UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-38750

Wrap Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware

98-0551945

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

3480 Main Hwy, Suite 202

Miami, Florida 33133

(Address of principal executive offices) (Zip Code)

(800) 583-2652

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		WRAP		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 13, 2025, a total of 50,820,698 shares of the Registrant’s common stock, par value $0.0001 per share (“Common Stock”), were issued and outstanding.

WRAP TECHNOLOGIES, INC.

INDEX

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Interim Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

SIGNATURES		35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Wrap Technologies, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

(unaudited)

	June 30, 2025			December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	4,177		$	3,610
Accounts receivable and contract assets, net		906			513
Inventories, net		5,904			6,170
Prepaid expense and other current assets		334			178
Total current assets		11,321			10,471
Property and equipment, net		87			146
Operating lease right-of-use asset, net		1,814			1,964
Intangible assets, net		2,262			2,354
Other long-term assets		128			186
Total assets	$	15,612		$	15,121

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	583		$	609
Accrued liabilities		872			1,403
Customer deposits		27			27
Deferred revenue - short term		302			466
Operating lease liability - short term		218			567
Warrants		-			10,131
Total current liabilities		2,002			13,203

Deferred revenue – long-term		23			39
Operating lease liability – long-term		1,826			1,629
Total long-term liabilities		1,849			1,668
Total liabilities	$	3,851		$	14,871

Commitments and contingencies (Note 13)		-			-

Stockholders’ equity:
Preferred stock - 5,000,000 authorized; par value $0.0001 per share; 0 shares issued and outstanding at June 30, 2025, and December 31, 2024	$	-		$	-
Common stock - 150,000,000 authorized; par value $0.0001 per share; 50,728,535 and 47,101,631 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		5			5
Convertible Preferred Stock - 10,000 authorized, par value $0.0001 per share; 8,207 shares issued and outstanding at June 30, 2025 and December 31, 2024		-			-
Preferred Stock		-			-
Additional paid-in capital		120,783			105,326
Accumulated deficit		(109,027	)		(105,081	)
Total stockholders’ equity		11,761			250
Total liabilities and stockholders’ equity	$	15,612		$	15,121

The accompanying notes are an integral part of these financial statements.

Wrap Technologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

	2025			2024			2025			2024
	Three Months ended June 30,						Six Months ended June 30,
	2025			2024			2025			2024
Revenues:
Product sales	$	197		$	1,251		$	550			2,578
Managed services		764			-			1,000			-
Technology enabled services		51			322			228			471
Total revenues		1,012			1,573			1,778			3,049
Cost of revenues		525			589			695			1,229
Gross profit		487			984			1,083			1,820

Operating expenses:
Selling, general and administrative		3,181			3,475			7,266			7,695
Research and development		162			679			594			1,434
Total operating expenses		3,343			4,154			7,860			9,129
Loss from operations		(2,856	)		(3,170	)		(6,777	)		(7,309	)

Other income (expense):
Interest income		2			55			3			133
Change in fair value of warranty liabilities		(871	)		2,738			3,158			6,917
Other		(2	)		(8	)		(2	)		(9	)
Total other income (expense), net		(871	)		2,785			3,159			7,041
Net loss		(3,727	)		(385	)	$	(3,618	)	$	(268	)

Less: Convertible preferred stock dividends		(164	)		(511	)		(328	)		(700	)
Net loss attributable to common stockholders	$	(3,891	)	$	(896	)	$	(3,946	)	$	(968	)

Net loss per basic and diluted common share	$	(0.07	)	$	(0.02	)	$	(0.07	)	$	(0.02	)
Weighted average common shares used to compute net loss per basic and diluted common share		50,609,509			45,324,917			49,439,838			44,470,183

Comprehensive loss:
Net loss	$	(3,727	)	$	(385	)	$	(3,618	)	$	(268	)
Comprehensive loss	$	(3,727	)	$	(385	)	$	(3,618	)	$	(268	)

The accompanying notes are an integral part of these financial statements.

Wrap Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

Three Months Ended June 30, 2025

	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
	Common Stock				Convertible Preferred Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance at April 1, 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		-		-		-		-		-			-
Common Stock issued with Private Placement		-		-		-		-		-		-			-
Reclassification of warrant liability due to warrant amendment		-		-		-		-		12,151		-			12,151
Net loss for the period		-		-		-		-		-		(3,727	)		(3,727	)
Balance at June 30, 2025		50,728,535	$	5		8,207	$	-	$	120,783	$	(109,027	)	$	11,761

Six months Ended June 30, 2025

Balance at January 1, 2025		47,101,631	$	5		8,207	$	-	$	105,326	$	(105,081	)	$	250
Share-based compensation expense		-		-		-		-		2,435		-			2,435
Dividends on convertible preferred stock		252,636		-		-		-		328		(328	)		-
Common Stock issued upon vesting of restricted stock units		157,602		-		-		-		-		-			-
Common Stock issued with Private Placement		3,216,666		-		-		-		543		-			543
Reclassification of warrant liability due to warrant amendment		-		-		-		-		12,151		-			12,151
Net loss for the period		-		-		-		-		-		(3,618	)		(3,618	)
Balance at June 30, 2025		50,728,535	$	5		8,207	$	-	$	120,783	$	(109,027	)	$	11,761

Three months Ended June 30, 2024

	Common Stock				Convertible Preferred Stock					Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Equity
Balance at April 1, 2024		44,373,107	$	4		9,798		$	-	$	102,539	$	(98,060	)	$	4,483

Share-based compensation expense		-		-		-			-		243		-			243
Dividends on convertible preferred stock		-		-		-			-		11		(511	)		(500	)
Common Stock issued upon convertible preferred stock exercising conversion rights		1,316,699		-		(1,591	)		-		-		-			-
Common Stock issued upon vesting of restricted stock units		103,306		-		-			-		-		-			-
Net loss for the period		-		-		-			-		-		(385	)		(385	)
Balance at June 30, 2024		45,793,112	$	4		8,207		$	-	$	102,793	$	(98,956	)	$	3,841

Six months Ended June 30, 2024

Balance at January 1, 2024		43,855,503	$	4		9,898		$	-	$	101,147	$	(97,988	)	$	3,163
Balance		43,855,503	$	4		9,898		$	-	$	101,147	$	(97,988	)	$	3,163
Common Stock issued upon exercise of stock options		232,081		-		-			-		588		-			588
Share-based compensation expense		-		-		-			-		918		-			918
Dividends on convertible preferred stock		128,233		-		-			-		140		(700	)		(560	)
Common Stock issued upon convertible preferred stock exercising conversion rights		1,391,183		-		(1,691	)		-		-		-			-
Common Stock issued upon vesting of restricted stock units		186,112		-		-			-		-		-			-
Net loss for the period		-		-		-			-		-		(268	)		(268	)
Balance at June 30, 2024		45,793,112	$	4		8,207		$	-	$	102,793	$	(98,956	)	$	3,841
Balance		45,793,112	$	4		8,207		$	-	$	102,793	$	(98,956	)	$	3,841

The accompanying notes are an integral part of these financial statements.

Wrap Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	2025			2024
	Six Months ended June 30,
	2025			2024
Cash Flows From Operating Activities:
Net loss	$	(3,618	)	$	(268	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		304			451
Share-based compensation		2,435			918
Warranty provision		2			17
Change in fair value of warrant liabilities		(3,158	)		(6,917	)
Non-cash lease expense		(199	)		143
Provision for doubtful accounts		34			-
Write-off accounts receivables		26			-
Inventory obsolescence reserve		187			12

Changes in assets and liabilities:
Accounts receivable		(453	)		(236	)
Inventories		79			(707	)
Prepaid expenses and other current assets		(156	)		261
Accounts payable		(34	)		25
Operating lease liability		197			(29	)
Customer deposits		-			(1,002	)
Accrued liabilities and other		(523	)		39
Warranty settlement		(10	)		(34	)
Deferred revenue		(180	)		41
Changes in other non-current assets		58			37
Net cash used in operating activities		(5,009	)		(7,249	)

Cash Flows From Investing Activities:
Proceeds from maturities of short-term investments		-			5,000
Capital expenditures for property and equipment		(8	)		(13	)
Investment in patents and trademarks		(145	)		(97	)
Net cash (used in) provided by investing activities		(153	)		4,890

Cash Flows From Financing Activities:
Proceeds from exercise of stock options		-			588
Proceeds from issuance of warrants and common stock, net of offering costs		5,729			-
Dividends settled in Cash		-			(120	)
Net cash provided by financing activities		5,729			468

Net increase (decrease) in cash and cash equivalents		567			(1,891	)
Cash and cash equivalents, beginning of period		3,610			3,955
Cash and cash equivalents, end of period	$	4,177		$	2,064

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Reclassification of warrant liabilities to additional paid in capital	$	12,159			-
Change in unrealized gain on short-term investments		-		$	94
Dividends on convertible preferred stock	$	(328	)	$	700
Dividends settled with common stock	$	328		$	140

The accompanying notes are an integral part of these financial statements.

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 products and training services for law enforcement and security personnel. The Company’s primary product is the BolaWrap® remote restraint device. The principal markets for the Company’s proprietary products and services are in North and South America, Europe, Middle East 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, 2024, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “Annual Report”), as filed with the SEC on March 31, 2025 and as amended on April 25, 2025. The accompanying condensed consolidated balance sheet as of June 30, 2025 has been derived from the audited consolidated balance sheet as of December 31, 2024, contained in the Annual Report. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Where necessary, the prior year’s information has been reclassified to conform to the current year’s presentation.

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 and Intrensic, LLC (“Intrensic”), specializing in Body Worn Camera and Digital Evidence Management solutions. 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 segment. The Company’s chief operating decision maker is Scot Cohen, the Company’s Executive Chairman and Chief Executive Officer, who manages operations for purposes of allocating resources. Refer to Note 15. Major Customers and Related Information for further discussion.

Goodwill

Goodwill represents the difference, if any, between the aggregate consideration paid for an acquisition and the fair values of the underlying net assets and liabilities assumed from an acquired business. Goodwill is not amortized but instead is tested for impairment. The Company tests goodwill for impairment on an annual basis during the fourth quarter, or more frequently if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process.

Definite-lived Intangible Assets

Definite-lived intangible assets represent certain trade names, patents, licenses, software, acquired technology and customer relationships. Definite-lived intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses, if any. Definite-lived intangible assets acquired through the business combination are measured at fair value at the acquisition date. The Company amortizes these acquired definite-lived intangibles assets with a finite life on a straight-line basis, over 6 years for technology; between 3 and 7 years for customer relationships; and 8 years for trademarks and trade names.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions (e.g., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued expense, valuation of warrants, and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenue and expense during the reporting period. Actual results could materially differ from those estimates.

Warrants

The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares of Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company accounts for the warrants issued in accordance with the guidance contained in ASC 815-40-15-7C, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations.

On June 30, 2025, the Company entered into the Series A Warrant Amendment (as defined herein) and the 2025 Warrant Amendment (as defined herein). As a result, the Series A Warrants (as defined here) and the PIPE Warrants (as defined herein), each satisfy the requirements outlined in ASC 815-10-15-74(a)(1) and in ASC 815-10-15-74(a)(2). Under ASC 815-40-35-10, the amended instruments qualify for equity-classification on a prospective basis. The effective date of the relating reclassification from warrant liabilities to additional paid-in capital was June, 30, 2025. See Footnote 8: Warrants for additional detail.

Series A Preferred Stock

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 480 and ASC 815 to determine if those instruments or embedded components of those instruments qualify as derivatives and are subject to bifurcation accounting. The Company determines that the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host contract. The convertible instruments are accounted for as a single hybrid instrument. Additionally, the convertible instruments do not have any redemption features that would preclude permanent equity classification in accordance with the guidance contained in ASC 480-10-S99.

The Company issued the Series A Warrants (as defined herein), which are classified as liabilities and measured at fair value on a recurring basis, and the Series A Convertible Preferred Stock (the “Series A Preferred Stock”) in one transaction. The issuance proceeds were allocated by using the with-and-without method. Under this method, the Company first allocated the issuance proceeds to the Series A Warrants based on their initial fair value measurement and then allocated the remaining proceeds to the Series A Preferred Stock. On June 30, 2025, the Company and Holders of the Series A Warrants (as defined herein) amended the Series A Warrants, which allowed the Company to account for the Series A Warrants as equity under ASC 480 and a reclassification was recorded from warrant liability to additional paid-in-capital.

Revenue Recognition

The Company recognizes revenue under ASC Topic 606 - Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.

The Company enters into contracts that include various combinations of products, accessories, software and services, each of which are generally distinct and are accounted for as separate performance obligations. Product sales include BolaWrap products and accessories. Managed services revenue represents the consulting services provided to customers of W1 Global, LLC (“W1”). Other revenue includes VR revenues, service, training and shipping revenues.

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced, and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized after invoicing. The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract. The Company may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been completed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met.

Estimated costs for the Company’s standard warranty, generally one-year, are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to the cost of products sold.

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 Preferred Stock, by the weighted average number of shares outstanding during the reported period.

In computing diluted EPS, we adjust 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 Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion, if any. We adjust 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 Preferred Stock, restricted stock units, and stock options. Stock options and restricted stock units exercisable or issuable for a total of 2,413,595 shares and 4,903,951 shares of Common Stock were outstanding as of June 30, 2025 and 2024, respectively. These securities are not included in the computation of diluted net loss per common share for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company.

Recently Issued Accounting Guidance Not Yet Effective

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disaggregation of certain costs and expenses, including employee compensation, and requires other improvements to disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The update may be applied on a prospective or retrospective basis. The Company is evaluating the impact of ASU 2024-03 on the Company’s notes to the consolidated financial statements.

2. REVENUE AND PRODUCT COSTS

Revenue consists of product revenue, technology enabled services, and managed services. Product sales include BolaWrap products and accessories. Technology enables services includes VR revenue, service, training and shipping revenue. Managed services revenue includes consulting services delivered to third parties and billed on an agreed hourly fee basis when enforceable right to payment exists.

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced, and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized subsequent to invoicing. The Company recognizes an asset if there are incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract. The Company may receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been completed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. Estimated costs for the Company’s standard warranty, generally one-year, are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to the cost of products sold.

The table below details the activity in our contract liabilities during the six months ended June 30, 2025.

SCHEDULE OF CONTRACT LIABILITIES

	Customer		Deferred
	Deposits		Revenue
Balance at January 1, 2025	$	27	$	505
Additions, net		-		205
Transfer to revenue		-		(385	)
Balance at June 30, 2025	$	27	$	325
Current portion	$	27	$	302
Long-term portion	$	-	$	23

As of June 30, 2025, the Company’s deferred revenue of $325 consisted of Technology Enabled Services.

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.

The following table shows the Company’s short-term investments by significant investment category as of June 30, 2025, and December 31, 2024.

SCHEDULE OF SHORT TERM INVESTMENTS

	As of June 30, 2025
	Adjusted		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Level 1:
Money Market Funds	$	3,134	$	-	$	-	$	3,134
Total Financial Assets	$	3,134	$	-	$	-	$	3,134

	As of December 31, 2024
	Adjusted		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Level 1:
Money Market Funds	$	2,945		-		-	$	2,945
Total Financial Assets	$	2,945	$	-	$	-	$	2,945

Unrealized gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss as they are classified as available for sale. During the six months ended June 30, 2025, as well as the six months ended June 30, 2024, no gain (loss) was recorded to comprehensive loss.

The warrant liabilities are measured at fair value on a recurring basis. The subsequent measurement of the warrant liabilities as of June 30, 2025, is classified as Level 3 due to the use of an observable market quote in a non-active market and the management’s assumption of the expected stock price volatility.

The following table presents the fair value in the beginning of the period, the changes in the fair value, and the fair value at the end of the period of warrant liabilities:

SCHEDULE OF FAIR OF WARRANT LIABILITIES

Level 3:	June 30, 2025			December 31, 2024
Fair value at inception for December 31, 2024 or the beginning of the period for June 30, 2025	$	(10,131	)	$	(19,703	)
Warrants issued with Private Placement		(5,186	)		-
Change in fair value of warrant liabilities		3,158			9,572
Reclassification of warrant liabilities to equity		12,159			-
Fair value as of period end	$	-		$	(10,131	)

The Company used a Monte Carlo simulation to estimate the fair value of warrant liabilities as of June 30, 2025, being the date the Company entered into the Series A Warrant Amendment and the 2025 Warrant Amendment. The valuation was performed based on the amended terms of the Series A Warrants and PIPE Warrants. The following table summarizes the assumptions used to compute the fair value of the Company’s warrants:

MONTE CARLO SIMULATION MODEL – PIPE WARRANTS

	As of June 30, 2025
Expected stock price volatility		86	%
Risk-free interest rate		3.73	%
Dividends yield		0	%
Term (years)		4.50
Strike Price	$	1.45
Stock Price	$	1.56
Fair Value Per Warrant Share	$	1.235

MONTE CARLO SIMULATION MODEL – 2025 WARRANTS

	As of June 30, 2025
Expected stock price volatility		89	%
Risk-free interest rate		3.77	%
Dividends yield		0	%
Term (years)

SEC Form 10-Q filed by Wrap Technologies Inc.