Wrap Technologies, Inc 10-K for FY2019

Wrap Technologies, Inc. (WRAP)

10-K 2020-03-10 For: 2019-12-31

Added on April 08, 2026

About this 10-K

Wrap Technologies, Inc filed this 10-K on March 10, 2020, covering the fiscal year ended December 31, 2019 (FY2019).

Headline figures

Fiscal year ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $696.79K; up 2909.9% from $23.15K a year earlier
Net loss: $8.33M; compared with a net loss of $3.34M a year earlier

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Delaware	98-0551945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Large Accelerated Filer [ ]	Accelerated filer [ ]
Non-accelerated filer [X]	Smaller reporting company [X] Emerging growth company [X]

		Page

	PART I

ITEM 1.	Business	1
ITEM1A.	Risk Factors	11
ITEM 1B.	Unresolved Staff Comments	20
ITEM 2.	Properties	20
ITEM 3.	Legal Proceedings	20
ITEM 4.	Mine Safety Disclosures	20

	PART II

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
ITEM 6.	Selected Financial Data	22
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	29
ITEM 8.	Financial Statements and Supplementary Data	29
ITEM 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	29
ITEM 9A.	Controls and Procedures	29
ITEM 9B.	Other Information	29
	PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	30
ITEM 11.	Executive Compensation	30
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	30
ITEM 14.	Principal Accounting Fees and Services	30
		30
	PART IV

ITEM 15.	Exhibits, Financial Statement Schedules	31
	Signatures	32
	Financial Statements	F-1

			Number of securities
			remaining
	Number of securities to be	Weighted-average exercise	available for future issuance under
	issued upon exercise of	price of outstanding	equity compensation plans
	outstanding	options,	(excluding securities
	options,warrants and rights	warrants andrights	reflected in column (a))
Plan Category	(a)	(b)	(c)

Equity compensation plans approved by security holders	3,136,837	$3.34	924,413
Equity compensation plans not approved by security holders	100,000	$3.00	-
Total	3,236,837	$3.33	924,413

	Year Ended December 31,		Change
	2019	2018	$	%
Revenues:
Product sales	$656,071	$18,830	$637,241
Other revenue	40,719	4,320	36,399
Total revenues	696,790	23,150	673,640
Cost of revenues	420,016	18,611	401,405
Gross profit	276,774	4,539	272,235

Operating expenses:
Selling, general and administrative	6,653,465	2,607,397	4,046,068	155%
Research and development	2,236,985	734,776	1,502,209	204%
Total operating expenses	8,890,450	3,342,173	5,548,277	166%
Loss from operations	$(8,613,676)	$(3,337,634)	$(5,276,042)	158%

(a) List of documents filed as a part of this report:
(1) Index to Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets as of December 31, 2019 and 2018		F-3
Statements of Operations for the Years Ended December 31, 2019 and 2018		F-4
Statements of Stockholders’ Equity for the Years Ended December 31, 2019 and 2018		F-5
Statements of Cash Flows for the Years Ended December 31, 2019 and 2018		F-6
Notes to Financial Statements		F-7

(2) Financial Statement Schedules
All schedules have been omitted because the information is not applicable, is not material or because the information required is included in the financial statements or the notes thereto.
(3) Index to Exhibits
The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Form 10-K.

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 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.
4.3	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.
4.4	Form of Investor Warrant, dated June 18, 2019. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed on June 18, 2019.
4.5	Form of Offering Agent Warrant, dated June 18, 2019. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, filed on June 18, 2019.
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.
10.5	Supplemental Engagement Letter by and between Wrap Technologies, Inc. and Katalyst Securities LLC, dated June 7, 2019. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on June 13, 2019.
10.6	Engagement Letter by and between Wrap Technologies, Inc., Dinosaur Financial Group, LLC and Katalyst Securities LLC, dated June 12 , 2019. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed on June 18, 2019.
10.7	Amended 2017 Equity Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8, filed on June 24, 2019.
10.8	Industrial Real Estate Lease, dated May 10, 2019, by and between Wrap Technologies, Inc. and JM Sky Harbor Properties LLC. Incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed on June 6, 2019.
14.1	Code of Ethics of the Registrant Applicable to Directors, Officers and Employees.*
23.1	Consent of Independent Registered Public Accounting Firm - Rosenberg Rich Baker Berman, P.A. *
31.1	Certification of David Norris pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
31.2	Certification of James A. Barnes pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
32.1	Certifications pursuant to 18 U.S.C. Section 1350. This certification is being furnished solely to accompany this Annual Report on Form 10-K and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.*

	Extensible Business Reporting Language (XBRL) Exhibits*
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Labels Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

	Wrap Technologies, Inc.

	By:	/s/ DAVID NORRIS
		Chief Executive Officer

Name	Position	Date

/s/ DAVID NORRIS	Chief Executive Officer and Director	March 10, 2020
David Norris	(Principal Executive Officer)

/s/ JAMES A. BARNES	Chief Financial Officer, Secretary and	March 10, 2020
James A. Barnes	Treasurer
	(Principal Accounting Officer)

/s/ SCOT COHEN	Executive Chair of Board	March 10, 2020
Scot Cohen

/s/PATRICK KINSELLA	Director	March 10, 2020
Patrick Kinsella
/s/MICHAEL PARRIS	Director	March 10, 2020
Michael Parris

Audited Financial Statements:		Page

Report of Independent Registered Public Accounting Firm		F-2

Balance Sheets as of December 31, 2019 and 2018		F-3

Statements of Operations for the Years Ended December 31, 2019 and 2018		F-4

Statements of Stockholders’ Equity for Years Ended December 31, 2019 and 2018		F-5

Statements of Cash Flows for the Years Ended December 31, 2019 and 2018		F-6

Notes to Financial Statements		F-7

/s/ Rosenberg Rich Baker Berman, P.A.

We have served as the Company’s auditor since 2016.

Somerset, New Jersey
March 10, 2020

	December 31,
	2019	2018
ASSETS
Current assets:
Cash and cash equivalents	$16,983,864	$12,358,896
Accounts receivable	195,347	4,396
Inventories, net	2,244,541	158,267
Prepaid expenses and other current assets	250,947	114,863
Total current assets	19,674,699	12,636,422
Property and equipment, net	242,876	30,373
Operating lease right-of-use asset, net	260,931	-
Intangible assets, net	230,283	118,715
Other assets, net	12,681	1,512
Total assets	$20,421,470	$12,787,022

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$406,967	$232,915
Accrued liabilities	194,294	68,453
Customer deposits	343,724	-
Deferred revenue	2,684	-
Operating lease liability- short term	128,131	-
Deferred and accrued officer compensation	-	96,000
Total current liabilities	1,075,800	397,368

Operating Lease Liability - Long Term	150,018	-
Total liabilities	1,225,818	397,368

Commitments and contingencies (Note 11)

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; 29,829,916 and 27,364,607 shares issued and outstanding each period, respectively	2,983	2,736
Additional paid-in capital	31,922,493	16,791,254
Accumulated deficit	(12,729,824)	(4,404,336)
Total stockholders' equity	19,195,652	12,389,654
Total liabilities and stockholders' equity	$20,421,470	$12,787,022

			Additional		Total
	Common Stock		Paid-In	Accumulated	Stockholders'
	Shares	Amount	Capital	Deficit	Equity
Balance at December 31, 2017	22,803,533	$2,280	$4,137,936	$(1,067,901)	$3,072,315
Sale of common stock and warrants at $3.00 per share and placement agent warrants in private offering, net of issuance costs	4,561,074	456	12,140,330		12,140,786
Share-based compensation expense			512,988		512,988
Net loss for the period	-	-	-	(3,336,435)	(3,336,435)
Balance at December 31, 2018	27,364,607	$2,736	$16,791,254	$(4,404,336)	$12,389,654
Sale of common stock and warrants at $6.50 per share and placement agent warrants in public offering, net of issuance costs	1,923,076	192	11,351,022		11,351,214
Common shares issued upon exercise of warrants at $3.00 per share	127,649	13	382,934		382,947
Common shares issued upon exercise of warrants at $5.00 per share, net of issuance costs	345,834	35	1,700,469		1,700,504
Common shares issued upon exercise of stock options	38,750	4	58,121		58,125
Share-based compensation expense			1,536,096		1,536,096
Common shares issued for services	30,000	3	102,597		102,600
Net loss for the period	-	-	-	(8,325,488)	(8,325,488)
Balance at December 31, 2019	29,829,916	$2,983	$31,922,493	$(12,729,824)	$19,195,652

Operating lease liability- short term	$128,131
Operating lease liability - long term	150,018
Total Operating Lease Liability	$278,149

/s/WAYNE R. WALKER		Director		March 10, 2020
Wayne R. Walker

	December 31,
	2019	2018
Finished goods	$653,323	$82,313
Work in process	413	12,695
Raw materials	1,590,805	63,259
	$2,244,541	$158,267

	December 31,
	2019	2018
Laboratory equipment	$44,454	$13,980
Tooling	59,004	22,683
Computer equipment	83,368	12,608
Furniture, fixtures and improvements	128,782	9,595
	315,608	58,866
Accumulated depreciation	(72,732)	(28,493)
	$242,876	$30,373

	December 31,
	2019	2018

Patents	$176,425	$111,160
Trademarks	57,919	8,910
	234,344	120,070
Accumulated amortization	(4,061)	(1,355)
	$230,283	$118,715

2020	$143,574
2021	101,406
2022	57,328
Total future minimum lease payments	302,308
Less imputed interest	(24,159)
Total	$278,149

	Number	Average Purchase Price Per Share
Stock purchase warrants issued October 30, 2018	5,017,181	$4.82
Stock purchase warrants exercised	-
Shares purchasable under outstanding warrants at December 31, 2018	5,017,181	$4.82
Stock purchase warrants issued	2,076,922	$6.62
Stock purchase warrants exercised	(473,483)	$4.46
Shares purchasable under outstanding warrants at December 31, 2019	6,620,620	$5.41

	Number of	Exercise Price
Description	Common Shares	Per Share	Expiration Date
Purchase Warrants (1)	4,215,240	$5.00	October 30, 2020
Agent Warrants	328,458	$3.00	October 30, 2020
Purchase Warrants	1,923,076	$6.50	June 18, 2021
Agent Warrants	153,846	$8.125	June 18, 2021

		Weighted Average
	Options on		Remaining	Aggregate
	Common	Exercise	Contractual	Intrinsic
	Shares	Price	Term	Value
Outstanding January 1, 2018	-	-
Granted	2,067,500	$1.68
Exercised	-	-
Forfeited, cancelled, expired	-	-
Outstanding December 31, 2018	2,067,500	$1.68	4.44
Granted	1,000,000	5.41	5.00
Exercised	(38,750)	1.50	-
Forfeited, cancelled, expired	(100,000)	1.50	-
Outstanding December 31, 2019	2,928,750	$2.96	3.71	$10,031,388
Vested and exercisable at December 31, 2019	1,573,853	$1.64	3.43	$7,479,791

		Average	Weighted		Weighted
		Remaining	Average		Average
Range of	Number	Contractual	Exercise	Number	Exercise
Exercise Prices	Outstanding	Life	Price	Exercisable	Price
$1.50	1,708,750	3.4	$1.50	1,448,853	$1.50
$3.00 - $3.61	220,000	4.07	$3.23	125,000	3.83
$5.41	1,000,000	4.22	$5.41	-	-

		Weighted Average
	Service-Based	Grant Date	Vesting
	RSU's	Fair Value	Period
Unvested at January 1, 2019	-
Granted	308,087	$6.77	3 Years
Vested	-
Forfeited and cancelled	-
Unvested at December 31, 2019	308,087

/s/ Rosenberg Rich Baker Berman, P.A. Rosenberg Rich Baker Berman, P.A.

Somerset, New Jersey
March 10, 2020