May 30,
2017
VIA EDGAR
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
Attention:
Pamela Long, Assistant Director
RE:
Wrap
Technologies, Inc.
Registration Statement on Form S-1
Dear
Ms. Long:
This
letter is submitted on behalf of Wrap Technologies, Inc. (the
“Company”) in
response to comments of the staff of the Office of Manufacturing
and Construction (the “Staff”) of the Securities and
Exchange Commission (the “Commission”) with respect to the
Company’s Company's Registration Statement on Form S-1 (the
“Registration
Statement”), filed on April 17, 2017, as set forth in
your letter, dated May 12, 2017 (the “Comment Letter”) addressed to
James A. Barnes, President and Chief Financial Officer of the
Company. Contemporaneously herewith, the Company is filing
pre-effective amendment No. 1 to the Registration Statement (the
“Amendment”) in
response to the Staff’s comments raised in the Comment
Letter.
For
reference purposes, the Staff’s numbered comments have been
reproduced in bold herein, with responses immediately following
such comment. The responses provided herein are based upon
information provided to Disclosure Law Group by the
Company.
General
1.
Please
supplementally provide us with copies of all written
communications, as defined in Rule 405 under the Securities Act,
that you, or anyone authorized to do so on your behalf, present to
potential investors in reliance on Section 5(d) of the Securities
Act, whether or not they retain copies of the
communications.
Response
The Company does not have any written
communications that have been provided to potential investors in
reliance on Section 5(d) of the Securities Act of 1933, as amended
(the “Securities
Act”). If any such
materials are used in the future in connection with the
transactions registered by the Registration Statement, the Company
will provide copies of such materials
supplementally.
2.
Your filing indicates that you are a development stage company with
limited operating activities, no revenues, no arrangements for
additional financing and nominal assets consisting of cash. These
and other facts suggest that your proposed business is commensurate
in scope with the uncertainty ordinarily associated with a blank
check company and that you should comply with Rule 419 of
Regulation C under the Securities Act. Please revise the
registration statement to comply with Rule 419, or provide us a
detailed legal analysis which explains why Rule 419 does not apply
to this offering, and state prominently on the cover page of the
prospectus that you are not a blank check company and have no plans
or intentions to engage in a business combination following this
offering.
Response
The
Company does not fall within the definition of a blank check
company, as defined in Rule 419 under the Securities Act. Rule 419
(a)(2) of the Securities Act defines a blank check company as a
company that:
(i)
is
a development stage company that has no specific business plan or
purpose or has indicated that its business plan is to engage in a
merger or acquisition with an unidentified company or companies, or
other entity or person; and
(ii)
is issuing "penny stock," as defined in Rule
3a51-1 (17 CFR 240.3a51-1) under the Securities Exchange Act of
1934, as amended (the “Exchange
Act”).
Although
the Company is a development stage company that will be issuing
penny stock, and has included disclosures to that effect in the
Amendment, the Company has no plans to merge with an unidentified
party and the Company has a very specific business plan – to
commercialize its first product, BolaWrap™ 100, as well as
future development and commercialization of security technology for
its customers. As such, the Company cannot be characterized as a
company without a specific business plan or a company whose
business plan is to engage in a merger or acquisition with
unidentified parties.
In order to be classified as a blank check
company, a company must meet the criteria of both
subparagraphs (i) and (ii) of Rule
419(a)(2). Because the Company is has a specific business plan and
is not a company whose business plan is to engage in a merger or
acquisition with unidentified parties as provided by subparagraph
(i), the Company cannot be categorized as a blank check company as
defined in Rule 419(a)(2).
3.
Please note that we may have comments on the legal opinion and
other exhibits once they are filed. Please understand that we will
need adequate time to review these materials before
effectiveness.
Response
We
acknowledge the Staff’s comment regarding the legal opinion
and other exhibits to be filed with the Registration Statement and
will be mindful of the time needed by the Staff to review such
materials once filed.
Prospectus Cover Page
4.
Please disclose the offering price or price range.
Response
The
Company proposes to price the offering within a price range of
$1.00 to $1.50 per share of common stock, with a midpoint of $1.25
per share, which range and midpoint are disclosed in the Amendment.
We note that these terms are a bona fide estimate of the range of
the minimum and maximum offering price. Should the bona fide
estimates of these terms change, the figures presented in future
amendments to the Registration Statement may increase or
decrease.
5.
Please delete the paragraph “The information in this
prospectus is not complete . . .” on page ii since this
information is already disclosed on page i.
Response
The
paragraph referenced in the comment above has been removed from the
Amendment.
Alternative Prospectus Cover Page
6.
Please retain either the second paragraph beginning “Neither
the Securities and Exchange Commission . . .”, or the third
paragraph “These Securities have not been”, since this
information is redundant.
Response
The
third paragraph beginning “These Securities have not been. .
.. “ has been removed from the Amendment.
Prospectus Summary, page 2
Our Company, page 2
7.
Please disclose in this section, and in the “Overview”
Business section on page 23, that you currently have no products to
sell, no customers, no governmental approval to sell any products,
no revenues, no suppliers or production agreements, a going concern
opinion from your auditor and disclose your accumulated
deficit.
Response
The disclosure requested by the Staff in the
comment above is included in both the Prospectus Summary section of
the Amendment beginning on p. 2, under the heading
“Risk
Factors,” as well as in
the Business section beginning on p. 23,
under the heading “Overview.”
In addition, we have also included an additional
risk factor disclosing certain risks associated with our lack of
products and revenue the Risk Factor section, under the heading
“Risk
Factors Relating to Our Business,” beginning on p. 5 of the
Amendment.
8.
Please disclose in this section the percentage of your outstanding
stock Messrs. Norris, Barnes and Cohen, and their affiliates, will
own after the closing of these transactions.
Response
The disclosure requested by the Staff in the
comment above is included in the Prospectus Summary section of the
Amendment beginning on p. 2, under the heading
“Risk
Factors.” In addition, we
have also included an additional risk factor disclosing the
percentage of our issued and outstanding common stock held by
Messrs. Norris, Barnes and Cohen, and certain risks associated with
the concentration of shares held by these individuals. Please note
the disclosure added to the Amendment contains a placeholder for
the percentages held by each director individually and by the
directors as a group. The Company intends to complete this
disclosure once the public offering is priced. The new risk factor
appears under the heading “Risk Factors Relating to Our
Common Stock,” on p. 10
of the Amendment.
Alternate Pages; The Offering, page 4
9.
Please disclose the natural persons who control the selling
security holder, Petro River Oil Corp.
10.
Please disclose that Petro River Oil Corp. is an
underwriter.
11.
In addition to registering the distribution of shares to Petro
shareholders, please register the resale by these shareholders into
the market and provide Item 507 of Regulation S-K disclosure for
these shareholders and name them as underwriters.
Response
The disclosure requested by the Staff in comments
9, 10 and 11 above are included in the Alternate Pages to the
Amendment, in the section titled “The
Distribution,” beginning
on page 6.
Alternate Page; Risk Factors Related to the
Distribution
If the distribution, together with certain related transactions,
fails to qualify for tax-free treatment for U.S. federal income tax
purposes, then our shareholders, we and/or Petro River might be
subject to significant tax liability, page 5
12.
You reference “Material U.S. Federal Income Tax Consequences
of the Distribution.” Please provide this disclosure and file
a tax opinion as an exhibit, as applicable.
Response
The disclosure requested by the Staff in the
comment above is included in the Alternate Pages to the Amendment
in the Section titled “U.S. Federal Tax Consequences
of the Distribution”
beginning on page 10. As disclosed in the Amendment, the Company
has chosen not to file a tax opinion with the Amendment, as the
Company believes the tax consequences from the Distribution are not
material to Petro River shareholders.
Risk Factors, page 5
13.
Please add a new risk factor to discuss that your officers and
directors have no experience managing a public company or
developing law enforcement products, if true.
Response
The
Company has respectfully chosen not to include the risk factor
requested by the Staff in the comment above with respect to public
company experience, as each of our officers and directors have
experience managing a public company. Mr. Cohen currently serves as
the Executive Chairman of Petro River Oil Corp. (OTC PINK: PTRC)
and as a director of True Drinks Holdings, Inc. (OTC PINK: TRUU).
Mr. Barnes and Mr. Norris each served in executive management
positions, and, in the case of Mr. Norris, as a director of Turtle
Beach Corporation, formerly Parametric Sound Corporation (NASDAQ
GM: HEAR). Mr. Norris also served as a director of LRAD Corporation
(NASDAQ CM: LRAD).
Disclosure
regarding our lack of experience developing law enforcement
products is included it the risk factor beginning “We have no
experience developing law enforcement products. . . “ on page
8 of the Amendment.
14.
We note disclosure on page 38 that your common stock will be a
penny stock. Please add a new risk factor discussing the risks of
having a penny stock.
Response
The risk factor requested by the Staff in the
comment above is included in the Risk Factor section of the
Amendment, under the heading “Risk Factors Relating to Our
Common Stock,” beginning
on p. 10 of the Amendment.
If we are unable to protect our intellectual property. . . page
7
15.
Please disclose that your proposed product has no issued patent or
other intellectual property protection.
Response
The
disclosure requested by the Staff in the comment above is included
in the Amendment, in the aforementioned risk factor.
Business, page 23
16.
Please disclose the reasons for the share exchange and merger with
a non-operating company. Further, disclose the nature of Petro
River Oil Corp.’s business.
Response
The disclosure requested by the Staff in the
comment above is included in the
Business section of the Amendment beginning on page 23, as well as
the Alternate Pages in the section titled
“The
Distribution” beginning
on page 6.
Related Party Royalties, page 27
17.
Please disclose the nature of Syzygy Licensing, LLC’s
operations, if any. For instance, is this an entity that merely has
rights in the proposed product or does it manufacture and develop
other products and carry out operations.
Response
The disclosure requested by the Staff in the
comment above is included in the Business section of the Amendment,
under the heading “Related Party License and
Royalties” on page 28.
Syzygy Licensing, LLC is an invention, consulting and licensing
company that has in the past invented other products for licensing
but has no ongoing operations such as manufacturing. Mr. Barnes and
Mr. Norris are currently devoting full-time to the
registrant’s business.
Government Regulation, page 29
18.
We note disclosure that the BolaWrap 100 may be considered a
firearm and that you are seeking a ruling to determine the
appropriate classification. Please discuss the status of your
approval(s) and state from whom you are seeking a ruling to
determine the appropriate classification of your product. See Item
101(h)(4)(ix) of Regulation S-K.
Response
The disclosure requested by the Staff in the
comment above is included in the Business section of the Amendment,
under the heading “Government
Regulation” on page
29.
Employees and Executive Officers, page 30
19.
Provide more detail regarding your specific plan of operation for
the next year.
Response
The disclosure requested by the Staff in the
comment above is included in the Business section of the Amendment,
under the newly added heading “Plan of
Operation” on page
24.
Director Compensation, page 32
Executive Compensation, page 32
20.
Please add a summary compensation table for the compensation of
your named executive officers for the past fiscal year pursuant to
Items 402(n) of Regulation S-K.
Response
As
requested by the Staff in the comment above, a summary compensation
table has been added to the Amendment in the Executive Compensation
section on page 32.
21.
Please disclose whether the named executive officers will receive
compensation from the proceeds of the offering.
Response
The
Company does not plan to pay any compensation to its named
executive officer from the proceeds of the offering. Disclosure to
this effect is included in the Amendment in the Executive
Compensation section, beginning on page 32.
Certain Relationships and Related Party Transactions, page
34
22.
We note disclosure on page 17 regarding the “promoters”
and here that Mr. Barnes may be considered a promoter. Please
disclose information about your other promoters and comply with the
requirements of Item 404(c) of Regulation S-K. See Item 404(d)(2)
of Regulation S-K.
Response
The disclosure requested by the Staff in the
comment above is included in the Amendment, in the section titled
"Directors, Executive Officers and Promoters" beginning on page
31 for Mr. Barnes, as well as
Messrs. Norris and Cohen.
Plan of Distribution, page 38
23.
We note disclosure that your officers and directors will offer your
shares of common stock on your behalf to friends, family members
and business acquaintances. Please elaborate as to how investors
will learn about the offering. For example, will your officers and
directors solicit investors through direct mailings and/or personal
contacts? How would your officers and directors identify those who
might have an interest in purchasing shares of common
stock?
Response
The
disclosure requested by the Staff in the comment above is included
in the Plan of Distribution section of the Amendment, beginning on
page 38.
Notes to the Financial Statements
6. Related Party Transactions, page F-11
24.
We note that all patent applications and technology related to the
Bola 100 have been assigned to your company subject to the royalty
obligation. Please tell us how this transaction was accounted
for.
Response
The assignment of all patent and technology
related to BolaWrap™ 100 was determined to not require any
separate accounting treatment, other than disclosure of possible
future royalties. As described in Note 1 to the Company Financial
Statements in the Amendment, under the heading
“Research and Development
Costs,” the Company
includes contract development costs with research and development
costs. As required by the Amended and Restated Intellectual
Property License Agreement, by and between the Company and Syzygy
Licensing, LLC (“Syzygy”), dated September 30, 2016 and attached to
the Registration Statement as Exhibit 10.1 (the
“License
Agreement”), the Company
has paid all of Syzygy’s patent, prototype and development
costs to date, including reimbursing Syzygy for certain costs, as
described in Note 6 to the Financial Statements on page F-11 of the
Amendment. Syzygy’s basis in the technology is zero as a
result of the reimbursement and payments by the
Company.
In
accordance with the License Agreement, the only other consideration
to be paid to the Company by Syzygy is for future royalties.
Management concluded these royalties are for future use of an asset
and not a purchase price, in accordance with guidance provided by
ASC -730-20-5-9. Even if the future royalties were deemed a
purchase price consideration, since all costs have been paid by the
Company, Syzygy’s basis in the technology at transfer was
$-0-. ASC 805-50-30-5 provides that transfers of assets under
common control (Syzygy and the Company) are at the
transferor’s carrying amount, in this case $-0-.
Condensed Balance Sheet, page F-13
25.
We note your disclosure on alternate prospectus page four regarding
the intended dividend distribution to Petro River. Please reflect
this distribution to Petro River on a pro forma basis alongside
your most recent historical balance sheet as required by SAB Topic
1:B:3 or tell us why you do not believe this disclosure is
necessary.
Response
The
Company has respectfully chosen not to include pro forma
information regarding a distribution to Petro River, as required by
SAB Topic 1:B:3 as the Company has already issued the 400,838
shares of its common stock to Petro River, which Petro River
intends dividend to its shareholders. Accordingly, these shares are
already outstanding and reflected in the Condensed Balance Sheet
and Statement of Stockholders Equity. The dividend from one
shareholder to the Petro River shareholders has no effect on the
Condensed Balance Sheet of the Company.
With
specific reference to Topic 1:B:3 there is no (a) dividend declared
by the Company requiring retroactive or pro forma effect; and (b)
no impact on EPS or any other measure affecting the Company as a
result of the Petro dividend to its shareholders.
* *
*
If you
have any questions or would like to discuss our response, please
contact the undersigned at (619) 795-7050.
Very
truly yours,
/s/ Jessica R. Sudweeks
Jessica
R. Sudweeks
Partner
Disclosure Law
Group
President and Chief
Financial Officer
Wrap
Technologies, Inc.
