As filed with the
Securities and Exchange Commission on November 28,
2018
Registration No.
333-_____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WRAP TECHNOLOGIES, INC.
(Exact Name of 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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(I.R.S. Employer
Identification Number)
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4620 Arville Street, Ste E
Las Vegas, Nevada 89103(800) 583-2652
(Address, including zip code and telephone number,
including area code, of registrant’s principal executive
offices)
James A. Barnes
Chief Financial Officer,
Secretary and
Treasurer
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)
Copy of correspondence to:
Daniel W. Rumsey, Esq.
Caitlin Murphey, Esq.
Disclosure Law Group
One American Plaza
600 West Broadway, Suite 700
San Diego, CA 92101
(619) 795-1134
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, other than securities offered only in
connection with dividend or interest reinvestment plans, 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, please
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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[X]
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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 7(a)(2)(B) of the Securities Act. [
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Amount to be Registered (1)
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Proposed
Maximum
Aggregate
Offering Price (2)
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Amount of
Registration
Fee (3)
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Common
Stock, par value $0.0001 per share
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9,578,255
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(3)
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$
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38,456,693
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$
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4,660.96
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(1)
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In
accordance with Rule 416 under the Securities Act of 1933, as
amended (the “Securities
Act”), the shares of common stock being registered
hereunder include such indeterminate number of shares of common
stock as may be issuable with respect to the shares being
registered hereunder as a result of stock splits, stock dividends
or similar transactions.
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(2)
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Estimated
solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act, based on the
average of the high and low prices of the Registrant’s common
stock on the OTCQB Venture Market on November 26,
2018.
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(3)
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Consists
of (i) 4,561,074 shares of common stock currently outstanding and
held by the selling stockholders identified herein,
(ii) 4,561,074 shares of common stock issuable upon exercise
of common stock purchase warrants currently held by the selling
stockholders identified herein, and (iii) 456,107 shares of common
stock issuable upon exercise of common stock purchase warrants held
by the placement agents and their designees identified
herein.
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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 a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933, as amended, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
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The information in this prospectus is not complete and may be
changed. The Selling Stockholders may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy
these securities in any state where the offer or sale is not
permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED NOVEMBER 28, 2018
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9,578,255 SHARES
COMMON STOCK
WRAP TECHNOLOGIES, INC.
This prospectus relates to the sale from time to
time of up to 9,578,255 shares
of our common stock, par value $0.0001 per share, by the selling
stockholders identified in this prospectus. All of the
shares being offered, when sold, will be sold by the selling
stockholders. The shares of common stock registered for resale
pursuant to this prospectus include:
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4,561,074 shares of
Company common stock issued to the selling stockholders in a
private placement transaction, consummated on October 30, 2018 (the
“Private
Placement”);
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4,561,074 shares of
Company common stock that may be issued upon exercise of common
stock purchase warrants issued to the selling stockholders in
connection with the Private Placement (the “Investor Warrants”);
and
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456,107 shares of
Company common stock that may be issued upon exercise of common
stock purchase warrants issued as compensation to Katalyst
Securities LLC, Chardan Capital Markets LLC and Janssen
Investments, or to their respective designees, as co-placement
agents in connection with the Private Placement (the
“Placement
Agent Warrants”).
We are registering the shares of common stock to
provide the selling stockholders with freely tradable securities.
This prospectus does not necessarily mean that the selling
stockholders will offer or sell those shares. Up to
9,578,255 shares of common stock may
be sold from time to time after the effectiveness of the
registration statement, of which this prospectus forms a
part.
We will not receive proceeds from the sale of the shares of common
stock by the selling stockholders. However, we may receive proceeds
of up to approximately $24.2 million from the exercise of the
Investor Warrants and Placement Agent Warrants by the selling
stockholders, once the registration statement, of which this
prospectus is a part, is declared effective. All selling and other
expenses incurred by the selling stockholders will be paid by the
selling stockholders, except for certain legal fees and expenses,
which will be paid by us.
Our
common stock is quoted on the OTCQB Venture Market under
the symbol “WRTC.” The last reported sale price of our
common stock on November 27, 2018 was $3.82 per share.
Our business and investing in our securities involves significant
risks. You should review carefully the risks and uncertainties
referenced under the heading “Risk
Factors” beginning on
page 4 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus
is
, 2018.
WRAP
TECHNOLOGIES, INC.
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F-1
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This prospectus is part of a registration
statement on Form S-1 that we filed with the Securities and
Exchange Commission (the “SEC”). Under this registration statement, the
selling stockholders may, from time to time, sell up to an
aggregate of 9,578,255 shares of our common stock, par value
$0.0001 per share (“Common
Stock”), which
includes up to 5,017,181 shares of Common Stock that may be
issued upon the exercise of warrants, in one or more offerings.
The registration statement we filed
with the SEC, of which this prospectus forms a part, includes
exhibits that provide more detail of the matters discussed in this
prospectus. You should read this prospectus and the related
exhibits filed with the SEC before making your investment
decision. The registration statement and the exhibits can be
obtained from the SEC, as indicated under the section entitled
“Where You Can Find More
Information.”
You should rely only on the
information contained in this prospectus. Neither we nor the
selling stockholders have authorized anyone to provide you with
different or additional information. If anyone provides you with
different or inconsistent information, you should not rely on
it. Neither we
nor the selling stockholders are making an offer to sell our Common
Stock in any jurisdiction where the offer or sale thereof is not
permitted. You should not assume that the information appearing in
this prospectus or the documents incorporated by reference herein
is accurate as of any date other than their respective dates. Our
business, financial condition, results of operations and prospects
may have changed since those dates. You should read carefully the
entirety of this prospectus before making an investment
decision.
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This summary highlights information contained elsewhere in this
prospectus or incorporated by reference herein. This summary does
not contain all of the information you should consider before
investing in our securities. Before deciding to invest in our
securities, you should read this entire prospectus carefully,
including the section of this prospectus entitled “Risk
Factors” beginning on page 4.
Overview
We
are a security technology company organized in March 2016 focused
on delivering modern policing solutions to customers, primarily
consisting of law enforcement and security personnel. We began
demonstrations of our first product, the BolaWrap 100 remote
restraint device, in November 2017. The immediate addressable
domestic market consists of approximately 701,000 full-time sworn
law enforcement officers in the U.S. We have demonstrated the
product to over 60 agencies across the country often with media in
attendance, resulting in dozens of media reports including
television and print that have driven hundreds of inquiries from
domestic and international prospects. Over 30 law enforcement
agencies took delivery of BolaWrap 100 devices during 2018. We have
delivered over 200 devices at no cost to these agencies for
evaluation and feedback as a result of these initial inquiries and
have just started filling small orders as we establish production.
We have made improvements to our product as a result of law agency
input and we currently expect to commence taking orders for an
enhanced version of the BolaWrap 100 with a new green line-laser
accessory late in the fourth quarter of 2018. There can be no
assurance regarding the timing or amount of future revenue from
this product or future products, if any.
Risk Factors
Our business is subject to substantial risk.
Please carefully consider the section titled
“Risk
Factors” beginning on
page 4 of this prospectus for a discussion of the factors you
should carefully consider before investing in our
securities.
Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations.
You should be able to bear a complete loss of your
investment.
Corporate Information
We are
incorporated in Delaware. The 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”). Our principal place of business
is located at 4620 Arville Street, Suite E, Las Vegas, Nevada,
89103. Our telephone number is (800) 583-2652. Our corporate
website address is www.wraptechnologies.com. Our Common Stock is
currently listed for quotation on the OTCQB Venture
Market under the symbol WRTC.
Private Placement
On October 30, 2018 (the
“Closing
Date”), we entered into
subscription agreements with certain accredited
investors, pursuant to which we
sold an aggregate of 4,561,074 units (“Units”) for $3.00 per unit, with each Unit
consisting of one share of our Common Stock and a two-year warrant
to purchase one share of our Common Stock at an exercise price of
$5.00 per share (the “Private
Placement”). In addition,
we issued two-year warrants to purchase an aggregate of 456,107
shares of Common Stock, an amount equal to 10% of the Units sold,
with an exercise price of $3.00 per share to our placement agents
and their designees.
In connection with the sale of the Units, we
granted certain registration rights with respect to the shares of
Common Stock and shares of Common Stock issuable upon exercise of
the warrants issued in the Private Placement, pursuant to a
Registration Rights Agreement by and among us and the selling
stockholders (the “Registration Rights
Agreement”). Under the
terms of the Registration Rights Agreement, we agreed to file a
registration statement no later than 30 days after the Closing Date
in order to register the shares of Common Stock and shares of
Common Stock underlying the warrants sold in the Private
Placement.
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The following summary contains
general information about this offering. The summary is not
intended to be complete. You should read the full text and more
specific details contained elsewhere in this prospectus.
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Common Stock being offered by selling stockholders
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Up to 9,578,255 shares.
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Common Stock outstanding as of November 27, 2018
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27,364,607
shares.
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Use of Proceeds
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The selling stockholders will receive all of the proceeds from the
sale of the shares of Common Stock offered for sale under this
prospectus. We will not receive any proceeds from the sale of
shares of our Common Stock by the selling stockholders. However, we
may receive approximately $24.2 million in proceeds from the
exercise of the warrants sold in the Private Placement. We
anticipate that proceeds that we receive from the exercise of such
warrants, if any, will be used for working capital and general
corporate purposes.
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Plan of Distribution
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The selling stockholders may sell the shares of Common Stock
from time to time on the principal market on which the shares of
Common Stock are traded at the prevailing market price or in
negotiated transactions. See “Plan of
Distribution.”
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Risk Factors
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An investment in our securities involves a high degree of risk. See
the section entitled “Risk
Factors” for a discussion
of factors you should consider carefully before making an
investment decision.
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Trading Symbol
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WRTC
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The number of shares of our Common Stock
outstanding is based on 27,364,607 shares of Common Stock outstanding as of November
27, 2018, and excludes:
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5,017,181 shares of
our Common Stock issuable upon the exercise of warrants issued in
connection with the Private Placement;
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2,091,500 shares of
our Common Stock issuable upon the exercise of stock options
outstanding at a weighted-average exercise price of $1.73
per share;
and
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8,500 shares of Common
Stock reserved for future issuance under our 2017 Stock Incentive
Plan (the “2017 Plan”).
Unless otherwise indicated, all information in this
prospectus assumes no exercise of the outstanding warrants or
outstanding stock options, as described above.
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Risk Related 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 to incur additional losses
as we commence delivering our new product line and until we achieve
sufficient revenue and resulting margins to offset our operating
costs. Our net loss for the year ended December 31, 2017 was
$833,545 and our net loss for the nine months ended September 30,
2018 was $2,044,804. Our ability to achieve future profitability is
dependent on a variety of factors, many of which are outside of 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.
We may need additional capital to execute our business plan, and
raising additional capital, if possible, by issuing additional
equity securities may cause dilution to existing stockholders. In
addition, raising additional capital by issuing additional debt
instruments may restrict our operations.
Although we believe
we have adequate financial resources to fund our operating expense
for at least the next twelve months, and that we may be able to
generate funds from product sales during that time, existing
working capital may not be sufficient to achieve profitable
operations due to product introduction costs, operating losses and
other factors. Principal factors affecting the availability of
internally generated funds include:
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failure
of product sales to meet planned projections;
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working
capital requirements to support business growth;
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our
ability to control spending; and
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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 stockholders could be diluted significantly, and
such newly issued securities may have rights, preferences or
privileges senior to those of our existing stockholders. 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
stockholders. 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, if at all.
We are a development stage technology company with minimal revenue
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
the BolaWrap™ 100, our first product, which makes it
difficult to assess our future viability.
We are
a development stage technology company. Although we are currently
in the process of commercializing our first product, the
BolaWrap™ 100, we have generated minimal revenue to date, and
we have not yet 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 the BolaWrap™ 100, and develop additional
future products for commercialization;
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develop,
obtain and maintain required regulatory approvals for
commercialization of products we produce;
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establish
an intellectual property portfolio for the 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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gain
market acceptance for the 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 the BolaWrap™
100 and/or other future products.
Our principal product remains under development, and has not yet
been produced in recurring commercial quantities. We may incur
significant and unpredictable warranty costs as our products are
introduced and produced.
Our
principal product has been introduced into the marketplace for
testing and remains under development as we make improvements based
on ongoing customer trials. Although we are producing small numbers
of commercial products, no assurance can be provided that we can
successfully scale to produce higher volume commercial quantities
of our principal product or that additional development will be
required for a commercially viable 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 revenue 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, marketing and training 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 would also make it more difficult to predict our revenue,
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 they place an order at all. 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 our product 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 is also controlled by the United States Department of
Commerce (“DOC”) for exports directly from
the United States. Consequently, we need to obtain export licenses
from the DOC for the export of our products from the United States.
Compliance with or changes in U.S. export regulations could
significantly and adversely affect any future international
sales.
Certain
foreign jurisdictions may restrict the importation or sale of our
products, limiting our international sales
opportunities.
Our products, including the BolaWrap™ 100, have limited
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. We currently own
four issued U.S. patents related to the BolaWrap™ 100 and
have six U.S. patents pending. We have filed foreign patent
applications in the European Union (17 countries) and 17 other
countries, and reserved our rights to file additional foreign
patents. Our protective measures taken thus far, including our
issued patents, 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 made 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 expense 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 that our BolaWrap™ 100 product will be the
sole source of our revenue in the foreseeable future. We excpect
our revenue, if any, 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,
among others:
●
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 products;
●
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 expense may vary from period to period, which could affect
quarterly results and our stock price.
If we
incur additional expense 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 expense 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
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 revenue,
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
improve internal controls and management oversight systems. Our
small size and limited personnel and consulting resources make
doing so more challenging than for more established entities. Our
current lack of segregation of duties has been identified as a
material weakness in our internal controls. We may not be able to
prevent or detect misstatements in our reported financial
statements due to lack of segregation of duties, 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 a limited public market for our Common Stock,
and there can be no assurances that any established public market
will ever develop. Our Common Stock has been, and is expected to
be, subject to significant price fluctuations.
Our
Common Stock was quoted on the OTCQB Venture Market commencing in
late May 2018, and there is currently a limited public market for
our securities. There can be no assurances that an established
public market for our Common Stock will develop 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. Since initial
quotation, shares of our Common Stock have traded sporadically and
are expected to continue to be subject to significant price
fluctuations in the foreseeable future. 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 the above 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 the BolaWrap™ 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 is subject to
“penny stock” rules.
Our
Common Stock is currently 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.
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, amongst
other things:
●
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 the perception that such sales could
occur, could adversely affect the market price of our Common Stock.
Many of the outstanding shares of our Common Stock, other than the
shares held by executive officers and directors, are eligible for
immediate resale in the public market. Substantial selling of our
Common Stock could adversely affect the market price of our Common
Stock.
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 officers and directors are among our largest stockholders, and
may have certain personal interests that may affect the
Company.
Management owned
approximately 61% of our Common Stock at November 27, 2018. As a
result, our management, acting individually or as a group, has the
potential ability to exert influence on the outcome of issues
requiring approval by our stockholders. 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 stockholders
or preventing transactions in which stockholders might otherwise
recover a premium for their shares over current market
prices.
We may issue additional shares of Common Stock in the future. The
issuance of additional shares of Common Stock may reduce the value
of your Common Stock.
We may
issue additional shares of Common Stock without further action by
our stockholders. Moreover, the economic and voting interests of
each stockholder will be diluted as a result of any such issuances.
Although the number of shares of Common Stock that stockholders
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 shares of Common Stock issuable upon the exercise of any
future options or warrants may lower the price of our Common
Stock.
During 2018, we
granted options to purchase 2,091,500 shares of our Common Stock.
In October 2018, we issued warrants to purchase 5,017,181 shares of
our Common Stock to certain accredited investors and placement
agents in connection with the Private Placement. The issuance of
shares of Common Stock issuable upon the exercise of options or
warrants 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
stockholders. 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.
We have
never declared dividends on our Common Stock, and currently do not
anticipate that we will do so in the foreseeable future. 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 of Directors deems relevant.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements contained in
this prospectus other than statements of historical facts,
including statements regarding our strategy, future operations,
future financial position, future revenue, projected costs,
prospects, plans, objectives of management and expected market
growth, are forward-looking statements. These statements involve
known and unknown risks, uncertainties and other important factors
that may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements.
The
words “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “predict,”
“project,” “target,”
“potential,” “will,” “would,”
“could,” “should,” “continue,”
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements include,
among other things, statements about:
●
the
availability of capital to satisfy our working capital
requirements;
●
the
accuracy of our estimates regarding expenses, future revenue and
capital requirements;
●
anticipated
trends and challenges in our business and the markets in which we
operate;
●
our
ability to anticipate market needs or develop new or enhanced
products to meet those needs;
●
our
expectations regarding market acceptance of our
products;
●
the success of competing products
by others that are or become available in the market in which we
sell our products;
●
our ability to protect our
confidential information and intellectual property
rights;
●
our ability to manage expansion
into international markets;
●
our ability to maintain or
broaden our business relationships and develop new relationships
with strategic alliances, suppliers, customers, distributors or
otherwise;
●
developments
in the U.S. and foreign countries; and
●
other risks and uncertainties, including
those described under
“Risk
Factors” and elsewhere
in this prospectus.
These
forward-looking statements are only predictions and we may not
actually achieve the plans, intentions or expectations disclosed in
our forward-looking statements, so you should not place undue
reliance on our forward-looking statements. Actual results or
events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make.
We have based these forward-looking statements largely on our
current expectations and projections about future events and trends
that we believe may affect our business, financial condition and
operating results. We have included important factors in the
cautionary statements included in this prospectus, that could cause
actual future results or events to differ materially from the
forward-looking statements that we make. Our forward-looking
statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments
we may make.
You
should read this prospectus with the understanding that our actual
future results may be materially different from what we expect. We
do not assume any obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise, except as required by applicable law.
DESCRIPTION OF PRIVATE
PLACEMENT TRANSACTION
On October 30, 2018 (the
“Closing
Date”), we entered into
subscription agreements with certain accredited
investors, pursuant to which we
sold an aggregate of 4,561,074 units (“Units”) for $3.00 per unit, with each Unit
consisting of one share of our Common Stock and a two-year warrant
to purchase one share of our Common Stock at an exercise price of
$5.00 per share (“Investor
Warrant”) (the
“Private
Placement”). In addition,
we issued two-year warrants to purchase an aggregate of 456,107
shares of Common Stock (“Placement Agent
Warrants”), an amount
equal to 10% of the Units sold, with an exercise price of $3.00 per
share to Katalyst Securities LLC, Chardan Capital Markets
LLC and Janssen Investments, or to their
respective designees, (collectively, the “Placement Agents”) as compensation for
their services as co-placement agents in connection with the
Private Placement.
In connection with the sale of the Units, we
granted certain registration rights with respect to the shares of
Common Stock and shares of Common Stock issuable upon exercise of
the Investor Warrants and Placement Agent Warrants, pursuant to a
Registration Rights Agreement by and among us and the selling
stockholders (the “Registration Rights
Agreement”). Under the
terms of the Registration Rights Agreement, we agreed to file a
registration statement no later than 30 days after the Closing Date
in order to register the shares of Common Stock, shares of Common
Stock underlying the Investor Warrants sold and issued in
connection with the Private Placement, and shares of Common Stock
underling the Placement Agent Warrants issued to the Placement
Agents for their services in connection with the Private
Placement.
The
Common Stock to be offered and sold using this prospectus will be
offered and sold by the selling stockholders named in this
prospectus. Accordingly, we will not receive any proceeds from any
sale of shares of our Common Stock in this offering. A portion
of the shares covered by this prospectus may be issued upon
exercise of the Investor Warrants and Placement Agent
Warrants. Upon any exercise of Investor Warrants and the
Placement Agent Warrants, the selling stockholders will pay us the
applicable exercise price, and we currently anticipate that any
such proceeds would be used primarily for working capital and
general corporate purposes. We will pay all of the fees and
expenses incurred by us in connection with this registration. We
will not be responsible for fees and expenses incurred by the
selling stockholders or any underwriting discounts or agent’s
commissions.
This prospectus relates to the sale from
time to time by the selling
stockholders of up to 9,578,255 shares of our Common Stock,
which consists of up to (i) 4,561,074 shares of Common Stock issued
in the Private Placement; (ii) 4,561,074 shares of Common
Stock issuable upon exercise of the Investor Warrants issued in
connection with the Private Placement; and (iii) up to 456,107
shares of Common Stock issuable upon exercise of the Placement
Agent Warrants issued to the Placement Agents and their designees
as compensation in connection with the Private Placement.
When we refer to the “selling
stockholders” in this prospectus, we mean the persons and
entities listed in the table below, and their respective pledgees,
donees, permitted transferees, assignees, successors and others who
later come to hold any of the selling stockholders’ interests
in shares of our Common Stock other than through a public
sale.
Selling Stockholders Table
The
table below presents information as of November 27, 2018, regarding
the selling stockholders and the shares of Common Stock the selling
stockholders may offer and sell from time to time under this
prospectus. More specifically, the following table sets forth as to
the selling stockholders:
●
the
number of shares of our Common Stock that the selling stockholders
beneficially owned prior to this offering;
●
the
total number of shares of our Common Stock that the selling
stockholders may offer for resale
pursuant to this prospectus; and
●
the
number and percent of shares of our Common Stock beneficially held
by the selling stockholders after this offering, assuming all of
the resale shares of Common Stock are sold by the selling
stockholders and that the selling stockholders do not acquire any
additional shares of our Common Stock prior to their assumed sale
of all of the resale shares.
The table was prepared based on information
supplied to us by the selling stockholders. Although we have
assumed for purposes of the table below that the selling
stockholders will sell all of the securities offered by this
prospectus, because the selling stockholders may offer from time to
time all or some of their securities covered under this prospectus,
or in another permitted manner, no assurances can be given as to
the actual number of securities that will be resold by the selling
stockholders or that will be held by the selling stockholders after
completion of the resales. In addition, the selling stockholders
may have sold, transferred or otherwise disposed of the securities
in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities
Act”), since the date the
selling stockholders provided the information regarding their
securities holdings. Information covering the selling stockholders
may change from time to time and changed information will be
presented in a supplement to this prospectus if and when necessary
and required.
Except
as described above, there are currently no agreements, arrangements
or understandings with respect to the resale of any of the
securities covered by this prospectus.
The applicable percentages of ownership are based
on an aggregate of 27,364,607 shares of our Common Stock issued and outstanding
on November 27, 2018. The number of shares Common Stock
beneficially owned by the selling stockholders is determined under
rules promulgated by the SEC.
|
|
|
|
Shares Beneficially Owned
After Offering
|
|
Name of Selling Security Holder (1)
|
Shares Beneficially Owned Prior to Offering
(2)
(3)
|
Maximum Number of Shares Being Offered Pursuant to this
Prospectus
|
|
|
|
|
|
|
|
|
|
|
|
Adolfo
and Donna H. Carmona, JTRWOS
|
40,000
|
40,000
|
(5)
|
-
|
**
|
|
Alan
Finkelstein
|
20,000
|
20,000
|
(6)
|
-
|
**
|
|
Allan
Lipkowitz Revocable Living Trust dtd 08/26/2005
|
20,000
|
20,000
|
(7)
|
-
|
**
|
|
Alok
Agrawal and Ankur Agrawal
|
20,000
|
20,000
|
(8)
|
-
|
**
|
|
Alpha
Capital Anstalt
|
275,771
|
266,670
|
(9)
|
9,101
|
**
|
|
Andrew
Arno
|
8,000
|
8,000
|
(10)
|
-
|
**
|
|
Andrew
and Brittany Boll, JTWROS
|
20,000
|
20,000
|
(11)
|
-
|
**
|
|
Andrew
Brenner
|
20,000
|
20,000
|
(12)
|
-
|
**
|
|
Andrew
S. Rosen
|
30,000
|
30,000
|
(13)
|
-
|
**
|
|
Anthony
Azzara
|
30,000
|
30,000
|
(14)
|
-
|
**
|
|
Anthony
Filone
|
40,000
|
40,000
|
(15)
|
-
|
**
|
|
Beadore
Trust dtd 03/20/2015
|
66,668
|
66,668
|
(16)
|
-
|
**
|
|
Binker
of Fifth Avenue LLC
|
33,334
|
33,334
|
(17)
|
-
|
**
|
|
Bruce
Bernstein
|
33,332
|
33,332
|
(18)
|
-
|
**
|
|
Bruce
Doniger
|
20,000
|
20,000
|
(19)
|
-
|
**
|
|
Byron
Hughey
|
8,000
|
8,000
|
(20)
|
-
|
**
|
|
Canyon
Trust
|
20,000
|
20,000
|
(21)
|
-
|
**
|
|
Casimir
S. Skrzypczak
|
20,000
|
20,000
|
(22)
|
-
|
**
|
|
Chardan
Capital Markets
|
8,000
|
8,000
|
(23)
|
-
|
**
|
|
Christopher
J. and Denise M. Blum, JTWROS
|
8,000
|
8,000
|
(24)
|
-
|
**
|
|
Christopher
Cozzolino
|
7,233
|
7,233
|
(25)
|
-
|
**
|
|
CJF
Investments
|
100,000
|
100,000
|
(26)
|
-
|
**
|
|
Clayton
A. Struve
|
80,000
|
80,000
|
(27)
|
-
|
**
|
|
Cox
Investment Partners, LP
|
200,000
|
200,000
|
(28)
|
-
|
**
|
|
Craig
Friou
|
20,000
|
20,000
|
(29)
|
-
|
**
|
|
Cresswell
Advisors, Inc.
|
20,000
|
20,000
|
(30)
|
-
|
**
|
|
Daniel
W. and Allaire Hummel, JTWROS
|
20,000
|
20,000
|
(31)
|
-
|
**
|
|
David
Baron
|
40,000
|
40,000
|
(32)
|
-
|
**
|
|
David
Jenkins
|
40,000
|
40,000
|
(33)
|
-
|
**
|
|
Dennis
Saadeh
|
40,000
|
40,000
|
(34)
|
-
|
**
|
|
Duane
Ennis
|
20,000
|
20,000
|
(35)
|
-
|
**
|
|
EFD
Capital Inc.
|
5,000
|
5,000
|
(36)
|
-
|
**
|
|
Empery
Asset Master, LTD
|
278,020
|
278,020
|
(37)
|
-
|
**
|
|
Empery
Tax Efficient II, LP
|
344,762
|
344,762
|
(38)
|
-
|
**
|
|
Empery
Tax Efficient, LP
|
43,884
|
43,884
|
(39)
|
-
|
**
|
|
Empire
Group Ltd.
|
133,336
|
133,336
|
(40)
|
-
|
**
|
|
Eric
Fosselman
|
20,000
|
20,000
|
(41)
|
-
|
**
|
|
Erick
E. Richardson
|
20,000
|
20,000
|
(42)
|
-
|
**
|
|
Ernest
Melachrino Violet
|
32,000
|
32,000
|
(43)
|
-
|
**
|
|
FirstFire
Global Opportunities Fund LLC
|
100,000
|
100,000
|
(44)
|
-
|
**
|
|
FMO
of Boca Raton Inc.
|
20,000
|
20,000
|
(45)
|
-
|
**
|
|
Fortis
Business Holdings LLC
|
1,751,251
|
400,000
|
(46)
|
1,351,251
|
4.9%
|
|
Four
Jr. Investments, Ltd.
|
40,000
|
40,000
|
(47)
|
-
|
**
|
|
Frank
Curzio
|
20,000
|
20,000
|
(48)
|
-
|
**
|
|
Frank
V. Carone
|
110,000
|
110,000
|
(49)
|
-
|
**
|
|
Giovanna
McKinney
|
6,668
|
6,668
|
(50)
|
-
|
**
|
|
Gregory
Castaldo
|
200,000
|
200,000
|
(51)
|
-
|
**
|
|
Hudson
Equity Partners, LLC
|
499,133
|
200,000
|
(52)
|
299,133
|
1.1%
|
|
Intracoastal
Capital, LLC
|
333,332
|
333,332
|
(53)
|
-
|
**
|
|
Iroquois
Capital Investment Group, LLC
|
1,306,015
|
100,000
|
(54)
|
1,206,015
|
4.4%
|
|
Iroquois
Master Fund Ltd.
|
1,181,423
|
666,668
|
(55)
|
514,755
|
1.9%
|
|
J&N
Holdings LLC
|
6,800
|
6,800
|
(56)
|
-
|
**
|
|
James
David Conrod
|
20,000
|
20,000
|
(57)
|
-
|
**
|
|
Jason
L DiPaola
|
33,499
|
33,499
|
(58)
|
-
|
**
|
|
JD
Advisors, LLC
|
541,666
|
66,666
|
(59)
|
475,000
|
1.7%
|
|
Jeffrey
Berman
|
24,062
|
24,062
|
(60)
|
-
|
**
|
|
Jeffrey
P. Wiegand
|
20,000
|
20,000
|
(61)
|
-
|
**
|
|
Jesse
Janssen
|
36,266
|
36,266
|
(62)
|
-
|
**
|
|
Joel
Pruzansky
|
33,332
|
33,332
|
(63)
|
-
|
**
|
|
Joel
Yanowitz
|
20,000
|
20,000
|
(64)
|
-
|
**
|
|
John
Fosselman
|
6,000
|
6,000
|
(65)
|
-
|
**
|
|
John
D. Shulman
|
66,000
|
66,000
|
(66)
|
-
|
**
|
|
John
R. Raphael Revocable Trust dtd 07/06/2007
|
20,000
|
20,000
|
(67)
|
-
|
**
|
|
John
V. Wagner, Jr.
|
33,334
|
33,334
|
(68)
|
-
|
**
|
|
Jonathan
Schechter
|
8,000
|
8,000
|
(69)
|
-
|
**
|
|
Joseph
J. Grano, Jr.
|
34,000
|
34,000
|
(70)
|
-
|
**
|
|
Joseph
Reda
|
16,000
|
16,000
|
(71)
|
-
|
**
|
|
Justin
Keener dba JMJ Financial
|
333,334
|
333,334
|
(72)
|
-
|
**
|
|
Keith
Shapiro / Marci Shapiro
|
66,666
|
66,666
|
(73)
|
-
|
**
|
|
Kent
Building Services, LLC
|
66,666
|
66,666
|
(74)
|
-
|
**
|
|
Kola
Agbaje
|
7,125
|
7,125
|
(75)
|
-
|
**
|
|
Konstantin
Kozlov
|
13,334
|
13,334
|
(76)
|
-
|
**
|
|
Lee
Harrison Corbin
|
30,000
|
30,000
|
(77)
|
-
|
**
|
|
Lee
J. Seidler Revocable Trust dtd 04/12/1990
|
33,334
|
33,334
|
(78)
|
-
|
**
|
|
Leonid
Makaron
|
26,666
|
26,666
|
(79)
|
-
|
**
|
|
Lina
Kay
|
133,334
|
133,334
|
(80)
|
-
|
**
|
|
Louis
Sanzo
|
40,000
|
40,000
|
(81)
|
-
|
**
|
|
Macgregor
Fogelsong
|
20,000
|
20,000
|
(82)
|
-
|
**
|
|
Margus
Ehatamm
|
20,000
|
20,000
|
(83)
|
-
|
**
|
|
Mark
Roberts 44 Family Irrevocable Trust
|
33,334
|
33,334
|
(84)
|
-
|
**
|
|
Michael
J. Mathieu
|
66,668
|
66,668
|
(85)
|
-
|
**
|
|
Michael
Silverman
|
238,189
|
238,189
|
(86)
|
-
|
**
|
|
Morgan
Janssen
|
2,833
|
2,833
|
(87)
|
-
|
**
|
|
Nat
Tursi
|
20,000
|
20,000
|
(88)
|
-
|
**
|
|
Neal
Goldman
|
200,000
|
200,000
|
(89)
|
-
|
**
|
|
Next
Generation TC FBO Andrew Arno IRA
|
66,666
|
66,666
|
(90)
|
-
|
**
|
|
Norris
Family 1997 Trust
|
5,717,719
|
666,668
|
(91)
|
5,051,051
|
18.5%
|
|
Papyrus
Capital Fund LP
|
70,000
|
70,000
|
(92)
|
-
|
**
|
|
Patrick
G. Patel
|
33,334
|
33,334
|
(93)
|
-
|
**
|
|
Paul
Ehrenstein
|
800
|
800
|
(94)
|
-
|
**
|
|
Paul
Sethi
|
16,000
|
16,000
|
(95)
|
-
|
**
|
|
Pauline
M. Howard Trust dtd 01/02/1998
|
14,000
|
14,000
|
(96)
|
-
|
**
|
|
Peter
Giordano and Linda Giordano
|
20,000
|
20,000
|
(97)
|
-
|
**
|
|
Peter
Ohler
|
20,000
|
20,000
|
(98)
|
-
|
**
|
|
Peter
K. Jannsen
|
11,333
|
11,333
|
(99)
|
-
|
**
|
|
Peter
W. Janssen
|
400,000
|
400,000
|
(100)
|
-
|
**
|
|
Philip
W. Faucette II
|
13,334
|
13,334
|
(101)
|
-
|
**
|
|
Richard
A. Dietl
|
66,668
|
66,668
|
(102)
|
-
|
**
|
|
Richard
Molinsky
|
32,000
|
32,000
|
(103)
|
-
|
**
|
|
Richard
Pashayan
|
20,000
|
20,000
|
(104)
|
-
|
**
|
|
Robert
Burkhardt
|
20,000
|
20,000
|
(105)
|
-
|
**
|
|
Robert
D. Frankel
|
8,000
|
8,000
|
(106)
|
-
|
**
|
|
Robert
G. Maxon
|
20,000
|
20,000
|
(107)
|
-
|
**
|
|
Robert
Lee Glasgow
|
20,000
|
20,000
|
(108)
|
-
|
**
|
|
Roman
Livson
|
12,550
|
12,550
|
(109)
|
-
|
**
|
|
Ryan
B. Estis
|
66,668
|
66,668
|
(110)
|
-
|
**
|
|
Seth
Benison
|
10,504
|
10,504
|
(111)
|
-
|
**
|
|
Shar
Hazuhov LLC
|
100,000
|
100,000
|
(112)
|
-
|
**
|
|
Shay
Capital, LLC
|
333,334
|
333,334
|
(113)
|
-
|
**
|
|
Steven
Renaud
|
50,713
|
50,713
|
(114)
|
-
|
**
|
|
Tal
Alexander, Inc.
|
33,334
|
33,334
|
(115)
|
-
|
**
|
|
The
Bradley R. Kroenig Revocable Trust, dtd 05/11/2016
|
100,000
|
100,000
|
(116)
|
-
|
**
|
|
The
Craig R. Whited and Gilda Whited Joint Living Trust, dtd
03/25/2016
|
40,000
|
40,000
|
(117)
|
-
|
**
|
|
The
Hewlett Fund LP
|
200,000
|
200,000
|
(118)
|
-
|
**
|
|
The
Special Equities Group
|
200,000
|
200,000
|
(119)
|
-
|
**
|
|
The
Starwood Trust
|
200,000
|
200,000
|
(120)
|
-
|
**
|
|
Theodore
Beninati
|
20,000
|
20,000
|
(121)
|
-
|
**
|
|
Thomas
A. McGurk
|
20,000
|
20,000
|
(122)
|
-
|
**
|
|
Thomas
L. duPont
|
200,000
|
200,000
|
(123)
|
-
|
**
|
|
Trout
Lake Enterprises LP
|
200,000
|
200,000
|
(124)
|
-
|
**
|
|
US
International Consulting Network- NJ Corp. (dba ICN
Holding)
|
68,000
|
68,000
|
(125)
|
-
|
**
|
|
Willis
Daniel Welch
|
16,000
|
16,000
|
(126)
|
-
|
**
|
|
*
|
Beneficial ownership assumes the exercise of any warrant shares
held by the selling stockholder.
|
|
**
|
Less
than 1%.
|
|
|
|
|
(1)
|
Information concerning other selling stockholders will be set forth
in one or more amendments to the registration statement, of which
this prospectus forms a part, and/or prospectus supplements from
time to time, if required.
|
|
|
|
|
(2)
|
Includes shares owned prior to the private placement transactions,
which shares are not being offered pursuant to this
prospectus.
|
|
|
|
|
(3)
|
Includes shares of Common Stock and shares of Common Stock issuable
upon exercise of the warrants issued in connection with the private
placement transaction
|
|
|
|
|
(4)
|
Assumes that each selling stockholder will sell all shares offered
by it under this prospectus.
|
|
|
|
|
(5)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(6)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(7)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(8)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(9)
|
Includes 133,335 shares of Common Stock and 133,335 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
(10)
|
Includes 8,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(11)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(12)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(13)
|
Includes 15,000 shares of Common Stock and 15,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(14)
|
Includes 15,000 shares of Common Stock and 15,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(15)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(16)
|
Includes 33,334 shares of Common Stock and 33,334 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(17)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(18)
|
Includes 16,666 shares of Common Stock and 16,666 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(19)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(20)
|
Includes 4,000 shares of Common Stock and 4,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(21)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(22)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(23)
|
Includes 8,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(24)
|
Includes 4,000 shares of Common Stock and 4,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(25)
|
Includes 7,233 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(26)
|
Includes 50,000 shares of Common Stock and 50,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(27)
|
Includes 40,000 shares of Common Stock and 40,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(28)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(29)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(30)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(31)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(32)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(33)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(34)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(35)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(36)
|
Includes 5,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
(37)
|
Includes 139,010 shares of Common Stock and 139,010 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement. Empery Asset Management LP, the authorized
agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and
dispose of the shares held by EAM and may be deemed to be the
beneficial owner of these shares. Martin Hoe and Ryan Lane, in
their capacity as investment managers of Empery Asset Management
LP, may also be deemed to have investment discretion and voting
power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each
disclaim any beneficial ownership of these
shares.
|
|
|
|
|
(38)
|
Includes 172,381 shares of Common Stock and 172,381 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement. Empery Asset Management LP, the authorized
agent of Empery Tax Efficient II, LP (“ETE II”), has discretionary authority to vote and
dispose of the shares held by ETE II and may be deemed to be the
beneficial owner of these shares. Martin Hoe and Ryan Lane, in
their capacity as investment managers of Empery Asset Management
LP, may also be deemed to have investment discretion and voting
power over the shares held by ETE II. ETE II, Mr. Hoe and Mr. Lane
each disclaim any beneficial ownership of these
shares.
|
|
|
|
|
(39)
|
Includes 21,942 shares of Common Stock and 21,942 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement. Empery Asset Management LP, the authorized agent
of Empery Tax Efficient, LP (“ETE”), has discretionary authority to vote and
dispose of the shares held by ETE and may be deemed to be the
beneficial owner of these shares. Martin Hoe and Ryan Lane, in
their capacity as investment managers of Empery Asset Management
LP, may also be deemed to have investment discretion and voting
power over the shares held by ETE. ETE, Mr. Hoe and Mr. Lane each
disclaim any beneficial ownership of these
shares.
|
|
|
|
|
(40)
|
Includes 66,668 shares of Common Stock and 66,668 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(41)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(42)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(43)
|
Includes 16,000 shares of Common Stock and 16,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(44)
|
Includes 50,000 shares of Common Stock and 50,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(45)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(46)
|
Includes 200,000 shares of Common Stock and 200,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement. Louis Kestenbaum is the managing member and
principal owner with voting and investment power.
|
|
|
|
|
(47)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(48)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(49)
|
Includes 55,000 shares of Common Stock and 55,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(50)
|
Includes 3,334 shares of Common Stock and 3,334 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(51)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(52)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(53)
|
Includes 166,666 shares of Common Stock and 166,666 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement. Mitchell P. Kopin and Daniel B. Asher, each
of whom are managers of Intracoastal Capital LLC
(“Intracoastal”), have shared
voting control and investment discretion over the securities
reported herein that are held by Intracoastal. As a result, each of
Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership
(as determined under Section 13(d) of the Exchange Act) of the
securities reported herein that are held by
Intracoastal.
|
|
|
|
|
(54)
|
Includes 50,000 shares of Common Stock and 50,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
(55)
|
Includes 333,334 shares of Common Stock and 333,334 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(56)
|
Includes 3,400 shares of Common Stock and 3,400 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(57)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(58)
|
Includes 15,000 shares of Common Stock, 15,000 shares of Common
Stock and 3,499 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(59)
|
Includes 33,333 shares of Common Stock and 33,333 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(60)
|
Includes 24,062 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(61)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(62)
|
Includes 36,266 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(63)
|
Includes 16,666 shares of Common Stock and 16,666 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(64)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(65)
|
Includes 6,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(66)
|
Includes 33,000 shares of Common Stock and 33,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(67)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(68)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(69)
|
Includes 8,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(70)
|
Includes 17,000 shares of Common Stock and 17,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(71)
|
Includes 16,000 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(72)
|
Includes 166,667 shares of Common Stock and 166,667 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(73)
|
Includes 33,333 shares of Common Stock and 33,333 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(74)
|
Includes 33,333 shares of Common Stock and 33,333 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(75)
|
Includes 7,125 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(76)
|
Includes 6,667 shares of Common Stock and 6,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(77)
|
Includes 15,000 shares of Common Stock and 15,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(78)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(79)
|
Includes 13,333 shares of Common Stock and 13,333 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(80)
|
Includes 66,667 shares of Common Stock and 66,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(81)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
(82)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(83)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(84)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(85)
|
Includes 33,334 shares of Common Stock and 33,334 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(86)
|
Includes 238,189 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(87)
|
Includes 2,833 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(88)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(89)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(90)
|
Includes 33,333 shares of Common Stock and 33,333 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(91)
|
Includes 333,334 shares of Common Stock and 333,334 shares of
Common Stock held by the Norris Family 1997 Trust, for which Elwood
G. Norris is a trustee.
|
|
|
|
|
(92)
|
Includes 35,000 shares of Common Stock and 35,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(93)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(94)
|
Includes 800 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(95)
|
Includes 8,000 shares of Common Stock and 8,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(96)
|
Includes 7,000 shares of Common Stock and 7,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(97)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(98)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(99)
|
Includes 11,333 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(100)
|
Includes 200,000 shares of Common Stock and 200,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(101)
|
Includes 6,667 shares of Common Stock and 6,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(102)
|
Includes 33,334 shares of Common Stock and 33,334 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(103)
|
Includes 16,000 shares of Common Stock and 16,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(104)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(105)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(106)
|
Includes 4,000 shares of Common Stock and 4,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(107)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(108)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(109)
|
Includes 12,550 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
(110)
|
Includes 33,334 shares of Common Stock and 33,334 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(111)
|
Includes 10,504 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(112)
|
Includes 50,000 shares of Common Stock and 50,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(113)
|
Includes 166,667 shares of Common Stock and 166,667 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(114)
|
Includes 50,713 shares of Common Stock issuable upon exercise of
warrants issued to the Placement Agent in connection with the
Private Placement.
|
|
|
|
|
(115)
|
Includes 16,667 shares of Common Stock and 16,667 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(116)
|
Includes 50,000 shares of Common Stock and 50,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(117)
|
Includes 20,000 shares of Common Stock and 20,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(118)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(119)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(120)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(121)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(122)
|
Includes 10,000 shares of Common Stock and 10,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(123)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(124)
|
Includes 100,000 shares of Common Stock and 100,000 shares of
Common Stock issuable upon exercise of Investor Warrants issued in
the Private Placement.
|
|
|
|
|
(125)
|
Includes 34,000 shares of Common Stock and 34,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
|
|
|
|
(126)
|
Includes 8,000 shares of Common Stock and 8,000 shares of Common
Stock issuable upon exercise of Investor Warrants issued in the
Private Placement.
|
Each
selling stockholder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock covered hereby on the OTC
Market or any other stock exchange, market or trading facility
on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. A selling stockholder
may use any one or more of the following methods when selling
shares:
●
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
●
block trades in which the broker-dealer will attempt to sell the
securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
●
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
●
an exchange distribution in accordance with the rules of the
applicable exchange;
●
privately negotiated transactions;
●
settlement
of short sales;
●
in transactions through broker-dealers that agree with the selling
stockholders to sell a specified number of such securities at a
stipulated price per security;
●
through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
●
a combination of any such methods of sale; or
●
any other method permitted pursuant to applicable law.
The selling stockholders also may resell all or a
portion of the securities in open market transactions in reliance
upon Rule 144 under the Securities Act, as permitted by that rule,
or Section 4(1) under the Securities Act, if available, rather
than under this prospectus, provided that they meet the criteria
and conform to the requirements of those
provisions
Broker-dealers
engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. If the selling stockholders effect such
transactions by selling securities to or through underwriters,
broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or
commissions from purchasers of the securities for whom they may act
as agent or to whom they may sell as principal. Such commissions
will be in amounts to be negotiated, but, except as set forth in a
supplement to this prospectus, in the case of an agency transaction
will not be in excess of a customary brokerage commission in
compliance with NASD Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with NASD
IM-2440.
In
connection with the sale of the Common Stock or interests therein,
the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn
engage in short sales of the Common Stock in the course of hedging
the positions they assume. The selling stockholders may also sell
shares of the Common Stock short and deliver these securities to
close out their short positions, or loan or pledge the shares of
Common Stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial
institutions or create one or more derivative securities which
require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be
“underwriters” within the meaning of the Securities Act
in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
Each selling stockholder has informed the Company that it does not
have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute their shares of Common
Stock.
The
Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company
has agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The
selling stockholders will be subject to the prospectus delivery
requirements of the Securities Act, including Rule 172
thereunder. The selling
stockholders have advised us that there is no underwriter or
coordinating broker acting in connection with the proposed sale of
the resale shares by the selling stockholders.
We
agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the selling
stockholders without registration and without regard to any volume
or manner-of-sale limitations by reason of Rule 144, without the
requirement for the Company to be in compliance with the current
public information under Rule 144 under the Securities Act, or any
other rule of similar effect (assuming that the shares were at no
time held by any affiliate of ours, and all warrants are exercised
by “cashless exercise” as provided in each of the
warrants) or (ii) all of the shares have been sold pursuant to this
prospectus or Rule 144 under the Securities Act, or any other rule
of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states,
the resale shares of Common Stock covered hereby may not be sold
unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or
qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to
the Common Stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In
addition, the selling stockholders will be subject to applicable
provisions of the Exchange Act, and the rules and regulations
thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the Common Stock by the selling
stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders and have informed
them of the need to deliver a copy of this prospectus to each
purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER
MATTERS
Market Information
Our Common Stock does not trade on an established
securities exchange. Our Common Stock is quoted under the symbol
“WRTC” on the OTCQB Venture Market. The following table
sets forth the high and low sale prices for our Common Stock for
each quarter since it was first listed on the OTC Market on May 18,
2018.
|
2018 Fiscal Quarters
|
|
|
|
Second
Quarter
|
$9.00
|
$2.50
|
|
Third
Quarter
|
$6.00
|
$2.10
|
|
Fourth
Quarter (through November 27, 2018)
|
$3.36
|
$5.70
|
Holders
At
November 28, 2018 there were 27,364,607 shares of Common Stock
outstanding and approximately 122 stockholders of
record.
Dividends
We
have never declared or paid cash dividends on our Common Stock. We
currently intend to retain all available funds and any future
earnings for use in the operation of our business and do not
anticipate paying any cash dividends in the foreseeable future. Any
future determination to declare cash dividends will be made at the
discretion of our Board of Directors and will depend on our
financial condition, results of operations, capital requirements,
general business conditions and other factors that our Board of
Directors may deem relevant.
Equity Compensation Plan Information
The 2017 Plan was adopted by our Board of Directors on March 31,
2017, and approved by a majority of our stockholders on March 31,
2017. The 2017 Plan reserves for issuance 2.0 million shares of our
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.
The
following table sets forth information as of December 31, 2017,
with respect to compensation plans (including individual
compensation arrangements) under which our equity securities are
authorized for issuance, aggregated as follows:
|
Plan Category
|
Number of securities to be
issued
upon exercise of
outstanding
options,
warrants
and rights
(a)
|
Weighted-average exercise
price
of outstanding
options,
warrants and
rights
(b)
|
Number of securities
remaining available for
future
issuance under
equity compensation plans
(excluding
securities
reflected
in column (a))
(c)
|
|
Equity
compensation plans approved by security holders
|
-
|
-
|
2,000,000
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
Total
|
-
|
-
|
2,000,000
|
Subsequent to the fiscal year ended December 31, 2017, in May 2018,
the Company granted stock options under the 2017 Plan to certain
officers, directors, employees and consultants of the Company,
which stock options are exercisable for an aggregate of 1,847,500
shares of Common Stock at a price of $1.50 per share. In October
2018, the Company granted stock options outside of the 2017 Plan to
a consultant of the Company, which stock options are exercisable
for an aggregate of 100,000 shares of Common Stock at a price of
$3.00 per share. In November 2018, the Company granted certain
stock options under the 2017 Plan to certain consultants and
directors of the Company, which stock options are exercisable for
an aggregate of 144,000 shares of Common Stock at weighted average
exercise price of $3.73 per share.
Transfer Agent
Our
Transfer Agent and Registrar for our Common Stock is Colonial Stock
Transfer, located at 66 Exchange Place, Suite 100, Salt Lake City,
Utah 84111.
DESCRIPTION OF SECURITIES
The following summary of the rights of our capital stock is not
complete and is subject to and qualified in its entirety by
reference to our Certificate of Incorporation and Bylaws, copies of
which are filed as exhibits to the registration statement, of which
this prospectus forms a part.
General
Our
Certificate of Incorporation authorizes us to issue 150,000,000
shares of our Common Stock and 5,000,000 shares of preferred stock,
par value $0.0001 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
As
of November 27, 2018 we have 27,364,607 shares of Common Stock
issued and outstanding. We have no shares of preferred stock issued
and outstanding.
Common Stock
Except
as otherwise expressly provided in our Certificate of
Incorporation, or as required by applicable law, all shares of our
Common Stock have the same rights and privileges and rank equally,
share ratably and are identical in all respects as to all matters,
including, without limitation, those described below. All
outstanding shares of Common Stock are fully paid and
nonassessable.
Voting
Rights. The holders of
Common Stock are entitled to one vote per share on all matters. The
Common Stock does not have cumulative voting rights, which means
that holders of the shares of Common Stock with a majority of the
votes to be cast for the election of directors can elect all
directors then being elected.
Dividends. Each share of Common Stock has an equal and
ratable right to receive dividends to be paid from our assets
legally available therefore when, as and if declared by our Board
of Directors. We have never declared or paid cash dividends on our
Common Stock, and we do not anticipate paying cash dividends on our
Common Stock in the foreseeable future.
Liquidation. In
the event we dissolve, liquidate or wind up, the holders of Common
Stock are entitled to share equally and ratably in the assets
available for distribution after payments are made to our creditors
and to the holders of any outstanding preferred stock we may
designate and issue in the future with liquidation preferences
greater than those of the Common Stock.
Other. The holders of shares of our Common Stock
have no preemptive, subscription or redemption rights and are not
liable for further call or assessment. All of the outstanding
shares of Common Stock are, and the shares of
Common Stock offered hereby will be, fully paid and
nonassessable.
Preferred Stock
Our
Board of Directors has the authority, without action by our
stockholders, 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 stockholders.
We
have no present plans to issue any shares of our preferred
stock.
Anti-Takeover Effects of Certain Provisions of Delaware Law and of
the Company’s Certificate of Incorporation and
Bylaws
Delaware Law
We are subject to Section 203
(“Section 203”) of the Delaware General Corporation Law
(the “DGCL”). 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.
Certificate of Incorporation; Bylaws
Our
Certificate of Incorporation and Bylaws contain provisions that
could make the acquisition of the Company more difficult 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 stockholders
may be called only by 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.
Overview
We
are a security technology company organized in March 2016 focused
on delivering modern policing solutions to customers, primarily
consisting of law enforcement and security personnel. We began
demonstrations of our first product, the BolaWrap™ 100 remote
restraint device, in November 2017. The immediate addressable
domestic market consists of approximately 701,000 full-time sworn
law enforcement officers in the U.S. We have demonstrated the
product to over 60 agencies across the country, often with media in
attendance, resulting in dozens of media reports including
television and print that have driven hundreds of inquiries from
domestic and international prospects. Over 30 law enforcement
agencies took delivery of the BolaWrap™ 100 devices during
2018. We have delivered over 200 devices at no cost to these
agencies for evaluation and feedback as a result of these initial
inquiries and have just started filling small orders as we
establish production. We have made improvements to our product as a
result of law agency input and we currently expect to commence
taking orders for an enhanced version of the BolaWrap™ 100
with a new green line-laser accessory late in the fourth quarter of
2018. There can be no assurance regarding the timing or amount of
future revenue from this product or future products, if
any.
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 the BolaWrap™ 100
assists law enforcement to safely and effectively control
encounters. Currently, 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 conducted electrical
weapons (“CEWs”); 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.
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,
especially in encounters with subjects experiencing a mental
crisis. 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 three broad categories routinely
encountered by law enforcement and security personnel:
●
remotely restrain and limit the mobility of an individual that may
be experiencing a mental crisis and incapable of responding to law
enforcement’s verbal commands but presenting a danger to law
enforcement, the public or themselves if not
restrained;
●
remotely restrain and limit the mobility of an individual
attempting to evade arrest or questioning, as well as individuals
increasingly ignoring verbal commands from law enforcement;
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.
Our commercialization strategy is to focus on
the immediate addressable domestic market of approximately
701,000 full-time sworn officers in
15,300 federal, state and local law enforcement agencies (as
reported in the August 2018 U.S.
Department of Justice, Statistical Brief, Full-Time Employees in
Law Enforcement Agencies, 1997-2016), while also exploring other markets, including
military, border patrol and international markets. We have
estimated an addressable international market of over 12.1 million
police officers in the 100 largest police forces gathered from
individual country statistics. According to Stratistics MRC,
we participate in a segment of the non-lethal products market
expected to grow to $11.85 billion by 2023.
Law
enforcement encounters with the mentally ill or those suffering a
mental crisis present a difficult challenge, often generating public controversy and costly
consequences. According to the Treatment Advocacy Center: Office of
Research & Public Affairs in a 2015 report on The Role of
Mental Illness in Fatal Law Enforcement Encounters, one in ten
police encounters involve the mentally ill and a minimum of one in
four fatal police encounters involve the mentally
ill.
We are unable to predict the market acceptance of
our new product or the level of future sales, if any. We believe
the enhanced version of our product with the laser accessory will
meet customer requirements and we expect to pursue orders late
in the fourth quarter of 2018 for delivery in early 2019. We
believe we can accelerate orders in 2019. However, there can be no
assurance of the timing or quantity of orders or sales in future
periods. 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 (“Wrap LLC”), 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.
On March 31, 2017 Wrap LLC merged with and into a
wholly-owned subsidiary MegaWest Energy Montana Corp.
(“MegaWest”). Wrap LLC ceased separate existence, and
MegaWest continued as the surviving entity after changing its name
to Wrap Technologies, Inc. Prior to the merger, on March 22, 2017,
Wrap LLC acquired privately held MegaWest from Petro River Oil
Corp. (“Petro River”), a related party as a result of Scot
Cohen, our Executive Chairman, also being a significant stockholder
and the Executive Chairman of Petro River. MegaWest had no assets
or liabilities at the date of acquisition and was not an operating
business.
In
December 2017, we completed a self-underwritten public offering
raising gross proceeds of approximately $3.49 million from the sale
of 2,328,533 shares of our Common Stock at a public offering price
of $1.50 per share. Three officers of the Company purchased 40,000
shares of Common Stock during the offering for an aggregate of
$60,000.
On October 30,
2018, we completed the Private Placement, resulting in gross cash
proceeds of $13.68 million and net cash proceeds of approximately
$12.14 million from the sale of 4,561,074 Units for $3.00 per Unit.
Each Unit consisted of one share of Common Stock and one detachable
two-year warrant to purchase one share of Common Stock at an
exercise price of $5.00 per share. We issued 4,561,074 shares of
Common Stock and detachable warrants to certain accredited
investors in the Private Placement. We also issued two-year
warrants to purchase 456,107 shares of Common Stock at an exercise
price of $3.00 per share to our placement agents and their
designees. Members of our management and our existing stockholders
purchased over 25% of the securities sold in the Private Placement,
including $1.0 million invested by our Chief Technology Officer,
Elwood G. Norris.
Plan of Operation
Our
plan of operation for the remainder of 2018 and 2019 includes
growing research, production, marketing, sales, distribution and
service functions. We expect to focus significant efforts on
domestic and international sales and developing volume
production.
Our
research and development activities for the remainder of 2018 and
2019 will focus on testing the new BolaWrap laser accessory and
cost reduction activities. Our research plans also include focusing
on creating new models of our restraining device and developing
other security related products.
We
currently have no plans for material acquisition of plant or
equipment.
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 the
BolaWrap 100.
According
to the Department of Justice (“Police Use of Nonfatal Force,
2002-2011,” Special Report NCJ 249216, Published November
2015 by the U.S. Department of Justice Office of Justice Programs,
Bureau of Justice Statistics), from 2002 to 2011 an annual average
of 44 million U.S. residents age 16 or older, approximately 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. Additionally, 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 may 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 (collaborative publication of 11
contributing law enforcement agencies organized by the
International Association of Chiefs of Police and published in
January 2017). 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. Although 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. This is more apparent in police interactions
with the mentally ill. According to a report by The State of Mental
Health in America, 2018; Mental Health America an estimated 40
million adults in the U.S. have mental health issues. And, in a
2015 report on The Role of Mental Illness in Fatal Law Enforcement
Encounters, the Treatment Advocacy Center: Office of Research &
Public Affairs indicated that 7.9 million individuals have severe
mental illness that disorders their thinking. Amounting to somewhat fewer than 4 in every 100
adults in America, individuals with severe mental illness generate
no less than 1 in 10 calls for police service and occupy at least 1
in 5 of America’s prison and jail beds. An estimated 1 in 3
individuals transported to hospital emergency rooms in psychiatric
crisis are taken there by police.
A
tool to restrain at a distance may offer reduced frequency of
deployment of other control techniques, including CEWs, especially
in encounters with the mentally ill. 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 with respsect to 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. Although 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 at close
distances, and it is not recommended for use at less than ten
feet.
Safety
The
BolaWrap 100 is not intended to be 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 is the case with CEW, impact munitions or chemical
devices.
Ease of Use
The
BolaWrap 100 is small, light and rugged. 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, and there are no electronic
components in the base device. 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 is designed to operate
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 bola cartridge is identified with a serial
number for recordkeeping purposes.
Cost
The
single use, but recyclable, bola cartridge is priced at a per
cartridge price to allow use in both training and active
deployment. Although we do not believe that there is currently a
directly competitive remote restraint device, our cartridge prices
are 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 involving use of force for
law enforcement agencies can be significant, with settlements in
the millions of dollars for many departments. Reducing the
frequency of 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 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 to forty-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
prototypes in April 2017. We assembled first production units in
November 2017, and commenced demonstrations and trial deployments
with a small number of law enforcement agencies. We have delivered
over 200 devices at no cost to selected law enforcement agencies
for evaluation and feedback as a result of these initial inquiries,
and have just started filling small orders as we establish
production. In October 2018 we demonstrated our new BolaWrap green
line laser accessory, and we currently expect to commence taking
orders for this enhanced version of the BolaWrap 100 late in the
fourth fiscal quarter of 2018. See “Risk
Factors” included in this
prospectus for additional information regarding risks and
uncertainties associated with our
business.
Markets
We
participate in the global non-lethal market that, according to a
June 2017 report by Global Market Outlook, was estimated to be
$6.32 billion in 2016 and is expected to grow to $11.85 billion in
2023. The following segments are our target 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 Department of Justice statistics
(“U.S. Department of Justice, Statistical Brief, Full-Time
Employees in Law Enforcement Agencies, 1997-2016: August
2018”, U.S. Department of Justice, Bureau of Justice
Statistics, published July 2011), there were nearly 18,000 of these
agencies in the United States in 2016 that employed approximately
701,000 full-time, sworn law enforcement officers. In 2005, the
United States Bureau of Justice statistics (“Census of State
and Federal Correctional Facilities, 2005”, U.S. Department
of Justice, Bureau of Justice Statistics, published October 2008)
estimated that there were 295,000 correctional officers in over
1,800 federal and state correctional facilities in the United
States.
Additionally,
we have estimated an addressable international market of over 12.1
million police officers in the 100 largest police forces gathered
from individual country statistics. We have accepted our first
foreign order, and are currently fielding inquiries from countries
in Asia, South America, Europe and the Middle East.
United States Border Patrol (“USBP”)
With
over 21,000 agents (“Border Patrol Overview”, U.S.
Customs and Border Protection, January 27, 2015, Web. 25, September
2017,
https://www.cbp.gov/border-security/along-us-borders/overview), the
USBP 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 2016 Bureau of Labor Statistics estimates (“Occupational
Employment Statistics”, United States Department of Labor,
March 31, 2017, Web. 25 September 2017), there were approximately
1.1 million privately employed security guards in the United
States. They represent a broad range of individuals, including thos
employed by 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. Although 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.
Although
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 in the future.
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 have developed and offer training
and class materials that certify law enforcement trainers as
instructors in the use and limitations of the BolaWrap 100. We
require training prior to use of the BolaWrap 100 by individual
departments.
We
participate in a variety of trade shows and plan to participate in
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. Our website
contains marketing information and we are engaged in 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 membres of 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 actively engage international markets and plan to
develop products for use by security and related
personnel.
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 stockholders 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 revenue
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
completed our first generation design, and have commenced initial
small volume production of the BolaWrap 100 and related cartridges.
We 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 volume
manufacturing capacity will be essential to the performance of our
products and the growth of our business.
Warranties
We
expect to warranty 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
Although
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 Axon Enterprises, Inc.
(formerly 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.
However, 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 that expires 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 most cases, the law enforcement
and corrections market is subject to different ATF and state
regulations or exemptions than the private citizen market, and we
do not expect additional state restrictions or approvals for sales
to law enforcement. 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 is also be considered a crime control product by the U.S.
government. Accordingly, the export of our devices is regulated
under export administration regulations. As a result, we must
obtain export licenses from the Department of Commerce for all
shipments to foreign countries. 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 an agent,
distributor or advisor who is familiar with the applicable import
regulations in each of any targeted foreign markets.
Intellectual Property
We intend to protect our intellectual property assets including
issued patents, 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 currently have four issued U.S. patents
related to the BolaWrap 100, and have six additional U.S. patents
pending. In September 2018, we commenced filing our first foreign
patent applications targeting the European Union (17 countries) and
17 other countries, all of which are currently pending. We have
reserved rights to file additional foreign patents. We have also
been granted 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 $458,046 for the
nine months ended September 30, 2018, and $311,335 and $217,244 for
the fiscal years ended December 31, 2017 and 2016,
respectively.
Employees and Executive Officers
We
currently have four executive officers. We have six other
employees, with four engaged in sales and marketing, one in
production and one in research and development. We employ
consultants from time to time to provide additional sales, and
marketing and research and development services.
We
believe we offer competitive compensation and other benefits and
that our employee relations are good.
Available Information
As a
public company, we are required to file our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements on Schedule 14A and
other information (including any amendments) with the SEC. You can
find the Company’s SEC filings at the SEC’s website
at http://www.sec.gov.
Our
Internet address is www.wraptechnologies.com. Information
contained on our website is not part of this prospectus. Our SEC
filings (including any amendments) will be made available free of
charge on www.wraptechnologies.com, as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the SEC.
MANAGEMENT’S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes and other
financial information appearing elsewhere in this prospectus.
Readers are also urged to carefully review and consider the various
disclosures made by us, which attempt to advise interested parties
of the factors which affect our business, including (without
limitation) the disclosures made under the captions
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Risk
Factors,” and in the audited consolidated financial
statements and related notes included in this
prospectus.
We are
a security technology company organized in March 2016 focused on
delivering modern policing solutions to customers, primarily
consisting of law enforcement and security personnel. We began
demonstrations of our first product, the BolaWrap 100 remote
restraint device, in November 2017. The immediate addressable
domestic market consists of approximately 701,000 full-time sworn
law enforcement officers in the U.S. We do not expect to report
significant revenue until prospective customers test and evaluate
our product. We have made improvements to our product as a result
of law agency input and we expect to commence taking orders for an
enhanced version of the BolaWrap 100 with a new green line-laser
accessory late in the fourth quarter of 2018. There can be no
assurance regarding the timing or amount of future revenue from
this product or future products, 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’s
acquisition of MegaWest and its subsequent merger with and into
MegaWest as a wholly-owned subsidiary of the Company, and the
exchange of membership interests for Common Stock, was accounted
for as a reverse recapitalization of Wrap LLC (the
“Recapitalization”). Wrap LLC, now
the Company as a result of the Recapitalization, was 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 Wrap LLC’s 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.
Business Highlights, Outlook and Challenges
In
December 2017, we completed a self-underwritten public offering,
raising gross proceeds of approximately $3.49 million from the sale
of 2,328,533 shares of Common Stock at the public offering price of
$1.50 per share. Three officers of the Company purchased an
aggregate of 40,000 shares of Common Stock during the offering for
an aggregate purchase price of $60,000.
On May
18, 2018, the Financial Industry
Regulatory Authority (“FINRA”) issued a quotation clearance to our
sponsoring market maker and assigned the ticker symbol
“WRTC” to our Common Stock. Quotations for our Common
Stock now appear under the WRTC ticker symbol on the OTCQB Venture
Market for early stage and developing U.S. and international
companies. Our Common Stock is also Depository Trust Company
(“DTC”) eligible allowing for electronic clearing
of trades.
During 2018, the
U.S. Patent and Trademark Office granted the first four U.S.
patents on our BolaWrap remote restraint device and technology. In
September 2018 we commenced filing our first foreign patent
applications, targeting the European Union (17 countries) and 17
other countries. We currently have six U.S. patents pending. We
have additional patents being drafted as part of our strategy to
protect our innovations in the U.S. and in targeted countries
internationally.
Our strategy is to focus on the immediate
addressable domestic market of approximately 701,000 full-time
sworn officers in 15,300 federal,
state and local law enforcement agencies while also beginning to explore other markets,
including military, border patrol and international markets.
According to Stratistics MRC, we participate in a segment of
the non-lethal products market expected to grow to $11.85 billion
by 2023. We are unable to predict the
market acceptance of our new product or the level of future sales,
if any. We have demonstrated the product to over 60 agencies across
the country, often with media in attendance resulting in dozens of
media reports including television and print that have driven
hundreds of inquiries from domestic and international prospects.
Over 30 law enforcement agencies took delivery of BolaWrap 100
devices during 2018. We have delivered over 200 devices at no cost
to these agencies for evaluation and feedback as a result of these
initial inquiries. We are making product updates as a result of
initial feedback, and in October 2018 announced a patent pending
green line laser accessory. We believe the enhanced version of our
product with the laser accessory will meet customer requirements
and we expect to pursue orders late in the fourth quarter of
2018 for delivery in early 2019. We believe we can accelerate
orders in 2019. However, there can be no assurance of the timing or
quantity of orders or sales in future
periods.
In
October 2018 we completed a private placement of equity securities,
resulting in net cash proceeds of approximately $12,140,000. We
expect to grow business functions, including production, marketing,
sales, distribution, service and administration. Until we generate
revenue and net cash flow from operations 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 for production and certain other
services. Given our limited personnel, substantial risk and
uncertainty exists with respect to whether we can timely execute
our business plan and achieve our operating objectives, including
obtaining orders from customers and introducing new products in the
future.
In
October 2018 we also applied to list our Common Stock on the Nasdaq
Capital Market. No assurances can be given that our listing
application will be successful, or with respect to the timing of
our application.
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. Although we believe that we have
adequate financial resources to sustain our operations for the next
year, no assurances can be given, and we may need additional capital for future operations
and to market and further develop our product line and introduce
new products. Obtaining any required additional financing in the
future could be a significant challenge for management, and failure
to secure necessary financing would have a material adverse effect
on our operations.
We
face significant challenges in establishing, operating and growing
our business. We expect that 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
(“U.S. GAAP”)
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expense, and
related disclosure of contingent assets and liabilities. We
evaluate our estimates on an on-going basis, including those
estimates 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 are 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 are 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 assesses this probability
based upon information provided by its tax advisers, its legal
advisers and similar tax cases. If at a later time our assessment
of the probability of these tax contingencies changes, our 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.
Some of
our accounting policies require higher degrees of judgment than
others in their application. These include share-based compensation
and contingencies and, going forward, areas such as revenue
recognition, warranty liabilities, impairments and valuation of
intangible assets. Historically, our assumptions, judgments and
estimates relative to our critical accounting policies have not
differed materially from actual results. There were no significant
changes or modification of our critical accounting policies and
estimates involving management valuation adjustments affecting our
results for the nine months ended September 30, 2018.
Operating Expense
Our
operating expense has 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 expenditures on sales and marketing,
the use of outside resources, public company and regulatory costs,
and other factors, some of which are outside of 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
Year Ended December 31, 2017 Compared to the Period from Inception
(March 2, 2016) to December 31, 2016
We had no revenue or product costs for the year
ended December 31, 2017, nor for the prior period from inception
(March 2, 2016) to December 31, 2016 (“prior short
period”).
Selling, General and Administrative Expense
Selling,
general and administrative expense for the year ended December 31,
2017 was $522,210 compared to $17,112 for the prior short period
ended December 31, 2016. The most recent year included legal,
merger and audit costs of $84,391, compensation and benefits of
$158,100, marketing and sales consulting costs of $104,946,
occupancy, insurance and office costs of $37,706, travel and
entertainment costs of $55,356 and trade show and marketing costs
of $58,533. In the prior short period, our activities were just
beginning with the focus being on research and
development.
Research and Development Expense
Research
and development expense for the year ended December 31, 2017 was
$311,335. The most recent year included $65,185 of compensation
costs, consulting and contract research costs of $150,880,
prototype and supply costs of $29,998, and patent costs of $46,580.
This compared to $217,244 for the prior short period ended December
31, 2016, including $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 year ended December 31, 2017 was $833,545 compared
to a net loss of $234,356 for the prior short period ended December
31, 2016 when development activities were beginning.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended
September 30, 2017
We had
minimal revenue from the delivery to one customer for the nine
months ended September 30, 2018. We have not actively pursued
orders at this time, as our objective is to focus our marketing and
selling efforts on selling the latest generation product with our
green line laser. Product costs of $138,801 for the nine months
ended September 30, 2018 related to demonstration products and
accessories delivered to law enforcement agencies, and were
expensed as marketing costs.
Selling, General and Administrative Expense
Selling, general
and administrative expense for the nine-month period ended
September 30, 2018 was $1,586,652 compared to $270,854 for the
nine-month period ended September 30, 2017. The most recent period
included non-cash stock-based compensation expense of $251,345 and
compensation and sales consulting costs of $645,579. There were no
non-cash stock-based compensation costs for the prior year’s
first nine months, and compensation and sales consulting costs were
$107,139. The increase in compensation and sales consulting costs
was due to the increase in staffing following our December 2017
initial public offering (“IPO”) and the hiring of employees
and sales consultants.
Travel
and entertainment costs increased from $22,800 to $152,620 for the
nine months ended September 30, 2017 and 2018, respectively. The
period over period increase is attributable to product
demonstration activities provided to law enforcement agencies
across the nation during the 2018 period. Product promotion, trade
show and other marketing costs were $189,144 for the nine months
ended September 30, 2018 compared to $30,442 for the nine months
ended September 30, 2017, which increase is attributable to the
commencement of direct activities with agencies and demonstration
products provided at no cost during the 2018 period.
Other
general and administrative costs of $347,964 during the nine months
ended September 30, 2018 included legal, audit and professional
fees of $117,095, chairman and director fees of $118,000, public
company costs of $70,016 and occupancy and office costs of $42,853.
In the prior comparable nine-month period, our activities were just
beginning as we focused on research and development, with other
general and administrative costs aggregating $110,473, including
$67,732 of professional fees primarily associated with audit and
costs related to the merger with MegaWest.
Research and Development Expense
Research and
development expense for the nine months ended September 30, 2018
was $458,046, which included $71,466 of non-cash stock-based
compensation expense, $234,116 of compensation and consulting
costs, contract research costs of $37,362, prototype costs of
$53,219, patent costs of $24,831, travel and entertainment of
$20,851 and occupancy costs of $12,755. This was an increase from
$252,675 for the comparable nine-month prior period ended September
30, 2017, which included $68,955 of compensation and consulting
costs, contract research costs of $125,144, prototype costs of
$11,060, patent costs of $38,926 and travel and entertainment of
$5,155. During the 2018 period, we increased staffing for internal
research and conducted less contract research. Our research and
development costs will vary depending on specific research projects
and levels of internal and external staffing and prototype
costs.
Net Loss
Our net
loss for the nine-month period ended September 30, 2018 was
$2,044,804 compared to a net loss of $523,529 for the prior period
ended September 30, 2017, with the increase in net loss resulting
from costs associated with increased staffing and activity after
our December 2017 IPO and the commencement of sales and marketing
activities related to the BolaWrap 100 product.
Liquidity and Capital Resources
Overview
Our
sole source of liquidity to date has been funding from our
stockholders and the sale of shares of our Common Stock. We expect
our primary source of future liquidity will be from the sale of
future products, if any, and if required from future equity or debt
financings.
Capital Requirements
In
December 2017, we completed our IPO, raising gross proceeds of
approximately $3.49 million from the sale of 2,328,533 shares of
Common Stock at the public offering price of $1.50 per share. We
had cash on hand of $1,365,495 at September 30, 2018.
In
January 2018, the Company financed $39,435 of insurance obligations
pursuant to a short-term note agreement, which accrues interest at
a rate of 7.15%, and which is payable in ten monthly principal and
interest payments of $4,074 due through November 2018.
Subsequent
to the quarter ended September 30, 2018, in October 2018 we
received approximately $12,140,000 in net cash proceeds from the
private sale of equity securities to certain accredited
investors.
We
cannot currently estimate our future liquidity requirements or
future capital needs, which will depend on, among other things,
capital required to introduce our new product and the staffing and
support requirements, as well as the timing and amount of future
revenue and product costs. We anticipate that demands for operating
and working capital could grow based on decisions regarding
staffing, development, production, marketing and other functions
and based on other factors outside of our control. We believe we
have sufficient capital to sustain our operations for the next
twelve months, although no assurances can be given. Additionally,
no assurances can be provided that any future debt or equity
capital will be available to us under favorable terms, if at all.
Failure to quickly produce and sell our new product and timely
obtain any required additional capital in the future will have a
material adverse effect on the Company.
Our
future capital requirements, cash flows and results of operations
could be affected by, and will depend on, many factors, some of
which are currently unknown to us, including, amongst other
things:
●
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; and
●
the
timing and costs associated with any new financing.
Off-Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
Cash Flow
Operating Activities.
During the nine months ended September 30, 2018,
net cash used in operating activities was
$1,630,881. The net loss of $2,044,804 was decreased by
non-cash expense of $322,811 for stock-based compensation and
$8,073 for depreciation. Other major component changes reducing
operating cash used included $5,903 reduction in inventories, a
reduction of $32,227 in prepaid expense and other current assets
and an increase of $44,909 in accounts payable and accrued
liabilities. During the prior period
ended September 30, 2017, net cash used in operating activities was
$532,769.
During the year ended December 31, 2017, net cash
used in operating activities was $833,709. The net loss of $833,545 was reduced by a $16,853
decrease in prepaid expense, $26,000 of deferred and accrued
officer compensation and a $81,514 increase of accounts payable and
accruals. A total of $131,192 was invested in inventories for
production.
During
the prior short period ended December 31, 2016, net cash used in
operating activities was $177,890. The net loss of $234,356
was reduced by $70,000 of deferred officer compensation and $14,965
of accounts payable. A total of $29,811 was expended on prepaid
expenses.
Investing Activities.
We used $8,015 and $33,595 of cash for the purchase of property and
equipment during the nine months ended September 30, 2018 and 2017,
respectively. As patents have now been granted, we began
capitalizing patent costs and invested $48,226 in patents for the
nine months ended September 30, 2018.
We
used $35,103 and $9,538 of cash for the purchase of property and
equipment during the year ended December 31, 2017 and the prior
short period ended December 31, 2016, respectively.
Financing Activities.
We
did not obtain any cash from financing activities in the nine-month
period ended September 30, 2018. We obtained $335,000 of cash from
our stockholders from the subscription and sale of Common Stock
during the nine-month period ended September 30, 2017. Subsequent
to the quarter ended September 30, 2018, in October 2018, we
received approximately $12,140,000 in net proceeds from an equity
financing.
We
obtained $3,697,716 of cash from our stockholders, net of offering
costs associated with our IPO during the year ended December 31,
2017. During the prior short period ended December 31, 2016 we
obtained $442,500 of cash from our stockholders.
Contractual Obligations
We are obligated to pay to Syzygy Licensing, LLC
(“Syzygy”) a 4% royalty fee on future product sales
up to an aggregate amount of $1.0 million in royalties or
until September 30, 2026, whichever occurs earlier.
Other
than payments under our facility lease, amounting to approximately
$18,600 per year, and our short-term note payable, we currently
have no other contractual obligations.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenue or operating results during the periods
presented.
Recent Accounting Pronouncements
Other
than our adoption of ASC 2018-07 for stock-based transactions with
non-employees which eliminates the requirement to revalue
non-employee options each period, there have been no recent
accounting pronouncements or changes in accounting pronouncements
during the period ended September 30, 2018, or subsequently
thereto, that we believe are of potential significance to our
financial statements.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There
have been no disagreements with our independent registered public
accounting firm in regards to accounting and financial
disclosure.
DIRECTORS AND EXECUTIVE
OFFICERS
Directors and Executive Officers
Set
forth below is information concerning our executive officers and
directors as of November 27, 2018:
|
Name
|
Age
|
Positions
|
Director Since
|
|
Scot
Cohen
|
49
|
Executive Chairman
|
2017
|
|
David
Norris
|
53
|
Director
and President
|
2018
|
|
James
A. Barnes
|
64
|
Chief Financial Officer, Secretary
and Treasurer
|
N/A
|
|
Michael
Rothans
|
57
|
Chief
Operating Officer
|
N/A
|
|
Elwood
G. Norris
|
80
|
Chief
Technology Officer
|
N/A
|
|
Michael
Parris
|
59
|
Director
|
2017
|
|
Patrick
Kinsella
|
65
|
Director
|
2018
|
|
Wayne
R. Walker
|
59
|
Director
|
2018
|
There
are no arrangements or understandings between our Company and any
other person pursuant to which he was or is to be selected as a
director, executive officer or nominee. David Norris is the son of
Elwood G. Norris, the Company’s Chief Technology Officer and
a former Director.
Scot
Cohen cofounded the Company
with Mr. Barnes and Mr. Elwood Norris in March 2016, and currently
serves as its Executive Chairman. He served as a Manager until the
Company’s incorporation in March 2017, when he was appointed
to serve as the Company’s Corporate Secretary. In July 2017,
Mr. Cohen was appointed to serve as the Company’s Executive
Chairman, and in January 2018 he resigned as Secretary. Mr. Cohen
has over 20 years’ 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. Mr. Cohen 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. Mr. Cohen currently sits on the board of directors
of True Drinks Holding, Inc. (OTC Pink:TRUU). Mr. Cohen 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.
David
Norris was appointed as a
director of the Company and the Company’s President in
January 2018. Prior to joining the Company, he served in senior
executive roles at privately held loanDepot, Inc. from April 2014
to December 2017, during which time it rapidly expanded into the
fifth largest mortgage lender in the United States. Most recently,
he served as Chief Revenue Officer of loanDepot, with prior
executive positions including President and Chief Operating
Officer. In October 2012, Mr. Norris was appointed as Chief
Executive Officer of Greenlight Financial Services, which was sold
to Nationstar Mortgage in May 2013, whereupon he served as
President of Direct Lending and Chief Marketing Officer until
February 2014. Mr. Norris also previously served as President at
LendingTree, Inc. and Discover Home Loans. In addition, Mr.
Norris’ career includes executive and management roles at
Toshiba America Information Systems, Qualcomm Personal Electronics
and American Technology Corporation. His early career was as a
probation officer in San Diego for five years. Mr. Norris earned
his Bachelor of Science degree in business administration from
University of Phoenix in 1993.
Mr.
David Norris brings to the Company and the Board of Directors
significant executive experience in rapidly growing businesses and
a background in developing, launching and manufacturing new
products.
James A.
Barnes cofounded the Company
with Mr. Elwood Norris and Mr. Cohen in March 2016, and currently
serves as Chief Financial Officer, Secretary and Treasurer. He
served as Manager until the Company’s incorporation in March
2017, and served as a member of the Company’s Board of
Directors from March 2017 to November 2018. He has served as the
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, a private technology invention and licensing
company he owns with Mr. Elwood 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
Bachelor of Arts Degree in Business Administration in 1976 and is a
certified public accountant (inactive).
Michael Rothans
joined the Company in September 2017
as Senior Vice President of Business Development, a position that
he held until November 2018, at which point he was appointed as the
Company’s Chief Operating Officer. As Senior Vice President
of Business Development, he was responsible for engaging larger
police agencies across the United States. Prior to joining the
Company, Mr. Rothans served as a police officer and executive in
the Los Angeles County Sheriff’s Department for thirty-one
years, where he retired as the Assistant Sheriff overseeing the
department’s patrol operations in 2015. While there, he
worked in all aspects of law enforcement, including custody,
patrol, investigative, administrative, supervisory and management
roles. In addition, he was responsible for a nearly
one-billion-dollar budget and supervised over 6,000 sworn and
civilian personnel. Mr. Rothans received many commendations during
his career, including the Los Angeles County Sheriff’s
Department Distinguished Service Award in 1997 and 2010, the
Exemplary Service Award in 2001, 2005, and 2009, and, the
Meritorious Service Award in 2008. In addition, as Chair of the
Executive Force Review Committee responsible for reviewing all
Officer Involved Shootings and significant uses of force, he
developed invaluable knowledge about real world encounters between
police and the public. Mr. Rothans graduated from Loyola Marymount
University in 1984 with a Bachelor of Arts Degree in Political
Science, immediately after which he joined the police
academy.
Elwood G.
Norris cofounded the Company
with Mr. Barnes and Mr. Cohen in March 2016 and currently serves as
the Company’s Chief Technology Officer. He served as a
director on the Company’s Board of Directors from March 2017
to January 2018. He was previously 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 he 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. Elwood Norris is a majority owner of
Syzygy, but has no employment or management relationship with
Syzygy.
Michael
Parris was appointed as a director of the Company in
November 2017. Mr. Parris has been a
partner at Perry Rogers Partners Inc., a sports management firm,
since 1996, where he primarily oversees the SHAQ Brand and other
strategic alliances. His role at Perry Rogers Partners encompasses
business development, worldwide brand management, marketing and
public relations. Prior to joining Perry Rogers Partners, Mr.
Parris had a successful career in law enforcement with the Newark
Police Department in Newark, New Jersey rising to the rank of
Lieutenant. During his career in law enforcement, he worked and
commanded several specialized units, including Homicide, Robbery,
and Internal Affairs. Mr. Parris holds a Bachelor of Science degree
in Business Management from the University of
Phoenix.
Mr. Parris brings to the Board of Directors
and management valuable experience and insights into the market
served by the Company given his background in law enforcement and worldwide
marketing and brand experience.
Patrick Kinsella
was
appointed as a director of the Company in November 2018.
Mr. Kinsella currently serves as an adjunct professor at the
USC Marshall School of Business, a position that he has held since
August 2011. In 2014, he was appointed as a director and the
Chairman of the audit committee of PennyMac Financial Services,
Inc. (“PennyMac”)
(NYSE: PFSI). Prior to his retirement as a senior audit partner in
May 2013, Mr. Kinsella spent over 37 years at with KPMG LLP
serving clients generally concentrated in the financial services
sector, including banks, thrifts, mortgage companies, automotive
finance companies, alternative investment companies and real estate
companies. Mr. Kinsella received a Bachelor of Science Degree
in Accounting from California State University, Northridge, and is
a licensed certified public accountant in the State of
California.
The Board of Directors believes that Mr. Kinsella is qualified
to serve as a director of the Company due to his extensive
experience in providing professional accounting and auditing
services and his experience serving as Chairman of the Audit
Committee of PennyMac.
Wayne R.
Walker was appointed as a
director of the Company in November 2018. In 2003, Mr. Walker
founded Walker Nell Partners, Inc. (“Walker Nell”), a financial advisory firm
providing corporate governance and restructuring, fiduciary
services, litigation support, and other services to client
corporations and law firms, where he
continues to serve as the managing partner. In his role at
Walker Nell, he has served on a number of private company boards.
He has also been active on various charitable boards, and currently
serves as Chairman of the
Board of Trustees of National Philanthropic Trust, a public charity
that holds over $6.0 billion of assets under management.
Mr. Walker has more than 25 years of
experience in corporate law and corporate restructuring, including
working 15 years at the DuPont Company in the Securities and
Bankruptcy group, where he worked in the Corporate
Secretary’s office and served as Senior Counsel. He holds a
Bachelor of Arts Degree from Loyola University New Orleans and a
Juris Doctorate from Catholic University of America. He also
studied finance for non-financial managers at the University of
Chicago’s Graduate School of
Business.
The
Board of Directors believes that Mr. Walker is qualified to serve
as a director of the Company due to his substantial knowledge and
more than 25 years of experience in corporate governance,
restructuring and corporate litigation.
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics applicable to
all of our employees, including our principal executive officer,
principal financial officer and principal accounting officer. We
will provide any person, without charge, a copy of our Code of
Conduct Policy upon written request to Investor Relations, Wrap
Technologies, Inc., 4620 Arville Street, Ste E. Las Vegas, Nevada
89103. We also post on our website a copy of or Code of Business
Conduct and Ethics at www.wraptechnologies.com.
Section 16(a) Beneficial Ownership Reporting
Compliance
Based
solely on a review of copies of such reports furnished to our
Company and representation that no other reports were required
during the fiscal year ended December 31, 2017, we believe that all
persons subject to the reporting requirements pursuant to Section
16(a) filed the required reports on a timely basis with the
Securities and Exchange Commission.
Board Leadership Structure
Currently,
our Principal Executive officer is David Norris and the Executive
Chairman of our Board of Directors is Scot Cohen. Our Board of
Directors has determined that it is in the best interests of the
Board and the Company to maintain separate the roles for the
Principal Executive Officer and Chairman of the Board. Our Board of
Directors believes this structure increases the Board’s
independence from management and, in turn, leads to better
monitoring and oversight of management. Although our Board of
Directors believes the Company is currently best served by
separating the role of Chairman of the Board of Directors and
Principal Executive Officer, our Board of Directors will
review and consider the continued appropriateness of this structure
on an annual basis.
Director Independence
Our Board of Directors has reviewed the
independence of our directors based on the listing standards of the
Nasdaq Stock Market. Based on this review, the Board of Directors
determined that Messrs. Parris, Kinsella and Walker are independent
as defined in Rule 5605(a)(2) of the Nasdaq Stock Market Rules. In
making this determination, our Board of Directors considered the
relationships that each of these non-employee directors has with us
and all other facts and circumstances our Board of Directors deemed
relevant in determining their
independence.
Committees of the Board of Directors
Our
Board of Directors established an Audit Committee, Compensation
Committee and Nominating and Governance Committee in November 2018.
Prior to that, we did not have any formal committees, and as a
result, the full Board of Directors administered the duties of an
audit committee, compensation committee and nominating and
corporate governance committee. Our
Board of Directors has adopted written charters for each of these
committees. Copies of the charters are available on our website.
Our Board of Directors may establish other committees as it deems
necessary or appropriate from time to time.
Audit Committee
The
Audit Committee provides assistance to our Board of Directors in
fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting, internal control and
legal compliance functions by approving the services performed by
our independent accountants and reviewing their reports regarding
our accounting practices and systems of internal accounting
controls. The Audit Committee also oversees the audit efforts of
our independent accountants and takes those actions as it deems
necessary to satisfy it that the accountants are independent of
management. The Audit Committee currently consists of Messrs.
Kinsella, Walker and Parris, each of whom is a non-management
member of our Board of Directors we believe meets the criteria for
independence under the applicable NASDAQ Stock Market Rules and SEC
rules and regulations. Mr. Kinsella is also our Audit Committee
financial expert, as currently defined under current SEC
rules. We believe that the composition of our Audit Committee
meets the criteria for independence under the applicable NASDAQ
Stock Market Rules and SEC rules and regulations, and the
functioning of our Audit Committee complies with the applicable
NASDAQ Stock Market Rules and SEC rules and
regulations.
Compensation Committee
The
Compensation Committee determines our general compensation policies
and the compensation provided to our directors and officers. The
Compensation Committee also reviews and determines bonuses for our
officers and other employees. In addition, the Compensation
Committee reviews and determines equity-based compensation for our
directors, officers, employees and consultants and administers our
stock option plans. The Compensation Committee currently
consists of Messrs. Walker, Kinsella and Parris, each of whom is a
non-management member of our Board of Directors we believe meets
the criteria for independence under the applicable NASDAQ Stock
Market Rules and SEC rules and regulations. We believe that the
composition of our Compensation Committee meets the criteria for
independence under the applicable NASDAQ Stock Market Rules and SEC
rules and regulations, and the functioning of our Compensation
Committee complies with the applicable NASDAQ Stock Market Rules
and SEC rules and regulations.
Nominating and
Governance Committee
The
Nominating and Governance Committee is responsible for making
recommendations to the Board of Directors regarding candidates for
directorships and the size and composition of the Board of
Directors. In addition, the Nominating and Governance Committee is
responsible for overseeing our corporate governance guidelines and
reporting and making recommendations to the full Board of Directors
concerning corporate governance matters. The Nominating and
Corporate Governance Committee currently consists of Messrs.
Walker, Kinsella and Parris.
Board Role in Risk Assessment
Management,
in consultation with outside professionals, as applicable,
identifies risks associated with the Company’s operations,
strategies and financial statements. Risk assessment will also be
performed through periodic reports received by the Audit Committee
from management, counsel and the Company’s independent
registered public accountants relating to risk assessment and
management. Audit Committee members will meet privately in
executive sessions with representatives of the Company’s
independent registered public accountants. The Board of Directors
also provides risk oversight through its periodic reviews of the
financial and operational performance of the Company.
Indemnification of Officers and Directors
As
permitted by the Delaware General Corporation Law, the
Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action
brought against them on account of their being or
having been Company directors or officers
unless, in any such action, they are adjudged to have acted
with gross negligence or willful misconduct.
Compensation of our Named Executive Officers; Summary Compensation
Table
James A. Barnes was our only named executive officer for the year
ended December 31, 2016. Scot Cohen was appointed to serve as our
Executive Chairman and our principal executive officer in July
2017, a position that he held until to January 2018, when David
Norris was appointed as our President.
The
following table sets forth compensation accrued for named executive
officers during the years ended December 31, 2016 and
2017.
|
Name and Principal Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
A. Barnes
|
2017
|
$64,000
|
$-
|
$-
|
$-
|
$-
|
$64,000
|
|
Chief Financial Officer, Secretary, Treasurer and Former
Director
|
2016
|
$20,000
|
$-
|
$-
|
$-
|
$-
|
$20,000
|
|
|
|
|
|
|
|
|
|
Scot
Cohen
|
2017
|
$-
|
$50,000
|
$-
|
$-
|
$-
|
$50,000
|
|
Executive Chairman, Former Secretary and Director
|
|
|
|
|
|
|
|
Effective
March 2016 through February 2017, the Company accrued monthly
deferred compensation for the services of officers Messrs. Elwood
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 February 28, 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. Commencing March 1, 2017, Messrs.
Elwood Norris and Barnes were each being paid compensation of
$6,000 per month for their services as employees and officers of
the Company, with March 2017 amounts deferred with no established
repayment schedule or timing for payment.
As
noted above, Mr. Cohen was appointed to serve as the
Company’s Executive Chairman in July 2017, in addition to his
pervious role as the Company’s Secretary. During 2017 there
was no compensation arrangement between Mr. Cohen and the Company
for his services as the Company’s Executive Chairman or
Secretary. In February 2018 the Board of Directors granted and the
Company paid a $50,000 bonus to Mr. Cohen for services rendered to
the Company during 2017.
Mr.
David Norris was appointed our President in January 2018 and became
our principal executive officer at that time. Mr. Michael Rothans
was appointed as our Chief Operating Officer in November
2018.
Syzygy, an entity controlled by Messrs. Elwood
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. Elwood
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 Plan
was adopted
by the Company’s Board of Directors on March 31, 2017, and
approved by a majority of the Company’s stockholders 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.
There were no options granted to named executive officers nor any
outstanding equity awards at December 31, 2017 or
2016.
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. Elwood Norris and Barnes, are
unrelated to employment or their roles as officers, and will
continue upon any termination, death, disability or
retirement.
Director Compensation
There
was no director compensation paid or incurred during the year ended
December 31, 2017. There were no awards of stock to any director
during the year ended December 31, 2017.
Subsequent
to the year ended December 31, 2017, each of the Company’s
non-executive directors was paid $10,500 in cash per quarter for
their services on the Board of Directors and committee
participation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND RELATED STOCKHOLDERS
The
following table sets forth information concerning shares of our
Common Stock beneficially owned as of November 27, 2018,
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 currently serving as director; and
●
each of
our named executive officers.
The
share amounts in the table below are based on 27,364,607 shares of
Common Stock issued and outstanding as of November 27, 2018. 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
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Elwood
G. Norris, Chief Technology Officer
|
6,977,457
|
(1)
|
25.1%
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Scot
Cohen, Executive Chairman
|
5,680,744
|
(2)
|
20.7%
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
James
A. Barnes, Chief Financial Officer, Secretary and
Treasurer
|
2,720,700
|
(3)
|
9.9%
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
David
Norris, President and Director
|
1,808,128
|
(4)
|
6.6%
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Michael
Parris, Director
|
198,000
|
(5)
|
0.7%
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Michael
Rothans, Chief Operating Officer
|
-
|
|
*
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Patrick
Kinsella
|
-
|
|
*
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Wayne R.
Walker
|
-
|
|
*
|
|
|
|
4620
Arville Street, Suite E
|
|
|
|
|
|
|
Las
Vegas, Nevada 89103
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Fortis
Business Holdings LLC
|
1,751,251
|
(6)
|
6.4%
|
|
|
|
45
Main St., Suite 800
|
|
|
|
|
|
|
Brooklyn,
NY 11201
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Iroquois
Capital Investment Group LLC
|
2,487,438
|
(7)
|
9.0%
|
|
|
|
205 E 42nd Street, Flr 20
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive
|
|
|
|
|
|
|
officers
as a group (8 persons)
|
17,385,029
|
|
62.3%
|
*
less than 1%
______________________
|
(1)
|
Includes 5,718,219 shares held by Mr. Elwood Norris directly;
850,904 shares beneficially owned by Mr. Elwood Norris through his
family trust; 75,000 shares underlying stock options that may be
exercised within 60 days from November 27, 2018; and 333,334 shares
underlying warrants that may be exercised within 60 days from
November 27, 2018
|
|
(2)
|
Includes 5,204,906 shares held by Mr. Cohen; 400,838 shares
beneficially owned by Mr. Cohen through Petro River Oil Corp.
(“Petro River”); and 75,000 shares underlying stock
options that may be exercised within 60 days from November 27,
2018. Mr. Cohen is Executive Chairman of Petro River and the
beneficial owner of 11% of the issued and outstanding common stock
of Petro River. Mr. Cohen disclaims beneficial ownership of the
shares owned by Petro River.
|
|
|
|
|
(3)
|
Includes 2,286,741 shares beneficially owned by Mr. Barnes through
a family trust; 358,959 shares beneficially owned by Mr. Barnes
through Sunrise Capital, Inc.; and 75,000 shares underlying stock
options that may be exercised within 60 days from November 27,
2018. Mr. Barnes is the President of Sunrise Capital,
Inc.
|
|
|
|
|
(4)
|
Consists of shares beneficially owned by Mr. Norris through a
family trust.
|
|
(5)
|
Consists of shares held by Mr. Parris.
|
|
(6)
|
Louis Kestenbaum is the managing member and principal owner with
voting and investment power.
|
|
(7)
|
Consist of 1,256,015 shares and 50,000 shares underlying warrants
that may be exercised within 60 days from November 27, 2018 held by
Iroquois Capital Investment Group LLC (“ICIG”), and 848,089 shares and 333,334 shares
underlying warrants that may be exercised within 60 days of
November 27, 2018 held by Iroquois Master Fund Ltd.
(“IMF”). Iroquois Capital Management L.L.C.
(“Iroquois
Capital”) is the
investment manager of Iroquois Master Fund, Ltd
(“IMF”). Consequently, Iroquois Capital has
voting control and investment discretion over securities held by
IMF. As President and Managing Member of Iroquois Capital, Mr.
Richard Abbe and Mrs. Kimberly Page make voting and investment
decisions on behalf of Iroquois Capital in its capacity as
investment manager to IMF. As a result of the foregoing, Mr. Abbe
and Mrs. Page may be deemed to have beneficial ownership (as
determined under Section 13(d) of the Securities Exchange Act of
1934, as amended) of the securities held by IMF. As Managing Member
of ICIG, Mr. Abbe makes voting and investment decisions on behalf
of ICIG. As a result of the foregoing, Mr. Abbe may be deemed to
have beneficial ownership (as determined under Section 13(d) of the
Securities Exchange Act of 1934, as amended) of the securities held
by ICIG.
|
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
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
stockholders/officers Mr. Elwood Norris and Mr. James Barnes. The
agreement provides for royalty payments of 4% of revenue from
products employing the licensed ensnarement device technology up to
an aggregate of $1,000,000 in royalties or until September 30,
2026, whichever occurs earlier.
Commencing in October 2017, the Company began
reimbursing Mr. Elwood Norris, an officer and stockholder of the
Company, $1,500 per month on a month to month basis for laboratory
facility costs, for an aggregate of $4,500 during the year ended
December 31, 2017 and an aggregate of $13,500 during the nine
months ended September 30, 2018.
Mr.
Norris, through a Family Trust, purchased 333,334 Units in the
Private Placement for an aggregate of $1.0 million.
Certain
legal matters in connection with this offering will be passed upon
for us by Disclosure Law Group, a Professional Corporation, of San
Diego, California.
Our consolidated
financial statements appearing in our Annual Report on Form 10-K
for the year ended December 31, 2017 have been audited by
Rosenberg Rich Baker Berman, P.A. of Somerset, New Jersey, an independent
registered public accounting firm, as set forth in their reports
thereon. Such consolidated financial statements are included herein
in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We
have filed with the SEC a registration statement on Form S-1, which
includes amendments and exhibits, under the Securities Act and the
rules and regulations under the Securities Act for the registration
of Common Stock being offered by this prospectus. This
prospectus, which constitutes a part of the registration statement,
does not contain all the information that is in the registration
statement and its exhibits and schedules. Statements in this
prospectus that summarize documents are not necessarily complete,
and in each case you should refer to the copy of the document filed
as an exhibit to the registration statement. You may read and
copy the registration statement, including exhibits and schedules
filed with it, and reports or other information we may file with
the SEC at the public reference facilities of the SEC at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. You may
call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. In addition,
the registration statement and other public filings can be obtained
from the SEC’s internet site at www.sec.gov.
Index to Financial
Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-13
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Condensed
Statements of Operations for the three and nine months ended
September 30, 2018 and 2017 (unaudited)
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F-14
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F-15
|
Notes
to Unaudited Condensed Interim Financial
Statements
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F-16
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REPORT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.
To the
Board of Directors and
Stockholders
of Wrap Technologies, Inc.
Opinion on the Financial Statements
We have
audited the accompanying balance sheets of Wrap Technologies, Inc.
(the Company) as of December 31, 2017 and 2016, and the related
statements of operations, stockholders’ equity, and cash
flows for the year ended December 31, 2017 and the period from
March 2, 2016 (inception) through December 31, 2016, and the
related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for the year ended December 31, 2017
and the period from March 2, 2016 (inception) through December 31,
2016, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, 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.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
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/s/
Rosenberg Rich Baker Berman, P.A.
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We have
served as the Company’s auditor since 2016.
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Somerset,
NJ
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March
6, 2018
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Balance Sheets
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ASSETS
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Current assets:
|
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Cash
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$3,083,976
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$255,072
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Inventories,
net
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131,192
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-
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Prepaid
expenses and other current assets
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11,446
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28,299
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Total current assets
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3,226,614
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283,371
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Property and equipment, net
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36,668
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8,226
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Other assets, net
|
1,512
|
1,512
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Total assets
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$3,264,794
|
$293,109
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
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|
Current liabilities:
|
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Accounts
payable
|
$36,165
|
$12,065
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Deferred
and accrued officer compensation
|
96,000
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70,000
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Accrued
liabilities
|
60,314
|
2,900
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Total current liabilities
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192,479
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84,965
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Commitments and contingencies (Note 6)
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Stockholders' equity:
|
|
|
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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;
22,803,533 and 17,445,408 shares issued and outstanding,
respectively
|
2,280
|
1,745
|
|
Additional
paid-in capital
|
4,137,936
|
440,755
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|
Accumulated
deficit
|
(1,067,901)
|
(234,356)
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Total stockholders' equity
|
3,072,315
|
208,144
|
|
Total liabilities and stockholders' equity
|
$3,264,794
|
$293,109
|
See accompanying notes to financial statements.
|
Wrap Technologies, Inc.
|
|
Statements of Operations
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Operating expenses:
|
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Selling,
general and administrative
|
$522,210
|
$17,112
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Research
and development
|
311,335
|
217,244
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|
Total
operating expenses
|
833,545
|
234,356
|
|
Loss
from operations
|
(833,545)
|
(234,356)
|
|
|
|
|
|
Net loss
|
$(833,545)
|
$(234,356)
|
|
|
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Net
loss per basic common share
|
$(0.04)
|
$(0.03)
|
|
Weighted
average common shares used to compute net loss per basic common
share
|
20,194,560
|
7,467,608
|
See accompanying notes to financial statements.
Statements of Stockholders' Equity
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Balance at Inception (March 2, 2016)
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-
|
$-
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$-
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$-
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$-
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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
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Sale
of common stock in October 2016 at $0.00836 per share
|
4,786,120
|
479
|
39,521
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-
|
40,000
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Sale
of common stock in December 2016 at $0.10447 per share
|
3,087,047
|
308
|
322,192
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-
|
322,500
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Net
loss for the period
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-
|
-
|
-
|
(234,356)
|
(234,356)
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Balance at December 31, 2016
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17,445,408
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$1,745
|
$440,755
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$(234,356)
|
$208,144
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Sale
of common stock in January 2017 at $0.10447 per share
|
2,153,754
|
215
|
224,785
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-
|
225,000
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Shares
issued to acquire merger subsidiary to effect reverse
recapitalization
|
400,838
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40
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(40)
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-
|
-
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Sale
of common stock in July 2017 at $0.10447 per share
|
475,000
|
47
|
49,953
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-
|
50,000
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Sale
of common stock in public offering at $1.50 per share in fourth
quarter of 2017, net of issuance costs of $70,084
|
2,328,533
|
233
|
3,422,483
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-
|
3,422,716
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Net
loss for the period
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-
|
-
|
-
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(833,545)
|
(833,545)
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Balance at December 31, 2017
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22,803,533
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$2,280
|
$4,137,936
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$(1,067,901)
|
$3,072,315
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See accompanying notes to financial statements.
Statements of Cash Flows
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Cash Flows From Operating Activities:
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|
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Net
loss
|
$(833,545)
|
$(234,356)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
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used
in operating activities:
|
|
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Depreciation
|
6,661
|
1,312
|
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Changes
in assets and liabilities:
|
|
|
|
Inventories
|
(131,192)
|
-
|
|
Prepaid
expenses and other current assets
|
16,853
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(29,811)
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Accounts
payable
|
24,100
|
12,065
|
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Deferred
and accrued officer compensation
|
26,000
|
70,000
|
|
Accrued
liabilities
|
57,414
|
2,900
|
|
Net
cash used in operating activities
|
(833,709)
|
(177,890)
|
|
|
|
|
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Cash Flows From Investing Activities:
|
|
|
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Capital
expenditures for property and equipment
|
(35,103)
|
(9,538)
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|
Net
cash used in investing activities
|
(35,103)
|
(9,538)
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|
|
|
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Cash Flows From Financing Activities:
|
|
|
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Proceeds
from sale of common stock
|
3,767,800
|
442,500
|
|
Offering
costs paid in connection with sale of common stock
|
(70,084)
|
-
|
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Net
cash provided by financing activities
|
3,697,716
|
442,500
|
|
|
|
|
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Net increase in cash and cash equivalents
|
2,828,904
|
255,072
|
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Cash, beginning of period
|
255,072
|
-
|
|
Cash, end of period
|
$3,083,976
|
$255,072
|
See accompanying notes to financial statements.
Notes to 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's first product is the BolaWrap™ 100 remote restraint
device.
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
member 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 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.
Public Offering
In
December 2017, the Company completed a self-underwritten public
offering raising gross proceeds of approximately $3.49 million from
the sale of 2,328,533 shares of Common Stock at $1.50 per share.
Three officers of the Company purchased 40,000 shares of the
offering for $60,000.
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.
While management believes it has adequate financial resources for
the next year, management cannot assure that if any future
financing is required that it 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 stockholders. Furthermore, despite management’s
optimism regarding the Company’s technology and products,
there is no guarantee that any products 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.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts payable and accrued
liabilities approximate fair values due to the short nature 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, 2017. 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 periods ended December 31,
2016 and 2017.
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.
Advertising Costs
The Company expenses advertising costs in the period in which they
are incurred. The Company incurred advertising costs of $11,812 and
$417 for the periods ended December 31, 2017 and 2016,
respectively. Advertising costs are included in selling, general
and administrative expenses in the accompanying statements of
operations.
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
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 for the
period prior to March 31, 2017 and no income tax expense was
recorded for the period ended December 31, 2017 due to losses
incurred.
Deferred tax assets and liabilities are determined based on
temporary differences between the bases of certain assets and
liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities
generating the differences.
The Company maintains a valuation allowance with respect to
deferred tax assets. The Company establishes a valuation allowance
based upon the potential likelihood of realizing the deferred tax
asset and taking into consideration the Company’s financial
position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carry-forward period under the
Federal tax laws. Changes in circumstances, such as the Company
generating taxable income, could cause a change in judgment about
the realizability of the related deferred tax asset. Any change in
the valuation allowance will be included in income in the year of
the change in estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2014-09, Revenue from Contracts with
Customers (Topic 606). ASU
2014-09 requires entities to recognize revenue through the
application of a five-step model, which includes identification of
the contract, identification of the performance obligations,
determination of the transaction price, allocation of the
transaction price to the performance obligations and recognition of
revenue as the entity satisfies the performance obligations.
Subsequently, the FASB issued the following accounting standard
updates related to Topic 606, Revenue from Contracts with
Customers:
●
ASU 2016-08, Revenue from Contracts with
Customers (Topic 606):
Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)
in March 2016. ASU 2016-08 does not
change the core principle of revenue recognition in Topic 606 but
clarifies the implementation guidance on principal versus agent
considerations.
●
ASU 2016-10, Revenue from Contracts with
Customers (Topic 606):
Identifying
Performance Obligations and Licensing in April 2016. ASU 2016-10 does not change the
core principle of revenue recognition in Topic 606 but clarifies
the implementation guidance on identifying performance obligations
and its licensing.
●
ASUs 2016-12 and 2016-20, Revenue from Contracts with
Customers (Topic 606):
Narrow-Scope
Improvements and Practical Expedients, and Technical Corrections
and Improvements to Topic 606, Revenue from Contracts with
Customers, respectively, issued
in May and December 2016, respectively. These ASUs do not change
the core principle of revenue recognition in Topic 606 but clarify
the implementation guidance on a few narrow areas and add some
practical expedients to the guidance.
Topic 606 is effective for the Company as of January 1,
2018, and permits the use of either a retrospective or a modified
retrospective method. The Company currently anticipates using the
modified retrospective method and has no previously reported
revenues.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities, which provides targeted improvements to the
recognition, measurement, presentation and disclosure of financial
assets and financial liabilities. Specific accounting areas
addressed include equity investments and financial liabilities
reported under the fair value option and valuation allowance
assessment resulting from unrealized losses on available-for-sale
securities. This ASU also changes certain presentation and
disclosure requirements for financial instruments. This ASU is to
be applied by means of a cumulative effect adjustment to the
balance sheet as of the beginning of the fiscal year of adoption.
This ASU is effective for the Company as of January 1, 2018.
Early adoption, with certain exceptions, is not permitted. The
Company does not expect adoption of this ASU to have any impact on
its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842), which requires lessees to
recognize right-of-use assets and corresponding liabilities for all
leases with an initial term in excess of 12 months. This ASU is to
be adopted using a modified retrospective approach, including a
number of practical expedients, that requires leases to be measured
and recognized under the new guidance at the beginning of the
earliest period presented. This ASU is effective for the Company as
of January 1, 2019. Early adoption is permitted. The Company
is currently evaluating the effect this ASU will have on its
financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash
Receipts and Cash Payments,
addressing eight specific cash flow issues in an effort to reduce
diversity in practice. This ASU is effective for the Company as of
January 1, 2018. The Company does not expect adoption to have
a material impact on its statements of cash
flows.
In November 2016, the FASB issued ASU 2016-18, Restricted
Cash, which requires that a
statement of cash flows explain the change during the period in the
total of cash, cash equivalents and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. This ASU is effective for the
Company as of January 1, 2018. The Company does not expect
adoption of this ASU to have any impact on its financial
statements.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification
Accounting, which amends the
scope of modification accounting for share-based payment
arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an
entity would be required to apply modification accounting under ASC
718, Compensation – Stock
Compensation. This ASU is
effective for the Company as of January 1, 2018. The
Company does not expect adoption of
this ASU to have any impact on its financial
statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815). The amendments in Part I of this ASU change the
classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. When
determining whether certain financial instruments should be
classified as liabilities or equity instruments should be
classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing
whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for
equity-classified instruments. The amendments in Part I of this ASU
are effective for the Company as of January 1, 2019. The
amendments in Part II of this ASU replace the indefinite deferral
of certain guidance in Topic 480 with a scope exception. The
amendments in Part II of this ASU do not require any transition
guidance. The Company does not
expect adoption of this ASU to have any impact on its financial
statements.
In March 2016, the FASB issued ASU 2016 – 09
“Improvements to Employee
Share-Based Payment Accounting”, which simplifies the accounting for
share-based payment transactions including their income tax
consequences, classification as either equity or liability awards,
classification on the statement of cash flows, and other areas. The
method of adoption varies with the different aspects of the Update.
The Update is effective for the Company in the first quarter of
fiscal year 2018. The Company does not expect this ASU to have
a material impact on its financial
statements.
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.
Inventory
is recorded at the lower of cost or net realizable value. The cost
of substantially all the Company’s inventory is determined by
the weighted average cost method. Inventories consisted of the
following at December 31, 2017:
|
Finished
goods
|
$5,308
|
|
Work
in process
|
5,484
|
|
Raw
materials
|
120,400
|
|
|
$131,192
|
|
3.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
Laboratory
equipment
|
$12,730
|
$7,342
|
|
Tooling
|
18,165
|
-
|
|
Computer
equipment
|
4,151
|
-
|
|
Furniture
and fixtures
|
9,595
|
2,196
|
|
|
44,641
|
9,538
|
|
Accumulated
depreciation
|
(7,973)
|
(1,312)
|
|
|
$36,668
|
$8,226
|
Depreciation expense was $6,661 and $1,312 for the year ended
December 31, 2017 and the period from March 2, 2016 to December 31,
2016, respectively.
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”). In March 2017 the Company accrued and
deferred $6,000 compensation to each of the two officers. The
balance payable to Syzygy as of December 31, 2017 was $84,000 and
the accrued deferred compensation aggregated $12,000. These
balances accrue without interest. No payment terms or schedule has
been established.
|
5.
|
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
member unit of Wrap LLC.
Effective with the merger, the Company adopted and the stockholders
approved on March 31, 2017 the 2017 Stock Incentive Plan
authorizing 2,000,000 shares of common stock for issuance as stock
options and restricted stock units to employees, directors or
consultants. At December 31, 2017, there has been no option grants
or restricted stock awards made and none were
outstanding.
|
6.
|
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 $1,550 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, 2017 and 2016 was
$18,120 and $1,510, respectively. The remaining future annual
minimum lease obligations under the foregoing facility lease are
$17,123 and $19,051 for the balance of 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
stockholder/officers Mr. Elwood Norris and Mr. James 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.
Indemnifications and Guarantees
Our officers and directors are indemnified as to personal liability
as provided by the Delaware law and the Company’s articles
and bylaws. The Company may also undertake indemnification
obligations in the ordinary course of business related to its
operations. The Company is unable to estimate with any reasonable
accuracy the liability that may be incurred pursuant to any such
indemnification obligations now or in the future. Because of the
uncertainty surrounding these circumstances, the Company’s
current or future indemnification obligations could range from
immaterial to having a material adverse impact on its financial
position and its ability to continue in the ordinary course of
business. The Company has no liabilities recorded for such
indemnities.
Regulatory Agencies
The Company may be subject to oversight from regulatory agencies
regarding firearms that arise in the ordinary course of its
business.
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. The Company accounts for
income taxes under ASC 740. Deferred income tax assets and
liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Accounting
standards require the consideration of a valuation allowance for
deferred tax assets if it is "more likely than not" that some
component or all of the benefits of deferred tax assets will not be
realized.
The Company did not provide any current or deferred U.S. federal
income tax provision or benefit for the periods presented because
of operating losses since inception. As of December 31, 2017, the
Company has net operating loss carryforwards of approximately
$630,000 to reduce future taxable income through 2037. Certain
changes in stock ownership can result in a limitation on the amount
of net operating loss and tax credit carryovers that can be
utilized each year. As of December 31, 2017, management has not
determined the extent of any such limitations, if any.
The Company provided a full valuation allowance on the net deferred
tax asset, consisting of net operating loss carry forwards, because
management has determined that it is more likely than not that we
will not earn income sufficient to realize the deferred tax assets
during the carry forward period. As a result of the change in
future Federal statutory tax rates due to the passing of the Tax
Cuts and Jobs Act of 2017, management has determined that the
deferred tax assets and liabilities should not be valued at a
federal statutory rate of 34% but rather at the rate in which the
benefit of the deferred tax asset or liability will be realized by
the Company. As such, the Federal statutory rate used to
value the Company's deferred tax assets and liabilities is
21%.
The Company has not taken a tax position that, if challenged, would
have a material effect on the financial statements for the period
ended December 31, 2017 applicable under FASB ASC 740. The Company
did not recognize any adjustment to the liability for uncertain tax
position and therefore did not record any adjustment to the
beginning balance of accumulated deficit on the balance sheet. All
tax returns for the Company remain open.
The provision for (benefit from) income taxes consists of the
following:
|
Period Ended December 31, 2017
|
|
|
Current
tax benefit
|
$-
|
|
Deferred
tax benefit
|
136,000
|
|
Change
in valuation allowance
|
(136,000)
|
|
Income
tax benefit (provision)
|
$-
|
A reconciliation of the provision for income taxes at the federal
statutory rate of 35% to the Company’s provision for income
tax is as follows:
|
Period Ended December 31, 2017
|
|
|
Income
taxes benefit computed at federal statutory rate
|
$133,000
|
|
Research
tax credits
|
6,000
|
|
Permanent
differences and other
|
(3,000)
|
|
Change
in valuation allowance
|
(136,000)
|
|
Income
tax benefit (provision)
|
$-
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. The following table presents the significant
components of the Company’s deferred tax assets and
liabilities for the periods presented:
|
At December 31, 2017
|
|
|
Deferred
tax assets:
|
|
|
Net
operating losses
|
$132,000
|
|
Research
tax credits
|
6,000
|
|
Deferred
compensation
|
20,000
|
|
Accruals
and other
|
13,000
|
|
|
171,000
|
|
Deferred
tax liabilities:
|
|
|
Depreciation
and other
|
3,000
|
|
|
3,000
|
|
Net
deferred tax assets
|
168,000
|
|
Less
valuation allowance
|
(168,000)
|
|
Net
deferred taxes after valuation allowance
|
$-
|
|
8.
|
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.
Commencing in October 2017 the Company commenced reimbursing
officer Mr. Elwood Norris $1,500 per month on a month to month
basis for laboratory costs for an aggregate of $4,500 during the
year ended December 31, 2017.
See Notes 1, 4 and 6 for additional related party transactions and
information.
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash
|
$1,365,495
|
$3,083,976
|
|
Inventories,
net
|
125,289
|
131,192
|
|
Prepaid
expenses and other current assets
|
18,654
|
11,446
|
|
Total current assets
|
1,509,438
|
3,226,614
|
|
Property and equipment, net
|
36,610
|
36,668
|
|
Intangible assets, net
|
48,226
|
-
|
|
Other assets, net
|
1,512
|
1,512
|
|
Total assets
|
$1,595,786
|
$3,264,794
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts
payable
|
$76,482
|
$36,165
|
|
Accrued
liabilities
|
64,456
|
60,314
|
|
Deferred
revenue
|
450
|
-
|
|
Note
payable
|
8,076
|
-
|
|
Deferred
and accrued officer compensation
|
96,000
|
96,000
|
|
Total current liabilities
|
245,464
|
192,479
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
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;
22,803,533 shares issued and outstanding each period,
respectively
|
2,280
|
2,280
|
|
Additional
paid-in capital
|
4,460,747
|
4,137,936
|
|
Accumulated
deficit
|
(3,112,705)
|
(1,067,901)
|
|
Total stockholders' equity
|
1,350,322
|
3,072,315
|
|
Total liabilities and stockholders' equity
|
$1,595,786
|
$3,264,794
|
See accompanying notes to condensed interim financial
statements.
Condensed Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Product
sales
|
$1,890
|
$-
|
$1,890
|
$-
|
|
Other
revenue
|
-
|
-
|
-
|
-
|
|
Total
revenues
|
1,890
|
-
|
1,890
|
-
|
|
Cost
of revenues
|
1,607
|
-
|
1,607
|
-
|
|
Gross profit
|
283
|
-
|
283
|
-
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling,
general and administrative
|
665,910
|
105,210
|
1,586,652
|
270,854
|
|
Research
and development
|
168,432
|
46,334
|
458,046
|
252,675
|
|
Total
operating expenses
|
834,342
|
151,544
|
2,044,698
|
523,529
|
|
Loss
from operations
|
(834,059)
|
(151,544)
|
(2,044,415)
|
(523,529)
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
Interest
expense
|
(352)
|
-
|
(1,674)
|
-
|
|
Other
|
527
|
-
|
1,285
|
-
|
|
|
175
|
-
|
(389)
|
-
|
|
Net loss
|
$(833,884)
|
$(151,544)
|
$(2,044,804)
|
$(523,529)
|
|
|
|
|
|
|
|
Net
loss per basic common share
|
$(0.04)
|
$(0.01)
|
$(0.09)
|
$(0.03)
|
|
Weighted
average common shares used to compute net loss per basic common
share
|
22,803,533
|
20,402,717
|
22,803,533
|
19,850,234
|
Condensed Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
Net
loss
|
$(2,044,804)
|
$(523,529)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
used
in operating activities:
|
|
|
|
Depreciation
and amortization
|
8,073
|
4,511
|
|
Share-based
compensation
|
322,811
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
Inventories
|
5,903
|
(96,667)
|
|
Prepaid
expenses and other current assets
|
32,227
|
(16,969)
|
|
Accounts
payable
|
40,317
|
52,870
|
|
Deferred
and accrued officer compensation
|
-
|
26,000
|
|
Accrued
liabilities and other
|
4,592
|
21,015
|
|
Net
cash used in operating activities
|
(1,630,881)
|
(532,769)
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
Capital
expenditures for property and equipment
|
(8,015)
|
(33,595)
|
|
Investment
in patents and trademarks
|
(48,226)
|
-
|
|
Net
cash used in investing activities
|
(56,241)
|
(33,595)
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
Proceeds
from common stock subscribed
|
-
|
60,000
|
|
Sale
of common stock
|
-
|
275,000
|
|
Payment
of notes payable
|
(31,359)
|
-
|
|
Net
cash provided by financing activities
|
(31,359)
|
335,000
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
(1,718,481)
|
(231,364)
|
|
Cash, beginning of period
|
3,083,976
|
255,072
|
|
Cash, end of period
|
$1,365,495
|
$23,708
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing
|
|
|
|
and Financing Activities:
|
|
|
|
Prepaid
insurance financed with note payable
|
$39,435
|
$-
|
See accompanying notes to condensed interim financial
statements.
Notes to Unaudited Condensed Interim Financial
Statements
|
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization and Business Description
Wrap
Technologies, Inc., a Delaware corporation (the “Company”), is a developer of
security products designed for use by law enforcement and security
personnel. The Company’s first product is the BolaWrap™
100 remote restraint device.
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”) (the
“Merger”). Wrap
LLC ceased separate existence, and MegaWest continued as the
surviving entity. MegaWest then changed its name to Wrap
Technologies, Inc. and an amended and restated certificate of
incorporation changing the Company’s corporate name,
authorizing 150,000,000 shares of common stock, par value $0.0001
per share, and authorizing 5,000,000 shares of preferred stock, par
value $0.0001 per share, was filed with the Delaware Department of
Corporations. All 835.75 membership units of Wrap LLC outstanding
immediately prior to the Merger were exchanged, on a pro rata
basis, for an aggregate of 20,000,000 shares of common stock of the
Company in the Merger.
Prior
to the Merger, on March 22, 2017, Wrap LLC acquired privately held
MegaWest from Petro River Oil Corp. (“Petro River”) through the
issuance of 16.75 membership units, representing a 2% ownership
interest in Wrap LLC. At that time, Petro River was owned 11% by
Scot Cohen, Executive Chairman and a Manager of Petro River, a 26%
owner of Wrap LLC, and a director and officer of the Company.
MegaWest had no assets or liabilities at the date of acquisition
and was 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
member units for common stock was accounted for as a reverse
recapitalization of Wrap LLC. Wrap LLC, now the Company, was deemed
the accounting acquirer with MegaWest the accounting acquiree. The
Company’s financial statements are in substance those of Wrap
LLC, and are deemed to be a continuation of Wrap LLC’s
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 were 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 and
related notes included herein have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“US GAAP”) for interim financial information
and in accordance with Article 8 of Regulation S-X and
the rules and regulations of the Securities and Exchange
Commission (“SEC”). The condensed balance
sheet at December 31, 2017 was derived from audited financial
statement but 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, 2017. 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 revenue and
expense during the reporting period. Actual results could
materially differ from those estimates.
Liquidity
On
October 30, 2018 the Company obtained gross cash proceeds of $13.68
million and net cash proceeds of approximately $12.14 million from
the sale of 4,561,074 units (“Units”) for $3.00 per Unit. Each
Unit consists of one share of common stock and one detachable
two-year warrant to purchase one share of common stock at an
exercise price of $5.00 per share (the “Offering”). See Note
11.
At
September 30, 2018 the Company had cash of $1.36 million and
working capital of $1.26 million. 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. The Company
experienced net cash used in operating activities of $1.63 million
for the nine months ended September 30, 2018 which raised
substantial doubt about the Company’s ability to continue as
a going concern within one year after the issuance date of this
Form 10-Q. However, as a result of the Offering, as of October 31,
2018 the Company had $13.2 million of cash, which alleviated
any substantial doubt about the
Company’s ability to continue as a going concern. These funds
will be used to fund the Company’s operations,
including product development, manufacturing, sales and
marketing and expansion of its patent
portfolio, as well as to provide working capital and funds for
other general corporate purposes. These funds are sufficient to
fund the Company’s operations beyond the next twelve months
from the date of filing of this Form 10-Q.
Stock Based Compensation
The
Company follows the fair value recognition provisions issued by the
Financial Accounting Standards Board (“FASB”) in Accounting Standards
Codification (“ASC”) Topic 718, Stock
Compensation (“ASC
718”) and has adopted Accounting Standards Update
(“ASU”) 2018-07
for stock-based transactions with non-employees. Stock based
compensation expense recognized during the three and nine months
ended September 30, 2018 includes compensation expense for all
stock-based payments based on a grant date fair value using the
Black-Scholes valuation model. The grant date is the date at which
an employer and employee or non-employee reach a mutual
understanding of the key terms and conditions of a stock-based
payment award.
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 any 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 for the period prior to
March 31, 2017 and no income tax expense was recorded for period
ended September 30, 2018 due to losses incurred.
Deferred
tax assets and liabilities are determined based on temporary
differences between the bases of certain assets and liabilities for
income tax and financial reporting purposes.
The
Company maintains a valuation allowance with respect to deferred
tax assets. The Company establishes a valuation allowance based
upon the potential likelihood of realizing the deferred tax asset
and taking into consideration the Company’s financial
position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carry-forward period under the
Federal tax laws. Changes in circumstances, such as the Company
generating taxable income, could cause a change in judgment about
the realizability of the related deferred tax asset. Any change in
the valuation allowance will be included in income in the year of
the change in estimates.
Recent Accounting Pronouncements
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers (“ASU
2014-09”) and ASC Subtopic 340-40, Other Assets and
Deferred Costs - Contracts with Customers (“ASC 340-40”), (collectively,
“Topic 606”).
On January 1, 2018, the Company adopted Topic 606 and, as it had no
prior revenue or contracts with customers, there was no transition
required nor any impact on prior results. ASU 2014-09 requires
entities to recognize revenue through the application of a
five-step model, which includes identification of the contract,
identification of the performance obligations, determination of the
transaction price, allocation of the transaction price to the
performance obligations and recognition of revenue as the entity
satisfies the performance obligations. See Note 2 for further
discussion.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which requires lessees to recognize right-of-use assets and
corresponding liabilities for all leases with an initial term in
excess of 12 months. This ASU is to be adopted using a modified
retrospective approach, including a number of practical expedients,
that requires leases to be measured and recognized under the new
guidance at the beginning of the earliest period presented. This
ASU is effective for the Company as of January 1, 2019. Early
adoption is permitted. The Company is currently evaluating the
effect this ASU will have on its financial statements and related
disclosures.
In July
2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260),
Distinguishing Liabilities from Equity (Topic 480), Derivatives and
Hedging (Topic 815). The amendments in Part I of this ASU change
the classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. When
determining whether certain financial instruments should be
classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing
whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for
equity-classified instruments. The amendments in Part I of this ASU
are effective for the Company as of January 1, 2019 with early
adoption permitted. The amendments in Part II of this
ASU replace the indefinite deferral of certain guidance in Topic
480 with a scope exception. The amendments in Part II of this ASU
do not require any transition guidance. The Company does not expect adoption of this ASU to
have any impact on its historical financial statements but is
permitted and intends to adopt retrospectively to January 1, 2018
for any equity securities with down round
features.
In June, 2018 the FASB issued ASU 2018-07 Improvements to
Nonemployee Share-Based Payment Accounting to expand the scope of
and update Topic 718 to include share-based payment transaction for
acquiring goods and services from nonemployees. ASU 2018-07
supersedes Subtopic 505-50, Equity—Equity-Based Payments to
Non-Employees. The amendment to Topic 718 is effective for fiscal
years beginning after December 15, 2018, including interim periods
within that fiscal year and early adoption is permitted, but no
earlier than adoption of Topic 606. The Company adopted ASU 2018-07
with respect to option grants made in May 2018.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value
Measurement (“Topic 820”): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement.
The ASU modifies the disclosure requirements in Topic 820, Fair
Value Measurement, to improve the effectiveness of fair value
measurement disclosures by removing or modifying certain disclosure
requirements and adding other requirements. This ASU is effective
for public companies for annual reporting periods and interim
periods within those annual periods beginning after December 15,
2019. The Company is currently evaluating the effect, if any, that
ASU 2018-13 will have on its financial statements.
Although
there are several other new accounting pronouncements issued or
proposed by the FASB, the Company does not believe any of these
accounting pronouncements has had or will have a material impact on
its financial position or operating results.
|
2.
|
REVENUE AND PRODUCT COSTS
|
The
Company had no historical revenue prior to the quarter ended
September 30, 2018 and accordingly all revenue will be reported in
accordance with Topic 606, which the Company adopted on January 1,
2018. There were no adjustments to prior period amounts nor changes
to stockholders’ equity (accumulated deficit) required upon
adoption.
During
the nine months ended September 30, 2018 the Company delivered
demonstration products to customers at no charge, incurring
$146,346 of product and shipping costs expensed as product
promotion costs. The Company enters into contracts that include
various combinations of products, accessories and services, such as
training, each of which are generally disti4nct and are accounted
for as separate performance obligations.
A
performance obligation is a promise in a contract to transfer a
distinct good or service to a customer, and is the unit of account
in Topic 606. For contracts with a
single performance obligation, the entire transaction price is
allocated to the single performance obligation. For
contracts with multiple performance obligations, the Company
allocates the contract transaction price to each performance
obligation using the Company’s estimate of the standalone
selling price (“SSP”) of each distinct good or
service in a contract. The Company
determines standalone selling prices based on the price at which
the performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, the
Company estimates the standalone selling price considering
available information such as market conditions and internally
approved pricing guidelines related to the performance
obligations.
Performance
obligations to deliver products and accessories are generally
satisfied at the point in time the Company ships the product, as
this is when the customer obtains control of the asset under our
standard terms and conditions. The Company has elected to recognize
shipping costs as an expense in cost of revenues when control has
transferred to the customer. The revenues and costs of training are
recognized when the training is completed, generally following
delivery of related products.
At
September 30, 2018 the Company had deferred revenue of $450 related
to training delivered in October for product delivered in September
2018.
Estimated
costs for the Company’s standard one-year warranty are
charged to cost of products sold when revenue is recorded for the
related product.
Inventory
is recorded at the lower of cost or net realizable value. The cost
of substantially all the Company’s inventory is determined by
the weighted average cost method. As of September 30, 2018 and
December 31, 2017, respectively, inventories consisted of the
following:
|
|
|
|
|
|
|
|
|
Finished
goods
|
$40,363
|
$5,308
|
|
Work
in process
|
2,603
|
5,484
|
|
Raw
materials
|
82,323
|
120,400
|
|
|
$125,289
|
$131,192
|
|
4.
|
PROPERTY AND EQUIPMENT, NET
|
As of
September 30, 2018 and December 31, 2017, respectively, property
and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
$13,980
|
$12,730
|
|
Tooling
|
22,683
|
18,165
|
|
Computer
equipment
|
6,398
|
4,151
|
|
Furniture
and fixtures
|
9,595
|
9,595
|
|
|
52,656
|
44,641
|
|
Accumulated
depreciation
|
(16,046)
|
(7,973)
|
|
|
$36,610
|
$36,668
|
Depreciation
expense was $8,073 and $4,511 for the nine months ended September
30, 2018 and 2017, respectively.
|
5.
|
INTANGIBLE ASSETS, NET
|
Intangible
assets at September 30, 2018 consisted of patents and trademark
costs of $48,226. Upon the Company’s first patent approval in
July 2018 the Company commenced capitalizing patent and trademark
costs which consist of legal and filing fees related to the
prosecution of patent filings. The costs related to issued patents
will be amortized using the straight-line method over the estimated
remaining lives of issued patents which is 20 years from the
initial filing. An impairment charge
is recognized if the carrying amount is not recoverable and the
carrying amount exceeds the fair value of the intangible assets as
determined by projected discounted net future cash flows. There was
no amortization expense for the period ended September 30,
2018.
In
January 2018, the Company financed $39,435 of insurance obligations
pursuant to a short-term note agreement, which note accrues
interest at a rate of 7.15% per annum, and which is payable in ten
monthly principal and interest payments of $4,074 due through
November 2018.
|
7.
|
DEFERRED AND ACCRUED COMPENSATION
|
From
March 2016 through February 2017, the Company accrued monthly
compensation for the services of two officers in the aggregate
amount of $7,000 per month payable to Syzygy Licensing, LLC
(“Syzygy”). In
March 2017 the Company accrued and deferred $6,000 compensation to
each of the two officers. The balance payable to Syzygy as of
September 30, 2018 was $84,000 and the accrued deferred
compensation aggregated $12,000. These balances accrue without
interest. No payment terms or schedule has been
established.
|
8.
|
STOCKHOLDERS’ EQUITY AND STOCK BASED
COMPENSATION
|
The
Company’s authorized capital consists of 150,000,000 shares
of common stock, par value $0.0001 per share, and 5,000,000 shares
of preferred stock, par value $0.0001 per share. To reflect the
recapitalization (see Note 1) historical shares of common stock and
additional paid-in capital were retroactively adjusted using the
exchange ratio of approximately 23,930.60 shares of common stock
for each member unit of Wrap LLC.
Effective
with the Merger, on March 31, 2017, the Company adopted and the
stockholders approved the 2017 Stock Incentive Plan (the
“Plan”)
authorizing 2,000,000 shares of Company common stock for issuance
as stock options and restricted stock units to employees, directors
or consultants. The Company generally recognizes stock compensation
expense on the grant date and over the period of vesting or period
that services will be provided.
In May
2018 the Company granted certain stock options under the Plan
exercisable for a total of 1,847,500 shares of common stock at an
exercise price of $1.50 per share. Subsequent to the quarter ended
September 30, 2018, the Company granted consultant options outside
of the Plan exercisable for 100,000 shares of common stock at an
exercise price of $3.00 per share with 50% vesting ratably over 18
months and the balance vesting based on performance.
The
following table summarizes stock option activity under the Plan for
the nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2018
|
-
|
-
|
-
|
$-
|
|
Granted
|
1,847,500
|
$1.50
|
5.00
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited,
cancelled, expired
|
-
|
-
|
-
|
-
|
|
Outstanding
September 30, 2018
|
1,847,500
|
$1.50
|
4.65
|
$4,434,000
|
|
Vested
and exercisable at September 30, 2018
|
225,000
|
$1.50
|
4.65
|
$540,000
|
The Company recorded stock-based compensation in its statements of
operations for the relevant periods as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
$125,467
|
$-
|
$251,345
|
$-
|
|
Research
and development
|
24,371
|
-
|
71,466
|
-
|
|
Total
stock-based expense
|
$149,838
|
$-
|
$322,811
|
$-
|
As of
September 30, 2018, total estimated compensation cost of stock
options granted but not yet vested was $696,933, which is expected
to be recognized over the weighted average period of 1.4
years.
The
Company uses the Black-Scholes option pricing model to determine
the fair value of the options granted. The following table
summarizes the assumptions used to compute the fair value of
options granted to employees and nonemployees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
stock price volatility
|
47%
|
|
Risk-free
interest rate
|
2.67%
|
|
Forfeiture
rate
|
0%
|
|
Expected
dividend yield
|
0%
|
|
Expected
life of options - years
|
2.75 - 5.00
|
|
Weighted-average
fair value of options granted
|
$0.55
|
Estimated
volatility is a measure of the amount by which the Company’s
stock price is expected to fluctuate each year during the expected
life of awards. The Company’s estimated volatility was based
on an average of the historical volatility of peer entities whose
stock prices were publicly available. The Company’s
calculation of estimated volatility is based on historical stock
prices of these peer entities over a period equal to the expected
life of the awards. The Company uses the historical volatility of
peer entities due to the lack of sufficient historical data of its
stock price, as it only recently commenced trading.
The
risk-free interest rate assumption is based upon observed interest
rates on zero coupon U.S. Treasury bonds whose maturity period is
appropriate for the term of the options. The dividend yield of zero
is based on the fact that the Company has never paid cash dividends
and has no present intention to pay cash dividends. The Company
calculates the expected life of the options using the Simplified
Method for the employee stock options as the Company does not have
sufficient historical data.
|
9.
|
COMMITMENTS AND CONTINGENCIES
|
Facility Lease
Commencing
December 1, 2016, Wrap LLC and then the Company have leased 1,890
square feet of improved office, assembly and warehouse space in Las
Vegas, Nevada. The term of the lease agreement is 37 months, with a
termination date of December 31, 2019. The gross monthly base rent
is currently $1,550, which will increase 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 nine-month period ended September 30, 2018 was
$13,590. The remaining future annual minimum lease obligations
under the foregoing facility lease are $3,175 and $19,051 for the
balance of 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
stockholders/officers Mr. Elwood Norris and Mr. James Barnes. The
agreement provides for royalty payments of 4% of revenue from
products employing the licensed ensnarement device technology up to
an aggregate of $1,000,000 in royalties or until September 30,
2026, whichever occurs earlier.
|
10.
|
RELATED PARTY TRANSACTIONS
|
Commencing
in October 2017 the Company began reimbursing Mr. Elwood Norris, an
officer and stockholder of the Company, $1,500 per month on a month
to month basis for laboratory facility costs, for an aggregate of
$13,500 during the nine months ended September 30,
2018.
See
Notes 1, 7, and 9 for information on related party transactions and
information.
On
October 30, 2018 the Company consummated the Offering, resulting in
the receipt of gross cash proceeds of $13,683,222 and net cash
proceeds of approximately $12,140,000 after deduction of
commissions and offering costs, from the sale of 4,561,074 Units
for $3.00 per Unit. Each Unit consists of one share of common stock
and one detachable two-year warrant to purchase one share of common
stock at an exercise price of $5.00 per share. The Company issued
4,561,074 shares of common stock and 4,561,074 detachable warrants.
The Company also issued placement agent warrants exercisable for
456,107 shares of common stock for two years at an exercise price
of $3.00 per share.
The
following table represents the unaudited pro forma Balance Sheet
data as of September 30, 2018 and has been prepared to reflect the
consummation of the Offering as of September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$1,365,495
|
$13,505,495
|
|
Total
assets
|
$1,595,786
|
$13,735,786
|
|
Total
stockholders' equity:
|
$1,350,322
|
$13,490,322
|
See
note 8 for additional subsequent event information.
PROSPECTUS
9,578,255 SHARES
COMMON STOCK
,
2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
The
following table sets forth an estimate of the fees and expenses
payable by us in connection with the issuance and distribution of
the securities being registered hereunder. All the amounts shown
are estimates, except for the SEC registration fees.
|
SEC
registration fee
|
|
$
|
4,661
|
|
|
Accounting
fees and expenses
|
|
$
|
2,000
|
|
|
Legal
fees and expenses
|
|
$
|
35,000
|
|
|
Printing
and miscellaneous fees and expenses
|
|
$
|
10,000
|
|
|
Total
|
|
$
|
51,661
|
|
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 stockholders 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
stockholders;
●
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 stockholders, (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
Set
forth below is information regarding all securities sold by us
within the last three years which were not registered under the
Securities Act. Also included is the consideration received by us
for such securities and information relating to the section of the
Securities Act, or rule of the SEC, under which exemption from
registration was claimed.
From
March to October 2016, we sold and issued an aggregate of
14,358,361 shares of Common Stock at a purchase price of $0.00836
per share to three of our officers/directors and two accredited
investors, resulting in gross proceeds of $120,000.
From
December 2016 to January 2017, we issued and sold an aggregate of
5,240,801 shares of Common Stock at a purchase price of $0.10477
per share to three of our officers/directors and five accredited
investors, resulting in gross proceeds of $547,500.
In March 2017, we sold and issued an aggregate of 400,838 shares of
Common Stock to Petro River Oil Corp. in exchange for 100% of the
equity interests in MegaWest Energy Montana Corp.
On July
14, 2017, we sold and issued an aggregate of 475,000 shares of
Common Stock at a purchase price of $0.1053 per share to an
accredited investor, resulting in gross proceeds of
$50,000.
On
October 30, 2018, we sold and issued to certain accredited
investors 4,561,074 Units for
$3.00 per Unit, with each Unit consisting of one share of our
Common Stock, and a two-year warrant to purchase one share of
Common Stock at an exercise price of $5.00 per share, resulting in
gross proceeds to the Company of $13,683,222. In addition, we
issued two-year warrants to purchase 456,107 shares of our Common
Stock at a price of $3.00 per share to our placement agents and
their designees as compensation for their services in connection
with the offering. Further, we agreed
to file a registration statement to register the shares of Common
Stock and shares of Common Stock issuable upon exercise of the
warrants purchased by the accredited investors in the
offering.
In
October 2018, the Company granted stock options outside of the 2017
Plan to certain officers and directors of the Company, which stock
options are exercisable for an aggregate of 100,000 shares of
Common Stock at a price of $3.00 per share.
We
believe that each of the offers, sales and issuances of securities
described in Item 15 were exempt from registration under the
Securities Act pursuant to Regulation D under the Securities Act or
pursuant to Section 4(a)(2) of the Securities Act regarding
transactions not involving a public offering. The recipients of
securities in each of these transactions represented their
intention to acquire 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 stock
certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with
us, to information about us.
Item 16. Exhibits and Financial Statement
Schedules
|
Exhibit
Number
|
Description
|
|
2.1
|
Stock
Purchase Agreement, dated March 22, 2017, by and between Wrap
Technologies, LLC, Petro River Oil Corp., and Megawest Energy
Montana Corp. Incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, filed on April 17,
2017.
|
|
2.2
|
Merger
Agreement between Wrap Technologies, LLC and Megawest Energy
Montana Corp., dated March 30, 2017. Incorporated by reference to
Exhibit 2.2 to the Registration Statement on Form S-1, filed on
April 17, 2017.
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant.
Incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1, filed on April 17, 2017.
|
|
3.2
|
Bylaws
of the Registrant. Incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1, filed on April 17,
2017.
|
|
4.1
|
Form of
Common Stock Certificate. Incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Registration Statement on Form S-1, filed
on May 30, 2017.
|
|
4.2
|
Form of
Lock-Up Agreement, dated November 20, 2017. Incorporated by
reference to Exhibit 99.1 to Form 8-K filed on November 22,
2017.
|
|
4.3
|
Form of
Investor Warrant, dated October 30, 2018. Incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K, filed on November
5, 2018.
|
|
4.4
|
Form of
Placement Agent Warrant, dated October 30, 2018. Incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-K, filed
on November 5, 2018.
|
|
5.1*
|
Opinion
of Disclosure Law Group, a Professional Corporation
|
|
10.1
|
Amended
and Restated Intellectual Property License Agreement, dated
September 30, 2016, by and between Wrap Technologies, LLC and
Syzygy Licensing LLC. Incorporated by reference to Exhibit 10.1 to
the Registration Statement on Form S-1, filed on April 17,
2017.
|
|
10.2
|
2017
Equity Compensation Plan. Incorporated by reference to Exhibit 10.2
to the Registration Statement on Form S-1, filed on April 17,
2017.
|
|
10.3
|
Form of Placement Agent Agreement, dated October 30, 2018.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed on November 5, 2018.
|
|
10.4
|
Form of Registration Rights Agreement, dated October 30, 2018.
Incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed on November 5, 2018.
|
|
14.1
|
Code
of
Ethics of the Registrant Applicable to Directors, Officers And
Employees. Incorporated by reference to Exhibit 14.1 to the
Quarterly Report on Form 10-Q, filed on November 9,
2018.
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23.1*
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Consent
of Disclosure Law Group, a Professional Corporation
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23.2
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Consent
of Independent Registered Public Accounting Firm - Rosenberg Rich Baker
Berman, P.A, filed herewith
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24
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Power
of Attorney (located on signature page)
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*
To be filed by amendment.
Item 17. Undertakings
(a) 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, as amended;
(ii) 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 SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
20% change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) 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; provided,
however, that paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or
furnished to the SEC by the registrant pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement, or is contained in a form
of prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, as amended, 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.
(3) 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.
(4) That,
for the purpose of determining liability under the Securities Act
of 1933, as amended, to any purchaser:
(i)
If the Registrant is relying on Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the
registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on Rule
430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required
by Section 10(a) of the Securities Act of 1933, as amended, shall
be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided
in Rule 430B, for liability purposes of the issuer and any person
that is at that date an underwriter, such date shall be deemed to
be a new effective date of the registration statement relating to
the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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 effective date, 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 effective date;
or
(ii) If
the registrant is subject to Rule 430C, 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.
(5) That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933, as amended, to any purchaser in the
initial distribution of the securities: 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:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to
Rule 424;
(ii) 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;
(iii) 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
(iv) Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 SEC 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.
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 the City of Las
Vegas, State of Nevada, on November 28, 2018.
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Wrap Technologies, Inc.
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By:
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/s/ David
Norris
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David Norris
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President
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POWER OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James A. Barnes. as his or
her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his or her name,
place, and stead, in any and all capacities, to (i) act on,
sign and file with the Securities and Exchange Commission any and
all amendments (including post-effective amendments) to this
registration statement together with all schedules and exhibits
thereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents
as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus
included in this registration statement or any such amendment or
any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and (iv) take
any and all actions which may be necessary or appropriate to be
done, as fully for all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in
the capacities and on the dates indicated.
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Name
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Position
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Date
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/s/ David Norris
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President and Director
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November 28, 2018
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David Norris
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(Principal Executive Officer)
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/s/ James A. Barnes
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Chief Financial Officer, Secretary,
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November 28, 2018
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James A. Barnes
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Treasurer
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(Principal Accounting Officer)
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/s/ Scot Cohen
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Executive Chairman of Board
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November 28, 2018
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Scot Cohen
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/s/Michael Parris
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Director
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November 28, 2018
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Michael Parris
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/s/Patrick Kinsella
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Director
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November 28, 2018
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Patrick Kinsella
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/s/Wayne R. Walker
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Director
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November 28, 2018
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Wayne R. Walker
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