182 $ 1,151 Indefinite life assets (non-amortizable) 421 421 Total intangible assets, net $ 1,603 $ 1,572 Amortization expense was $ 33 and $ 66 for the three and six months ended June 30, 2026, respectively, and $ 123 and $ 238 for the three and six months ended June 30, 2025, respectively. As of June 30, 2026, future amortization expense is as follows: 2026 (6 months) $ 62 2027 123 2028 123 2029 122 2030 122 Thereafter 630 Total $ 1,182 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued liabilities consist of the following: June 30, 2026 December 31, 2025 Patent and legal costs $ 115 $ 111 Accrued compensation 10 2 Warranty costs 56 30 Royalty 99 99 Accrued purchases - 6 Taxes and other 30 159 Total accrued liabilities $ 310 $ 407 Changes in our estimated product warranty costs were as follows: Six Months Ended June 30, 2026 2025 Balance, beginning of period $ 30 $ 83 Warranty settlements ( 5 ) ( 10 ) Warranty provision 31 2 Balance, end of period $ 56 $ 75 SCHEDULE OF PRODUCT WARRANTY LIABILITY 10 8. WARRANTS All outstanding warrants are classified within permanent equity as of June 30, 2026 and December 31, 2025. The following summarizes the Company's outstanding warrants: Series A Warrants — On June 29, 2023, the Company issued warrants (the "Series A Warrants") to purchase up to 6,896,553 shares of Common Stock at an exercise price of $ 1.45 per share in connection with the Series A Preferred Stock offering. On June 30, 2025, the Company entered into an amendment agreement (the "Series A Warrant Amendment") with the Required Holders (as defined in the Series A Warrants), which resulted in reclassification of the Series A Warrants from warrant liabilities to additional paid-in capital under ASC 815-40. The amended warrants expire on January 3, 2030 ( six and one-half years from original issuance). PIPE Warrants — On February 24, 2025, the Company issued warrants (the "PIPE Warrants") to purchase up to 3,216,666 shares of Common Stock at an exercise price of $ 1.80 per share in connection with a private placement. On June 30, 2025, the Company entered into an amendment agreement (the "2025 Warrant Amendment") with the PIPE holders, resulting in reclassification from warrant liabilities to additional paid-in capital under ASC 815-40. The amended PIPE Warrants expire five and one-half years from the original issuance date. Series B Warrants — On August 18, 2025, the Company issued warrants (the "Series B Warrants") to purchase up to 3,000,000 shares of Common Stock at an exercise price of $ 1.50 per share in connection with the Series B Convertible Preferred Stock, par value $ 0.0001 per share (the "Series B Preferred Stock") private placement. The Series B Warrants became exercisable on December 12, 2025, the date stockholder approval was obtained, and expire on December 12, 2030 . The Series B Warrants are classified within permanent equity. February 2026 Warrants — On February 3, 2026, the Company issued pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 800,000 shares of Common Stock at an exercise price of $ 0.0001 per share and common warrants (the "February 2026 Common Warrants") to purchase up to 2,500,000 shares of Common Stock at an exercise price of $ 2.30 per share in connection with a private placement. The Pre-Funded Warrants and the February 2026 Common Warrants were classified as equity within additional paid-in capital under ASC 815-40 upon issuance. The Pre-Funded Warrants expire when exercised in full, and the February 2026 Common Warrants expire on February 3, 2031, five years from the date of issuance. 11 9. LEASES The Company determines if an arrangement is a lease at inception. The guidance in FASB ASC Topic 842, Leases defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease right of use (“ROU”) assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. Due to a lack of financing history or ability, the Company uses an estimate of low-grade debt rate published by the Federal Reserve Bank as its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred. Amortization expense was $ 21 and $ 75 for the three and six months ended June 30, 2026, respectively, and $ 84 and $ 151 for the three and six months ended June 30, 2025, respectively. Operating lease expense for capitalized operating leases included in operating activities was $ 29 and $ 141 for the three and six months ended June 30, 2026, respectively, and $ 156 and $ 313 for the three and six months ended June 30, 2025, respectively. Operating lease obligations recorded on the balance sheet at June 30, 2026 are: June 30, 2026 Operating lease liability — short term $ 91 Operating lease liability — long term 345 Total operating lease liability $ 436 SCHEDULE OF OPERATING LEASE OBLIGATIONS Future lease payments included in the measurement of lease liabilities on the balance sheet at June 30, 2026 for future periods are as follows: 2026 (6 months) $ 60 2027 120 2028 120 2029 120 2030 90 Thereafter - Total future minimum lease payments 510 Less imputed interest ( 74 ) Total $ 436 The weighted average remaining lease term is 4.25 years, and the weighted average discount rate is 7.5 % . Certain leases contain provisions for payment of real estate taxes, insurance and maintenance costs by the Company. These expenses are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. The Company had $ 0 and $ 17 variable lease expense for the three month ended June 30, 2026 and 2025, respectively, and $ 0 and $ 31 for the six months ended June 30, 2026 and 2025, respectively. The Company had no short-term lease expenses for the three and six months ended June 30, 2026 and 2025 respectively. The Company does not have any finance leases. On February 13, 2026, the Company entered into a Termination and Mutual Release Agreement with the landlord of the Company's office space located at 3480 Main Highway, Suite 202, Miami, Florida 33133. Pursuant to the agreement, the office lease dated September 20, 2023 was terminated effective as of February 13, 2026, and the Company surrendered possession of the premises. The landlord agreed to refund the prorated portion of February 2026 rent attributable to the period following the termination date and to return the security deposit in accordance with the terms of the original lease. The parties exchanged mutual releases of all claims arising out of or relating to the lease, except for obligations expressly set forth in the termination agreement and any obligations that by their terms survive termination. In March 2026, the Company entered into a month-to-month service agreement for a business address located at 3350 Virginia Street, Miami, Florida 33133. 12 10. STOCKHOLDERS’ EQUITY The Company's authorized capital consists of 200,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $ 0.0001 per share, of which 10,000 shares are designated as Series A Convertible Preferred Stock and 4,500 shares are designated as Series B Convertible Preferred Stock. Common Stock During the three months ended June 30, 2026, the Company issued 96,775 shares of Common Stock to a vendor in settlement of a $ 150 invoice for investor relations services rendered. The shares were issued in full satisfaction of the amount owed, with no cash paid and no future service or vesting condition attached. The Company recorded the $ 150 expense within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss, based on the fair value of the shares issued of $ 1.55 per share on the issuance date. Series A Preferred Stock On July 3, 2023, the Company designated and issued 10,000 shares of Series A Preferred Stock (stated value $ 1,000 per share) convertible into shares of Common Stock at an initial conversion price of $ 1.45 per share. As of June 30, 2026 and December 31, 2025, there were 8,107 and 8,207 shares outstanding, respectively. Holders are entitled to dividends of 8 % per annum, payable in cash or shares of Common Stock at the Company's election. For the six months ended June 30, 2026 and 2025, the Company paid dividends of $ 411 and $ 328 , respectively, in shares of Common Stock. Series B Preferred Stock On August 18, 2025, the Company issued 4,500 shares of Series B Preferred Stock (stated value $ 1,000 per share) convertible up to 3,000,000 shares of Common Stock at an initial conversion price of $ 1.50 per share. As of June 30, 2026 and December 31, 2025, there were 3,600 and 4,500 shares outstanding, respectively. Holders are entitled to dividends when and as declared by the Board, payable in cash or shares of the Company's securities. No dividends were declared or paid during the six months ended June 30, 2026. 13 11. SHARE-BASED COMPENSATION The Company maintains the Wrap Technologies, Inc. 2017 Equity Incentive Plan (the "2017 Plan"), which was most recently amended on December 12, 2025 to authorize up to 20,500,000 shares of Common Stock for issuance as equity awards under the 2017 Plan. As of June 30, 2026, there were 4,223,775 shares of Common Stock remaining available for grant under the 2017 Plan. Stock Options The following table summarizes stock option activity for the six months ended June 30, 2026: Weighted Average Options on Common Shares Exercise Price Remaining Contractual Terms Aggregate Intrinsic Value Outstanding December 31, 2025 6,449,534 $ 2.05 8.56 $ 3,706 Granted 4,818,500 2.12 - - Exercised - - - - Forfeited, cancelled, expired ( 1,219,917 ) 2.38 - - Outstanding June 30, 2026 10,048,117 2.04 8.72 6 Exercisable June 30, 2026 2,994,159 $ 2.16 8.02 $ - As of June 30, 2026 there were 8,682,951 service-based stock options outstanding, and 1,365,166 performance-based stock options outstanding. For the performance-based options, 1,290,166 were granted in October 2023 to the Company's current Chief Executive Officer, subject to vesting based on future market capitalization targets, and 75,000 were granted to a consultant, subject to vesting upon the Company's execution of a specified customer contract. The Company uses the Black-Scholes option pricing model to determine the fair value of the service-based options that have been granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and non-employees: SCHEDULE OF STOCK OPTION ACTIVITY, FAIR VALUE OF ASSUMPTIONS Six Months Ended June 30, 2026 2025 Expected stock price volatility 76 % 76 % Risk-free interest rate 3.90 % 4.06 % Expected dividend yield 0 % 0 % Expected life of options 5.91 6.00 Weighted-average fair value of options granted $ 1.47 $ 1.05 Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on the historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price. The Company records forfeitures as they are incurred. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The dividend yield of 0 % is based on the fact that the Company has never paid cash dividends and has no present intention of paying cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical exercise data. Stock option expense was $ 843 and $ 477 for the three months ended June 30, 2026 and 2025, respectively, and $ 2,876 and $ 864 for the six months ended June 30, 2026 and 2025, respectively. 14 Restricted Stock Units The 2017 Plan provides for the grant of restricted stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs vest. The following table summarizes RSU activity for the six months ended June 30, 2026: Weighted Average Service-Based RSUs Grant Date Fair Value Vesting Period (Years) Unvested at December 31, 2025 1,014,563 $ 2.23 3.62 Granted service based 179,267 1.96 - Vested ( 164,518 ) 1.96 - Forfeited and cancelled - - - Unvested at June 30, 2026 1,029,312 $ 2.23 3.57 SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 632,911 market condition performance RSUs granted in January 2024 to the Company’s Chief Executive Officer. The assumptions used in the Monte Carlo Simulation were stock price on the date of grant equal to $ 3.40 , a contract term of 10 years, expected volatility of 78 % and risk-free interest rate of 4.10 %. Vesting is based on sustained market capitalization of $ 1 billion, and the derived service period is 4.3 years. RSU expense was $ 176 and $ 293 for the three months ended June 30, 2026 and 2025, respectively, and $ 527 and $ 1,571 for the six months ended June 30, 2026 and 2025. Share-Based Compensation Expense The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Selling, general and administrative $ 1,019 $ 755 $ 3,403 $ 2,358 Research and development - 15 - 77 Total share-based expense $ 1,019 $ 770 $ 3,403 $ 2,435 SCHEDULE OF SHARE-BASED COMPENSATION FOR OPTIONS AND RESTRICTED STOCK UNITS As of June 30, 2026, total estimated compensation cost of stock options granted and outstanding but not yet vested was $ 7,620 which is expected to be recognized over the weighted average period of 2.67 years. As of June 30, 2026, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $ 867 , which is expected to be recognized over the weighted average period of 1.67 years. 12. DEFINED CONTRIBUTION PLAN The Company has a defined contribution savings plan for all eligible U.S. employees established under the provisions of Section 401(k) of the Internal Revenue Code. This plan was formed on January 1, 2022. Eligible employees may contribute a percentage of their salary subject to certain limitations. The Company’s matching contributions were $ 24 and $ 23 for the six months ended June 30, 2026 and 2025, respectively. 15 13. COMMITMENTS AND CONTINGENCIES Purchase Commitments As of June 30, 2026, the Company was committed for approximately $ 536 for future component deliveries that are generally subject to modification or rescheduling in the normal course of business. Indemnifications and Guarantees Our officers and directors are indemnified as to personal liability as provided by Delaware law and the Company’s certificate of incorporation and bylaws. The Company may also undertake indemnification obligations in the ordinary course of business related to its operations. The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to any such indemnification obligations now or in the future. Because of the uncertainty surrounding these circumstances, the Company’s current or future indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary course of business. The Company has no liabilities recorded for such indemnities. Litigation The Company is subject to litigation and other claims in the ordinary course of business. The Company records a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter. As of June 30, 2026, the Company had no provision for liability under existing litigation. 14. RELATED PARTY TRANSACTIONS Series A Preferred Stock Scot Cohen, the Company's Executive Chairman and Chief Executive Officer, holds directly and through V4 Global LLC ("V4"), an entity he controls, shares of Series A Preferred Stock and related warrants. For the six months ended June 30, 2026, Mr. Cohen earned dividends totaling $ 151 o n his Series A Preferred Stock. Series B Preferred Stock In the private placement of Series B Preferred Stock completed August 18, 2025, V4 purchased 1,000 shares of Series B Preferred Stock and 666,667 Series B Warrants for gross proceeds of $ 1,000 . PIPE Warrants In the February 2025 private placement, V4 purchased 1,100,000 shares of Common Stock and 1,100,000 PIPE Warrants for gross proceeds of $ 1,980 ; Continuum Ventures, LLC (controlled by Jared Novick, President and Chief Operating Officer) purchased 275,000 shares of Common Stock and 275,000 PIPE Warrants for gross proceeds of $ 495 ; and Savbo Investments LLC (controlled by Marc Savas, a Board member) purchased 50,000 shares of Common Stock and 50,000 PIPE Warrants for gross proceeds of $ 90 . In the February 2026 private placement, V4 purchased 475,000 shares of Common Stock and 475,000 February 2026 Common Warrants for gross proceeds of $ 950 ; Savbo Investments LLC purchased 25,000 shares of Common Stock and 25,000 February 2026 Common Warrants for gross proceeds of $ 50 ; and Juggernaut Management, LLC (controlled by John Shulman, a Board member) purchased 250,000 shares of Common Stock and 250,000 February 2026 Common Warrants for gross proceeds of $ 500 . Strategic Investment in Frenel Imaging Ltd. As described in Note 17, in July 2026 the Company made a strategic investment in Frenel Imaging Ltd. ("Frenel"). Scot Cohen, the Company's Executive Chairman and Chief Executive Officer, participated as an investor in the same Frenel financing, investing $ 100 and receiving 3,746 Series A Preferred Shares of Frenel on the same terms as the other investors in the financing. In addition, Mr. Cohen had previously invested $ 75 in a simple agreement for future equity of Frenel, which converted into 3,512 Series A Preferred Shares of Frenel in connection with the financing. Following these transactions, Mr. Cohen held an aggregate of 7,258 Series A Preferred Shares of Frenel 16 License Agreement The Company is party to a royalty license with Syzygy, a company owned by Elwood G. Norris and James A. Barnes, a stockholder. Elwood G. Norris was a 5 % or greater stockholder of the Company up and until July 9, 2026, upon which date he sold all of his shares of Common Stock and ceased being a stockholder of the Company. No payments were made during the three and six months ended June 30, 2026. 15. SEGMENT INFORMATION The Company operates as a single operating and reportable segment in accordance with ASC 280, Segment Reporting. The Company's Chief Operating Decision Maker ("CODM") is Scot Cohen, the Company's Executive Chairman and Chief Executive Officer. The CODM reviews financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources, with the primary measure of segment performance being consolidated loss from operations. Resource allocation decisions are based on consolidated operating results, cash flows, liquidity, and overall strategic priorities rather than discrete financial information at a product line, geography, or functional level. While the Company monitors certain operating metrics, including revenue by product line, such information is used for operational oversight and forecasting and is not used by the CODM to assess segment performance or allocate resources among components of the business. Accordingly, the Company has determined that it operates as one operating and one reportable segment. The following table presents the significant expense categories and amounts for the three and six months ended June 30, 2026 and 2025. Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Total revenues $ 2,052 $ 1,012 $ 3,163 $ 1,778 Less: Significant segment expenses: Cost of revenues 507 525 927 695 Research and development 152 162 257 594 Salaries and burden 861 1,143 1,819 2,205 Share-based compensation 1,019 770 3,403 2,435 Consulting and professional fees 863 519 1,987 1,262 Depreciation and amortization 55 149 111 304 Other selling, general and administrative expenses (1) 846 600 1,679 1,060 Total significant segment expenses 4,303 3,868 10,183 8,555 Other segment items (2) - - - - Segment loss from operations $ ( 2,251 ) $ ( 2,856 ) $ ( 7,020 ) $ ( 6,777 ) (1) Other selling, general and administrative expenses represents the aggregate of CODM-reviewed expense categories not considered individually significant, consisting of travel and entertainment, advertising and promotion, training, occupancy and office, public company costs, and other general and administrative costs. (2) Other segment items consist of items not regularly reviewed by the Company's chief operating decision maker as part of the significant expense categories above and not individually significant. No such items were identified for the periods presented; other segment items reconcile to zero. The measure of segment profit or loss reviewed by the CODM is consolidated loss from operations, which is the same measure presented in the Company's condensed consolidated statements of operations. The CODM does not review segment assets, as such information is not used in allocating resources or assessing performance. Refer to Note 16, Major Customers and Related Information, for entity-wide disclosures regarding revenue by geography and customer concentration. 17 16. MAJOR CUSTOMERS AND RELATED INFORMATION For the three months ended June 30, 2026, revenue from one distributor accounted for approximately 74 % of revenue with no other single customer accounting for more than 10% of total revenue. For the three months ended June 30, 2025, revenue from three customers accounted for approximately 32 %, 23 % and 10 % of revenue, respectively, with no other single customer accounting for more than 10% of total revenue. For the six months ended June 30, 2026, revenue from one distributor accounted for approximately 62 % of revenue, with no other single customer accounting for more than 10% of total revenue. For the six months ended June 30, 2025, revenue from one customer accounted for approximately 16 % of revenue, with no other single customer accounting for more than 10% of total revenue. At June 30, 2026, accounts receivable from one distributor accounted for 76 % of net accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance. At December 31, 2025, accounts receivable from two distributors accounted for 71 % and 10 %, respectively of net accounts receivable and contract assets, with no other single customer accounting for more than 10% of the accounts receivable and contract assets balance. The following table summarizes revenue by geographic region. Revenue is attributed to countries based on customer’s delivery location: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Americas $ 509 $ 846 $ 1,154 $ 1,592 Europe, Middle East and Africa 1,533 166 1,999 186 Asia Pacific 10 - 10 - Total revenues $ 2,052 $ 1,012 $ 3,163 $ 1,778 17. SUBSEQUENT EVENTS The Company has evaluated subsequent events through August 11, 2026, the date on which this Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission. Other than as described below, the Company determined there are no subsequent events requiring disclosure in accordance with ASC 855. In July 2026, the Company made a strategic investment in Frenel, an advanced-sensing company. Pursuant to the agreement, the Company purchased in a private placement 74,918 Series A Preferred Shares of Frenel at a purchase price of $ 26.6959 per share, for an aggregate purchase price of $ 2,000 , of which $ 300 had been paid previously under an advance investment and interim limited license agreement in March 2026. The Series A Preferred Shares are convertible into ordinary shares of Frenel at the holder's option. Under the purchase agreement, the Company has the right, but not the obligation, to invest up to an additional $ 2,500 in Series A-2 Preferred Shares of Frenel at any time within 24 months following the initial closing, based on a pre-money valuation of $ 18,500 on a fully diluted basis. The Company is evaluating the appropriate accounting for its investment in Frenel, which represents an equity interest in a privately held company, and expects to complete that assessment during the third quarter of 2026. Additionally, the Company and Frenel entered into an exclusive distribution and license agreement under which Frenel granted the Company an exclusive license to market, sell, distribute, and integrate Frenel's proprietary polarimetric thermal imaging software within the United States, and to NATO agencies and member-state customers through U.S. Department of Defense Foreign Military Financing and Foreign Military Sales channels. The license is exclusive for an initial period of four years , subject to the Company's satisfaction of specified minimum annual commitment milestones, and converts to a non-exclusive license if those milestones are not met following applicable cure periods. The Company has agreed to pay Frenel a base price for products supplied plus a revenue share of 10 % of net funds invoiced to end customers. The Company intends to use the licensed technology as part of the detection layer of its WrapShield platform. The arrangement is in an early stage, and the timing and amount of any resulting revenue are uncertain. In July 2026, ATF Ruling 2026-2 became effective, classifying the BolaWrap 150 as an instrument of restraint and determining that it is not a "firearm" under the Gun Control Act or an "any other weapon" under the National Firearms Act. The ruling supersedes prior ATF classifications of the BolaWrap 150 and addresses that product only. The ruling did not affect the Company's financial position or results of operations for the periods presented. 18