As
filed with the Securities and Exchange Commission on June 21,
2017
Registration
No. 333-217340
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington
D.C. 20549
REGISTRATION STATEMENT ON
FORM S-1/A
(Amendment No. 2)
UNDER THE SECURITIES ACT OF 1933
WRAP TECHNOLOGIES,
INC.
(Exact
name or Registrant as specified in its charter)
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Delaware
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3480
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98-0551945
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(Primary Standard
Industrial Classification Number)
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(IRS
Employer Identification Number)
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4620
Arville Street, Suite E
Las
Vegas, Nevada 89103
(800)
583-2652
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(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
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James
A. Barnes
President
and Chief Financial Officer
Wrap
Technologies, Inc.
4620
Arville Street, Suite E
Las
Vegas, Nevada 89103
(800) 583-2652
(Name,
address including zip code, and telephone number, including area
code, of agent for service)
Copies of all communications to:
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Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group,
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a Professional Corporation
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600 West Broadway, Suite 700
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San Diego, California 92101
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Tel: (619) 272-7050
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Fax: (619) 330-2101
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC:
As
soon as practicable after the effective date of the Registration
Statement
If any
of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following
box. [X]
If this
form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this
form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
If this
form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
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. (Check one):
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[ ]
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(Do not check if a smaller reporting company)
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Emerging growth company
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[X]
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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. [ ]
CALCULATION OF REGISTRATION FEE
Title
Of Each Class Of
Securities
To Be Registered
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Amount to be
Registered
(1)(2)
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Proposed
Maximum
Offering
Price
Per
Share (1)
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Proposed
Maximum
Aggregate
Offering
Price (2)
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Amount
of
Registration
Fee
(1)
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Common Stock, par
value, $0.0001 per share
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2,666,666
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$ 1.50
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$ 4,000,000
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$ 463.60(4)
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Shares of common
stock to be distributed as a dividend to shareholders of Petro
River Oil Corp.
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400,838
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$ 1.50
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$ 601,257
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$ 69.69
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Total
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$ 4,601,257
(3)
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$ 533.29
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(1)
Estimated solely
for purposes of calculating the registration fee pursuant to Rule
457(o) of the Securities Act of 1933, as amended (the
“Securities Act
”).
(2)
Pursuant to Rule
416 under the Securities Act, there is also being registered such
indeterminable additional securities as may be issued to prevent
dilution as a result of stock splits, stock dividends or similar
transactions.
(3)
Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(g) under the Securities Act.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file an amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to
said Section 8(a), may determine.
EXPLANATORY NOTE
This registration statement contains two forms of
prospectus. One form of prospectus, which we refer to as the
primary public offering prospectus, is to be used in connection
with a public offering of up to 2,666,666 shares of our common
stock. The other form of prospectus, which we refer to as the
resale prospectus, is to be used in connection with the
distribution by Petro River Oil Corp. of 400,838 shares of our
common stock upon the effectiveness of the registration statement
of which such prospectus forms a part. The primary public offering
prospectus and the resale prospectus will be identical in all
respects except for the alternate pages for the resale prospectus
included herein, which are labeled “Alternate Page for Resale
Prospectus.”
The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state or other jurisdiction where the offer or
sale is not permitted.
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Prospectus
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____________, 2017
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2,666,666 shares of Common
Stock
Wrap Technologies, Inc. (the
“Company”) is offering up to 2,666,666 shares of
common stock, par value of $0.0001 (“Common
Stock”)
(“Shares”), at a public offering price of $1.50 per
share. There is currently no public market for our Common Stock. In
addition:
1.
This
is a "self-underwritten" public offering, with no minimum purchase
requirement;
2.
The
Company is not using an underwriter for this offering;
and
3.
There
is no arrangement to place the proceeds from this offering in an
escrow, trust or similar account.
The offering will commence on the effective date of this prospectus
and will terminate on or before _______, 2017. We will not
extend the offering beyond the termination date. In our sole
discretion, we may terminate the offering before all of Shares are
sold.
We will sell the Shares ourselves, on a best efforts basis for a
period of up to twelve months from the effective date of this
prospectus. We do not plan to use underwriters or pay any
commissions. There is no minimum number of Shares we must
sell. As such, no funds raised from the sale of Shares will
go into escrow, trust or another similar arrangement. Because
there is no minimum to our offering, if we fail to raise sufficient
capital to execute our business plan, investors could lose their
entire investment and will not be entitled to a
refund.
The Company is not a blank check company and does not have any
intention to engage in a merger or other business
combination.
While a market maker has filed a Rule 211 application with the
Financial Industry Regulatory Authority (“FINRA”) so that our Common Stock
may be quoted on an interdealer quotation system such as the
OTC Markets, such efforts may not be successful and our shares
may never be quoted and owners of our Common Stock may not have a
market in which to sell the shares. Also, no estimate may be given
as to the time that this application process will
require.
Due to the uncertainty of our ability to meet our current operating
and capital expenses, our independent auditors have included a
going concern opinion in their report on our audited financial
statements for the period ending December 31, 2016. The notes to
our financial statements contain additional disclosure describing
the circumstances leading to the issuance of a going concern
opinion by our auditors.
An investment in
our securities involves a high degree of risk. We urge you to read carefully
the “Risk Factors” section beginning on page 5 where we
describe specific risks associated with an investment in Wrap
Technologies, Inc. and our securities before you make your
investment decision. You should purchase our securities only if you
can afford a complete loss of your purchase.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities,
or determined if this prospectus is truthful or
complete. Any representation to the contrary is a
criminal offense.
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Net
Proceeds
to
Us if 25% of
Shares
Sold
(666,666
Shares) ($)
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Net
Proceeds
to
Us if 50% of
Shares
Sold
(1,333,333
Shares) ($)
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Net
Proceeds
to
Us if 75% of
Shares
Sold
(2,000,000
Shares) ($)
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Net
Proceeds
to
Us if 100% of
Shares
Sold
(2,666,666
Shares) ($)
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Public Offering
Price per Share
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$ 1.50
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50,000
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(1)
The total amount of offering expenses is
estimated to be $50,000. See “ Use of
Proceeds” for
additional information.
(2)
There are no underwriting discounts or commissions being paid in
connection with this offering. Our officers and directors will not
receive any compensation for their role in offering or selling the
Shares in this offering.
(3)
Net Proceeds includes the deduction of offering expenses estimated
to be $50,000.
We are an “emerging growth company” under the Federal
securities laws and will therefore be subject to reduced public
company reporting requirements. Investment in the Shares offered by
this prospectus involves a high degree of risk. You may lose your
entire investment.
The date of this Prospectus is __, 2017
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Generation 2
Pre-Production Functioning Version of BolaWrap™ Model
100
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Artist Rendering of
Planned Production Version of the BolaWrap 100
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Illustration of
Hand-Held Size of BolaWrap 100
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TABLE OF CONTENTS
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Descriptive
Title
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Page
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PROSPECTUS
SUMMARY
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2
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RISK
FACTORS
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5
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JUMPSTART
OUR BUSINESS STARTUPS ACT
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11
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SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
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12
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USE OF
PROCEEDS
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14
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MARKET
PRICE OF COMMON STOCK AND RELATED
MATTERS
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15
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ABSENCE
OF PUBLIC MARKET AND DIVIDEND POLICY
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15
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CAPITALIZATION
AND FINANCING
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16
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DILUTION
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17
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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18
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BUSINESS
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23
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MANAGEMENT
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31
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EXECUTIVE
COMPENSATION
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32
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SECURITY
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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33
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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34
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DESCRIPTION
OF OUR SECURITIES
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35
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SHARES
ELIGIBLE FOR FUTURE SALES
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37
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PLAN OF
DISTRIBUTION
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38
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DETERMINATION
OF OFFERING PRICE
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38
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LEGAL
MATTERS
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39
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EXPERTS
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39
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WHERE
YOU CAN FIND MORE INFORMATION
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39
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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ABOUT THIS PROSPECTUS
You
should rely only on the information contained in or incorporated by
reference into this prospectus and any prospectus supplement or
free writing prospectus authorized by us. To the extent the
information contained in this prospectus differs or varies from the
information contained in any document filed prior to the date of
this prospectus and incorporated by reference, the information in
this prospectus will control. We have not authorized any other
person to provide you with different information. If anyone
provides you with different or inconsistent information, you should
not rely on it. The information in this prospectus is accurate only
as of the date it is presented. You should read this prospectus,
and any prospectus supplement or free writing prospectus that we
have authorized for use in connection with this offering, in their
entirety before investing in our securities.
We
are offering to sell, and seeking offers to buy, the securities
offered by this prospectus only in jurisdictions where offers and
sales are permitted. The distribution of this prospectus and the
offering of the securities offered by this prospectus in certain
jurisdictions may be restricted by law. This prospectus does not
constitute, and may not be used in connection with, an offer to
sell, or a solicitation of an offer to buy, any securities offered
by this prospectus in any jurisdiction in which it is unlawful for
such person to make such an offer or solicitation.
Unless the context
otherwise requires, the words “Wrap
Technologies, Inc.,”
“Wrap
Technologies,”
“Wrap
Tech,”
“we,”
“the
Company,”
“us”
and “our”
refer to Wrap Technologies, Inc., a Delaware
corporation.
Unless indicated
otherwise, the information included in this prospectus assumes that
(i) the shares of common stock to be sold in this offering are sold
at $1.50 per share, as set forth on the
cover page of this prospectus, and (ii) all shares offered by us in
this offering are sold.
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PROSPECTUS
SUMMARY
The following is a summary of the material terms of the offering
described in this prospectus. This summary is qualified
in its entirety by the more detailed information set forth
elsewhere in this prospectus, including our financial statements
and notes thereto. We urge you to read carefully the entire
prospectus, especially the risks discussed under “Risk
Factors” and our financial statements.
Our Company
We are a development stage security technology company focused on
delivering innovative solutions to customers, primarily law
enforcement and security personnel. We plan to introduce our first
product, the BolaWrap™ 100, during 2017.
The
BolaWrap™ 100 is a hand-held remote restraint device that
discharges an eight-foot bola style Kevlar® tether to
entangle an individual at a range of 10-25 feet. Inspired by law
enforcement professionals, the small but powerful BolaWrap™
100 assists law enforcement to safely and effectively control
encounters. Law enforcement agencies authorize a continuum of force
options:
●
physical control
– soft techniques of grabs and holds progressing to hard
techniques such as punches and kicks;
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less-lethal weapons
- batons, pepper spray, impact munitions and CEWs (conducted
electrical weapons); and
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lethal force
– deadly weapons such as firearms.
BolaWrap™
100 offers law enforcement a new tool to remotely and temporarily
control an individual or impede flight by targeting and wrapping an
individual’s legs.
The
small, light but rugged BolaWrap™ 100 is designed for weak
hand operation to provide remote restraint while other use of force
continuum options remain open. The design offers wide latitude of
accuracy to engage and restrain targeted legs of a subject. Quick
eject and rapid reload of bola cartridges allows one device to be
reused in a single encounter or in multiple
encounters.
There
are limited effective options for remote engagement so when verbal
commands go unheeded law enforcement is faced with either hands on
engagement or other potentially injurious less lethal or lethal
force. We believe our new tool is essential to meet modern policing
requirements with individuals frequently not responding to verbal
commands and to assuage public demands for less lethal policing. We
believe our device minimizes the need to employ other uses of force
including combat and less-lethal weapons. Many less-lethal weapons
rely on “pain compliance” often escalating encounters
with potential for injury.
We intend to commercialize the BolaWrap™ 100 by initially
targeting sales to the approximate 18,000 United States law
enforcement agencies with approximately 765,000 full time officers
and to the United States Border Patrol with 21,000 border patrol
agents. Thereafter we intend to target law enforcement agencies and
security personnel worldwide.
Although we are working towards commercialization of
BolaWrap™ 100, we have not yet established supplier or
production arrangements. We have not generated any revenues to
date, have no customers and currently have no products available
for sale. Sale of our planned products may require
additional governmental licenses or approvals that we
have not yet obtained. Our independent registered public accounting
firm stated in their audit opinion issued in connection with our
balance sheet and other financial statements as of December 31,
2016 that our net losses and our requirement to secure additional
financing raised substantial doubt about our ability to continue as
a going concern. We had an accumulated deficit as of March 31,
2017 of $436,111. See “Risk
Factors” included in this
prospectus for additional information regarding risks and
uncertainties associated with our
business.
Our Strengths and Challenges
We believe the following competitive strengths position us for
future operating success, growth and ultimately,
profitability:
●
We
are pioneering the BolaWrap™ 100 device. There has been no
restraint or less-lethal product broadly accepted by law
enforcement since the 1994 introduction of the Taser CEW (conducted
electrical weapon also referred to as CED, or conducted energy
device);
●
We
believe we are creating important intellectual property around our
product;
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Our
initial focus on BolaWrap™ 100 affords us great sales and
marketing flexibility to respond to and meet customer requirements;
and
●
Our
management team has developed a strong technical base in this
technology and is experienced in innovating and bringing products
to market. We plan to develop a line of BolaWrap™
entanglement products and develop additional security technology
products.
We expect to face significant challenges and uncertainties in
executing our business plan, including but not limited to the
following:
●
We
need to rapidly, profitably and successfully commercialize the
BolaWrap™ 100 product and develop additional versions of the
technology, and develop new technologies and products;
●
Our
products must meet the needs of customers and we need to generate
sufficient revenues to sustain profitable operations;
●
We
have limited personnel and financial resources to develop required
business functions, including development, production, marketing,
sales, distribution, service and administration;
●
We
will be required to obtain additional financing until we are able
to produce sufficient revenues and profitability to sustain future
operations; and
●
We face the uncertainties and risks facing any
development stage company, including but not limited to, the risk
factors described in the section entitled
“Risk
Factors” starting on page
5.
Our Strategy
Our goal is to realize the potential of a new remote restraint
device targeting law enforcement and security personnel. We aim to
produce a product line starting with the BolaWrap™ 100 to
meet the requirements of these customers. The key elements of our
strategy include:
●
Produce
a product line meeting customer requirements as a new tool to aid
in the retention of individuals to make encounters more effective
and less dangerous to law enforcement and the public;
●
Develop
a robust production and supply system to support our customers;
and
●
Develop
relationships with customers requiring large numbers of products,
mainly larger city police departments and large
agencies.
We also plan to explore markets for use by security and related
personnel and develop international distribution.
Risk Factors
Our business is subject to substantial risk. Please carefully
consider the “Risk
Factors” beginning on
page 5 of this prospectus for a discussion of the factors you
should carefully consider before deciding to purchase the
securities offered by this prospectus. These risks include, among
others:
●
we are a development stage technology company with no current
revenues or approved products, and limited experience developing
security technology for law enforcement or other security
personnel, which makes it difficult to assess our future
viability;
●
we depend heavily on the success of BolaWrap™ 100, and we
cannot be certain that we will be able to obtain regulatory
approval for, or successfully commercialize, BolaWrap™ 100,
or any future products;
●
we face significant competition, and if we are unable to compete
effectively, we may not be able to achieve or maintain significant
market penetration or improve our results of
operations;
●
if we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects;
●
we have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future; and
●
following the completion of the transactions described in this
prospectus, our directors will own an aggregate of approximately
62.2% of our outstanding voting securities,
assuming we sell 2,666,666 Shares, and will have the
potential ability to exert influence on the outcome of issues
requiring approval by the Company’s
shareholders.
Corporate Information
Our
principal executive offices are located at 4620 Arville Street,
Suite E, Las Vegas, Nevada 89104, and our telephone number is
(800) 583-2652. Our website addresses are
www.wraptechnologies.com and www.bolawrap.com. Information
contained on, or that can be accessed through, our websites, is not
incorporated by reference into this prospectus, and you should not
consider information on our website to be part of this
prospectus.
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The Offering
Securities we are
offering
2,666,666
shares of
Common Stock
Common Stock outstanding after this
offering
22,666,666
shares of Common Stock.
Use of proceeds
We estimate that
the maximum net proceeds to us from this offering, after deducting
the estimated offering expenses payable by us, and based on the
public offering price of $1.50 per Share, which is set forth on the
cover page of this prospectus, will be approximately
$3.95 million. We intend to use the net proceeds of
this offering principally for research, development and tooling,
and sales and marketing. See “Use of Proceeds” for a more
complete description of the intended use of proceeds from this
offering.
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RISK FACTORS
In addition to the information contained elsewhere in this
prospectus, you should consider carefully the following risk
factors related to Wrap Tech. If any of the risks described below
actually occur, our business, financial condition, results of
operations, cash flows and stock price could be materially
adversely affected. This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in
this prospectus. See “Special Note About Forward-Looking
Statements” on page
12.
Risk Factors Relating to Our Business
We have a history of operating losses, expect additional losses and
may not achieve or sustain profitability.
We have a history of operating losses and expect additional losses
as we introduce our new product line and until we achieve revenues
and resulting margins to offset our operating costs. Our net
loss for the period from inception (March 2, 2016) to December 31,
2016 was $234,356 and for the three months ended March 31, 2017 was
$201,755. Our ability to achieve future profitability is dependent
on a variety of factors, many outside our control. Failure to
achieve profitability or sustain profitability, if achieved, may
require us to continue to raise additional financing which could
have a material negative impact on the market value of our Common
Stock.
Our independent auditors have expressed substantial doubt about our
ability to continue as a going concern.
In their audit opinion issued in connection with our balance sheet
as of December 31, 2016 and our related statements of operations,
changes in owners equity and cash flows for the period then ended,
our independent registered public accounting firm stated that our
net losses and our requirement to secure additional financing
raised substantial doubt about our ability to continue as a going
concern. We have prepared our financial statements on a
going concern basis which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business for the foreseeable future. Our financial statements do
not include any adjustments that would be necessary should we be
unable to continue as a going concern and, therefore, be required
to liquidate our assets and discharge our liabilities in other than
the normal course of business, and at amounts different from those
reflected in our financial statements. If we are unable
to continue as a going concern, our shareholders may lose a
substantial portion or all of their investment.
We need additional capital to execute our business plan, and
raising additional capital, if possible, by issuing additional
equity securities may cause dilution to existing shareholders. In
addition, raising additional capital by issuing additional debt
financing may restrict our operations.
While
we may be able to generate some funds from product sales, existing
working capital will not be sufficient due to product introduction
costs, operating losses and other factors. Principal factors
affecting the availability of internally generated funds
include:
●
failure of product
sales to meet planned projections;
●
working capital
requirements to support business growth;
●
our ability to
control spending; and
●
acceptance of our
product in planned markets.
In the
event we are required to raise additional capital through the
issuance of equity or convertible debt securities, the percentage
ownership of our shareholders could be diluted significantly, and
these newly issued securities may have rights, preferences or
privileges senior to those of our existing shareholders. In
addition, the issuance of any equity securities could be at a
discount to the market price.
If we
incur debt financing, the payment of principal and interest on such
indebtedness may limit funds available for our business activities,
and we could be subject to covenants that restrict our ability to
operate our business and make distributions to our
shareholders. These restrictive covenants may include
limitations on additional borrowing and specific restrictions on
the use of our assets, as well as prohibitions on our ability to
create liens, pay dividends, redeem stock or make
investments. There is no assurance that any equity or debt
financing transaction will be available on acceptable terms, or at
all.
We are a development stage technology company with no current
revenues or approved products, and limited experience developing
security technology for law enforcement or other security
personnel, as well as other areas required for the successful
development and commercialization of BolaWrap™ 100, our first
product, which makes it difficult to assess our future
viability.
We are a development stage technology company. Although our we are
currently in the process of commercializing our first product,
BolaWrap™ 100, we currently have no approved products and
currently generate no revenues, and we have not yet fully
demonstrated an ability to overcome many of the fundamental risks
and uncertainties frequently encountered by development stage
companies in new and rapidly evolving fields of technology. To
execute our business plan successfully, we will need to accomplish
the following fundamental objectives, either on our own or with
strategic collaborators:
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successfully commercialize BolaWrap™ 100, and develop future
products for commercialization;
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develop and obtain required regulatory approvals for
commercialization of products we produce;
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establish an intellectual property portfolio for BolaWrap™
100 and other future products;
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establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
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●
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gain market acceptance for BolaWrap™ 100 and/or other future
products; and
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obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of BolaWrap™ 100
and/or other future products.
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Our principal product remains under development, and has not yet
been produced in any commercial quantities. We may incur
significant and unpredictable warranty costs as our products are
introduced and produced.
Our principal product remains under development, and has not been
formally introduced into the marketplace. No assurance can be
provided that we can successfully produce commercial quantities of
our principal product. We generally expect to warrant our products
to be free from defects in materials and workmanship for a period
of up to one year from the date of purchase. We may incur
substantial and unpredictable warranty costs from post-production
product or component failures. Future warranty costs could further
adversely affect our financial position, results of operations and
business prospects.
We are materially dependent on the acceptance of our product by the
law enforcement market. If law enforcement agencies do not purchase
our product, our revenues will be adversely affected and we may not
be able to expand into other markets, or otherwise continue as a
going concern.
A
substantial number of law enforcement agencies may not purchase our
remote restraint product. In addition, if our product is not widely
accepted by the law enforcement market, we may not be able to
expand sales of our product into other markets. Law enforcement
agencies may be influenced by claims or perceptions that our
product is not effective or may be used in an abusive manner. Sales
of our product to these agencies may be delayed or limited by such
claims or perceptions.
We will be dependent on sales of the BolaWrap™ 100 product,
and if this product is not widely accepted, our growth prospects
will be diminished.
We
expect to depend on sales of the BolaWrap™ 100 and related
cartridges for the foreseeable future. A lack of demand for this
product, or its failure to achieve broad market acceptance, would
significantly harm our growth prospects, operating results and
financial condition.
If we are unable to manage our projected growth, our growth
prospects may be limited and our future profitability may be
adversely affected.
We
intend to expand our sales and marketing programs and our
manufacturing capability. Rapid expansion may strain our
managerial, financial and other resources. If we are unable to
manage our growth, our business, operating results and financial
condition could be adversely affected. Our systems, procedures,
controls and management resources also may not be adequate to
support our future operations. We will need to continually improve
our operational, financial and other internal systems to manage our
growth effectively, and any failure to do so may lead to
inefficiencies and redundancies, and result in reduced growth
prospects and profitability.
We may face personal injury and other liability claims that harm
our reputation and adversely affect our sales and financial
condition.
Our
product is intended to be used in confrontations that could result
in injury to those involved, whether or not involving our product.
Our product may cause or be associated with such injuries. A person
injured in a confrontation or otherwise in connection with the use
of our product may bring legal action against us to recover damages
on the basis of theories including personal injury, wrongful death,
negligent design, dangerous product or inadequate warning. We may
also be subject to lawsuits involving allegations of misuse of our
product. If successful, personal injury, misuse and other claims
could have a material adverse effect on our operating results and
financial condition. Although we carry product liability insurance,
significant litigation could also result in a diversion of
management’s attention and resources, negative publicity and
an award of monetary damages in excess of our insurance
coverage.
Our future success is dependent on our ability to expand sales
through direct sales or distributors, and our inability to grow our
sales force or recruit new distributors would negatively affect our
sales.
Our
distribution strategy is to pursue sales through multiple channels
with an emphasis on direct sales and, in the future, independent
distributors. Our inability to recruit and retain sales personnel
and police equipment distributors who can successfully sell our
products could adversely affect our sales. If we do not
competitively price our products, meet the requirements of any
future distributors or end-users, provide adequate marketing
support, or comply with the terms of any distribution arrangements,
such distributors may fail to aggressively market our product or
may terminate their relationships with us. These developments would
likely have a material adverse effect on our sales. Should we
employ distributors our reliance on the sales of our products by
others also makes it more difficult to predict our revenues, cash
flow and operating results.
We expect to expend significant resources to generate sales due to
our lengthy sales cycle, and such efforts may not result in sales
or revenue.
Generally,
law enforcement agencies consider a wide range of issues before
committing to purchase a product, including product benefits,
training costs, the cost to use our product in addition to, or in
place of other use of force products, product reliability and
budget constraints. The length of our sales cycle may range from
30 days to a year or more. We may incur substantial selling
costs and expend significant effort in connection with the
evaluation of our product by potential customers before they place
an order. If these potential customers do not purchase our product,
we will have expended significant resources without corresponding
revenue.
Most of our intended end-users are subject to budgetary and
political constraints that may delay or prevent sales.
Most of
our intended end-user customers are government agencies. These
agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In
addition, these agencies experience political pressure that may
dictate the manner in which they spend money. As a result, even if
an agency wants to acquire our product, it may be unable to
purchase due to budgetary or political constraints. Some government
agency orders may also be canceled or substantially delayed due to
budgetary, political or other scheduling delays which frequently
occur in connection with the acquisition of products by such
agencies.
Government regulation of our products may adversely affect
sales.
Our
device is classified as a firearm regulated by the
Bureau of Alcohol, Tobacco and Firearms involving substantial
regulatory compliance. Our device may also face state restrictions
especially regarding sales to security agencies. Our product sales
may be significantly affected by federal, state and local
regulation. Failure to comply with regulations could also result in
the imposition of fines, penalties and other actions that could
adversely impact our financial position, cash flows and operating
results.
Our
product may also be controlled by the United States Department of
Commerce (“DOC”), for export directly from
the United States. Consequently, we may need to obtain an export
license from the DOC for the export of our product from the United
States other than to Canada. Compliance with or changes in U.S.
export regulations could significantly and adversely affect any
future international sales.
Certain
foreign jurisdictions may restrict the sale of our device limiting
our international sales opportunities.
Our products, including BolaWrap™ 100, have no issued patents
or other intellectual property protection. If we are unable
to protect our intellectual property, we may lose a competitive
advantage or incur substantial litigation costs to protect our
rights.
Our
future success depends in part upon our proprietary technology.
None
of our products, including BolaWrap™ 100, have any issued
patented or other intellectual property protection. Our
protective measures taken thus far, including pending patents,
trademarks and trade secret laws, may prove inadequate to protect
our proprietary rights. There can be no assurance we will be
granted any patent rights from pending patents. The scope of any
possible patent rights may not prevent others from developing and
selling competing products. The validity and breadth of claims
covered in any possible patents involve complex legal and factual
questions, and the resolution of such claims may be highly
uncertain, lengthy, and expensive. In addition, any patents, if
granted, may be held invalid upon challenge, or others may claim
rights in or ownership of our patents.
Our competitive position will be seriously damaged if our products
are found to infringe on the intellectual property rights of
others.
Other companies and our competitors may currently own or obtain
patents or other proprietary rights that might prevent, limit or
interfere with our ability to make, use or sell our
products. Any intellectual property infringement claims
against us, with or without merit, could be costly and
time-consuming to defend and divert our management’s
attention from our business. In the
event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our
business and operating results could be adversely affected. Any
litigation or claims, whether or not valid, could result in
substantial costs and diversion of our resources. An adverse result
from intellectual property litigation could force us to do one or
more of the following:
●
cease
selling, incorporating or using products or services that
incorporate the challenged intellectual property;
●
obtain
a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, if
at all; and
●
redesign
products or services that incorporate the disputed
technology.
If we are forced to take any of the foregoing actions, we could
face substantial costs and shipment delays and our business could
be seriously harmed. Although we carry general liability insurance,
our insurance may not cover potential claims of this type or be
adequate to indemnify us for all liability that may be
imposed.
In addition, it is possible that our customers may seek indemnity
from us in the event that our products are found or alleged to
infringe the intellectual property rights of others. Any such claim
for indemnity could result in substantial expenses to us that could
harm our operating results.
We have no experience developing law enforcement products. Our lack
of experience and competition in the law enforcement market
could reduce our sales and prevent us from achieving
profitability.
The law
enforcement market is highly competitive and our management team
has no experience developing law enforcement products. We face
competition from numerous larger, better capitalized, more
experienced and more widely known companies that make restraint
devices, less-lethal weapons and other law enforcement products.
Increased competition could result in greater pricing pressure,
lower gross margins and reduced sales, and prevent us from
achieving profitability.
We cannot predict our future operating results. Our quarterly and
annual results will likely be subject to fluctuations caused by
many factors, any of which could result in our failure to achieve
our expectations.
We currently expect our BolaWrap™ 100 product will be the
source of all of any future revenues. Revenues, if any, are
expected to vary significantly due to a number of factors. Many of
these factors are beyond our control. Any one or more of these
factors, including those listed below, could cause us to fail to
achieve our revenue expectations. These factors
include:
●
our
ability to develop and supply product to customers;
●
market
acceptance of, and changes in demand for, our
products;
●
gains
or losses of significant customers, distributors or strategic
relationships;
●
unpredictable
volume and timing of customer orders;
●
the
availability, pricing and timeliness of delivery of components for
our products;
●
fluctuations
in the availability of manufacturing capacity or manufacturing
yields and related manufacturing costs;
●
timing
of new technological advances, product announcements or
introductions by us and by our competitors;
●
unpredictable
warranty costs associated with our product;
●
budgetary
cycles and order delays by customers or production delays by us or
our suppliers;
●
regulatory
changes affecting the marketability of our products;
●
general
economic conditions that could affect the timing of customer orders
and capital spending and result in order cancellations or
rescheduling; and
●
general
political conditions in this country and in various other parts of
the world that could affect spending for the products that we
intend to offer.
Some or all of these factors could adversely affect demand for our
products and, therefore, adversely affect our future operating
results. As a result of these and other factors, we believe
that period-to-period comparisons of our operating results may not
be meaningful in the near term and accordingly you should not rely
upon our performance in a particular period as indicative of our
performance in any future period.
Our expenses may vary from period to period, which could affect
quarterly results and our stock price.
If we incur additional expenses in a quarter in which we do not
experience increased revenue, our results of operations will be
adversely affected and we may incur larger losses than anticipated
for that quarter. Factors that could cause our expenses to
fluctuate from period to period include:
●
the
timing and extent of our research and development
efforts;
●
investments
and costs of maintaining or protecting our intellectual
property;
●
the
extent of marketing and sales efforts to promote our products and
technologies; and
●
the
timing of personnel and consultant hiring.
Our dependence on third-party suppliers for key components of our
product could delay shipment of our products and reduce our
sales.
We will
depend on certain domestic and foreign suppliers for the delivery
of components used in the assembly of our product. Our reliance on
third-party suppliers creates risks related to our potential
inability to obtain an adequate supply of components or
subassemblies and reduced control over pricing and timing of
delivery of components and subassemblies. Specifically, we will
depend on suppliers of sub-assemblies, machined parts, injection
molded plastic parts, and other miscellaneous custom parts for our
product. We do not have any long-term supply agreements with any
planned suppliers. Any interruption of supply for any material
components of our products could significantly delay the shipment
of our products and have a material adverse effect on our revenues,
profitability and financial condition.
Foreign currency fluctuations may reduce our competitiveness and
sales in foreign markets.
The
relative change in currency values creates fluctuations in product
pricing for future potential international customers. These changes
in foreign end-user costs may result in lost orders and reduce the
competitiveness of our products in certain foreign markets. These
changes may also negatively affect the financial condition of some
foreign customers and reduce or eliminate their future orders of
our products.
Loss of key management and other personnel could impact our
business.
Our business is substantially dependent on our officers and other
key personnel. The loss of an officer or any key personnel could
materially adversely affect our business, financial condition,
results of operations and cash flows. In addition, competition for
skilled and non-skilled employees among companies like ours is
intense, and the future loss of skilled or non-skilled employees or
an inability to attract, retain and motivate additional skilled and
non-skilled employees required for the operation and expansion of
our business could hinder our ability to conduct research
activities successfully, develop new products, attract customers
and meet customer shipments.
Inadequate internal controls and accounting practices could lead to
errors, which could negatively impact our business, financial
condition, results of operations and cash flows.
We will need to establish internal controls and management
oversight systems. Our small size and limited personnel and
consulting resources will make doing so more challenging than for
more established entities. We may not be able to prevent or detect
misstatements in our reported financial statements due to system
errors, the potential for human error, unauthorized actions of
employees or contractors, inadequacy of controls, temporary lapses
in controls due to shortfalls in transition planning and oversight
resource contracts and other factors. In addition, due to their
inherent limitations, such controls may not prevent or detect
misstatements in our reported financial results as required under
SEC rules, which could increase our operating costs or impair our
ability to operate our business. Controls may also become
inadequate due to changes in circumstances. It will be necessary to
replace, upgrade or modify our internal information systems from
time to time. If we are unable to implement these changes in a
timely and cost-effective manner, our ability to capture and
process financial transactions and support our customers as
required may be materially adversely impacted, which could harm our
business, financial condition, results of operations and cash
flows.
Risk Factors Relating to Our Common Stock
Currently,
there is no established public market for our Common Stock, and
there can be no assurances that any established public market will
ever develop or that our Common Stock will be quoted for trading,
and even if quoted, it is likely to be subject to significant price
fluctuations.
Prior
to the date of this prospectus, there has not been any established
trading market for our Common Stock, and there is currently no
established public market for our securities. A market maker has
filed an application with FINRA on our behalf so as to be able to
quote the price of our Common Stock on the OTC Markets commencing
upon the effectiveness of our registration statement of which this
prospectus is a part. There can be no assurance that the market
maker’s application will be accepted by FINRA nor can we
estimate as to the time period that the application will require.
We are not permitted to file such application on our own behalf.
If the application is accepted, there can be no assurances as
to whether:
●
any
market for our Shares will develop;
●
the
prices at which our Common Stock will trade; or
●
the
extent to which investor interest in us will lead to the
development of an active, liquid trading market. Active
trading markets generally result in lower price volatility and more
efficient execution of buy and sell orders for
investors.
In addition, our Common Stock is unlikely to be
followed by any market analysts, and there may be few institutions
acting as market makers for our Common Stock. Either of these
factors could adversely affect the liquidity and trading price of
our Common Stock. Until an orderly market develops in our Common
Stock, if ever, the price at which it trades is likely to fluctuate
significantly. Prices for our Common Stock will be determined in
the marketplace and may be influenced by many factors, including
the depth and liquidity of the market for shares of our Common
Stock, developments affecting our business, including the impact of
the factors referred to elsewhere in these Risk Factors, investor
perception of BoloWrapTM 100
and general economic and market conditions. No assurances can
be given that an orderly or liquid market will ever develop for the
shares of our Common Stock.
Our Common Stock
will be subject to “penny stock”
rules.
We expect that our Common Stock will be defined as a “penny
stock” under Rule 3a51-1 promulgated under the Exchange Act.
“Penny stocks” are subject to Rules 15g-2 through 15g-7
and Rule 15g-9, which impose additional sales practice requirements
on broker-dealers that sell penny stocks to persons other than
established customers and institutional accredited investors. Among
other things, for transactions covered by these rules, a
broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser’s written consent
to the transaction prior to sale. Consequently, these rules may
affect the ability of broker-dealers to sell our Common Stock and
affect the ability of holders to sell their shares of our Common
Stock in the secondary market. To the extent our Common Stock is
subject to the penny stock regulations, the market liquidity for
our shares will be adversely affected.
You will incur immediate and substantial
dilution of the price you pay for your Shares, which could affect
the overall monetary value of your shares. If the value of your
Shares significantly decreases, you could lose your
investment.
Any investment you
make in the Shares may result in the immediate and substantial
dilution of the net tangible book value of those Shares from the
price you pay for them, based upon the net tangible book value of
the Shares as it relates to the offering price.
We cannot predict the price range or volatility of our Common
Stock, and sales of a substantial number of shares of our Common
Stock may adversely affect the market price of our Common
Stock.
From time to time, the market price and volume of shares traded of
companies in the industry in which we operate experience periods of
significant volatility. Company-specific issues and developments
generally affecting our industries or the economy may cause this
volatility. The market price of our Common Stock may fluctuate in
response to a number of events and factors, including:
●
general
economic, market and political conditions;
●
quarterly
variations in results of operations or results of operations that
are below public market analyst and investor
expectations;
●
changes
in financial estimates and recommendations by securities
analysts;
●
operating
and market price performance of other companies that investors may
deem comparable;
●
press
releases or publicity relating to us or our competitors or relating
to trends in our markets; and
●
sales
of Common Stock or other securities by insiders.
In addition, broad market and industry fluctuations, investor
perception and the depth and liquidity of the market for our Common
Stock may adversely affect the trading price of our Common Stock,
regardless of actual operating performance.
Sales or distributions of a substantial number of shares of our
Common Stock in the public market or otherwise following the
distribution, or the perception that such sales could occur, could
adversely affect the market price of our Common Stock. Many of the
shares of our Common Stock, other than the shares held by executive
officers and directors, will be eligible for immediate resale in
the public market following the effectiveness of the registration
statement, of which this prospectus is a part. Investment criteria
of certain investment funds and other holders of our Common Stock
may result in the immediate sale of our Common Stock after such
effectiveness to the extent such stock no longer meets these
criteria. Substantial selling of our Common Stock, whether as a
result of the effectiveness of the registration statement or
otherwise, could adversely affect the market price of our Common
Stock.
We cannot assure you as to the price at which our Common Stock will
trade as a result of the offering. Until our Common Stock is fully
distributed and an orderly market develops in our Common Stock, the
price at which our Common Stock trades may fluctuate significantly
and may be lower or higher than the price that would be expected
for a fully distributed issue.
Our directors are among our largest shareholders, and may have
certain personal interests that may affect the
Company.
Following
the completion of the transactions described in this prospectus,
assuming we sell 2,666,666 Shares, our
directors, James A. Barnes, Elwood G. Norris and Scot Cohen will
own 11.6%, 27.4% and 23.2% of the
Company’s outstanding voting securities, respectively, or an
aggregate of approximately 62.2%. As a result, our
directors, acting individually or as a group, have the potential
ability to exert influence on the outcome of issues requiring
approval by the Company’s shareholders. This concentration of
ownership may have effects such as delaying or preventing a change
in control of the Company that may be favored by other shareholders
or preventing transactions in which shareholders might otherwise
recover a premium for their shares over current market
prices.
We may issue additional Common Stock in the future. The issuance of
additional Common Stock may reduce the value of your Common
Stock.
We may issue additional shares of Common Stock without further
action by our shareholders. Moreover, the economic and voting
interests of each stockholder will be diluted as a result of such
issuances. Although the number of shares of Common Stock that
shareholders presently own will not decrease, such shares will
represent a smaller percentage of the total shares that will be
outstanding after the issuance of additional shares. The
issuance of additional shares of Common Stock may cause the market
price of our Common Stock to decline.
Sales of Common Stock issuable on the exercise of any future
options or warrants may lower the price of our Common
Stock.
We adopted a stock option plan on March 31, 2017, which will
authorize the grant of options or restricted stock awards to
purchase up to 2.0 million shares of our Common Stock to our
employees, directors and consultants. The issuance of shares of
Common Stock issuable upon the exercise or conversion of options
could cause substantial dilution to existing holders of Common
Stock, and the sale of those shares in the market could cause the
market price of our Common Stock to decline. The potential dilution
from the issuance of these shares could negatively affect the terms
on which we are able to obtain equity financing.
We may issue preferred stock in the future, and the terms of the
preferred stock may reduce the value of your Common
Stock.
We are authorized to issue up to 5,000,000 shares of preferred
stock in one or more series. Our Board of Directors may determine
the terms of future preferred stock offerings without further
action by our shareholders. If we issue preferred stock, it could
affect your rights or reduce the value of your Common Stock. In
particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell
our assets to a third party. Preferred stock terms may include
voting rights, preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund
provisions.
The payment of dividends will be at the discretion of our Board of
Directors.
The declaration and amount of future dividends, if any, will be
determined by our Board of Directors and will depend on our
financial condition, earnings, capital requirements, financial
covenants, regulatory constraints, industry practice and other
factors our Board deems relevant. See “Dividend
Policy” on page 15 for
additional information on our dividend policy following the
distribution.
JUMPSTART OUR BUSINESS STARTUPS ACT
We
qualify as an “emerging growth company” as defined in
Section 101 of the Jumpstart our Business Startups Act
(“JOBS Act”) as
we do not have more than $1.0 billion in annual gross revenue and
did not have such amount as of December 31, 2016, our last fiscal
year. We are electing to use the extended transition period for
complying with new or revised accounting standards under Section
102(b)(1) of the JOBS Act.
We may
lose our status as an emerging growth company on the last day of
our fiscal year during which (i) our annual gross revenue exceeds
$1.0 billion or (ii) we issue more than $1.0 billion in
non-convertible debt in a three-year period. We will lose our
status as an emerging growth company (i) if at any time we are
deemed to be a large accelerated filer. We will lose our status as
an emerging growth company on the last day of our fiscal year
following the fifth anniversary of the date of the first sale of
common equity securities pursuant to an effective registration
statement.
As an
emerging growth company we are exempt from Section 404(b) of the
Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the
Securities Exchange Act of 1934. Such sections are provided
below:
●
Section 404(b) of
the Sarbanes-Oxley Act of 2002 requires a public company’s
auditor to attest to, and report on, management’s assessment
of its internal controls.
●
Sections 14A(a) and
(b) of the Securities and Exchange Act, implemented by Section 951
of the Dodd-Frank Act, require companies to hold shareholder
advisory votes on executive compensation and golden parachute
compensation.
As long
as we qualify as an emerging growth company, we will not be
required to comply with the requirements of Section 404(b) of the
Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the
Securities Exchange Act of 1934.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and other materials filed or to be filed by us, as
well as information in oral statements or other written statements
made or to be made by us, contain statements, including in this
document under the captions “Executive
Summary,” “Questions and Answers About the
Distribution,” “Risk Factors,” “The
Distribution,” “Capitalization and Financing,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and “Business”,
that are, or may be considered to be,
forward-looking statements. All statements that are not historical
facts, including statements about our beliefs or expectations, are
forward-looking statements. You can identify these forward-looking
statements by the use of forward-looking words such as
“outlook,” “believes,”
“expects,” “potential,”
“continues,” “may,” “will,”
“should,” “seeks,”
“approximately,” “predicts,”
“intends,” “plans,”
“estimates,” “anticipates,”
“foresees” or the negative version of those words or
other comparable words and phrases. Any forward-looking statements
contained in this information statement are based on our historical
performance and on current plans, estimates and expectations. The
inclusion of this forward-looking information should not be
regarded as a representation by us or any other person that the
future plans, estimates or expectations contemplated by us will be
achieved. There may be events in the future that we are not able to
predict accurately or control. The factors listed under
“Risk
Factors,” as well as any
cautionary language in this information statement, provide examples
of risks, uncertainties and events that may cause our results to
differ materially from the expectations we describe in our
forward-looking statements. You should be aware that the occurrence
of the events described in these risk factors and elsewhere in this
information statement could have a material adverse effect on our
business, results of operations and financial
position.
Forward-looking statements, whether express or implied, are not
guarantees of future performance and are subject to risks and
uncertainties that can cause actual results to differ materially
from those currently anticipated due to a number of factors, which
include, but are not limited to:
●
risks
that we may not have sufficient capital in the amounts and at the
times needed to finance our business;
●
risks
associated with our future revenue source dependent on a new
product line not yet in production;
●
risks
that any future potential revenue opportunities from customers may
not materialize to any meaningful degree or at all;
●
risks
of delays or unforeseen technical obstacles in arranging production
and bringing our new product line to market;
●
absence
of a public market for our Common Stock;
●
our
ability to attract and retain qualified personnel and key
employees;
●
our
ability to establish financial, administrative and other support
functions;
●
difficulty
in predicting the timing or outcome of new product development
efforts;
●
the
amount and timing of costs associated with research and development
of our product line;
●
our
ability to generate operating revenue;
●
market
adoption of our principal product;
●
the
competitive nature of the industry in which we
compete;
●
the
availability and price of acceptable raw materials and components
from third-party suppliers;
●
volatility
in the financial markets;
●
any
adverse outcome in litigation to which we may become a
party;
●
general
economic, political and business conditions that adversely affect
our company or our suppliers or any company to which we sell our
products;
●
changes
in costs, including changes in labor costs and raw material
prices;
●
the
impact on our product development of patents and other proprietary
rights licensed or owned by us; and
●
the
ability to successfully have our products manufactured in an
efficient, time-sensitive and cost-effective manner.
You should read this information statement completely and with the
understanding that actual future results may be materially
different than expectations. All forward-looking statements made in
this prospectus are qualified by these cautionary statements. These
forward-looking statements are made only as of the date of this
prospectus, and we do not undertake any obligation (and we
expressly disclaim any such obligation), other than as may be
required by law, to update or revise any forward-looking statements
to reflect changes in assumptions, the occurrence of unanticipated
events or changes in future operating results over time or
otherwise.
USE OF PROCEEDS
Any
proceeds received from the sale of the Shares will be deposited
directly into the operating account of the Company. We will be
attempting to raise up to $4 million, minus expenses of
approximately $50,000 from the sale of the Shares. These proceeds
will be used as follows:
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|
Gross
Proceeds
|
$4,000,000
|
$3,000,000
|
$2,000,000
|
$1,000,000
|
|
Less Offering
Expenses
|
(50,000)
|
(50,000)
|
(50,000)
|
(50,000)
|
|
NET OFFERING
PROCEEDS
|
$3,950,000
|
$2,950,000
|
$1,950,000
|
$950,000
|
|
Research,
Development and Tooling
|
$435,000
|
$435,000
|
$435,000
|
$435,000
|
|
Sales and
Marketing
|
$410,000
|
$410,000
|
$410,000
|
$210,000
|
|
General Corporate
Expense
|
$305,000
|
$305,000
|
$305,000
|
$305,000
|
|
Working
Capital
|
$2,800,000
|
$1,800,000
|
$800,000
|
$-0-
|
Our
offering expenses are comprised of legal and accounting
expenses. Our officers and directors will not receive
any compensation for their efforts in selling the
Shares.
Research
and development expense primarily relates to developing new
security products while tooling costs consist primarily of upfront
tooling costs to reduce the cost of BolaWrap™ 100 components.
Sales and marketing expense includes staffing costs, product
promotion costs and travel and customer support activities. General
corporate expense includes staffing and public company costs.
Working capital may also consist of capacity and staffing expansion
and administrative expense.
In the
event we are not successful in selling Shares resulting in gross
proceeds of at least $1.0 million, we would utilize any available
funds raised in the following order of priority:
●
For general and
administrative expenses, including legal and accounting fees and
administrative support expenses incurred in connection with our
reporting obligations with the Securities and Exchange Commission
(“SEC”);
●
For research,
development and tooling;
●
For general
corporate expenses.
We
estimate the need to raise a minimum of $1.5 million to implement
our plan of operations and provide sufficient working capital for
production and to finance sales operations.
MARKET PRICE OF COMMON STOCK AND RELATED MATTERS
Market Information
There
has been no public trading market for the shares of the
Company’s Common Stock. We intend to apply to list
our Common Stock on the OTCBB such that a secondary market will
commence following the offering.
Holders
As of
June 20, 2017, there were approximately 14
shareholders of record of our Common Stock and no holders of record
of our preferred stock. Our transfer agent is Colonial Stock Transfer
Company. Their telephone number
is (801) 355-5740.
ABSENCE OF PUBLIC MARKET AND DIVIDEND POLICY
Public Market
While
not currently a reporting company, we will become a Section 15(d)
reporting company as a result of the consummation of the
offering.
Dividend Policy
The payment of dividends is subject to the discretion of our board
of directors and will depend, among other things, upon our
earnings, our capital requirements, our financial condition and
other relevant factors. We have not paid or declared any dividends
upon our Common Stock since our inception and, by reason of our
present financial status and our contemplated financial
requirements do not anticipate paying any dividends upon our Common
Stock in the foreseeable future. Therefore, there can be no
assurance that any dividends on the Common Stock will ever be
paid.
CAPITALIZATION AND FINANCING
The
following sets forth our capitalization as of March 31, 2017 that
is derived from our unaudited financial information included
elsewhere in this prospectus:
●
On an actual basis;
and
●
On a pro forma
basis, giving affect to the sale and issuance by us of
2,666,666 shares of Common Stock in this offering, at
an offering price of $1.50 per share, and after
deducting estimated offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$344,629
|
$ 4,294,629
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock
|
-0-
|
-0-
|
|
Common
stock
|
2,000
|
2,266
|
|
Additional
paid-in capital
|
665,500
|
4,615,234
|
|
Accumulated
deficit
|
(436,111)
|
(436,111)
|
Total
stockholders’ equity
|
$231,389
|
$ 4,181,389
|
|
|
|
|
|
|
$231,389
|
$ 4,181,389
|
This
table should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our
historical financial statements, notes and pro forma information
included elsewhere in this prospectus.
DILUTION
Dilution
represents the difference between the offering price and the net
tangible book value per share immediately after completion of this
offering. Net tangible book value is the amount that results from
subtracting total liabilities and intangible assets from total
assets. Dilution arises mainly as a result of our arbitrary
determination of the offering price of the shares of Common Stock
being offered. Dilution of the value of the Common Stock you
purchase is also a result of the lower book value of the shares
held by our existing shareholders.
As of March 31, 2017, the net tangible book value of our Common
Stock was $231,389 or approximately $0.01 per share based upon 20.0
million shares of Common Stock issued and outstanding.
If 100% of the Shares Are Sold:
Upon
completion of this offering, in the event all of the shares are
sold, the net tangible book value of the 22,666,666
shares of Common Stock to be outstanding will be
$4,181,389 or approximately
$0.18 per share. The net tangible book value of the
shares of Common Stock held by our existing shareholders will be
increased by $0.17 per share without any additional
investment on their part. Investors in the offering will incur an
immediate dilution from $1.32 per share of Common
Stock to $0.18 per share.
After
completion of this offering, if 2,666,666 shares of
Common Stock are sold, investors in the offering will own
11.8% of the total number of shares then outstanding
for which they will have made cash investment of $4
million, or $1.50 per share. Our existing shareholders
will own 88.2% of the total number of shares of Common
Stock then outstanding, for which they have made contributions of
cash totaling $0.033 per share.
Upon
completion of this offering, in the event all Shares are not sold,
the following table details the range of possible outcomes from the
offering assuming the sale of 100%, 75%, 50% and
25%.
|
Funding
Level
|
|
$4,000,000
|
|
$3,000,000
|
|
$2,000,000
|
$
|
$1,000,000
|
|
|
|
|
|
|
|
|
|
|
Offering
price
|
|
$1.50
|
|
$1.50
|
|
$1.50
|
|
$1.50
|
|
Net tangible book
value per common share before offering(1)
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
Pro forma net
tangible book value per common share after
offering
|
|
$0.18
|
|
$0.14
|
|
$0.10
|
|
$0.06
|
|
Dilution to
investors
|
|
$1.32
|
|
$1.36
|
|
$1.40
|
|
$1.44
|
|
Dilution as a
percentage of offering price
|
|
|
|
|
|
|
|
|
(1)
Based on 20,000,000 shares of Common Stock outstanding as of March
31, 2017 and total stockholder's equity of $231,389 utilizing
unaudited financial statements.
Since
inception, the officers, directors, promoters and affiliated
persons have paid an aggregate average price of $0.024 per share of
Common Stock in comparison to the offering price of $1.50 per share
of Common Stock, set forth on the cover page of this
prospectus.
Further Dilution
The
Company may issue equity and debt securities in the future.
These issuances and any sales of additional Common Stock may
have a depressive effect upon the market price of the Company's
Common Stock and investors in this offering.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
financial statements and other financial information included
elsewhere in this information statement. The following discussion
may contain forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially
from those discussed in these forward-looking statements. Factors
that could cause or contribute to these differences include, but
are not limited to, those discussed below and elsewhere in this
information statement, particularly in “Risk Factors”
and “Special Note About Forward-Looking
Statements.”
We are a security technology company organized in March 2016
focused on delivering solutions to customers, primarily law
enforcement and security personnel. We plan to introduce our first
product, the BolaWrap™ 100, during 2017. We do not expect to report
revenues until production quantities are available for sale to
customers. There can be no assurance regarding the timing or amount
of future revenues from this product, if any.
Organization and Reverse Capitalization
Our
Company resulted from the March 31, 2017 merger of Wrap
Technologies, LLC (“Wrap
LLC”) with and into our wholly-owned subsidiary
MegaWest Energy Montana Corp. (“MegaWest”). Wrap LLC ceased
separate existence with MegaWest continuing as the surviving
entity. MegaWest changed its name to Wrap Technologies, Inc. and
amended and restated new articles of incorporation authorizing
150,000,000 shares of Common Stock, par value $0.0001, and
5,000,000 shares of preferred stock, par value $0.0001. All issued
and outstanding 835.75 membership units of Wrap LLC were exchanged
for 20.0 million shares of Common Stock of the
Company.
Wrap
LLC acquired privately held MegaWest from Petro River Oil Corp.
(“Petro River”)
on March 22, 2017 through the issuance of 16.75 membership units,
representing a 2% membership interest in Wrap LLC. Petro River is
owned 11% by Scot Cohen, its Executive Chairman, who also was a
Manager and the owner of a 26% membership interest in Wrap LLC, and
is a director and officer of the Company. MegaWest had no assets or
liabilities at the date of acquisition nor at December 31, 2016,
and is not considered an operating business.
Wrap
LLC’s acquisition of MegaWest and its subsequent merger with
and into MegaWest as a wholly-owned subsidiary of the Company, and
exchange of membership interests for Common Stock has been
accounted for as a reverse recapitalization of Wrap LLC (the
“Recapitalization”). Wrap LLC, now
the Company as a result of the Recapitalization, is deemed the
accounting acquirer with MegaWest the accounting acquiree. Our
financial statements are in substance those of Wrap LLC and are
deemed to be a continuation of its business from its inception date
of March 2, 2016. The Company’s balance sheet continues at
historical cost as the accounting acquiree had no assets or
liabilities and no goodwill or intangible assets were recorded as
part of the Recapitalization.
To reflect the Recapitalization, historical shares of Common Stock
and additional paid-in capital have been retroactively adjusted
using the exchange ratio of approximately 23,930.60 shares of
Common Stock for each membership unit of Wrap LLC.
Basis of Presentation – Going Concern
Since
inception in March 2016, we have generated significant losses from
operations and anticipate that we will continue to generate
significant losses from operations for the foreseeable future. In
order to continue as a going concern, our business will require
substantial additional investment that has not yet been
secured. Our loss from operations was $234,356 for the period
ended December 31, 2016 and $201,755 for the three months ended
March 31, 2017. The net cash used from operations and investing was
$187,428 for the period ended December 31, 2016 and $135,443 for
the three months ended March 31, 2017. On March 31, 2017, we had
$344,629 in cash. As of March 31, 2017, our obligations
included $155,050 of current liabilities and lease commitments of
approximately $48,300.
Our
management has concluded that due to the conditions described
above, there is substantial doubt about our ability to continue as
a going concern through April 17, 2018.
Management
has evaluated the significance of the conditions in relation to our
ability to meet our obligations and believes that the current cash
balance will provide sufficient capital to continue operations
through approximately June 2017. While we plan to raise capital to
address our capital deficiencies and meet our operating cash
requirements, there is no assurance that our plans will be
successful. Management cannot assure you that financing will be
available on favorable terms or at all. Additionally, if additional
capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in
dilution to our existing shareholders. Furthermore, despite
management’s optimism regarding our technology and planned
products, even in the event that the Company is adequately funded,
there is no guarantee that any products or product candidates will
perform as hoped or that such products can be successfully
commercialized.
Equity Compensation Plan
On
March 31, 2017, the Company approved the 2017 Equity Compensation
Plan (the “Plan”). The Plan provides for the
granting of nonqualified stock options, incentive stock options,
and restricted stock grants and units. The Plan allows for an
issuance of a maximum of 2,000,000 shares of Common Stock, with
awards made at the discretion of the board of directors. No awards
have been made to date. The Company plans to issue stock options in
the future to executive officers, directors, employees and
consultants.
Challenges, Opportunities, and Uncertainties
We will be required to establish and grow business functions
including production, marketing, sales, distribution, service and
administration. Until we generate revenues and margins or obtain
additional financing, we expect to have limited personnel to
accomplish these functions and will primarily rely on our
executives along with outside consultants and suppliers we intend
to engage for production and certain other services. Given our
limited personnel, there is risk and uncertainty whether we can
timely accomplish required functional activities and achieve
important milestones, including introducing new products and
obtaining orders from new customers.
We are unable to predict the market acceptance of our new product
or the level of future sales, if any. We have not yet commenced
marketing our new product and have no orders or customers for our
products.
We will be reliant on existing financial resources to provide
initial working capital. We will need additional capital to finish
development and marketing of our new product line and working
capital to produce product for sale to customers. Obtaining any
required additional financing in the future could be a significant
management challenge and failure to secure necessary financing
would have a material adverse affect on our operations. Our ability
to continue as a going concern is dependent upon achieving a
profitable level of operations and until then obtaining additional
financing.
Given our limited personnel and financial resources we face
significant challenges in establishing, operating and growing our
new business. We expect we will need to continue to innovate new
applications for our security technology, develop new products and
technologies to meet diverse customer requirements and identify and
develop new markets for our products.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States,
which we refer to as U.S. GAAP, requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates,
including those related to recognition and measurement of
contingencies and accrued costs. We base our estimates on
historical experience and on various other assumptions we believe
to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or
conditions.
Until
consummation of the Recapitalization on March 31, 2017, we were
treated as a partnership for federal and state income tax purposes
and did not incur income taxes. Instead, our losses were included
in the income tax returns of the member partners. Following the
Recapitalization, we will be responsible for federal, state and
foreign taxes for jurisdictions in which we conduct business. As
part of the process of preparing our financial statements we will
be required to estimate our provision for income taxes. Significant
management judgment will be required in determining our provision
for income taxes, deferred tax assets and liabilities, tax
contingencies, unrecognized tax benefits, and any required
valuation allowance, including taking into consideration the
probability of the tax contingencies being incurred. Management
expects to assess this probability based upon information provided
by its tax advisers, its legal advisers and similar tax cases. If
at a later time its assessment of the probability of these tax
contingencies changes, its accrual for such tax uncertainties may
increase or decrease. Our effective tax rate for annual and interim
reporting periods could be impacted if uncertain tax positions that
are not recognized are settled at an amount which differs from our
estimates.
Operating Expense
Our operating expenses have included (i) selling, general and
administrative expense, and (ii) research and development expense.
Research and development expense comprises the costs incurred in
performing research and development activities on our behalf,
including compensation and consulting, design and prototype costs,
contract services, patent costs and other outside expenses. The
scope and magnitude of our future research and development expense
is difficult to predict at this time and will depend on elections
made regarding research projects, staffing levels and outside
consulting and contract costs. The actual level of future selling,
general and administrative expense will be dependent on staffing
levels, elections regarding the use of outside resources, public
company and regulatory costs, and other factors, some outside our
control. Our operating costs could increase rapidly as we
introduce our product and expand our research and development,
production, distribution, service and administrative functions in
future months. We may also incur future financing costs and
substantial noncash stock-based compensation costs depending on
future option grants that are impacted by stock prices and other
valuation factors. Historical expenditures are not indicative of
future expenditures.
Results of Operations
Three Months Ended March 31, 2017 Compared to the Period from
Inception (March 2, 2016) to March 31, 2016
We had no revenues or product costs for the three months ended
March 31, 2017 nor for the prior period including from inception
(March 2, 2016) to March 31, 2016 (“prior short
period”).
Selling, General and Administrative Expense. Selling, general and administrative expense for
the three month period ended March 31, 2017 were $75,792 compared
to $3,690 for the prior short period ended March 31, 2016. The most
recent period included legal, merger and audit costs of $36,893,
compensation of $11,000, occupancy costs of $4,640 and trade show
preparation and marketing costs of $8,507. The prior short period
included startup legal and organization costs of
$3,390.
Research and Development Expense. Research and development expense for the period
ended March 31, 2017 was $125,963 and included $14,000 of deferred
related party research costs, consulting and contract research
costs of $75,063, patent costs of $15,337, and prototype and supply
costs of $13,489. This compared to $27,909 for the prior short
period ended March 31, 2016 including $7,000 of deferred related
party research costs, $4,711 of prototype and supply costs and
$14,043 of patent costs.
Net Loss. Our net loss for the
three-month period ended March 31, 2017 was $201,755 compared to a
net loss of $31,599 for the prior short period ending March 31,
2016 when development activities were just
beginning.
Period from Inception (March 2, 2016) to December 31,
2016
The following is a discussion of the results of our operations for
the period from inception (March 2, 2016) to December 31, 2016. Due
to the inception date there is no prior comparable period. We had
no revenues or product costs during the period.
Selling, General and Administrative Expense. Selling, general and administrative expense for
the period ended December 31, 2016 was $17,112, and included
startup legal and organization costs of $11,207, marketing costs of
$2,300, and administrative costs of $3,605.
Research and Development Expense. Research and development expense for the period
ended December 31, 2016 was $217,244, and included $70,000 of
deferred related party research costs, consulting and contract
research costs of $95,525, patent costs of $33,141, and prototype
and supply costs of $15,313.
Net Loss. Our net loss for the
period ended December 31, 2016 was $234,356.
Liquidity and Capital Resources
Overview. Our sole source of
liquidity has been funding from our shareholders. We expect our
primary source of future liquidity will be from the sale of future
product, if any, and any future equity or debt
financings.
Capital Requirements. Other
than $344,629 cash on hand at March 31, 2017, we have no additional
sources of liquidity. We cannot currently estimate our future
liquidity requirements or future capital needs which will depend on
capital required to introduce our new product and the staffing and
support required along with the timing and amount of future
revenues and product costs. We anticipate that demands for
operating and working capital could grow rapidly based on decisions
regarding staffing, development, production, marketing and other
functions and based on factors outside our control. Accordingly
additional capital will be required during the next twelve months.
No assurances can be provided that any future debt or equity
capital will be available to us. Failure to quickly produce and
sell our new product and timely obtain any required additional
capital in the future will have a material adverse affect on the
Company. Our ability to continue as a going concern is in
substantial doubt and is dependent upon achieving a profitable
level of operations and until then obtaining additional
capital.
Our future capital requirements, cash flows and results of
operations could be affected by and will depend on many factors
that are currently unknown to us, including:
●
the
timing of the availability of our new product line for sale to
customers;
●
decisions
regarding staffing, development, production, marketing and other
functions;
●
the
timing and extent of any market acceptance of our
products;
●
the
costs, timing and outcome of planned production and required
customer and regulatory compliance of our new
products;
●
the
costs of preparing, filing and prosecuting our patent applications
and defending any future intellectual property-related
claims;
●
the
costs and timing of additional product development;
●
the
costs, timing and outcome of any future warranty claims or
litigation against us associated with any of our products;
and
●
the
timing and costs associated with any new financing.
Cash Flow
Operating Activities. During
the period ended March 31, 2017, net cash used in operating
activities was $131,347. The net loss of $201,755 was reduced by $26,000 of
deferred and accrued officer compensation and $44,085 of accounts
payable and accruals.
During the period ended December 31, 2016, net cash used in
operating activities was $177,890. The net loss of
$234,356 was increased by $29,811 of prepaid expenses and deposits
and reduced by $70,000 of deferred officer compensation and $14,965
of accounts payable and accruals.
Investing Activities. We used
$4,096 and $9,538 of cash for the purchase of property and
equipment during the three month period ended March 31, 2017 and
the period from inception to December 31, 2016,
respectively.
Financing Activities. We
obtained $442,500 of cash from our shareholders during the period
ended December 31, 2016. During the period ended March 31, 2017 we
obtained an additional $225,000 of cash from our
shareholders.
Contractual Obligations
Other than our facility lease of approximately $18,100 per year, we
have no contractual obligations. We are obligated to pay to
Syzygy Licensing, LLC (“Syzygy”) a 4% royalty on future product sales up to an
aggregate of $1.0 million in royalties.
Effects of Inflation
We do not believe that inflation has had a material impact on our
business, revenues or operating results during the period
presented.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in
accounting pronouncements during the period ended March 31, 2017,
or subsequently thereto, that we believe are of potential
significance to our financial statements.
BUSINESS
Overview
We are a security technology company focused on delivering
innovative solutions to customers, primarily law enforcement and
security personnel. We plan to introduce our first product, the
BolaWrap™ 100, during
2017.
Our
BolaWrap™ 100 product is a hand-held remote restraint device
that discharges an eight-foot bola style Kevlar® tether to
entangle an individual at a range of 10-25 feet. Inspired by law
enforcement professionals, the small but powerful BolaWrap™
100 assists law enforcement to safely and effectively control
encounters. Law enforcement agencies authorize a continuum of force
options:
●
physical control
– soft techniques of grabs and holds progressing to hard
techniques such as punches and kicks;
●
less-lethal weapons
- batons, pepper spray, impact munitions and CEWs (conducted
electrical weapons); and
●
lethal force
– deadly weapons such as firearms.
BolaWrap™
100 offers law enforcement a new tool to remotely and temporarily
control an individual or impede flight by targeting and wrapping an
individual’s legs.
The
small, light but rugged BolaWrap™ 100 is designed for weak
hand operation to provide remote restraint while other use of force
continuum options remain open. The design offers wide latitude of
accuracy to engage and restrain targeted legs of a subject. Quick
eject and rapid reload of bola cartridges allows one device to be
reused in a single encounter or in multiple
encounters.
|
|
|
|
|
|
|
|
|
Illustration of
Bola Wrapping and Wide Latitude of Accuracy
|
|
Entanglement
Wrapping Illustration
|
|
|
|
|
There
are limited effective options for remote engagement so when verbal
commands go unheeded law enforcement is faced with either hands on
engagement or other potentially injurious less lethal or lethal
force. We believe our new tool is essential to meet modern policing
requirements with individuals frequently not responding to verbal
commands and to assuage public demands for less lethal policing. We
believe our device minimizes the need to employ other uses of force
including combat and less-lethal weapons. Many less-lethal weapons
rely on “pain compliance” often escalating encounters
with potential for injury.
Primary
use cases fall into the two broad categories routinely encountered
by law enforcement and security personnel:
●
Remotely retain and
limit the mobility of an individual attempting to evade arrest or
questioning. Individuals increasingly ignore law enforcement verbal
commands; and
●
Assist in subduing
individuals actively resisting arrest by limiting mobility,
possibly making other engagement options less risky to officers and
less injurious to individuals.
We intend to commercialize the BolaWrap™ 100 by initially
targeting sales to the approximately 18,000 United States law
enforcement agencies with approximately 765,000 full time officers
and to the United States Border Patrol with 21,000 border patrol
agents. Thereafter, we intend to target law enforcement agencies
and security personnel worldwide.
Although we are working towards commercialization of
BolaWrap™ 100, we have not yet established supplier or
production arrangements. We have not generated any revenues to
date, have no customers and currently have no products available
for sale. Sale of our planned products may require
additional governmental licenses or approvals that we
have not yet obtained. Our independent registered public accounting
firm stated in their audit opinion issued in connection with our
balance sheet and other financial statements as of December 31,
2016 that our net losses and our requirement to secure additional
financing raised substantial doubt about our ability to continue as
a going concern. We had an accumulated deficit as of March 31,
2017 of $436,111. See “Risk
Factors” included in this
prospectus for additional information regarding risks and
uncertainties associated with our
business.
History
We were organized as Wrap Technologies, LLC, a Delaware limited
liability company on March 2, 2016 by our founders Elwood G.
Norris, Scot Cohen and James A. Barnes. We are headquartered in Las
Vegas, Nevada. Our formation followed several months of research
into ensnarement techniques by our Chief Technology Officer and
primary inventor, Mr. Norris. Mr. Norris has been granted over 80
U.S. patents, and with Mr. Barnes, founded LRAD Corporation
(Nasdaq:LRAD), a company engaged in directed sound technologies
including non-lethal acoustic hailing and warning devices sold
worldwide for law enforcement, military, government and security
markets.
MegaWest
Merger
On March 22, 2017, we acquired MegaWest Energy
Montana Corp., a wholly-owned subsidiary, from Petro River Oil
Corp. (“MegaWest”), and on March 31, 2017, we merged with
MegaWest, and changed our name to Wrap Technologies, Inc., a
Delaware corporation (the “Merger”). Petro River is an independent energy
company focused on the exploration and development of conventional
oil and gas assets with low discovery and development costs. Petro
River is currently focused on moving forward with drilling wells on
several of its properties owned directly and indirectly through its
subsidiaries and other interests. In light of the challenging oil
price environment and capital markets, Petro River is focusing on
specific target acquisitions and investments, including farm-in and
joint venture opportunities for the Company’s oil and gas
assets, and limiting operating expenses outside of its oil and gas
assets.
Our original members retained approximately 98%
ownership interest following the Merger and Petro River Oil Corp.
(“Petro River”) retained an approximate 2% ownership
interest in the Company following the Merger. As described
elsewhere in this prospectus, Petro River currently intends to
distribute the shares of Common Stock received in connection with
the MegaWest Merger to its shareholders as a dividend. We
determined that by purchasing MegaWest and consummating
the MegaWest Merger, we would be able to establish the Company
as an independent, publicly traded corporation with a diverse
shareholder base, due to Petro River’s intent to
distribute the shares received in connection with the sale to its
shareholders. We believe this will meaningfully enhance our
industry market perception, thereby providing greater growth
opportunities for us than our consolidated operation as a division
of Petro River. Additionally, our near term goals for our
business include raising sufficient capital to commercialize
BolaWrap™ 100, develop additional versions of the technology,
and develop new technologies and products. Achieving these goals
will require offerings of securities by us, including the
offering described elsewhere in this prospectus. We believe
operating as a business that will be separate and distinct from
Petro River’s business will benefit our shareholders and
allow us to pursue growth and capital funding
opportunities with a capital structure that is tailored for
our needs, separate from those of Petro
River.
Plan of Operation
Our plan of operation for the remainder of 2017 includes
establishing business functions including production, sales,
distribution and service and growing our marketing and
administration functions and maintaining our core research and
development function. Following completion of the offering we
expect to increase staffing including a sales manager and a
production manager. We may also require additional production,
distribution and service staff depending on the scale of
operations.
Our research and development activities for the balance of 2017
will focus on tooling and production development for the sale of
our first product, the BolaWrap 100 model during 2017. We expect to
acquire tooling and thereafter engage in cost reduction activities
to reduce the costs of components. We also expect to develop supply
chain resources including contract production of parts and
subassemblies. Working capital will be used to purchase minimum
order quantities of key parts and components and maintaining
finished goods to timely fulfill orders. Our research plans include
focus on additional models of our restraining device and developing
other security related products.
Other than tooling we have no plans for material acquisition of
plant or equipment.
In addition to adding sales staffing, we expect to incur sales and
product promotion costs along with customer support activities.
This includes planned expenditures on travel, collateral materials,
trade show expenses and website and social media promotion costs to
support introduction of a new product to the law enforcement
community.
Following completion of the offering, in addition to ongoing
administrative costs, we will incur legal, accounting and filing
costs of a public company.
We will require additional capital to execute our plan of operation
for the balance of 2017 and for the next twelve months (see
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources on page 21 for additional discussion). There is no
minimum offering amount, however should we be successful in raising
gross proceeds of at least $1,000,000 then management expects we
will have sufficient capital for the balance of 2017 (see
Use of
Proceeds on page 14 for
additional information including categories of planned
expenditures). Failure to raise gross proceeds of a minimum of
$1,000,000 may require us to curtail the scale of our planned
operations or raise additional funds in 2017.
Industry Background
The
market for use of force related products and devices includes law
enforcement agencies, correctional facilities, military agencies,
private security guard companies and retail consumers. We believe
law enforcement officials are the opinion leaders regarding market
acceptance of new security products. We therefore intend to focus
on the law enforcement agency segment of the market for our first
product, the BolaWrap™ 100.
According
to the Department of Justice, from 2002 to 2011 an annual average
of 44 million U.S. residents age 16 or older - about 19% of all
persons of this age - had at least one face-to-face contact with a
police officer. About 1.6% or 715,500 involved threats of or use of
force. And about 1.3 million were handcuffed during their encounter
with police. Nearly all local police departments and all federal
law enforcement agencies have a use-of-force policy that dictates
the level of force its officers can use to respond to various
situations. In January 2017, a collaborative effort among 11
significant law enforcement leadership and labor organizations in
the United States resulted in the publication of a National
Consensus Policy on Use of Force. This policy states, among other
information:
●
Officers shall use
only the force that is objectively reasonable to effectively bring
an incident under control, while protecting the safety of the
officer and others;
●
Officers shall use
force only when no reasonably effective alternative appears to
exist and shall use only the level of force which a reasonably
prudent officer would use under the same or similar
circumstances;
●
An officer shall
use de-escalation techniques and other alternatives to higher
levels of force consistent with his or her training whenever
possible and appropriate before resorting to force and to reduce
the need for force; and
●
When de-escalation
techniques are not effective or appropriate, an officer may
consider the use of less lethal force to control a non-compliant or
actively resistant individual. An officer is authorized to use
agency-approved, less lethal force techniques and issued
equipment:
o
to protect the
officer or others from immediate physical harm;
o
to restrain or
subdue an individual who is actively resisting or evading arrest;
or
o
to bring an
unlawful situation safely and effectively under
control.
A
police officer is trained to use only the minimum force necessary
to overcome the threat of injury or violence posed by a suspect.
For example, under most policies, an officer may not use lethal
force unless a subject poses a threat of significant bodily injury
or fatality to the officer or other persons.
Studies
have concluded that most police officers never deploy lethal force
in the course of their careers. While the vast majority of law
enforcement officers around the world are armed with firearms, only
a small percentage will actually ever use them. Officers, however,
use less lethal force on a regular basis. Traditional tactics such
as using a control hold, baton, club, or combat to control a
suspect may result not only in a risk of injury to the suspect, but
also a risk that the officer will be injured. Other force options
including chemical spray, impact munitions and CEWs not only risk
injury but are often controversial. Each weapon available to law
enforcement has distinct advantages and disadvantages, and we
believe law enforcement agencies require different tools for
different situations.
We
believe a new remote restraining device is necessary to meet modern
policing requirements with individuals frequently not responding to
verbal commands and public demands for less lethal policing. A tool
to restrain at a distance may offer reduced frequency of deployment
of other control techniques including CEWs. We believe that the
following characteristics for our new restraining product are the
most important to law enforcement and security
agencies:
●
Effectiveness:
remote restraint of individuals while keeping all other use of
force options available;
●
Range:
variable distance over which the device is effective;
●
Safety: minimal
risk of injury or death;
●
Ease
of use: simple operation and low maintenance;
●
Dependability:
reliability in many environments, product durability;
●
Accountability:
tracking to reduce misuse of the weapon; and
●
Cost:
low cost per use and possible reduction of insurance and litigation
expense.
The BolaWrap™ 100 Solution
The
BolaWrap™ 100 is designed to perform well in terms of all of
the above characteristics. We believe the BolaWrap™ 100 is a
unique new device to restrain subjects safely and without
eliminating any other use of force options necessary for the
protection of law enforcement and the public. While no use of force
technique or device is 100% effective, in our opinion, unique
performance could make the BolaWrap™ 100 a tool of choice in
a range of encounters for law enforcement agencies and other
security services.
Effectiveness
Without
an effective remote restraint device to assist controlling an
encounter, law enforcement often defaults to less-lethal weapons
that rely upon a pain response or electrical induced incapacitation
for effect. These methods along with lethal force may be necessary
for the most dangerous and aggressive suspects. However, there are
many encounters where remote restraint may be an option in lieu of
or before physical contact with an individual to reduce possibility
for flight or the possibility for injury to the individual and the
officer. In volunteer testing, the BolaWrap™ 100 has shown to
be effective in restraining individuals hindering the flight
ability and crippling the ability to fight allowing effective
further officer action.
Range
Batons
and chemical sprays can only be used from close distances, usually
less than five feet. Rubber bullets, beanbag rounds, and similar
less-lethal impact weapons must be used at distances greater than
30 feet to minimize suspects’ injuries. Combat, come along
and wrist locks require intimate contact with suspects. The
BolaWrap™ 100 is designed to engage a suspect at 10 to 25
feet operable by the weak hand allowing other force options to
remain available. The design of the device makes it ineffective and
it is not recommended for use at close distances, less than five
feet.
Safety
The
BolaWrap™ 100 is not intended as a weapon. It does not rely
on pain or electrical induced incapacitation for effectiveness. The
wrapping effect is intended to impede flight while not inducing
uncontrolled falls or injury. There is no issue of recovery time as
the case with CEW, impact munitions or chemical
devices.
Ease of Use
The
BolaWrap™ 100 is small, light and rugged. It is designed to
be operated as a weak hand device. It is simple to use, activate
and deploy. It can be reloaded and deployed again as quickly as a
spent cartridge can be removed and a replacement cartridge
inserted, typically in less than five seconds. Further, the weapon
requires no maintenance, there are no electronic components. The
BolaWrap™ 100 also does not leave contaminating residues,
unlike chemical sprays that may contaminate buildings, vehicles or
other closed facilities or officer uniforms.
Dependability
The
BolaWrap™ 100 as a mechanical device operates effectively
under a variety of unfavorable conditions, such as wind and rain,
and is rugged and durable.
Accountability
The
BolaWrap™ 100 is designed for professional use and not
consumer use. Each device and each cartridge is identified with a
serial number for recordkeeping purposes.
Cost
The
BolaWrap™ 100 is intended to be sold to law enforcement
agencies at a price per unit not yet established. The single use
bola cartridge ammunition is intended to be priced at a per
cartridge price to allow use in both training and active
deployment. While we do not believe there is a directly competitive
remote restraint device, and we expect prices to be competitive
with CEWs, impact munitions and most other specialized less-lethal
weapons, with the exception of the least expensive chemical sprays.
However, the indirect costs of decontaminating buildings, vehicles,
and uniforms resulting from the use of chemical sprays can place
these sprays at an overall cost disadvantage per use.
In
addition, litigation and insurance costs for law enforcement
agencies can be significant. Reducing the need for other use of
force tools and the number of injuries and fatalities caused by law
enforcement officers may reduce the number of suits filed against
agencies for excessive use of force, wrongful death and
injury.
We
believe the addition of a new remote restraint device may have the
benefit of increasing goodwill between law enforcement agencies and
their communities. Community relations considerations can be
particularly important at a time when almost any interaction with
police can be recorded and scrutinized by the media and the
public.
Product
Our
BolaWrap™ 100 product is a hand-held remote restraint device
that discharges an eight-foot bola style Kevlar® tether to
entangle an individual at a range of 10-25 feet. BolaWrap™
100 offers law enforcement a new tool to remotely engage and
temporarily control individuals.
The
small, light but rugged BolaWrap™ 100 is designed for weak
hand operation to provide remote restraint while other use of force
continuum options remain open. The design offers wide latitude of
accuracy to engage and restrain targeted legs of a subject. Quick
eject and rapid reload of bola cartridges allows one device to be
reused in a single encounter or in multiple
encounters.
The
bola cartridge contains two sockets that discharge two small
pellets at a thirty degree angle. The pellets are linked by the
eight-foot Kevlar tether such that the tether first engages an
individual’s legs then the force of the pellets causes the
tether to wrap. Small barbs on each pellet engage clothing to
retard the unwinding of the bola tether wrap. The bola cartridge
contains a 9 mm fractional charge blank cartridge (as used in prop
guns) to discharge the tether.
The
durable body of the BolaWrap™ 100 contains a receptacle for
the bola cartridge along with the activation, deployment and safety
mechanisms. Bola cartridges are quickly ejected allowing rapid
reloading, activation and deployment.
We
demonstrated our first prototype device in December 2016 and
developed pre-manufacturing demonstration units in early April 2017
for planned production and sales in the third quarter of
2017.
Markets
Law Enforcement and Corrections
Federal,
state and local law enforcement agencies in the United States
currently represent the primary target market for the
BolaWrap™ 100. According to United States Bureau of Justice
statistics, there were nearly 18,000 of these agencies in the
United States in 2008 that employed about 765,000 full-time, sworn
law enforcement officers. In 2005, the United States Bureau of
Justice statistics estimated that there were 295,000 correctional
officers in over 1,800 federal and state correctional facilities in
the United States.
United States Border Patrol (USBP)
With
over 21,000 agents, this is one of the largest law enforcement
agencies in the United States with a large number of encounters
with individuals requiring soft engagement techniques. We believe
the BolaWrap™ 100 can be an effective tool to safely assist
in detention of individuals subject to the agency’s
jurisdiction. The BolaWrap™ 100 offers an additional tool for
frontline agents to de-escalate encounters while effecting agent
responsibilities.
Private Security Firms and Guard Services
According
to 2015 Bureau of Labor Statistics there were approximately 1.1
million privately employed security guards in the United States.
They represent a broad range of individuals, including
investigation and security services, hospitals, schools, local
government, and others. We believe that some security personnel
armed with BolaWrap™ 100 could be effective to de-escalate
some encounters without eliminating other tools available today.
Providing guards with BolaWrap™ 100 may reduce the potential
liability of private security companies and personnel in such
encounters.
Although
there are use cases in correctional facilities and by certain
military policing personnel we are initially targeting
BolaWrap™ 100 for law enforcement and security personnel
markets. We do not currently plan a consumer version of the
device.
Selling and Marketing
Law
enforcement agencies represent our primary target market. In this
market, we expect that the decision to purchase the BolaWrap™
100 will normally be made by a group of people including the agency
head, his training staff, and use of force and weapons experts. The
decision sometimes involves political decision-makers such as city
council members. While we expect the decision-making process for a
remote restraint device will be less controversial than that for
less-lethal products such as CEWs, we still expect the process to
take as little as a few weeks or as long as a year or more
partially due to budgeting reasons.
While
initial sales will be made by our executive and sales employees, we
may determine to utilize existing networks of independent regional
police equipment distributors compensated on a commission and
incentive basis.
Most
law enforcement and corrections agencies will not purchase new use
of force devices until a training program is in place to certify
officers in their proper use. We are developing and intend to offer
training and class materials that certify law enforcement trainers
as instructors in the use and limitations of the BolaWrap™
100.
In
addition to our planned training, we plan to participate in a
variety of trade shows and conferences. We expect our marketing
efforts will also benefit from significant free media coverage.
Other marketing communications may include video e-mails, press
releases, and conventional print advertising in law enforcement
trade publications. We are designing a website to contain similar
marketing information and are developing social media outreach and
communications.
Our Strategy
Our goal is to realize the potential of a new remote restraint
device targeting law enforcement and security personnel. We aim to
produce a product line starting with the BolaWrap™ 100 to
meet the requirements of these customers. The key elements of our
strategy include:
●
Produce
a product line meeting customer requirements as a new tool to aid
in the retention of individuals to make encounters more effective
and less dangerous to law enforcement and the public;
●
Develop
a robust production and supply system to support our customers;
and
●
Develop
relationships with customers requiring large numbers of products
mainly larger city police departments and larger
agencies.
We also plan to explore markets for use by security and related
personnel and develop international distribution.
Related Party License and Royalties
We are obligated to pay royalties pursuant to an exclusive Amended
and Restated Intellectual Property License Agreement, dated as of
September 30, 2016, with Syzygy Licensing, LLC
(“Syzygy”), a private technology invention,
consulting and licensing company owned and controlled by Elwood G.
Norris and James A. Barnes, both officers and shareholders of the
Company. Syzygy
has no ongoing operations, and does not engage in any
manufacturing, production or other related
activities.
The agreement provides for the payment of royalties of 4% of
revenues from products employing the licensed device technology up
to the earlier to occur of (i) the payment by the Company of an
aggregate of $1.0 million in royalties, or (ii) September 30, 2026.
All development and patent costs have been paid by us and patent
applications and the technology related to the BolaWrap™ 100
have been assigned to the Company, subject to the royalty
obligation.
Manufacturing and Suppliers
We have substantially completed the design and component selection
for the BolaWrap™ 100. We expect to source components from a
variety of suppliers with final assembly, testing and shipping
occurring in our facility in Las Vegas, Nevada. We believe
arranging and maintaining quality manufacturing capacity will be
essential to the performance of our products and the growth of our
business.
Warranties
We expect to warrant our products to be free from defects in
materials and workmanship for a period up to one year from the date
of purchase. The warranty will be generally a limited warranty, and
in some instances impose certain shipping costs on the customer. We
expect in most cases it will be more economical and effective to
replace the defective device rather than repair.
Competition
While we are targeting the BolaWrap™ 100 as a new solution
for law enforcement and not as a replacement for other tools
currently in use, we will still compete with other use of force
products for budgets. Law enforcement agencies may also determine
that we are an alternative to other solutions in spite of such
positioning.
Other
use of force devices including CEWs sold by Taser International,
Inc., and pepper spray, batons, impact weapons sold by companies
such as Defense Technology will compete with the BolaWrap™
100 indirectly. Many law enforcement and corrections personnel
consider such less-lethal weapons to be distinct tools, each
best-suited to a particular set of circumstances. Consistent with
this tool kit approach, purchasing any given tool does not preclude
the purchase of one or several more. In other cases, budgetary
considerations and limited space on officers’ belts dictate
that only a limited number of devices will be purchased and
carried. We believe the BolaWrap™ 100’s unique remote
restraint use, effectiveness, and low possibility of injury will
enable it to compete effectively against other
alternatives.
Many of our present and potential future competitors have, or may
have, substantially greater resources to devote to compete in the
law enforcement market and to further technological and new product
developments. Also, these competitors or others may introduce
products with features and performance competitive to our
product.
Seasonality
We do not expect to experience any significant seasonality trends.
Seasonality trends may occur in the future.
Government Regulation
The BolaWrap™ 100 is classified
as a “firearm” by the U.S. Bureau of Alcohol, Tobacco,
Firearms and Explosives (“ATF”), and is subject to federal
firearms-related regulations. We hold a Federal Firearms
Manufacturing License expiring in 2020. Many states also have
regulations restricting the sale and use of certain firearms and
may determine their own classification and restrictions
irrespective of ATF regulation. In many cases, the law enforcement
and corrections market is subject to different ATF and state
regulations. Where different regulations exist, we expect that the
regulations affecting the private citizen market may also apply to
the private security markets, except as the applicable regulations
otherwise specifically
provide.
BolaWrap™ 100 may also be considered a firearm or a
crime control product by the U.S. government. Accordingly, the
export of our devices will be regulated under export administration
regulations. As a result, we must obtain export licenses from the
Department of Commerce for all shipments to foreign countries other
than Canada. We do not expect the need to obtain these licenses
will cause a material delay in any future foreign shipments. Export
regulations also prohibit the further shipment of our products from
foreign markets in which we hold a valid export license to foreign
markets in which we do not hold an export license for our
products.
Foreign
regulations, which may affect our device, and sale thereof, are
numerous and often unclear. We expect to work with a distributor or
advisor who is familiar with the applicable import regulations in
each of any future foreign markets.
Intellectual Property
We intend to protect our intellectual property assets including
pending patents, trademarks and trade craft and trade secrets such
as know-how. In addition, we use confidentiality agreements
with employees and some suppliers to ensure the safety of our trade
secrets. We have three U.S. patents pending and intend to extend
protection in certain other foreign jurisdictions. We have filed for trade name protection for
“BolaWrap” and expect to employ a combination of
registered and common law trade names, trademarks and service marks
in our business. We expect to rely on
a variety of intellectual property protections for our products and
technologies, including contractual obligations, and we intend to
pursue a policy of vigorously enforcing such
rights.
We have an ongoing policy of filing patent applications to seek
protection for novel features of our products and technologies.
Prior to the filing and granting of patents, our policy is to
disclose key features to patent counsel and maintain these features
as trade secrets prior to product introduction. Patent applications
may not result in issued patents covering all important claims and
could be denied in their entirety.
The use of force product industry is characterized by frequent
litigation regarding patent and other intellectual property rights.
Others, including academic institutions and competitors, hold
numerous patents in less-lethal and related technologies. Although
we are not aware of any existing patents that would materially
inhibit our ability to commercialize our technology, others may
assert claims in the future. Such claims, with or without merit,
may have a material adverse effect on our financial condition,
results of operations or cash flows.
The failure to obtain patent protection or the loss of patent
protection on our existing and future technologies or the
circumvention of our patents by competitors could have a material
adverse effect on our ability to compete successfully.
Our policy is to enter into nondisclosure agreements with each
employee and consultant or third party to whom any of our
proprietary information is disclosed. These agreements prohibit the
disclosure of confidential information to others, both during and
subsequent to employment or the duration of the working
relationship. These agreements may not prevent disclosure of
confidential information or provide adequate remedies for any
breach.
Research and Development
Our research and development initiatives are led by our
internal personnel and make use of specialized consultants when
necessary. These initiatives include basic research, mechanical
engineering design and testing. Future development projects will
focus on new versions of the BolaWrap™ technology and new
security technologies. Total research and development expenditures
were $217,244 in 2016.
Employees and Executive Officers
We have three executive officers. We have one other employee
engaged in marketing and distribution.
Properties
We lease approximately 1,890 square feet of office, assembly and
warehousing space at 4620 Arville Street, Suite E, Las Vegas,
Nevada 89103, pursuant to a three-year lease expiring December 2019
at a monthly rate of $1,512. We expect that this property will be
sufficient to meet our needs for at least the next 12
months.
Legal Proceedings
We are
not aware of any pending or threatened legal proceedings in which
we are involved. In addition, we are not aware of any pending or
threatened legal proceedings in which entities affiliated with our
officers, directors or beneficial owners are involved with respect
to our operations.
DIRECTORS, EXECUTIVE OFFICERS AND
PROMOTERS
|
Name
|
Age
|
Position(s)
|
|
James A. Barnes
|
62
|
Director, President and Chief Financial Officer
|
|
|
Elwood G. Norris
|
78
|
Director and Chief Technology Officer
|
|
|
Scot Cohen
|
48
|
Director and Secretary
|
|
When and as business requires and funds are available, we may hire
or appoint additional executive officers. We have no understanding
or arrangements regarding any additional executive officers to be
appointed on or after the consummation of the
offering.
James A. Barnes cofounded the
Company with Mr. Norris and Mr. Cohen in March 2016 and currently
serves as a director, President and Chief Financial Officer. He
served as Manager until the Company’s incorporation in March
2017. He has been President of Sunrise Capital, Inc., a private
venture capital and financial and regulatory consulting firm since
1984. He was Chief Financial Officer of Parametric Sound
Corporation (now Turtle Beach Corporation) (Nasdaq GM: HEAR) from
2010 to February 2015, and from February 2015 to February 2017
served as Vice President Administration at Turtle Beach
Corporation. Since 1999, he has been Manager of Syzygy
Licensing LLC (“Syzygy”), a private technology
invention and licensing company he owns with Mr. Norris. He
previously practiced as a certified public accountant and
management consultant with Ernst & Ernst (1976-1977), Touche
Ross & Co. (1977-1980), and as a principal in J. McDonald &
Co. Ltd., Phoenix, Arizona (1980-1984). He graduated from the
University of Nebraska with a B.A. Degree in Business
Administration in 1976 and is a certified public accountant
(inactive).
Mr.
Barnes possesses substantial financial, regulatory and management
experience, and such experience is extremely valuable to the Board
of Directors and the Company as it executes its business
plan.
Elwood G. Norris cofounded the
Company with Mr. Barnes and Mr. Cohen in March 2016 and currently
serves as a director and Chief Technology Officer. He was a
director and President of Parametric Sound Corporation (now Turtle
Beach Corporation) (Nasdaq GM: HEAR) from 2010 to
February 2015 and from February 2015 to September 2016 served as
Chief Scientist, a non-executive position, at Turtle Beach.
He was a director of LRAD Corporation (Nasdaq CM: LRAD) from August 1980
to June 2010. He served as Chairman of LRAD Corporation’s
Board of Directors, an executive position, in which he served in a
technical advisory role and acted as a product spokesman from
September 2000 to April 2009. He is an
inventor, and has authored more than 80 U.S. patents, primarily in
the fields of electrical and acoustical engineering, and has been a
frequent speaker on innovation to corporations and government
organizations. He is the inventor of our BolaWrap™
technology. Mr. Norris is a majority
owner of Syzygy, but has no employment or management relationship
with Syzygy.
Mr.
Norris brings to the Company and the Board of Directors
demonstrated product innovation ability and years of public company
executive experience. As a result, the Board of Directors values
the input provided by Mr. Norris, and believe his contributions to
the deliberations of the Board and management are very
valuable.
Scot Cohen cofounded the Company with Mr. Barnes and Mr.
Norris in March 2016 and currently serves as a director and
Secretary. He served as a Manager until the Company’s
incorporation in March 2017. He has over 20 year’s experience
in institutional asset management, wealth management, and capital
markets. He currently serves as Executive Chairman of the
Board of Petro River Oil Corp. (OTC Pink: PTRC) since 2012. Scot is
the founder and serves as a principal of the Iroquois Capital
Opportunity Fund, a closed end private equity fund focused on
investments in North American oil and gas assets. He is
also the co-founder of Iroquois Capital, a New York based hedge
fund. In addition, he manages several operating and
non-operating partnerships, which actively invest in the energy
sector.
Prior
to founding Iroquois Capital, Scot founded a merchant bank based
out of New York, which was one of the most active participants in
structured investments in public companies in the United States
over the four-year period he was actively managing the
business. Scot began his career at Oppenheimer and
Company in a sales capacity and transitioned from there to a
boutique investment-banking firm where he spent two years. Scot
currently sits on the board of directors of True Drinks Holding,
Inc. (OTC Pink:TRUU), as well as several private companies, and is
involved a number of charitable ventures. Scot earned a
Bachelor of Science degree from Ohio University in
1991.
The Board of Directors believes Mr. Cohen’s success with
multiple private investment firms, his extensive contacts within
the investment community and financial expertise will assist the
Company’s efforts to raise capital to fund the continued
implementation of the Company’s business plan.
Director Independence
For a director to be considered “independent,” the
Board must affirmatively determine that the director has no
material relationship with the Company (directly or as a partner,
stockholder or officer of an organization that has a relationship
with the Company). In each case, the Board considers all relevant
facts and circumstances. We currently have no independent
directors.
Committees of the Board of Directors
During 2017, we plan to add at least two additional Board members
and then we expect our Board of Directors will establish an Audit
Committee and a Compensation Committee to assist it with its
responsibilities. We expect all members of the Audit and
Compensation Committees will meet the criteria for
independence.
DIRECTOR COMPENSATION
We have not yet established arrangements to compensate our
directors for their services.
EXECUTIVE COMPENSATION
Compensation of our Named Executive Officers;
Summary Compensation Table
We have identified James A. Barnes as our only named executive
officer. Our named executive officers for 2017 could change, as we
may hire or appoint new executive officers.
The following table sets forth compensation accrued for Mr. Barnes
during the year ended December 31, 2016.
|
Name and Principal Position
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
A. Barnes
|
|
2016
|
$ 20,000
|
$ -0-
|
$ -0-
|
$ -0-
|
$ 20,000
|
|
President, Chief Financial Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective March 2016 through February 2017, the Company accrued
monthly deferred compensation for the services of Messrs. Norris
and Barnes in the aggregate amount of $7,000 per month payable to
Syzygy with Mr. Barnes’ proportionate share being $2,000 per
month. The balance as of December 31, 2016 was $70,000 ($20,000
allocable to Mr. Barnes), and at May 30, 2017 was $84,000 ($24,000 allocable to Mr.
Barnes), which amount accrues without interest. There is currently
no established repayment schedule or timing for payment, and the
Company does not anticipate paying the accrued amounts owed to Mr.
Barnes or Mr. Norris from the proceeds of the offering. Commencing
March 1, 2017, Messrs. Norris and Barnes are each being paid
compensation of $6,000 per month for their services as employees
and officers of the Company.
Syzygy, an entity controlled by Messrs. Norris and Barnes, will
receive a royalty as described above in “Business—Related Party
License and Royalties” in
consideration for the license of certain technology necessary for
the development of BolaWrap™ 100. We expect that Messrs.
Norris and Barnes will continue to be compensated in their roles as
officers as determined by our Board of
Directors.
Description of the 2017 Equity Compensation Plan
The 2017 Equity Compensation Plan (the “2017
Plan”) was adopted by
the Company’s Board of Directors on March 31, 2017, and
approved by a majority of the Company’s shareholders on March
31, 2017. The 2017 Plan reserves for issuance 2.0 million shares of
the Company’s Common Stock for issuance as one of four types
of equity incentive awards: (i) stock options, (ii) restricted
stock, and (iii) stock units. The 2017 Plan permits the
qualification of awards under the plan as “performance-based
compensation” within the meaning of
Section 162(m) of the Internal Revenue
Code.
Potential Payments Upon Termination, Death, Disability, or
Retirement
We have no executive employee contracts at this time. Every officer
and employee is an at will employee. The royalties payable to
Syzygy, controlled by Messrs. Norris and Barnes, are unrelated to
employment or their roles as officers, and will continue upon any
termination, death, disability or retirement.
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning shares of our
Common Stock beneficially owned as of June 20, 2017,
by:
●
each
person or entity known by us to be the beneficial owner of 5% or
more of the outstanding shares of Common Stock;
●
each
person is currently serving as director; and
●
each
of our named executive officers.
The share amounts in the table below are based on 20.0 million
shares of Common Stock issued and outstanding as of June
20, 2017. To our knowledge, except as otherwise indicated in
the footnotes below, each person or entity has sole voting and
investment power with respect to the shares of Common Stock set
forth opposite such person’s or entity’s name.
Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with
respect to the securities.
|
Title of Class
|
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of Beneficial Ownership
|
|
Percent of Class
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Elwood G. Norris
|
|
6,221,956
|
(1)
|
|
31.1%
|
|
|
|
4620 Arville Street, Suite E
|
|
|
|
|
|
|
|
Las Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Scot Cohen
|
|
5,251,548
|
(2)
|
|
26.3%
|
|
|
|
4620 Arville Street, Suite E
|
|
|
|
|
|
|
|
Las Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
James A. Barnes
|
|
2,632,366
|
(3)
|
|
13.2%
|
|
|
|
4620 Arville Street, Suite E
|
|
|
|
|
|
|
|
Las Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
David Norris |
|
1,794,795
|
(4)
|
|
9.0%
|
|
|
|
31101 via
Peralta
|
|
|
|
|
|
|
|
|
Coto de Caza, CA
92679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Twenty-Two Franklin
Street Group, LLC
|
|
1,196,530
|
|
|
6.0%
|
|
|
|
11
Arthur Ct.
|
|
|
|
|
|
|
|
|
Jackson, NJ
08527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive
|
|
|
|
|
|
|
|
|
officers as a group (3 persons)
|
|
14,105,870
|
|
|
70.5%
|
______________________
|
(1)
|
Consists of shares of Common Stock beneficially owned by Mr. Norris
and his family trust.
|
|
(2)
|
Includes 5,204,906 shares owned by Mr. Cohen and 46,642 shares to
be distributed by Petro River based on his ownership in Petro
River.
|
|
(3)
|
Includes 2,273,407 shares held by a family trust and 358,959 shares
held by Sunrise Capital, Inc. Mr. Barnes is President of Sunrise
Capital, Inc.
|
|
|
|
|
(4)
|
Consists of shares of
Common Stock held in family trust. |
|
|
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Effective March 2016, we began accruing monthly compensation for
the services of Messrs. Norris and Barnes in the aggregate amount
of $7,000 per month payable to Syzygy. The balance as of December
31, 2016 was $70,000 and accrues without interest. This arrangement
ended in February 2017 with a balance of $84,000
accrued.
We are
obligated to pay royalties pursuant to an exclusive Amended and
Restated Intellectual Property License Agreement, dated as of
September 30, 2016, with Syzygy, a company owned and controlled by
Messrs. Norris and Barnes, both officers and shareholders of the
Company. The agreement provides for the payment of royalties of 4%
of revenues from products employing the licensed device technology
up to the earlier to occur of (i) the payment by the Company of an
aggregate of $1.0 million in royalties, or (ii) September 30, 2026.
All patent applications and the technology related to the
BolaWrap™ 100 have been assigned to the Company, subject to
the royalty obligation. During
the period ended December 31, 2016 we paid $25,409 of patent legal
costs incurred by Syzygy for the device technology pursuant to the
license agreement.
DESCRIPTION OF OUR SECURITIES
We are authorized to issue 150,000,000 shares of our Common Stock,
$0.0001 par value per share, and 5,000,000 shares of preferred
stock, $0.0001 par value per share. The following description of
our capital stock is subject to and qualified in its entirety by
our Certificate of Incorporation and Bylaws, which are included as
exhibits to the registration statement of which this prospectus is
a part, and by the provisions of applicable Delaware
law.
Issued and Outstanding Capital Stock
We have 20.0 million shares of Common Stock issued and outstanding.
We have no shares of preferred stock issued and
outstanding.
Common Stock
There are 20.0 million shares of our Common Stock issued and
outstanding and held of record by 14 shareholders. The holders of
our Common Stock are entitled to one vote per share on all matters
to be voted upon by our shareholders. Subject to preferences that
may be applicable to any future outstanding preferred stock, the
holders of our Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by our
Board of Directors out of funds legally available for that purpose.
See “Dividend
Policy” on page 15. In
the event of our liquidation, dissolution or winding-up, the
holders of our Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding.
The holders of our Common Stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our Common
Stock.
Preferred Stock
Our Board of Directors has the authority, without action by our
shareholders, to designate and issue preferred stock in one or more
series and to designate the rights, preferences and privileges of
each series, which may be greater than the rights of our Common
Stock. It is not possible to state the actual effect of the
issuance of any shares of our preferred stock upon the rights of
holders of our Common Stock until our Board of Directors determines
the specific rights of the holders of our preferred stock. However,
the effects might include, among other things:
●
restricting
dividends on our Common Stock;
●
diluting
the voting power of our Common Stock;
●
impairing
the liquidation rights of our Common Stock; or
●
delaying
or preventing a change in control of our company without further
action by our shareholders.
We
have no present plans to issue any shares of our preferred
stock.
Authorized but Unissued Capital Stock
Delaware law does not require stockholder approval for any issuance
of authorized shares. These additional shares may be used for a
variety of corporate purposes, including future public offerings,
to raise additional capital or to facilitate acquisitions. One of
the effects of the existence of unissued and unreserved Common
Stock or preferred stock may be to enable our Board of Directors to
issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to
obtain control of our company by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of
our management and possibly deprive the shareholders of
opportunities to sell their shares of Common Stock at prices
higher than prevailing market
prices.
Certificate of Incorporation; Bylaws
Our certificate of incorporation and bylaws contain provisions that
could make more difficult the acquisition of the Company by means
of a tender offer, a proxy contest or otherwise. These provisions
are summarized below.
Undesignated Preferred Stock.
The authorization of our undesignated preferred stock makes it
possible for our Board of Directors to issue our preferred stock
with voting or other rights or preferences that could impede the
success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or
delaying changes of control of our management.
Size of Board and Vacancies.
Newly created directorships resulting from any increase in our
authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, disqualification,
removal or other causes and any newly created directorships
resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any
such vacancies or newly created directorships shall be filled by
stockholder vote, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a
quorum of the Board of Directors.
No Cumulative Voting. Our
certificate of incorporation and bylaws do not provide for
cumulative voting in the election of directors.
Stockholder Meetings. Our
bylaws provide that special meetings of the shareholders
may be called only by our our President or by our Board of
Directors or by the President at the request of holders of not less
than 51% of all outstanding shares of our voting
stock.
Delaware Laws
We are subject to Section 203 of the DGCL
(“Section 203”). In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in “business
combination” transactions with any “interested
stockholder” for a period of three years following the time
that the stockholder became an interested stockholder,
unless:
●
prior
to the time the stockholder became an interested stockholder,
either the applicable business combination or the transaction which
resulted in the stockholder becoming an interested stockholder is
approved by the corporation’s board of
directors;
●
upon
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the voting stock outstanding (but not the
voting stock owned by the interested stockholder) shares owned by
directors who are also officers of the corporation and shares owned
by employee stock plans in which the employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or
●
at or
subsequent to the time that the stockholder became an interested
stockholder, the business combination is approved by the
corporation’s board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at
least 66 2
⁄3% of the outstanding
voting stock which is not owned by the interested
stockholder.
A “business combination” is defined to include, in
general and subject to exceptions, a merger of the corporation with
the interested stockholder; a sale of 10% or more of the market
value of the corporation’s consolidated assets to the
interested stockholder; certain transactions that result in the
issuance of the corporation’s stock to the interested
stockholder; a transaction that has the effect of increasing the
proportionate share of the corporation’s stock owned by the
interested stockholder; and any receipt by the interested
stockholder of loans, guarantees or other financial benefits
provided by the corporation. An “interested
stockholder” is defined to include, in general and subject to
exceptions, a person that (1) owns 15% or more of the outstanding
voting stock of the corporation or (2) is an
“affiliate” or “associate” (as defined in
Section 203) of the corporation and was the owner of 15% or more of
the corporation’s outstanding voting stock at any time within
the prior three year period.
A Delaware corporation may opt out of Section 203 with an express
provision in its original certificate of incorporation or by an
amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by Section 203 and approved by a
majority of its outstanding voting shares. We have not opted out of
Section 203. As a result, Section 203 could delay, deter or prevent
a merger, change of control or other takeover of our company that
our stockholders might consider to be in their best interests,
including transactions that might result in a premium being paid
over the market price of our common stock, and may also limit the
price that investors are willing to pay in the future for our
common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming
we sell 2,666,666 Shares in this offering, there will
be approximately 22,666,666 Shares of Common Stock
issued and outstanding, based upon the number of shares of Common
Stock outstanding on June 20, 2017. No preferred
shares are outstanding. All of the shares of Common Stock will
be freely transferable without restriction under the Securities Act
of 1933, as amended (“Securities Act”) except for
shares that are owned by our “affiliates,” as that term
is defined in Rule 144 under the Securities Act, which
includes our directors and our significant shareholders. Shares of
our Common Stock held by affiliates may not be sold unless they are
registered under the Securities Act or are sold pursuant to an
exemption from registration, including an exemption contained in
Rule 144 under the Securities Act. Further, as described
below, we plan to file a registration statement to cover the
shares issued under our equity incentive plans.
Rule 144
In
general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate, who
beneficially owns “restricted securities” of a
“reporting company” may not sell these securities until
the person has beneficially owned them for at least six months.
Thereafter, affiliates may not sell within any three-month period a
number of shares in excess of the greater of: (i) one
percent of the shares of Common Stock issued and outstanding, or
(ii) the average weekly trading volume during the four calendar
weeks preceding the filing of a Form 144, or if no such notice is
required, the date of receipt of the order to execute the
transaction.
Sales
under Rule 144 by our affiliates also will be subject to
restrictions relating to manner of sale, notice and the
availability of current public information about us and may be
effected only through unsolicited brokers’
transactions.
Persons
not deemed to be our affiliates who have beneficially owned
“restricted securities” for at least six months but for
less than one year may sell these securities, provided that current
public information about us is “available,” which means
that, on the date of sale, we have been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended
(“Exchange
Act”) for at least ninety days and are current in our
Exchange Act filings. After beneficially owning “restricted
securities” for one year, our non-affiliates may engage in
unlimited resales of such securities.
Shares
received by our affiliates in the spin-off or upon exercise of
stock options or upon vesting of other equity-linked awards may be
“controlled securities” rather than “restricted
securities.” “Controlled securities” are subject
to the same volume limitations as “restricted
securities” but are not subject to holding period
requirements.
Stock Plans
The
Company has adopted the 2017 Equity Compensation Plan
(“2017 Plan”).
The 2017 Plan provides for the issuance of up to 2,000,000 shares
of Common Stock pursuant to awards granted under the terms of the
2017 Plan. As of April 14, 2017, no awards providing for the
issuance of shares of Common Stock have been issued. No prediction
can be made as to the effect, if any, that market sales of
restricted or freely trading shares of Common Stock issued under
the terms of the 2017 Plan will have on the market price of our
Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices
for our Common Stock and could impair our future ability to raise
capital through an offering of our equity securities.
PLAN OF DISTRIBUTION
This prospectus relates to the sale of 2,666,666
Shares of Common Stock.
There is currently no market for our securities. Our Common Stock
is not traded on any exchange or on the over-the-counter market.
While a market maker has filed a Rule 211 application with the
Financial Industry Regulatory Authority (“FINRA”) so that our Common Stock
may be quoted on an interdealer quotation system such as the
OTC Markets, such efforts may not be successful and our shares
may never be quoted and owners of our Common Stock may not have a
market in which to sell the shares. Also, no estimate may be given
as to the time that this application process will
require.
We intend to sell the Shares ourselves and do not intend to use
underwriters or pay any commissions for these sales. We will
be selling the Shares using the best efforts of our officers and
directors. No officer or director will receive any
compensation for sales made.
In accordance with Rule 3(a)(4)(ii) of the Securities Exchange Act,
our officers and directors primarily perform substantial duties on
behalf of the issuer that have no connection to securities
transactions.
None of our officers or directors are a broker or dealer or and
associated person of a broker or dealer, nor have they been within
the preceding 12 months. They will not participate in selling
an offering of securities for any issuer more than once every
twelve months other than in reliance on Rule 3(a)(4)(i) and
(iii).
There is no plan or arrangement to enter into any contracts or
agreements to sell the Shares with a broker or dealer. Our
officers and directors will sell the Shares and intend to offer
them to friends, family members and business acquaintances.
The
intended methods of communication include, without limitation,
telephone calls, communication via e-mail and personal contact. In
their endeavors to sell the Shares, our officers and directors will
not use any mass advertising methods such as the internet or print
media.
There is no minimum number of Shares we must sell so no money
raised from the sale of the Shares will go into escrow, trust or
another similar arrangement.
Under the rules of the Securities and Exchange Commission, our
Common Stock will come within the definition of a “penny
stock” because the price of our Common Stock on the OTC
Bulletin Board is below $5.00 per share. As a result, our
Common Stock will be subject to the "penny stock" rules and
regulations. Broker-dealers who sell penny stocks to certain
types of investors are required to comply with the
Commission’s regulations concerning the transfer of penny
stock. These regulations require broker-dealers
to:
●
Make
a suitability determination prior to selling penny stock to the
purchaser;
●
Receive
the purchaser’s written consent to the transaction;
and
●
Provide
certain written disclosures to the purchaser.
DETERMINATION OF OFFERING PRICE
Our
Common Stock is presently not traded on any market or securities
exchange, although a market maker has filed a Rule 211 application
with FINRA so that our Common Stock may be quoted on an
interdealer quotation system such as the
OTC Markets. We are offering the Shares at a price of
$1.50 per Share, which is set forth
on the cover page of this prospectus. Such offering
price does not have any relationship to any established criteria of
value, such as book value or earnings per share of Common Stock.
The price of our Common Stock is not based on past earnings,
nor is the price of our Common Stock indicative of the current
market value of the assets owned by us. No valuation or appraisal
has been prepared for our business and potential business
expansion.
LEGAL MATTERS
Disclosure Law
Group, a Professional Corporation, has issued an opinion that the
shares of Common Stock being issued pursuant to this offering are
duly authorized and validly issued, fully paid and
non-assessable.
EXPERTS
The
financial statements included in this Prospectus and in the
registration statement have been audited by Rosenberg Rich Baker
Berman & Company, independent registered public accounting
firm, to the extent and for the periods set forth in their report,
appearing in the financial statements beginning on Page F-1 in this
prospectus, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed a registration statement on Form S-1 with the Securities and
Exchange Commission (“SEC”). This prospectus, which
forms a part of that registration statement, does not contain all
of the information included in the registration statement and the
exhibits and schedules thereto as permitted by the rules and
regulations of the SEC. For further information with respect to us
and the shares of our Common Stock offered hereby, please refer to
the registration statement, including its exhibits and schedules.
Statements contained in this prospectus as to the contents of any
contract or other document referred to herein are not necessarily
complete and, where the contract or other document is an exhibit to
the registration statement, each such statement is qualified in all
respects by the provisions of such exhibit, to which reference is
hereby made. You may review a copy of the registration statement at
the SEC’s public reference room at 100 F Street, N.E.,
Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms.
The registration statement can also be reviewed by accessing the
SEC’s website at http://www.sec.gov. We are subject to
the information and reporting requirements of the Exchange Act and,
in accordance therewith, file periodic reports, proxy statements or
information statements, and other information with the SEC. These
reports can also be reviewed by accessing the SEC’s
website.
You should rely only on the information provided in this
prospectus, any prospectus supplement or as part of the
registration statement filed on Form S-1 of which this prospective
is a part, as such registration statement is amended and in effect
with the Securities and Exchange Commission. We have not authorized
anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this
prospectus, any prospectus supplement or any document incorporated
by reference is accurate as of any date other than the date of
those documents.
WRAP TECHNOLOGIES, LLC
INDEX TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
|
Report of Independent Registered Public Accounting
Firm
|
|
F-2
|
|
|
|
|
|
Balance Sheet as of December 31, 2016
|
|
F-3
|
|
|
|
|
|
Statement of Operations for the Period from Inception (March 2,
2016) to December 31, 2016
|
|
F-4
|
|
|
|
|
|
Statement of Members’ Equity for the Period from Inception
(March 2, 2016) to December 31, 2016
|
|
F-5
|
|
|
|
|
|
Statement of Cash Flows for the Period from Inception (March 2,
2016) to December 31, 2016
|
|
F-6
|
|
|
|
|
|
Notes to Financial Statements
|
|
F-7
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets of Wrap Technologies, Inc. as of March 31,
2017 (unaudited) and December 31,
2016
|
|
F-13
|
|
|
|
|
|
Condensed Statements of Operations of Wrap Technologies, Inc. for
the three months ended March 31, 2017 and the Period from Inception
(March 2, 2016) to March 31, 2016 (unaudited)
|
|
F-14
|
|
|
|
|
|
Condensed Statement of Stockholders’ Equity of Wrap
Technologies, Inc. for the Period from Inception (March 2, 2016) to
March 31, 2017 (unaudited)
|
|
F-15
|
|
|
|
|
|
Condensed Statements of Cash Flows of Wrap Technologies, Inc. for
the three months ended March 31, 2017 and the Period from Inception
(March 2, 2016) to March 31, 2016 (unaudited)
|
|
F-16
|
|
|
|
|
|
Notes to Unaudited Condensed Interim Financial Statements of Wrap
Technologies, Inc
|
|
F-17
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members of Wrap Technologies, LLC
We have
audited the accompanying balance sheet of Wrap Technologies, LLC as
of December 31, 2016 and the related statements of operations,
members’ equity, and cash flows for period from Inception
(March 2, 2016) to December 31, 2016. Wrap Technologies,
LLC’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wrap
Technologies, LLC as of December 31, 2016, and the results of its
operations and its cash flows for the period from Inception (March
2, 2016) to December 31, 2016, in conformity with accounting
principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has generated
significant losses since inception and anticipates that it will
continue to generate significant losses and require substantial
additional investment. These conditions raise substantial doubt
about its ability to continue as a going concern.
Management’s plans regarding those matters also are described
in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. Our opinion
is not modified with respect to that matter.
/s/
Rosenberg Rich Baker Berman & Company
Somerset,
New Jersey
March
29, 2017
Wrap Technologies, LLC
Balance Sheet
December 31, 2016
|
ASSETS
|
|
|
Current assets:
|
|
|
Cash
|
$255,072
|
|
Prepaid
expenses and other assets
|
28,299
|
|
Total current assets
|
283,371
|
|
Property and equipment, net
|
8,226
|
|
Other assets, net
|
1,512
|
|
Total assets
|
$293,109
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
Current liabilities:
|
|
|
Accounts
payable
|
$12,065
|
|
Deferred
officer compensation
|
70,000
|
|
Accrued
liabilities
|
2,900
|
|
Total current liabilities
|
84,965
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
Members' equity:
|
|
|
Members'
equity, 729 units issued and outstanding
|
208,144
|
|
Total liabilities and members' equity
|
$293,109
|
See
accompanying notes to financial statements.
Wrap Technologies, LLC
Statement of Operations
For the Period from Inception (March 2, 2016) to December 31,
2016
|
Operating expenses:
|
|
|
Selling,
general and administrative
|
$17,112
|
|
Research
and development
|
217,244
|
|
Total
operating expenses
|
234,356
|
|
Loss
from operations
|
(234,356)
|
|
|
|
|
Net loss
|
$(234,356)
|
|
|
|
|
Loss
per unit
|
$(703.77)
|
|
Weighted
average units outstanding
|
333
|
See
accompanying notes to financial statements.
Wrap Technologies, LLC
Statement of Members’ Equity
|
|
|
|
|
|
|
|
|
Balance at Inception (March 2, 2016)
|
|
$-
|
|
Member
capital contributions
|
729
|
442,500
|
|
Net
loss for the period
|
|
(234,356)
|
|
Member
distributions
|
|
-
|
|
Balance at December 31, 2016
|
729
|
$208,144
|
See
accompanying notes to financial statements.
Wrap Technologies, LLC
Statement of Cash Flow
For the Period from Inception (March 2, 2106) to December 31,
2016
|
Cash Flows From Operating Activities:
|
|
|
Net
loss
|
$(234,356)
|
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
|
Depreciation
|
1,312
|
|
Changes
in assets and liabilities:
|
|
|
Prepaid
expenses and other assets
|
(29,811)
|
|
Accounts
payable
|
12,065
|
|
Deferred
officer compensation
|
70,000
|
|
Accrued
liabilities
|
2,900
|
|
Net
cash used in operating activities
|
(177,890)
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
Capital
expenditures for property and equipment
|
(9,538)
|
|
Net
cash used in investing activities
|
(9,538)
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
Member
capital contributions
|
442,500
|
|
Net
cash provided by financing activities
|
442,500
|
|
Net increase in cash and cash equivalents
|
255,072
|
|
Cash and cash equivalents, beginning of period
|
-
|
|
Cash and cash equivalents, end of year
|
$255,072
|
See
accompanying notes to financial statements.
Wrap Technologies, LLC
Notes to Financial Statements
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and Business Description
Wrap Technologies, LLC (“Wrap” or the “Company”) is a developer of security
products designed for use by law enforcement and security
personnel. The Company plans to introduce its first product, the
BolaWrap™ 100 remote restraint device, during
2017.
The
Company was organized as a Delaware limited liability company on
March 2, 2016 and is headquartered in Las Vegas,
Nevada.
Basis of Presentation and Use of Estimates
The
accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America (“U.S.
GAAP”). The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions (e.g., recognition and
measurement of contingencies and accrued costs) 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 revenues and expenses
during the reporting period. Actual results could materially differ
from those estimates.
Going Concern
Since
inception in March 2016, the Company has generated significant
losses from operations and anticipates that it will continue to
generate significant losses from operations for the foreseeable
future, and that in order to continue as a going concern, the
business will require substantial additional investment that has
not yet been secured. The Company’s loss from
operations was $234,356 for the period ended December 31, 2016. The
net cash used from operations and investing was $187,428 for the
period ended December 31, 2016. On December 31, 2016 the Company
had $255,072 in cash and in January 2017 received additional
$225,000 cash from the sale of membership units. As of
December 31, 2016, the Company’s obligations included $84,965
of current liabilities and lease commitments of approximately
$51,000.
Management has
concluded that due to the conditions described above, there is
substantial doubt about the entity’s ability to continue as a
going concern through March 29, 2018
Management has
evaluated the significance of the conditions in relation to the
Company’s ability to meet its obligations and believes that
the current cash balance will provide sufficient capital to
continue operations through approximately June 2017. While the
Company plans to raise capital to address its capital deficiencies
and meet its operating cash requirements, there is no assurance
that its plans will be successful. Management cannot assure you
that financing will be available on favorable terms or at all.
Additionally, if additional capital is raised through the sale of
equity or convertible debt securities, the issuance of such
securities would result in dilution to the Company’s existing
members. Furthermore, despite management’s optimism regarding
the Company’s technology and planned products, even in the
event that the Company is adequately funded, there is no guarantee
that any products or product candidates will perform as hoped or
that such products can be successfully commercialized.
Net Loss per Membership Unit
Basic
net loss per unit is computed by dividing net loss by the weighted
average number of membership units outstanding during the period.
Diluted net loss per unit is computed by dividing net loss by the
weighted average number of membership units and membership unit
equivalents outstanding during the period. There were no membership
unit equivalents outstanding during the period presented;
accordingly, the Company’s basic and diluted net loss per
unit are the same.
Wrap Technologies, LLC
Notes to Financial Statements
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fair Value of Financial Instruments
The
carrying amounts of cash, accounts payable and accrued liabilities
approximate fair values due to the short maturity of these
instruments.
Concentrations of Credit Risk
Financial
instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash. Due to
the relative short nature of such instrument, the carrying amount
approximates fair value. The Company places its cash in a demand
deposit account at one bank and such balances may at times be in
excess of amounts insured by federal agencies, which is $250,000 as
of December 31, 2016. The Company does not believe that it is
subject to any unusual financial risk beyond the normal risk
associated with commercial banking relationships. The Company
performs periodic evaluations of the relative credit standing of
these financial institutions. The Company has not experienced any
significant losses on its cash equivalents.
Property, Equipment and Depreciation
Property
and equipment is stated at cost. Depreciation on property and
equipment is computed over the estimated useful lives of three
years using the straight-line method. The Company intends, on any
retirement or disposition of property and equipment, that the
related cost and accumulated depreciation or amortization will be
removed and a gain or loss recorded.
Impairment of Long-Lived Assets
Long-lived
assets and identifiable intangibles held for use are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
undiscounted expected future cash flows is less than the carrying
amount of the asset or if changes in facts and circumstances
indicate, an impairment loss is recognized and measured using the
asset’s fair value. The Company did not recognize any
impairment loss during the period ended December 31,
2016.
Startup Costs
The
Company expensed startup costs related to the development of its
business including approximately $24,600 incurred prior to legal
formation. Patent legal costs incurred are expensed as research and
development costs until evidence of patentability is
confirmed.
Research and Development Costs
Research
and development costs consist primarily of contract development
costs and experimental work materials and certain startup patent
costs. Research and development costs with no alternative use are
expensed as incurred.
Income Taxes
The
Company is treated as a partnership for federal and state income
tax purposes and generally does not incur income taxes. Instead,
its income or losses are included in the income tax returns of the
member partners. Accordingly, no provision or liability for federal
or state income taxes has been included in these financial
statements.
The
Company recognizes and measures tax benefits when realization of
the benefits is uncertain under a two-step approach. The first step
is to determine whether the benefit meets the more-likely-than-not
condition for recognition and the second step is to determine the
amount to be recognized based on the cumulative probability that
exceeds 50%. The Company has not recognized any liability for
unrecognized tax benefits and has not identified any uncertain tax
positions.
Wrap Technologies, LLC
Notes to Financial Statements
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
The
Company files income tax returns in the U.S. federal jurisdictions
and being domiciled in Nevada currently files no state income tax
returns.
Recent Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No.
2014-09, Revenue from
Contracts with Customers. This new standard will
replace most of the existing revenue recognition guidance in U.S.
GAAP when it becomes effective and permits the use of either the
retrospective or cumulative effect transition method. The new
standard, as amended, becomes effective for the Company in the
first quarter of 2018, but allows the Company to adopt the standard
one year earlier if it so chooses. Should the Company enter into
any applicable customer contracts in 2017 it plans to apply the
provisions of this standard.
In
August 2014, FASB issued Accounting Standards Update (ASU) No.
2014-15, Preparation of Financial
Statements – Going Concern (Subtopic 205-40), Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern. The new standard provides guidance around
management's responsibility to evaluate whether there is
substantial doubt about an entity's ability to continue as a going
concern and to provide related footnote disclosures. The Company
adopted this standard during the year ended December 31,
2016.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The
new guidance will replace the current lease guidance. The new
guidance requires that entities recognize the assets and
liabilities associated with leases on the balance sheet and to
disclose key information about leasing arrangements. The new
guidance is effective in fiscal years beginning after December 15,
2018, including interim periods within those fiscal years.
Therefore, the Company is required to adopt the guidance on January
1, 2019. Early adoption is permitted. The Company is currently
evaluating the possible impact of ASU 2016-02, but does not
anticipate that it will have a material impact on the Company's
results of operations, financial position or cash
flows.
In August
2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipt and Cash Payments.
The new guidance addresses certain classification issues related to
the statement of cash flows which will eliminate the diversity of
practice in how certain cash receipts and cash payments are
presented and classified in the statement of cash flows. The
guidance is effective for fiscal years beginning after December
2017. Early adoption is permitted. The Company is currently
evaluating the possible impact of ASU 2016-15, but does not
anticipate that it will have a material impact on the Company's
results of operations, financial position or cash
flows.
The
Company has reviewed other recently issued, but not yet effective,
accounting pronouncements and does not believe the future adoptions
of any such pronouncements will be expected to cause a material
impact on its financial condition or the results of
operations.
Wrap Technologies, LLC
Notes to Financial Statements
2.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consist of the following at December 31,
2016:
|
Equipment
|
$7,342
|
|
Furniture
|
2,196
|
|
|
9,538
|
|
Accumulated
depreciation
|
(1,312)
|
|
|
$8,226
|
Depreciation
expense was $1,312 for the period ended December 31,
2016.
Effective March 2016 the Company began accruing
monthly compensation for the services of two officers in the
aggregate amount of $7,000 per month payable to Syzygy Licensing,
LLC (“Syzygy”). The balance as of December 31, 2016 was
$70,000 and accrues without interest. No repayment terms or
schedule has been established.
The
Company has one class of membership units which include certain
transfer restrictions as specified in the operating agreement and
pursuant to applicable tax and securities law, with each unit
representing a pro rata ownership in the Company’s capital,
profits, losses and distributions. Losses are allocated to members
in accordance with their capital balances until zero and thereafter
based upon their respective percentage of units held. Income is
allocated first to the extent of previous losses and thereafter
allocated to members based upon their respective percentage of
units held.
During
2016 the Company obtained cash capital contributions of $442,500
from the issuance of 729 membership units.
5.
COMMITMENTS AND CONTINGENCIES
Facility Lease
Commencing December
1, 2016 the Company leased 1,890 square feet of improved office,
assembly and warehouse space in Las Vegas, Nevada for a period of
37 months terminating December 31, 2019. The gross monthly base
rent is $1,512 increasing approximately 3.5% per year, subject to
certain future adjustments. The Company may receive an aggregate of
three months of base rent concessions over the term of the lease
subject to timely rent payments.
Rent
expense for the period ended December 31, 2016 was $1,510. The
remaining future annual minimum lease obligations under the
foregoing facility lease are $15,158, $17,123 and $19,051 for 2017,
2018 and 2019, respectively.
Related Party Technology License Agreement
The
Company is obligated to pay royalties and pay development and
patent costs pursuant to an exclusive Amended and Restated
Intellectual Property License Agreement dated as of September 30,
2016 with Syzygy, a company owned and controlled by member/officers
Mr. Norris and Mr. Barnes (also a Manager of the Company). The
agreement provides for royalties of 4% of revenues from products
employing the licensed ensnarement device technology up to an
aggregate of $1,000,000 of royalties or until September 30, 2026,
whichever is earlier. The license reverted to Syzygy unless the
Company obtained aggregated capitalization of at least $300,000 by
December 31, 2016 (subject to a 6-month extension). As the
requirement was met, Syzygy has assigned patent applications and
the technology to the Company subject to the royalty
obligation.
Wrap Technologies, LLC
Notes to Financial Statements
5. COMMITMENTS AND CONTINGENCIES (continued)
Indemnifications and Guarantees
Our
officers and managers are indemnified as to personal liability as
provided by the Delaware law and the Company’s operating
agreement. 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.
Regulatory Agencies
The
Company may be subject to oversight from regulatory agencies
regarding firearms that arise in the ordinary course of its
business.
6.
RELATED PARTY TRANSACTIONS
During
the period ended December 31, 2016 the Company paid $25,409 of
patent legal costs incurred by Syzygy for the ensnarement device
technology pursuant to the license agreement (see Note 6) with such
technology subsequently assigned to the Company. See Notes 3, 5 and
7 for additional related party transactions and
information.
In
January 2017 the Company obtained additional cash capital
contributions of $225,000 from the issuance of 90 membership
units.
On
March 22, 2017 the Company issued 16.75 membership units to Petro
River Oil Corp. (“Petro”) to acquire 100% ownership
of its non-operating subsidiary Megawest Energy Montana Corp.
(“Megawest”).
Megawest had no assets or liabilities as of the acquisition date.
Scot Cohen, who is a member and manager of the Company,
beneficially owns 14% of Petro. The Company intends to merge into
Megawest and as part of the purchase of Megawest agreed to file a
registration statement with respect to its shares within 60
days.
8.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On
March 31, 2017 Wrap Technologies, LLC merged with and into its
wholly-owned subsidiary MegaWest (see Note 7). Wrap Technologies,
LLC ceased separate existence with Megawest continuing as the
surviving entity. MegaWest changed its name to Wrap Technologies,
Inc. and amended and restated new articles of incorporation
authorizing 150,000,000 shares of Common Stock, par value $0.0001,
and 5,000,000 shares of preferred stock, par value $0.0001. All
outstanding 835.75 membership units of Wrap LLC were exchanged for
20,000,000 shares of Common Stock of the Company.
The
Company’s subsequent merger with and into the MegaWest
wholly-owned subsidiary and exchange of membership units for Common
Stock will be accounted for as a reverse recapitalization of the
Company. Wrap Technologies, Inc. financial statements are in
substance those of Wrap Technologies, LLC and deemed to be a
continuation of the Company’s business from its inception
date of March 2, 2016. The balance sheet of the Company continues
at historical cost as the accounting acquiree (“Megawest”) had no operating
business, no assets or liabilities and no goodwill or intangible
assets was recorded as part of the recapitalization of the
Company.
Wrap Technologies, LLC
Notes to Financial Statements
8.
UNAUDITED PRO FORMA FINANCIAL INFORMATION (continued)
The
following illustrates the pro forma adjustments to
stockholders’ equity related to the reverse recapitalization
and the pro forma net loss and net loss per share as though the
transaction occurred at the inception of Wrap Technologies,
LLC:
|
|
|
MegaWest Energy Montana Corp.
|
|
Pro Forma Recapitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Preferred
stock - 5,000,000 authorized; par value $0.0001 per share; none
issued and outstanding
|
-
|
-
|
-
|
-
|
|
Common stock -
1,000 authorized; par value $0.01 per share; 1,000 shares issued
and outstanding
|
-
|
10
|
(10)
|
-
|
|
Common stock -
150,000,000 authorized; par value $0.0001 per share; 17,846,246
shares issued and outstanding
|
-
|
-
|
1,785
|
1,785
|
|
Additional
paid-in capital
|
-
|
1,784,759
|
(1,344,044)
|
440,715
|
|
Members'
equity
|
442,500
|
-
|
(442,500)
|
-
|
|
Accumulated
deficit
|
(234,356)
|
(1,786,269)
|
1,786,269
|
(234,356)
|
|
Total stockholders' equity
|
208,144
|
(1,500)
|
1,500
|
208,144
|
|
Total liabilities and stockholders' equity
|
$293,109
|
$-
|
$-
|
$293,109
|
|
|
|
|
|
|
|
Pro
forma net loss
|
$(234,356)
|
|
|
$(234,356)
|
|
Net
loss per common share
|
|
|
|
$(0.03)
|
|
Weighted
average common shares outstanding
|
|
|
|
8,366,286
|
Wrap Technologies, Inc.
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$344,629
|
$255,072
|
|
Prepaid expenses
and other assets
|
28,771
|
28,299
|
|
Total
current assets
|
373,400
|
283,371
|
|
Property
and equipment, net
|
11,527
|
8,226
|
|
Other
assets, net
|
1,512
|
1,512
|
|
Total
assets
|
$386,439
|
$293,109
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$35,255
|
$12,065
|
|
Deferred and
accrued officer compensation
|
96,000
|
70,000
|
|
Accrued
liabilities
|
23,795
|
2,900
|
|
Total
current liabilities
|
155,050
|
84,965
|
|
|
|
|
|
Commitments
and contingencies (Note 6)
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred
stock - 5,000,000 authorized; par value $0.0001 per share; none
issued and outstanding
|
-
|
-
|
|
Common stock -
150,000,000 authorized; par value $0.0001 per share; 20,000,000 and
17,445,408 shares issued and outstanding, respectively
|
2,000
|
1,745
|
|
Additional
paid-in capital
|
665,500
|
440,755
|
|
Accumulated
deficit
|
(436,111)
|
(234,356)
|
|
Total
stockholders' equity
|
231,389
|
208,144
|
|
Total
liabilities and stockholders' equity
|
$386,439
|
$293,109
|
See
accompanying notes to condensed interim financial
statements.
Wrap Technologies, Inc.
Condensed Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Selling,
general and administrative
|
75,792
|
3,690
|
|
Research
and development
|
125,963
|
27,909
|
|
Total operating
expenses
|
201,755
|
31,599
|
|
Loss from
operations
|
(201,755)
|
(31,599)
|
|
|
|
|
|
Net
loss
|
$(201,755)
|
$(31,599)
|
|
|
|
|
|
Net loss per basic
common share
|
$(0.01)
|
$(0.01)
|
|
Weighted average
common shares used to compute net loss per basic common
share
|
19,134,044
|
4,307,509
|
|
|
See
accompanying notes to condensed interim financial
statements.
Wrap
Technologies, Inc.Condensed
Statement of Stockholders' Equity(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Inception (March 2, 2016)
|
-
|
$-
|
$-
|
$-
|
$-
|
|
Sale of common
stock in March 2016 at $0.00836 per share
|
4,786,121
|
479
|
39,521
|
-
|
40,000
|
|
Sale of common
stock in September 2016 at $0.00836 per share
|
4,786,120
|
479
|
39,521
|
-
|
40,000
|
|
Sale of common
stock in October 2016 at $0.00836 per share
|
4,786,120
|
479
|
39,521
|
-
|
40,000
|
|
Sale of common
stock in December 2016 at $0.10447 per share
|
3,087,047
|
308
|
322,192
|
-
|
322,500
|
|
Net loss for the
period
|
-
|
-
|
-
|
(234,356)
|
(234,356)
|
|
Balance
at December 31, 2016
|
17,445,408
|
$1,745
|
$440,755
|
$(234,356)
|
$208,144
|
|
Sale of common
stock in January 2017 at $0.10447 per share
|
2,153,754
|
215
|
224,785
|
-
|
225,000
|
|
Shares issued to
acquire merger subsidiary to effect reverse
recapitalization
|
400,838
|
40
|
(40)
|
-
|
-
|
|
Net loss for the
period
|
-
|
-
|
-
|
(201,755)
|
(201,755)
|
|
Balance
at March 31, 2017
|
20,000,000
|
$2,000
|
$665,500
|
$(436,111)
|
$231,389
|
See accompanying
notes to condensed interim financial
statements.
Wrap Technologies, Inc.
Condensed Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
loss
|
$(201,755)
|
$(31,599)
|
|
Adjustments to
reconcile net loss to net cash used in
operating activities:
|
|
|
|
Depreciation
|
795
|
-
|
|
Changes in assets
and liabilities:
|
|
|
|
Prepaid expenses
and other assets
|
(472)
|
-
|
|
Accounts
payable
|
23,190
|
12,390
|
|
Deferred and
accrued officer compensation
|
26,000
|
7,000
|
|
Accrued
liabilities
|
20,895
|
-
|
|
Net cash used in
operating activities
|
(131,347)
|
(12,209)
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
Capital
expenditures for property and equipment
|
(4,096)
|
-
|
|
Net cash used in
investing activities
|
(4,096)
|
-
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
225,000
|
40,000
|
|
Net cash provided
by financing activities
|
225,000
|
40,000
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
89,557
|
27,791
|
|
Cash,
beginning of period
|
255,072
|
-
|
|
Cash,
end of period
|
$344,629
|
$27,791
|
See
accompanying notes to condensed interim financial
statements.
Wrap Technologies, Inc.
Notes to Unaudited Condensed Interim Financial
Statements
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and Business Description
Wrap Technologies, Inc. (the
“Company”) is a developer of security
products designed for use by law enforcement and security
personnel. The Company plans to introduce its first product, the
BolaWrap™ 100 remote restraint device, during
2017.
The
Company resulted from the March 31, 2017 merger of Wrap
Technologies, LLC (“Wrap
LLC”) with and into its wholly-owned subsidiary
MegaWest Energy Montana Corp. (“MegaWest”). Wrap LLC ceased
separate existence with MegaWest continuing as the surviving
entity. MegaWest changed its name to Wrap Technologies, Inc. and
amended and restated new articles of incorporation authorizing
150,000,000 shares of Common Stock, par value $0.0001, and
5,000,000 shares of preferred stock, par value $0.0001. All
outstanding 835.75 membership units of Wrap LLC were exchanged for
20,000,000 shares of Common Stock of the Company.
Wrap
LLC acquired privately held MegaWest from Petro River Oil Corp.
(“Petro River”)
on March 22, 2017 through the issuance of 16.75 membership units
representing a 2% ownership interest in Wrap LLC. Petro River is
owned 11% by Scot Cohen its Executive Chairman who also was a
Manager and 26% owner of Wrap LLC and a director and officer of the
Company. MegaWest had no assets or liabilities at the date of
acquisition nor at December 31, 2016 and is not considered an
operating business.
Wrap
LLC’s acquisition of MegaWest and its subsequent merger with
and into the MegaWest wholly-owned subsidiary and exchange of
membership units for Common Stock has been accounted for as a
reverse recapitalization of Wrap LLC. Wrap LLC, now the Company, is
deemed the accounting acquirer with MegaWest the accounting
acquiree. The Company’s financial statements are in substance
those of Wrap LLC and deemed to be a continuation of its business
from its inception date of March 2, 2016. The balance sheet of the
Company continues at historical cost as the accounting acquiree had
no assets or liabilities and no goodwill or intangible assets was
recorded as part of the recapitalization of the
Company.
To
reflect the recapitalization historical common shares and
additional paid-in capital have been retroactively adjusted using
the exchange ratio of approximately 23,930.60 shares for each
membership unit of Wrap LLC.
Basis of Presentation and Use of Estimates
The
Company’s unaudited interim financial statements
included herein have been prepared in accordance with 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 have been condensed or omitted pursuant to such rules
and regulations. In management’s opinion, the accompanying
statements reflect adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the
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 interim 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, 2016. Results of operations for interim periods are not
necessarily indicative of the results of operations for a full
year.
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions (e.g.,
recognition and measurement of contingencies and accrued costs)
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 revenues
and expenses during the reporting period. Actual results could
materially differ from those estimates.
Wrap Technologies, Inc.
Notes to Unaudited Condensed Interim Financial
Statements
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Going Concern
Since
inception in March 2016, the Company has generated significant
losses from operations and anticipates that it will continue to
generate significant losses from operations for the foreseeable
future, and that in order to continue as a going concern, the
business will require substantial additional investment that has
not yet been secured. The Company’s loss from
operations was $234,356 for the period ended December 31, 2016 and
$201,755 for the three months ended March 31, 2017. The net cash
used from operations and investing was $187,428 for the period
ended December 31, 2016 and $131,347 for the three months ended
March 31, 2017. On March 31, 2017 the Company had $344,629 in
cash. As of March 31, 2017, the Company’s obligations
included $155,050 of current liabilities and lease commitments of
approximately $48,300.
Management has
concluded that due to the conditions described above, there is
substantial doubt about the Company’s ability to continue as
a going concern through April 17, 2018.
Management has
evaluated the significance of the conditions in relation to the
Company’s ability to meet its obligations and believes that
the current cash balance will provide sufficient capital to
continue operations through approximately June 2017. While the
Company plans to raise capital to address its capital deficiencies
and meet its operating cash requirements, there is no assurance
that its plans will be successful. Management cannot assure you
that financing will be available on favorable terms or at all.
Additionally, if additional capital is raised through the sale of
equity or convertible debt securities, the issuance of such
securities would result in dilution to the Company’s existing
shareholders. Furthermore, despite management’s optimism
regarding the Company’s technology and planned products, even
in the event that the Company is adequately funded, there is no
guarantee that any products or product candidates will perform as
hoped or that such products can be successfully
commercialized.
Net Loss per Share
Basic
loss per common share is computed by dividing net loss for the
period by the weighted-average number of shares of Common Stock
outstanding during the period. Diluted loss per common share is
computed by dividing net loss by the weighted-average number of
shares of Common Stock outstanding during the period increased to
include the number of additional shares of Common Stock that would
have been outstanding if the potentially dilutive securities had
been issued. There were no Common Stock equivalents outstanding
during the periods presented; accordingly, the Company’s
basic and diluted net loss per share are the same.
Income Taxes
Until
its reverse recapitalization on March 31, 2017, the Company was
treated as a partnership for federal and state income tax purposes
and did not incur income taxes. Instead, its losses were included
in the income tax returns of the member partners. Accordingly, no
provision or liability for federal or state income taxes has been
included in these financial statements.
Recent Accounting Pronouncements
The
Company has reviewed recently issued, but not yet effective,
accounting pronouncements and does not believe the future adoptions
of any such pronouncements will be expected to cause a material
impact on its financial condition or the results of
operations.
Wrap Technologies, Inc.
Notes to Unaudited Condensed Interim Financial
Statements
2.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
$11,222
|
$7,342
|
|
Computer
equipment
|
216
|
-
|
|
Furniture and
fixtures
|
2,196
|
2,196
|
|
|
13,634
|
9,538
|
|
Accumulated
depreciation
|
(2,107)
|
(1,312)
|
|
|
$11,527
|
$8,226
|
Depreciation
expense was $795 for the three months ended March 31,
2017.
3.
DEFERRED AND ACCRUED COMPENSATION
Effective
March 2016 the Company began accruing monthly compensation for the
services of two officers in the aggregate amount of $7,000 per
month payable to Syzygy Licensing, LLC (“Syzygy”).
Beginning in March 2017 the Company began accruing $6,000 per month
compensation to each of the two officers. The balance payable to
Syzygy as of March 31, 2017 was $84,000 and the accrued
compensation aggregated $12,000. These balances accrue without
interest. No repayment terms or schedule has been
established.
4.
STOCKHOLDERS’ EQUITY AND SHARE-BASED
COMPENSATION
The
Company’s authorized capital consists of 150,000,000 shares
of Common Stock, par value $0.0001, and 5,000,000 shares of
preferred stock, par value $0.0001. To
reflect the recapitalization (see Note 1) historical shares of
Common Stock and additional paid-in capital have been retroactively
adjusted using the exchange ratio of approximately 23,930.60 shares
of Common Stock for each membership unit of Wrap
LLC.
Effective
with the merger, the Company adopted and the shareholders approved
on March 31, 2017 the 2017 Equity Compensation Plan authorizing
2,000,000 shares of Common Stock for issuance as stock options and
restricted stock units to employees, directors or consultants. At
March 31, 2017, there had been no option grants or restricted stock
awards made and none were outstanding.
5.
COMMITMENTS AND CONTINGENCIES
Facility Lease
Commencing December
1, 2016 the Company leased 1,890 square feet of improved office,
assembly and warehouse space in Las Vegas, Nevada for a period of
37 months terminating December 31, 2019. The gross monthly base
rent is $1,512 increasing approximately 3.5% per year, subject to
certain future adjustments. The Company may receive an aggregate of
three months of base rent concessions over the term of the lease
subject to timely rent payments.
Rent
expense for the period ended March 31, 2017 was $4,530. The
remaining future annual minimum lease obligations under the
foregoing facility lease are $12,134, $17,123 and $19,051 for the
balance of 2017, 2018 and 2019, respectively.
Wrap Technologies, Inc.
Notes to Unaudited Condensed Interim Financial
Statements
5.
COMMITMENTS AND CONTINGENCIES (continued)
Related Party Technology License Agreement
The
Company is obligated to pay royalties and pay development and
patent costs pursuant to an exclusive Amended and Restated
Intellectual Property License Agreement dated as of September 30,
2016 with Syzygy, a company owned and controlled by
stockholder/officers Mr. Norris and Mr. Barnes. The agreement
provides for royalties of 4% of revenues from products employing
the licensed ensnarement device technology up to an aggregate of
$1,000,000 of royalties or until September 30, 2026, whichever is
earlier.
Regulatory Agencies
The
Company may be subject to oversight from regulatory agencies
regarding firearms that arise in the ordinary course of its
business.
6.
RELATED PARTY TRANSACTIONS
See
Notes 1, 3 and 5 for information on related party transactions and
information.
2,666,666
Shares of Common Stock
,
Prospectus
All dealers that buy, sell or trade the Common Stock
identified herein may be required to deliver a prospectus,
regardless of whether they are participating in this offering. This
is in addition to the dealers’ obligation to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
[Alternate Page for Resale Prospectus]
The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state or other jurisdiction where the offer or
sale is not permitted.
|
Prospectus
|
|
____________, 2017
|
400,838 Shares of Common
Stock
OF WRAP TECHNOLOGIES, INC.
BEING DISTRIBUTED BY
PETRO RIVER OIL CORP.
This
prospectus is being furnished in connection with the distribution
to holders of common stock, par value $0.0001 per share, of Petro
River Oil Corp. (“Petro
River”), of all of the outstanding shares of common
stock, par value $0.0001 per share (“Common Stock”), of Wrap
Technologies, Inc. (the “Company”) owned by Petro River
(the “Distribution”). Petro River is
effecting the Distribution pursuant to the terms of a resolution
approved by the Board of Directors of the Company on March 28,
2017. Petro River currently owns 2% of the
Company’s Common Stock issued and outstanding. Since
there are approximately15,827,998 shares of Petro
River common stock outstanding, on the date of the distribution
(the “Distribution
Date”), Petro River’s common shareholders will
receive approximately one share of Common Stock of the Company for
every 39.5 shares (or their equivalent) of Petro River
held.
Reason for Furnishing this Prospectus
We are
furnishing this prospectus to provide information to holders of
Petro River who will be issued shares of Common Stock of the
Company in the Distribution. It is not, and is not to be construed
as, an inducement or encouragement to buy or sell any of the
Company’s securities or those of Petro River. The information
contained in this prospectus is believed by us to be accurate as of
the date set forth on its cover. Changes may occur after that date,
and neither the Company nor Petro River are required to update the
information except in the normal course of our public disclosure
obligations and practices.
No stockholder approval of the Distribution is required, and none
is being sought. Neither Petro River nor the Company are
asking you for a proxy.
No
public market currently exists for the Company’s Common
Stock. Following the Distribution, we currently anticipate that
quotations for our Common Stock will be available on the OTCBB
quotation and trading system, and that a ticker symbol for our
Common Stock will be assigned for our Common Stock shortly before
quotations for our Common Stock first become available. It is
possible that a limited trading market, known as a
“when-issued” trading market, may develop on or shortly
before the record date for the distribution and that regular
trading, to the extent available on the OTCBB quotation and trading
system, will begin on the first trading day after the effective
date of the Distribution. Petro River will continue to list its
common stock on the OTCBB under the symbol “PTRC”
following the Distribution.
The
Company has also filed for a direct public offering of up to $4.0
million (“DPO”). Any such DPO
would include the materials constituting this registered
filing.
IN REVIEWING THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION “RISK FACTORS”
BEGINNING ON PAGE
5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES
OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION NOT CONTAINED IN
THE PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
UNTIL ____________, 2017 (90 DAYS AFTER THE DATE HEREOF), ANY
BROKER-DEALER EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
CURRENT COPY OF THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A COPY OF THIS PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO ANY UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[Alternate Page for Resale Prospectus]
ABOUT THIS PROSPECTUS
You
should rely only on the information contained in this prospectus or
in any free writing prospectus we or Petro River may authorize to
be delivered or made available to you. Neither we, nor Petro River
have authorized anyone to provide you with different information.
We and Petro River are distributing the shares of Common Stock only
in jurisdictions where offers and sales are permitted. The
information in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this
prospectus or of any sale of shares of our Common Stock. Our
business, financial condition, operating results and prospects may
have changed since that date.
Unless the context
otherwise requires, the words “Wrap
Technologies, Inc.,”
“Wrap
Technologies,”
“Wrap
Tech,”
“we,”
“the
Company,”
“us”
and “our”
refer to Wrap Technologies, Inc., a Delaware
corporation.
[Alternate Page for Resale Prospectus]
The Offering
|
Common Stock offered by Petro River
|
400,838
shares of the Company as of the date of this
prospectus.
|
|
|
|
|
Common Stock outstanding
|
20,000,000
shares of Common Stock excluding any shares that may be sold in the
DPO described elsewhere in this prospectus.
|
|
|
|
|
Use of proceeds
|
We will
not receive any proceeds from the distribution of the Common Stock
by Petro River.
|
|
|
|
|
Risk factors
|
You
should read the “Risk
Factors” section of this prospectus and the other
information in this prospectus for a discussion of factors to
consider carefully before deciding to invest in shares of our
Common Stock.
|
|
|
|
Summary of the Distribution
The
following is a summary of the terms of the distribution. Please see
“The
Distribution” beginning on page 6 for a more detailed
description of the matters described below.
The Distribution
|
Distributing company
|
|
Petro
River Oil Corp. (“Petro
River”), a Delaware corporation.
|
|
|
|
|
|
Distributed company
|
|
Wrap
Technologies, Inc., a Delaware corporation (the “Company”). The Company’s
principal executive offices are located at 4620 Arville Street,
Suite E, Las Vegas, Nevada 89103.
|
|
|
|
|
|
Distribution ratio
|
|
Each
holder of Petro River common stock will receive a dividend of
approximately one share of Company Common Stock for every 39.5
shares of Petro River common stock held on the record date. Any
fractional shares will be rounded down to the next whole share.
Accordingly, any Petro River shareholder holding less than
approximately 39.5 shares of Petro River will not receive any
shares of the Company.
|
|
|
|
|
|
Securities to be distributed
|
|
400,838
shares of Company Common Stock, which will constitute all of the
outstanding shares of the Company’s Common Stock beneficially
owned by Petro River.
|
|
|
|
|
|
Record date
|
|
The
record date is the close of business, June 30, 2017. To receive
shares of Common Stock of the Company in the Distribution, holders
of Petro River common stock must be shareholders as of the close of
business on the record date.
|
|
|
|
|
|
Distribution date
|
|
The
distribution date will be on or about ________, 2017
(“Distribution
Date”).
|
|
|
|
|
|
Tax Consequences to Petro River
Stockholders
|
|
For
U.S. federal income tax purposes, gain or loss may be recognized
by, or be includible in the income of, a U.S. Holder (as defined in
“U.S. Federal Income Tax
Consequences of the Distribution”) as a result of the
Distribution. In addition, the aggregate tax basis of the Petro
River common stock and the Company’s Common Stock held by
each U.S. Holder immediately after the Distribution will be the
same as the aggregate tax basis of the Petro River common stock
held by the U.S. Holder immediately before the Distribution,
allocated between the Petro River common stock and the Company
Common Stock in proportion to their relative fair market values on
the date of the Distribution (subject to certain adjustments). See
“U.S. Federal Income Tax
Consequences of the Distribution.”
We urge you to consult your tax advisor as to the specific tax
consequences of the Distribution to you, including the effect of
any U.S. federal, state, local or foreign tax laws and of changes
in applicable tax laws.
|
As a
result of the distribution, we will be a publicly-traded company.
The Distribution involves the following steps:
●
Approval of the
distribution by the Board of Directors of Petro River at a special
meeting held on March 15, 2017; and
●
Following the
Distribution, the application for listing and quotation of the
Company’s Common Stock on the OTCBB.
For a
further explanation of the distribution, see “The Distribution” beginning on
page 6.
[Alternate Page for Resale Prospectus]
Risk Factors Relating to the Distribution
The Distribution could
result in tax liability to Petro River and its
stockholders.
The
Distribution is not expected to qualify for non-recognition of gain
and loss to Petro River or its stockholders for federal income tax
purposes. This conclusion does not address any U.S. state or local
or foreign tax consequences of the Distribution, which could result
in other tax liabilities. We will not have a tax opinion of counsel
on this matter. Even if we had such an opinion, the opinion would
not be binding on the Internal Revenue Service (“IRS”) or the courts. In this
case, each Petro River shareholder who receives our Common Stock in
the Distribution would generally be treated as receiving a
distribution in an amount equal to the fair market value of our
Common Stock, which could result in (i) a taxable dividend to the
Petro River shareholders to the extent of that Petro River
shareholder’s pro rata share of Petro River’s current
and accumulated earnings and profits (of which there are none, so
no dividend is expected); (ii) a reduction in the Petro River
shareholder’s basis (but not below zero) in Petro River
common stock to the extent the amount received exceeds the
stockholder’s share of Petro River’s earnings and
profits; and (iii) a taxable gain to the extent the amount received
exceeds the sum of the Petro River shareholder’s share of
Petro River’s earnings and profits and its basis in its Petro
River common stock. Petro River has no accumulated or current
earnings and profits, which may mitigate the tax liability, if any,
to the Petro River shareholders. Petro River would recognize gain
in an amount up to the fair market value of the Company’s
Common Stock held by it immediately before the Distribution, likely
offset by its net operating loss carry forward.
[Alternate Page for Resale Prospectus]
THE DISTRIBUTION
In addition to the shares of Common Stock offered
by the Company DPO, this prospectus also relates to the
distribution by Petro River Oil Corp. (“Petro River”) of shares of our Common Stock which were
issued to Petro River in connection with the merger of the Company
with and into MegaWest Energy Montana Corp., a wholly-owned
subsidiary of the Company (“MegaWest”) on March 31, 2017 (the
“MegaWest
Merger”), as further
described below.
Background
Petro
River is an independent energy company focused on the exploration
and development of conventional oil and gas assets with low
discovery and development costs. Petro River is currently focused
on moving forward with drilling wells on several of its properties
owned directly and indirectly through its subsidiaries and other
interests. In light of the challenging oil price environment and
capital markets, Petro River is focusing on specific target
acquisitions and investments, including farm-in and joint venture
opportunities for the Company’s oil and gas assets, and
limiting operating expenses outside of its oil and gas
assets.
On March 22, 2017, Wrap Technologies, LLC
(“Wrap LLC”) and Petro River entered into a Stock
Purchase Agreement, pursuant to which the Company acquired from
Petro River all the capital stock of MegaWest, in consideration for
the issuance to Petro River of 2% of the issued and outstanding
membership interests in Wrap LLC. As a result, MegaWest became a
wholly-owned subsidiary of Wrap LLC. On March 31, 2017, Wrap LLC
and MegaWest entered into a Merger Agreement, pursuant to which
Wrap LLC was merged with and into MegaWest, and MegaWest changed
it’s name to Wrap Technologies, Inc., a Delaware corporation.
In connection with the MegaWest Merger, all of the membership
interests in Wrap LLC prior to March 31, 2017 were converted into
and exchanged for 20.0 million shares of Common Stock of the
Company.
As
a result of the MegaWest Merger, Petro River received an aggregate
total of 400,838 shares of Common Stock, representing approximately
2% of the issued and outstanding Common Stock of the Company upon
consummation of the MegaWest Merger. The remaining 19,599,162
shares of Common Stock of the Company was issued to the members of
Wrap LLC immediately prior to the consummation of the MegaWest
Merger. As a part of the MegaWest Merger, the Company agreed to
register all shares of the Company’s Common Stock held by
Petro River for distribution to Petro River’s shareholders as
a dividend.
The
total number of shares registered for resale in the offering does
not include 19,599,162 shares issued in connection with the
MegaWest Merger that are not being registered, which shares are
held by former members of Wrap LLC.
Although Petro River’s Board of Directors
has approved the Distribution, Petro River has the right not to
complete the Distribution if, at any time, the Petro River Board of
Directors, in its sole and absolute discretion, determines that the
Distribution is not in the best interests of Petro River or its
shareholder, or is otherwise not advisable. For a more detailed
description, see "The Distribution-Conditions to
the Distribution."
Reasons for the Distribution
Petro
River determined that the sale of the capital stock of MegaWest was
in the best interests of Petro River’s shareholders since it
resulted in Petro River’s ability to realize value from
MegaWest, which, at the time of consummation of the sale, was
inactive and did not have any assets of material value. Petro
River also believed that its resulting interest in the Company, by
distributing such interest to Petro River’s shareholders,
would provide such shareholders with the potential to realize the
anticipated value created from the development of the
Company’s business, and the Company’s intent to go
public.
Conversely,
due to Petro River’s intent to distribute the shares received
in connection with the sale to its shareholders, the Company
determined that by purchasing MegaWest, and consummating the
MegaWest Merger, the Company would be able to establish itself as
an independent, publicly traded corporation, which we believe will
diversify our shareholder base and meaningfully enhance our
industry market perception, thereby providing greater growth
opportunities for us than our consolidated operation as a division
of Petro River. Additionally, our near-term goals for our business
include raising sufficient capital to commercialize BolaWrap™
100, develop additional versions of the technology, and develop new
technologies and products. Achieving these goals will require
offerings of securities by us, including the offering described
elsewhere in this prospectus. Our business will be separate and
distinct from Petro River’s business and, accordingly, we
believe that pursuing such growth and capital funding opportunities
will be greatly facilitated with a capital structure that is
tailored for the Company's needs, separate from those of Petro
River.
Shares to be Distributed by Petro River
As described above, the Company agreed to register
all shares of the Company’s Common Stock held by Petro River
for distribution to Petro River’s shareholders as a dividend
(the “Distribution”).
As such, this prospectus registers the resale of a total of 400,838
shares of Common Stock currently held by Petro River (the
“Distribution
Shares”).
The
following table sets certain information about Petro River,
including information with respect to shares of our Common Stock
beneficially owned by Petro River as of May 30, 2017:
|
Name
|
Shares Beneficially Owned Prior to the Distribution
(1)
|
|
Shares Beneficially Owned After the Distribution (2)
|
|
Petro
River Oil Corp. (3)
|
400,838
|
400,838
|
*
|
|
*
|
Represents less than 1%
|
|
(1)
|
Beneficial ownership amounts and percentages are calculated in
accordance with Rule 13d-3 of the Exchange Act.
|
|
(2)
|
Assumes that Petro River will sell or distribute all shares of the
Company’s Common Stock saleable pursuant to this prospectus.
Registration of the shares of Common Stock identified herein does
not necessarily mean that Petro River will sell or distribute all
or any portion of the shares covered by this
prospectus.
|
|
(3)
|
Scot Cohen, Executive Chairman of Petro River, exercises voting and
investment authority over these shares. Given Petro River's
intent to distribute these shares as a dividend to its
shareholders, Petro River is deemed to be an
underwriter of the shares of Common Stock registered on their
behalf.
|
When and How You Will Receive Company Shares
Petro River will distribute to its shareholder, as
a pro rata distribution, approximately one share of our Common
Stock for every 39.5 shares of Petro River common stock outstanding
as of June 30, 2017, the record date established by Petro River for
the Distribution (the “Record Date”). The distribution ratio may change
slightly to the extent of changes in the outstanding Petro River
shares on the Record Date. Any fractional shares will be rounded
down to the nearest whole share and accordingly any Petro River
stockholder holding less than approximately 39.5 shares of Petro
River will not receive any shares of the Company. The number of
shares of Common Stock (i.e., 400,838) will not
change.
Prior
to the Distribution, Petro River will deliver all of the issued and
outstanding shares of the Common Stock owned by it to the
distribution agent. Our transfer agent, Colonial Stock Transfer,
will serve as the distribution agent for the
Distribution.
If
you own Petro River common stock as of the close of business on
June 30, 2017, the shares of our Common Stock that you
are entitled to receive in the Distribution will be issued to your
account as follows:
Registered
stockholders. If you own your
shares of Petro River common stock directly through the Company's
transfer agent, Computershare, you are a registered stockholder. In
this case, the distribution agent will credit the whole shares of
our Common Stock you receive in the Distribution by way of
direct registration in book-entry form to a new account with our
transfer agent. Registration in book-entry form refers to a method
of recording share ownership where no physical stock certificates
are issued to shareholders, as is the case in the Distribution. You
will be able to access information regarding your book-entry
account holding our shares at Colonial Stock Transfer. Commencing
on or shortly after the beginning of the Distribution (the
“Distribution
Date”), the distribution
agent will mail to you an account statement that indicates the
number of whole shares of our Common Stock that have been
registered in book-entry form in your name. We expect it will take
the distribution agent up to two weeks after the Distribution Date
to complete the distribution of the shares of our Common Stock and
mail statements of holding to all registered
stockholders.
"Street name" or beneficial
stockholders. Most Petro River
stockholders own their shares of Petro River common stock
beneficially through a bank, broker or other nominee. In these
cases, the bank, broker or other nominee holds the shares in
"street name" and records your ownership on its books. If you
own your shares of Petro River common stock through a bank, broker
or other nominee, your bank, broker or other nominee will credit
your account with the whole shares of our Common Stock that you
receive in the Distribution on or shortly after the Distribution
Date. We encourage you to communicate with your bank, broker or
other nominee if you have any questions concerning the mechanics of
having shares held in "street name."
If you sell any of your shares of Petro River
common stock on or before the Distribution Date, the buyer of those
shares may in some circumstances be entitled to receive the shares
of our Common Stock to be distributed in respect of the Petro River
shares you sold. See "The Distribution-Trading Prior
to the Distribution Date" for
more information.
As
Petro River’s Board of Directors approved the Distribution at
a special meeting held on March 17, 2017, and determined that
approval of the Distribution was not required by Petro
River’s shareholders, we are not asking Petro River
shareholders to take any action in connection with the
Distribution. We are also not asking you to make any payment or
surrender or exchange any of your shares of Petro River common
stock for shares of our Common Stock. The number of
outstanding shares of Petro River common stock will not change as a
result of the Distribution.
Number of Shares You Will Receive
On
the Distribution Date, you will receive approximately one share of
our Common Stock for every 39.5 shares of Petro River common stock
you hold on the Record Date.
Treatment of Fractional Shares
The distribution agent will not distribute any
fractional shares of our Common Stock in connection with the
Distribution. Instead, the distribution agent will
round down fractional shares of our Common Stock to the nearest
whole number of shares of Common Stock. Accordingly, any
Petro River stockholder holding less than approximately 39.5 shares
of Petro River will not receive any shares of the
Company.
Results of the Distribution
After
the Distribution, we expect to be an independent publicly-traded
company. Immediately following the Distribution, we expect to have
approximately 750 holders of all of our outstanding Common Stock,
and 20,000,000 shares of our total Common Stock outstanding,
excluding any shares sold in the the public offering described
elsewhere in this prospectus. The number of shares of Common Stock
Petro River will distribute in the Distribution will not change.
The Distribution will not affect the number of outstanding
shares of Petro River common stock or any rights of Petro River
shareholders.
Listing and Trading of the Common Stock
As of the date of this
prospectus, no public market for our Common Stock exists. We
intend to list our Common Stock on the OTCQB
Marketplace or better under a trading symbol yet to be assigned.
Following the Distribution, Petro River common stock will continue to trade on the
OTC Pink Marketplace under the symbol "PTRC."
Neither we nor Petro River can assure you as
to the trading price of Petro River common stock or our
Common Stock after
the Distribution, or as to whether the combined trading prices of
our Common
Stock and the Petro River common stock after the Distribution will
be less than, equal to or greater than the trading prices of Petro
River common stock prior to the Distribution. The trading
price of our Common Stock may fluctuate
significantly following the Distribution. See "Risk
Factors-Risks Relating to the Distribution" for more
detail.
The
shares of our Common Stock distributed to Petro River stockholders
will be freely transferable, including shares received by
individuals who are our affiliates. Individuals who may be
considered our affiliates after the Distribution include
individuals who control, are controlled by or are under common
control with us, as those terms generally are interpreted for
federal securities law purposes. These individuals may
include some or all of our directors and executive officers.
Individuals who are our affiliates will be permitted to sell their
shares of our Common Stock only pursuant to an effective
registration statement under the Securities Act, or an exemption
from the registration requirements of the Securities Act, such as
those afforded by Section 4(1) or Rule 144 of the Securities
Act.
Trading Prior to the Distribution Date
We
anticipate that, as early as two trading days prior to the Record
Date and continuing up to and including the Distribution Date,
there will be two markets in Petro River common stock: a
"regular-way" market and an "ex-distribution" market. Shares of
Petro River common stock that trade on the regular-way market will
trade with an entitlement to receive shares of our Common Stock in
the Distribution. Shares that trade on the ex-distribution market
will trade without an entitlement to receive shares of the Common
Stock in the Distribution. Therefore, if you sell shares of
Petro River common stock in the regular-way market up to and
including the Distribution Date, you will be selling your right to
receive shares of our Common Stock in the Distribution.
However, if you own shares of Petro River common stock at the
close of business on the Record Date and sell those shares on the
ex-distribution market up to and including the Distribution Date,
you will still receive the shares of our Common Stock that you
would otherwise be entitled to receive in the Distribution.
Following the Distribution Date on a date to be determined, we
expect shares of our common stock to be listed on the OTCQB
Marketplace or better under a trading symbol yet to be
assigned.
Conditions to the Spin-Off
We
expect that the separation will be effective on the Distribution
Date, provided that the following conditions are satisfied or
waived by Petro River:
●
the
SEC shall have declared effective our Registration Statement on
Form S-1, of which this prospectus is a part, under the Securities
Act, and no stop order suspending the effectiveness of our
Registration Statement shall be in effect and no proceedings for
that purpose shall be pending before or threatened by the
SEC;
●
no
order, injunction or decree issued by any governmental authority of
competent jurisdiction or other legal restraint or prohibition
preventing consummation of the Distribution shall be in effect, and
no other event outside the control of Petro River shall have
occurred or failed to occur that prevents the consummation of the
Distribution;
●
no
other events or developments shall have occurred prior to the
Distribution Date that, in the judgment of the Petro River Board,
would result in the Distribution having a material adverse effect
on Petro River or its shareholders; and
●
prior
to the Distribution Date, this prospectus shall have been mailed or
otherwise made available to the holders of Petro River common stock
as of the Record Date.
Reasons for Furnishing this Prospectus
We
are furnishing this prospectus solely to provide information to
Petro River’s shareholders who will receive shares of our
Common Stock in the Distribution. You should not construe this
prospectus as an inducement or encouragement to buy, hold or sell
any of our securities or any securities of Petro River. We
believe that the information contained in this prospectus is
accurate as of the date set forth on the cover. Changes to
the information contained in this prospectus may occur after that
date, and neither we nor Petro River undertake any obligation to
update the information except in the normal course of our and Petro
River's public disclosure obligations and practices and except as
required by applicable law.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION
Consequences to U.S. Holders of Petro River Common
Stock
The following is a summary of the material U.S.
federal income tax consequences to holders of Petro River common
stock in connection with the Distribution. This summary is based on
the Internal Revenue Code of 1986, as amended (the
“Code”), the Treasury Regulations promulgated
under the Code and judicial and administrative interpretations of
those laws, in each case as in effect and available as of the date
of this prospectus, and all of which are subject to change at any
time, possibly with retroactive effect. Any such change could
affect the tax consequences described in this section of the
prospectus.
This
summary is limited to holders of Petro River common stock that are
U.S. Holders, as defined immediately below, that hold their Petro
River common stock as a capital asset. A "U.S. Holder" is a
beneficial owner of Petro River common stock that is, for U.S.
federal income tax purposes:
●
an
individual who is a citizen or a resident of the United
States;
●
a
corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized under the laws of
the United States or any state thereof or the District of
Columbia;
●
an
estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
●
a
trust if a court within the United States is able to exercise
primary jurisdiction over its administration and one or more U.S.
persons have the authority to control all of its substantial
decisions or, in the case of a trust that was treated as a domestic
trust under law in effect before 1997, a valid election is in place
under applicable Treasury Regulations.
This
summary does not discuss all tax considerations that may be
relevant to shareholders in light of their particular
circumstances, nor does it address the consequences to shareholders
subject to special treatment under the U.S. federal income tax
laws, such as:
●
dealers
or traders in securities or currencies;
●
banks,
financial institutions or insurance companies;
●
real
estate investment trusts, regulated investment companies or grantor
trusts;
●
persons
who acquired Petro River common stock pursuant to the exercise of
employee stock options or otherwise as compensation;
●
stockholders
who own, or are deemed to own, 10% or more, by voting power or
value, of Petro River equity;
Alternate
Prospectus - 10
●
stockholders
owning Petro River common stock as part of a position in a straddle
or as part of a hedging, conversion or other risk reduction
transaction for U.S. federal income tax purposes;
●
certain
former citizens or long-term residents of the United
States;
●
stockholders
who are subject to the alternative minimum tax; or
●
persons
who own Petro River common stock through partnerships or other
pass-through entities.
This
summary does not address any U.S. state or local or foreign tax
consequences or any estate, gift or other non-income tax
consequences.
If
a partnership, or any other entity treated as a partnership for
U.S. federal income tax purposes, holds Petro River common stock,
the tax treatment of a partner in that partnership will generally
depend on the status of the partner and the activities of the
partnership. Such a partner or partnership should consult its own
tax advisor as to its tax consequences.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE U.S.
FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
DISTRIBUTION.
General
Subject
to the qualifications and limitations set forth herein, management
of the Company believes that for U.S. federal income tax
purposes:
●
gain
or loss may be recognized by, or be includible in the income of, a
U.S. Holder as a result of the Distribution;
●
the
aggregate tax basis of the Petro River common stock and
Distribution Shares held by each U.S. Holder immediately after the
Distribution will be the same as the aggregate tax basis of the
Petro River common stock held by the U.S. Holder immediately before
the Distribution, allocated between the Petro River common stock
and the Distribution Shares in proportion to their relative fair
market values on the date of the Distribution; and
●
the
holding period of the Distribution Shares received by each U.S.
Holder will include the holding period of their Petro River common
stock, provided that such Petro River common stock is held as a
capital asset on the date of the Distribution.
U.S.
Holders that have acquired different blocks of Petro River common
stock at different times or at different prices should consult
their tax advisors regarding the allocation of their aggregate
adjusted tax basis among, and the holding period of, Distribution
Shares distributed with respect to such blocks of Petro River
common stock.
The
conclusions do not address any U.S. state or local or foreign tax
consequences of the Distribution. The conclusions assume that
the Distribution will be completed as described in this prospectus.
In addition, the conclusions are based on certain representations
as to factual matters from, and certain covenants by, Petro River
and us. The conclusions cannot be relied on if any of the
assumptions, representations or covenants are incorrect, incomplete
or inaccurate or are violated in any material respect.
The conclusions are not binding on the Internal
Revenue Service (“IRS”) or the courts, and we cannot assure you
that the IRS or a court will not take a contrary
position.
The
Distribution is not expected to qualify for non-recognition of gain
and loss, and therefore U.S. Holders could be subject to tax. In
this case, each U.S. Holder who receives Distribution Shares in the
Distribution would generally be treated as receiving a distribution
in an amount equal to the fair market value of the Distribution
Shares received, which would generally result in:
Alternate
Prospectus - 11
●
a
taxable dividend to the U.S. Holder to the extent of that U.S.
Holder's pro rata share of Petro River's current and accumulated
earnings and profits;
●
a
reduction in the U.S. Holder's basis (but not below zero) in Petro
River common stock to the extent the amount received exceeds the
stockholder's share of Petro River's earnings and profits;
and
●
a
taxable gain to the extent the amount received exceeds the sum of
the U.S. Holder's share of Petro River's earnings and profits and
the U.S. Holder's basis in its Petro River common
stock.
Petro River has no accumulated or current earnings and profits,
which may mitigate the tax liability, if any, to the Petro River
shareholders.
Backup Withholding and Information Statement
Treasury
Regulations require each Petro River stockholder who, immediately
before the Distribution, owns 5% or more (by vote or value) of the
total outstanding stock of Petro River, to attach to such
stockholder's U.S. federal income tax return for the year in which
the Distribution occurs a statement setting forth certain
information related to the Distribution.
Consequences to Petro River
The material U.S. federal income tax consequences
to Petro River in connection with the Distribution are relevant to
holders of Petro River common stock. Since the Distribution is not
expected to qualify for non-recognition of gain and loss under
Section 355 of the Code, then Petro River would recognize gain in
an amount up to the fair market value of the Distribution Shares
held by it immediately before the Distribution. Petro River expects
any such gain to be absorbed and offset by its accumulated net
operating loss (“NOL”) carry forward.
Alternate
Prospectus - 12
[Alternate Page for Resale Prospectus]
USE OF PROCEEDS
We
will not receive any of the proceeds from the distribution of the
Common Stock by Petro River.
Alternate
Prospectus - 13
[Alternate Page for Resale Prospectus]
400,838 Shares of Common
Stock
Prospectus
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
The following table presents the costs and
expenses in connection with the issuance and distribution of the
securities to be registered, other than the placement agent fees
payable by us in connection with the sale of Common Stock being
registered. Except as otherwise noted, we will pay all of these
amounts. All amounts are estimates except the Securities and
Exchange Commission (“SEC”) registration fee and the Financial
Industry Regulatory Authority (“FINRA”) registration fee.
|
SEC registration
fee
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$ 534
|
|
Accounting fees and
expenses
|
$7,500
|
|
Legal fees and
expenses
|
$35,000
|
|
Blue Sky filing
fees
|
$5,000
|
|
Miscellaneous fees
and expenses
|
$ 1,966
|
|
Total
|
$50,000
|
Item 14. Indemnification of Directors and
Officers
Our
Certificate of Incorporation and Bylaws contain provisions relating
to the limitation of liability and indemnification of directors and
officers. Our certificate of incorporation provides that a director
will not be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as a director, except
for liability:
●
for
any breach of the director’s duty of loyalty to us or our
shareholders;
●
for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
●
under Section 174 of the Delaware General
Corporation Law (the “DGCL”); or
●
for
any transaction from which the director derived any improper
personal benefit.
Our
Certificate of Incorporation also provides that if the DGCL is
amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of
our directors will be eliminated or limited to the fullest extent
permitted by the DGCL.
Our
Bylaws provide that we will indemnify our directors and officers to
the fullest extent not prohibited by the DGCL; provided, however,
that we may limit the extent of such indemnification by individual
contracts with our directors and executive officers; and provided,
further, that we are not required to indemnify any director or
executive officer in connection with any proceeding (or part
thereof) initiated by such person or any proceeding by such person
against us or our directors, officers, employees or other agents
unless:
●
such
indemnification is expressly required to be made by
law;
●
the
proceeding was authorized by the board of directors;
or
●
such
indemnification is provided by us, in our sole discretion, pursuant
to the powers vested in us under the DGCL.
Our
Bylaws provide that we shall advance, prior to the final
disposition of any proceeding, promptly following request therefor,
all expenses by any director or executive officer in connection
with any such proceeding upon receipt of any undertaking by or on
behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to e
indemnified under Article XI of our bylaws or otherwise.
Notwithstanding the foregoing, unless otherwise determined, no
advance shall be made by us if a determination is reasonably and
promptly made by the board of directors by a majority vote of a
quorum of directors who were not parties to the proceeding, or if
such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in
a written opinion, that the facts known to the decision-making
party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to our
best interests.
Our
bylaws also authorize us to purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to our
Bylaws.
Section
145(a) of the DGCL authorizes a corporation to indemnify any person
who was or is a party, or is threatened to be made a party, to a
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of
the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action,
suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
the person’s conduct was unlawful.
Section
145(b) of the DGCL provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit
by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys’
fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The
DGCL also provides that indemnification under Section 145(d) can
only be made upon a determination that indemnification of the
present or former director, officer or employee or agent is proper
in the circumstances because such person has met the applicable
standard of conduct set forth in Section 145(a) and
(b).
Section
145(g) of the DGCL also empowers a corporation to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any
such capacity, or arising out of such person’s status as
such, whether or not the corporation would have the power to
indemnify such person against such liability under Section 145 of
the DGCL.
Section
102(b)(7) of the DGCL permits a corporation to provide for
eliminating or limiting the personal liability of one of its
directors for any monetary damages related to a breach of fiduciary
duty as a director, as long as the corporation does not eliminate
or limit the liability of a director for acts or omissions which
(1) which breached the director’s duty of loyalty to the
corporation or its shareholders, (2) which were not in good faith
or which involve intentional misconduct or knowing violation of
law, (3) under Section 174 of the DGCL; or (4) from which the
director derived an improper personal benefit.
We
have obtained directors’ and officers’ insurance to
cover our directors and officers for certain
liabilities.
Item 15. Recent Sales of Unregistered
Securities
The
following sets forth information regarding all unregistered
securities issued and sold by the Registrant since April 17,
2015:
(1) In March,
September, and October 2016, the Registrant issued and sold to
three officers/directors and two investors an aggregate of
14,358,361 shares of its Common Stock, at a purchase price of
$0.00836 per share, for aggregate gross consideration of
$120,000;
(2) In
December 2016 and January 2017, the Registrant issued and sold to
three officers/directors and five investors an aggregate of
5,240,801 shares of its Common Stock, at a purchase price of
$0.10477 per share, for aggregate gross consideration of $547,500;
and
(3) In March
2017, the Registrant issued and sold to Petro River Oil Corp.
(“Petro River”)
an aggregate of 400,838 shares of its Common Stock, for and in
consideration for 100% of the equity of MegaWest Energy Montana
Corp.
The
offers, sales and issuances of the securities described in
paragraphs (1) and (2) above were deemed to be exempt from
registration under the Securities Act in reliance on
Section 4(a)(2) of the Securities Act and Rule 506
promulgated under Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. The
recipients of securities in each of these transactions acquired the
securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends
were affixed to the securities issued in these transactions. Each
of the recipients of securities in these transactions was an
accredited investor within the meaning of Rule 501 of
Regulation D under the Securities Act and had adequate access,
through employment, business or other relationships, to information
about the Registrant. No underwriters were involved in these
transactions.
The
offer, sale and issuance of the securities described in paragraph
(3) above were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act,
as a transaction by an issue not involving a public offering.
Petro River acquired the shares of Common Stock with the
intent to distribute the shares of Common Stock acquired by it to
its shareholders, and therefore may be construed to be an
underwriter under the Securities Act; however, such shares are
proposed to be registered on this Registration Statement prior to
such distribution.
Item 16. Exhibits and Financial Statement
Schedules
(a) Exhibits. The following
exhibits are filed as part of this Registration
Statement:
|
2.1+
|
Stock
Purchase Agreement, dated March 22, 2017, by and between Wrap
Technologies, LLC, Petro River Oil Corp., and Megawest Energy
Montana Corp.
|
|
|
|
|
2.2+
|
Merger
Agreement between Wrap Technologies, LLC and Megawest Energy
Montana Corp., dated March 30, 2017.
|
|
|
|
|
3.1+
|
Amended
and Restated Certificate of Incorporation of the
Registrant
|
|
|
|
|
3.2+
|
Bylaws
of the Registrant
|
|
|
|
|
4.1++
|
Form of
Common Stock Certificate
|
|
|
|
|
5.1
|
Opinion
of Disclosure Law Group, a Professional Corporation, regarding
legality
|
|
|
|
|
10.1+
|
Amended
and Restated Intellectual Property License Agreement, dated
September 30, 2016, by and between Wrap Technologies, LLC and
Syzygy Licensing LLC.
|
|
|
|
|
10.2+
|
2017
Equity Compensation Plan
|
|
|
|
|
14.1+
|
Code of
Ethics of the Registrant Applicable to Directors, Officers And
Employees
|
|
|
|
|
|
Consent
of Rosenberg Rich Baker Berman &
Company, independent registered public accounting
firm
|
|
|
|
|
23.2
|
Consent
of Disclosure Law Group, a Professional Corporation (included in
Exhibit 5.1)
|
|
|
|
|
24.1
|
Power of Attorney
(included on signature page of the Registration Statement on Form
S-1, filed on April 17, 2017)
|
|
|
|
+ Incorporated by
reference to the like numbered exhibit to the Registration
Statement on Form S-1, filed on April 17,
2017.
|
++
Incorporated by reference to the like numbered exhibit to
Amendment No. 1 to the Registration Statement
on Form S-1, filed on May
30, 2017.
|
|
|
(b) Financial
Statements. See page
F-1 for an index of the financial statements included in the
Registration Statement.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
|
|
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
|
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(ii)
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To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b)
(§230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
and
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(iii)
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To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
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2.
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For
purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective.
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3.
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That,
for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
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4.
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To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
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5.
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That, for the purpose of determining liability
under the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying
on Rule 430B or other than prospectuses filed in reliance on Rule
430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided,
however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
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6.
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That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
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The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
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(i)
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Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
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(ii)
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Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
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(iii)
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The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
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(iv)
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Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
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Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on June 21, 2017.
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WRAP
TECHNOLOGIES, INC.
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By:
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/s/ James A. Barnes
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James
A. Barnes, Chief Executive Officer
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Pursuant
to the requirement of the Securities Act of 1933, this registration
statement has been signed by the following persons in the
capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/*
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President, Chief
Financial Officer and Director
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June
21, 2017
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(Principal
Executive Officer and Principal Accounting Officer)
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/s/
*
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Director
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June
21, 2017
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Scot
Cohen
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/s/*
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Director and Chief
Technology Officer
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June
21, 2017
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Elwood
G. Norris
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* By:
/s/ James A.
Barnes
Attorney-in-fact
