Delaware
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98-0551945
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(State or other jurisdiction of
incorporation or
organization)
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(I.R.S.
Employer
Identification Number)
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Large
Accelerated Filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ] (Do not check if a smaller reporting
company)
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Smaller
reporting company [X]
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Emerging
growth company [ ]
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Page
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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1
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2
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3
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4
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5
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Item 2. |
9
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Item 3. |
13
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Item 4. |
14
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PART II. OTHER INFORMATION |
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Item 1. |
14
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Item 1A. |
14
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23
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23
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23
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23
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23
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24
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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Wrap Technologies, Inc.
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Condensed Balance Sheets
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September 30,
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December
31,
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2017
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2016
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(unaudited)
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ASSETS
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Current assets:
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Cash
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$23,708
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$255,072
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Inventories,
net
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96,667
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-
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Prepaid
expenses and other current assets
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45,268
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28,299
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Total current assets
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165,643
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283,371
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Property and equipment, net
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37,310
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8,226
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Other assets, net
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1,512
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1,512
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Total assets
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$204,465
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$293,109
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts
payable
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$64,935
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$12,065
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Deferred
and accrued officer compensation
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96,000
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70,000
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Accrued
liabilities
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23,915
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2,900
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Total current liabilities
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184,850
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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
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-
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-
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Common
stock - 150,000,000 authorized; par value $0.0001 per share;
20,475,000 and 17,445,408 shares issued and outstanding,
respectively
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2,047
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1,745
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Additional
paid-in capital
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715,453
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440,755
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Common
stock subscribed
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60,000
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-
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Accumulated
deficit
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(757,885)
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(234,356)
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Total stockholders' equity
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19,615
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208,144
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Total liabilities and stockholders' equity
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$204,465
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$293,109
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Wrap Technologies, Inc.
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Condensed Statements of Operations
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(unaudited)
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Period From
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Nine
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Inception
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Months
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March 2,
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For the Three Months
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Ended
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2016 to
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Ended September 30,
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September 30,
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September 30,
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2017
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2016
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2017
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2016
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Operating expenses:
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Selling,
general and administrative
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$105,210
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$1,738
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$270,854
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$6,554
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Research
and development
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46,334
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66,550
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252,675
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122,747
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Total
operating expenses
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151,544
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68,288
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523,529
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129,301
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Loss
from operations
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(151,544)
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(68,288)
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(523,529)
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(129,301)
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Net loss
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$(151,544)
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$(68,288)
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$(523,529)
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$(129,301)
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Net
loss per basic common share
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$(0.01)
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$(0.01)
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$(0.03)
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$(0.03)
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Weighted
average common shares used to compute net loss per basic common
share
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20,402,717
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4,942,190
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19,850,234
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4,402,328
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Wrap Technologies, Inc.
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Condensed Statements of Stockholders' Equity
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(unaudited)
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Additional
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Common
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Total
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Common Stock
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Paid-In
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Stock
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Accumulated
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Stockholders'
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Shares
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Amount
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Capital
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Subscribed
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Deficit
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Equity
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Balance at Inception (March 2, 2016)
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-
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$-
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$-
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$-
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$-
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$-
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Sale
of common stock in March 2016 at $0.00836 per share
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4,786,121
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479
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39,521
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-
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-
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40,000
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Sale
of common stock in September 2016 at $0.00836 per
share
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4,786,120
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479
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39,521
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-
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-
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40,000
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Sale
of common stock in October 2016 at $0.00836 per share
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4,786,120
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479
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39,521
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-
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-
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40,000
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Sale
of common stock in December 2016 at $0.10447 per share
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3,087,047
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308
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322,192
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-
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-
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322,500
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Net
loss for the period
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-
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-
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-
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(234,356)
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(234,356)
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Balance at December 31, 2016
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17,445,408
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$1,745
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$440,755
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$-
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$(234,356)
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$208,144
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Sale
of common stock in January 2017 at $0.10447 per share
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2,153,754
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215
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224,785
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-
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225,000
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Shares
issued to acquire merger subsidiary to effect reverse
recapitalization
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400,838
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40
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(40)
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-
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-
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-
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Sale
of common stock in July 2017 at $0.10447 per share
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475,000
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47
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49,953
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-
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-
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50,000
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Common
stock subscribed
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-
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-
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-
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60,000
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-
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60,000
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Net
loss for the period
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-
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-
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(523,529)
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(523,529)
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Balance at September 30, 2017
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20,475,000
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$2,047
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$715,453
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$60,000
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$(757,885)
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$19,615
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Wrap Technologies, Inc.
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Condensed Statements of Cash Flows
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(unaudited)
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Period From
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Nine
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Inception
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Months
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March 2,
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Ended
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2016 to
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September 30,
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September 30,
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2017
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2016
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Cash Flows From Operating Activities:
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Net
loss
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$(523,529)
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$(129,301)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
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4,511
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875
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Changes
in assets and liabilities:
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Inventories
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(96,667)
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-
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Prepaid
expenses and other current assets
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(16,969)
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-
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Accounts
payable
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52,870
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21,982
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Deferred
and accrued officer compensation
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26,000
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49,000
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Accrued
liabilities
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21,015
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-
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Net
cash used in operating activities
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(532,769)
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(57,444)
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Cash Flows From Investing Activities:
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Capital
expenditures for property and equipment
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(33,595)
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(5,248)
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Net
cash used in investing activities
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(33,595)
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(5,248)
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Cash Flows From Financing Activities:
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Proceeds
from common stock subscribed
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60,000
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-
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Sale
of common stock
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275,000
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80,000
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Net
cash provided by financing activities
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335,000
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80,000
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Net increase (decrease) in cash and cash equivalents
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(231,364)
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17,308
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Cash, beginning of period
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255,072
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-
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Cash, end of period
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$23,708
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$17,308
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September 30,
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December 31,
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2017
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2016
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Raw
materials
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$86,667
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$-
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Other
components
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10,000
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-
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$96,667
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$-
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September 30,
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December 31,
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2017
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2016
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Laboratory
equipment
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$11,222
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$7,342
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Tooling
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18,165
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-
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Computer
equipment
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4,151
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-
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Furniture
and fixtures
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9,595
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2,196
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43,133
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9,538
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Accumulated
depreciation
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(5,823)
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(1,312)
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$37,310
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$8,226
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●
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the timing of
the availability of our new product line for sale to
customers;
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decisions
regarding staffing, development, production, marketing and other
functions;
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the timing and
extent of any market acceptance of our
products;
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the costs,
timing and outcome of planned production and required customer and
regulatory compliance of our new products;
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the costs of
preparing, filing and prosecuting our patent applications and
defending any future intellectual property-related
claims;
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the costs and
timing of additional product development;
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the costs,
timing and outcome of any future warranty claims or litigation
against us associated with any of our products;
and
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the timing and
costs associated with any new financing.
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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.
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successfully commercialize BolaWrap™ 100, and develop 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 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 BolaWrap™ 100 and/or other future
products; and
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obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of BolaWrap™ 100
and/or other future products.
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cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
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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
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redesign products or services that incorporate the disputed
technology.
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our ability to develop and supply product to
customers;
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market acceptance of, and changes in demand for, our
products;
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gains or losses of significant customers, distributors or strategic
relationships;
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unpredictable volume and timing of customer orders;
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the availability, pricing and timeliness of delivery of components
for our products;
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fluctuations in the availability of manufacturing capacity or
manufacturing yields and related manufacturing costs;
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timing of new technological advances, product announcements or
introductions by us and by our competitors;
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unpredictable warranty costs associated with our
product;
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budgetary cycles and order delays by customers or production delays
by us or our suppliers;
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regulatory changes affecting the marketability of our
products;
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general economic conditions that could affect the timing of
customer orders and capital spending and result in order
cancellations or rescheduling; and
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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.
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the timing and extent of our research and development
efforts;
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investments and costs of maintaining or protecting our intellectual
property;
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the extent of marketing and sales efforts to promote our products
and technologies; and
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the timing of personnel and consultant hiring.
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the prices at which our common stock will trade; or
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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.
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general economic, market and political conditions;
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quarterly variations in results of operations or results of
operations that are below public market analyst and investor
expectations;
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changes in financial estimates and recommendations by securities
analysts;
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operating and market price performance of other companies that
investors may deem comparable;
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press releases or publicity relating to us or our competitors or
relating to trends in our markets; and
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sales of common stock or other securities by insiders.
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Exhibit 31.1
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Exhibit 31.2
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Exhibit 32.1
–
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Extensible Business Reporting Language (XBRL)
Exhibits*
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101.INS
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XBRL Instance Document*
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101.SCH
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XBRL Taxonomy Extension Schema Document*
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document*
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document*
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101.LAB
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XBRL Taxonomy Extension Labels Linkbase Document*
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
Document*
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WRAP
TECHNOLOGIES, INC.
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By:
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/s/ JAMES A
BARNES
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James
A Barnes
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President
and Chief Financial Officer
(Principal
Accounting Officer)
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Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 06, 2017 |
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Document and Entity Information | ||
Entity Registrant Name | WRAP TECHNOLOGIES, INC. | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Entity Central Index Key | 0001702924 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 20,885,867 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | No | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 |
Condensed Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, authorized | 150,000,000 | 150,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, issued | 20,475,000 | 17,445,408 |
Common stock, outstanding | 20,475,000 | 17,445,408 |
Condensed Statements of Operations - USD ($) |
3 Months Ended | 7 Months Ended | 9 Months Ended | |
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2016 |
Sep. 30, 2017 |
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Operating expenses: | ||||
Selling, general and administrative | $ 105,210 | $ 1,738 | $ 6,554 | $ 270,854 |
Research and development | 46,334 | 66,550 | 122,747 | 252,675 |
Total operating expenses | 151,544 | 68,288 | 129,301 | 523,529 |
Loss from operations | (151,544) | (68,288) | (129,301) | (523,529) |
Net loss | $ (151,544) | $ (68,288) | $ (129,301) | $ (523,529) |
Net loss per basic common share | $ (0.01) | $ (0.01) | $ (0.03) | $ (0.03) |
Weighted average common shares used to compute net loss per basic common share | 20,402,717 | 4,942,190 | 4,402,328 | 19,850,234 |
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended |
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Sep. 30, 2017 | |
Organization And Summary Of Significant Accounting Policies | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Business Description Wrap Technologies, Inc. (the “Company”) is a developer of security products designed for use by law enforcement and security personnel. The Company plans to introduce its first product, the BolaWrap™ 100 remote restraint device, during late 2017.
The Company resulted from the March 31, 2017 merger of Wrap Technologies, LLC (“Wrap LLC”) with and into its wholly-owned subsidiary MegaWest Energy Montana Corp. (“MegaWest”). Wrap LLC ceased separate existence with MegaWest continuing as the surviving entity. MegaWest changed its name to Wrap Technologies, Inc. and amended and restated new articles of incorporation authorizing 150,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. All outstanding 835.75 membership units of Wrap LLC were exchanged for 20,000,000 shares of common stock of the Company.
Wrap LLC acquired privately held MegaWest from Petro River Oil Corp. (“Petro River”) on March 22, 2017 through the issuance of 16.75 membership units representing a 2% ownership interest in Wrap LLC. Petro River is owned 11% by Scot Cohen its Executive Chairman who also was a Manager and 26% owner of Wrap LLC and a director and officer of the Company. MegaWest had no assets or liabilities at the date of acquisition nor at December 31, 2016 and is not considered an operating business.
Wrap LLC’s acquisition of MegaWest and its subsequent merger with and into the MegaWest wholly-owned subsidiary and exchange of 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 Company’s unaudited interim financial statements included herein have been prepared in accordance with Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed balance sheet at December 31, 2016 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, 2016. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions (e.g., recognition and measurement of contingencies and accrued costs) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Going Concern Since inception in March 2016, the Company has generated significant losses from operations and anticipates that it will continue to generate significant losses from operations for the foreseeable future, and that in order to continue as a going concern, the business will require substantial additional investment that has not yet been secured. The Company’s loss from operations was $234,356 for the period ended December 31, 2016 and $523,529 for the nine months ended September 30, 2017. The net cash used from operations and investing was $187,428 for the period ended December 31, 2016 and $566,364 for the nine months ended September 30, 2017. On September 30, 2017 the Company had $23,708 in cash. As of September 30, 2017, the Company’s obligations included $184,850 of current liabilities and lease commitments of approximately $39,200.
Management has concluded that due to the conditions described above, there is substantial doubt about the entity’s ability to continue as a going concern through November 7, 2018.
Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and believes that the current cash balance plus $556,300 of gross proceeds received in October 2017 from sale of stock will provide sufficient capital to continue operations through approximately March 2018. While the Company plans to raise capital to address its capital deficiencies and meet its operating cash requirements, there is no assurance that its plans will be successful. Management cannot assure you that financing will be available on favorable terms or at all. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to the Company’s existing shareholders. Furthermore, despite management’s optimism regarding the Company’s technology and planned products, even in the event that the Company is adequately funded, there is no guarantee that any products or product candidates will perform as hoped or that such products can be successfully commercialized.
Net Loss per Share Basic loss per common share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. There were no common Stock equivalents outstanding during the periods presented; accordingly, the Company’s basic and diluted net loss per share are the same.
Income Taxes Until its reverse recapitalization on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. Instead, its losses were included in the income tax returns of the member partners. Accordingly, no provision or liability for federal or state income taxes has been included in these financial statements for the period prior to March 31, 2017 and no income tax expense was recorded for the period ended September 30, 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 The Company has reviewed recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected to cause a material impact on its financial condition or the results of operations.
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2. INVENTORIES |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
2. INVENTORIES | 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:
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3. PROPERTY AND EQUIPMENT, NET |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property And Equipment Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | Property and equipment consisted of the following:
Depreciation expense was $4,511 and $875 for the nine months ended September 30, 2017 and the period from March 2, 2016 to September 30, 2016, respectively.
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4. DEFERRED AND ACCRUED COMPENSATION |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Deferred And Accrued Compensation | |
DEFERRED AND ACCRUED COMPENSATION |
Effective March 2016 the Company began accruing monthly compensation for the services of two officers in the aggregate amount of $7,000 per month payable to Syzygy Licensing, LLC (“Syzygy”). 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, 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 |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Stockholders Equity And Share-based Compensation | |
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 shareholders 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 September 30, 2017, there had been no option grants or restricted stock awards made and none were outstanding. |
6. COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Facility Lease Commencing December 1, 2016 the Company leased 1,890 square feet of improved office, assembly and warehouse space in Las Vegas, Nevada for a period of 37 months terminating December 31, 2019. The gross monthly base rent is $1,512 increasing approximately 3.5% per year, subject to certain future adjustments. The Company may receive an aggregate of three months of base rent concessions over the term of the lease subject to timely rent payments.
Rent expense for the period ended September 30, 2017 was $13,590. The remaining future annual minimum lease obligations under the foregoing facility lease are $3,062, $17,123 and $19,051 for the balance of 2017, 2018 and 2019, respectively.
Related Party Technology License Agreement The Company is obligated to pay royalties and pay development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated as of September 30, 2016 with Syzygy, a company owned and controlled by stockholder/officers Mr. Norris and Mr. Barnes. The agreement provides for royalties of 4% of revenues from products employing the licensed ensnarement device technology up to an aggregate of $1,000,000 of royalties or until September 30, 2026, whichever is earlier.
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7. RELATED PARTY TRANSACTIONS |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | See Notes 1, 4, 6 and 8 for information on related party transactions and information. |
8. SUBSEQUENT EVENT |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Subsequent Event | |
SUBSEQUENT EVENT | On August 10, 2017, our Registration Statement on Form S-1 (File No. 333-217340) was declared effective by the SEC for our initial self-underwritten public offering of up to 2,666,666 shares of our common stock, par value $0.0001, at a public offering price of $1.50 per share (the “Offering”). As of the date of this report 410,867 shares have been sold pursuant to the Offering, resulting in gross proceeds of $616,300 to the Company, including $60,000 subscribed by existing stockholders (including two officers/directors) as of September 30, 2017. There is no assurance, however, that the Company will complete any future sales or receive additional proceeds from the Offering. |
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Organization And Summary Of Significant Accounting Policies Policies | |
Organization and Business Description | Wrap Technologies, Inc. (the “Company”) is a developer of security products designed for use by law enforcement and security personnel. The Company plans to introduce its first product, the BolaWrap™ 100 remote restraint device, during late 2017.
The Company resulted from the March 31, 2017 merger of Wrap Technologies, LLC (“Wrap LLC”) with and into its wholly-owned subsidiary MegaWest Energy Montana Corp. (“MegaWest”). Wrap LLC ceased separate existence with MegaWest continuing as the surviving entity. MegaWest changed its name to Wrap Technologies, Inc. and amended and restated new articles of incorporation authorizing 150,000,000 shares of Common Stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. All outstanding 835.75 membership units of Wrap LLC were exchanged for 20,000,000 shares of Common Stock of the Company.
Wrap LLC acquired privately held MegaWest from Petro River Oil Corp. (“Petro River”) on March 22, 2017 through the issuance of 16.75 membership units representing a 2% ownership interest in Wrap LLC. Petro River is owned 11% by Scot Cohen its Executive Chairman who also was a Manager and 26% owner of Wrap LLC and a director and officer of the Company. MegaWest had no assets or liabilities at the date of acquisition nor at December 31, 2016 and is not considered an operating business.
Wrap LLC’s acquisition of MegaWest and its subsequent merger with and into the MegaWest wholly-owned subsidiary and exchange of 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.
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Basis of Presentation and Use of Estimates | The Company’s unaudited interim financial statements included herein have been prepared in accordance with Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed balance sheet at December 31, 2016 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, 2016. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions (e.g., recognition and measurement of contingencies and accrued costs) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
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Going Concern | Since inception in March 2016, the Company has generated significant losses from operations and anticipates that it will continue to generate significant losses from operations for the foreseeable future, and that in order to continue as a going concern, the business will require substantial additional investment that has not yet been secured. The Company’s loss from operations was $234,356 for the period ended December 31, 2016 and $523,529 for the nine months ended September 30, 2017. The net cash used from operations and investing was $187,428 for the period ended December 31, 2016 and $566,364 for the nine months ended September 30, 2017. On September 30, 2017 the Company had $23,708 in cash. As of September 30, 2017, the Company’s obligations included $184,850 of current liabilities and lease commitments of approximately $39,200.
Management has concluded that due to the conditions described above, there is substantial doubt about the entity’s ability to continue as a going concern through November 7, 2018.
Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and believes that the current cash balance plus $556,300 of gross proceeds received in October 2017 from sale of stock will provide sufficient capital to continue operations through approximately March 2018. While the Company plans to raise capital to address its capital deficiencies and meet its operating cash requirements, there is no assurance that its plans will be successful. Management cannot assure you that financing will be available on favorable terms or at all. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to the Company’s existing shareholders. Furthermore, despite management’s optimism regarding the Company’s technology and planned products, even in the event that the Company is adequately funded, there is no guarantee that any products or product candidates will perform as hoped or that such products can be successfully commercialized.
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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.
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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 September 30, 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.
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Recent Accounting Pronouncements | The Company has reviewed recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected to cause a material impact on its financial condition or the results of operations.
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2. INVENTORIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventories Tables | ||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
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3. PROPERTY AND EQUIPMENT, NET (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property And Equipment Net Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 7 Months Ended | 9 Months Ended | 10 Months Ended | ||
---|---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Dec. 31, 2016 |
Mar. 01, 2016 |
|
Organization And Summary Of Significant Accounting Policies Details Narrative | ||||||
Loss from operations | $ (151,544) | $ (68,288) | $ (129,301) | $ (523,529) | ||
Net cash used in operating and investing activities | $ (187,428) | |||||
Cash | 23,708 | $ 17,308 | $ 17,308 | 23,708 | 255,072 | $ 0 |
Current liabilities | 184,850 | 184,850 | $ 84,965 | |||
Lease commitments | $ 43,800 | $ 43,800 |
2. INVENTORIES (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 86,667 | $ 0 |
Other components | 10,000 | 0 |
Inventory | $ 96,667 | $ 0 |
3. PROPERTY AND EQUIPMENT, NET (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Property and equipment, gross | $ 43,133 | $ 9,538 |
Accumulated depreciation | (5,823) | (1,312) |
Property and equipment, net | 37,310 | 8,226 |
Laboratory equipment | ||
Property and equipment, gross | 11,222 | 7,342 |
Tooling | ||
Property and equipment, gross | 18,165 | 0 |
Computer equipment | ||
Property and equipment, gross | 4,151 | 0 |
Furniture and fixtures | ||
Property and equipment, gross | $ 9,595 | $ 2,196 |
3. PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
7 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2017 |
|
Property And Equipment Net Details Narrative | ||
Depreciation expense | $ 875 | $ 4,511 |
5. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details Narrative) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Stockholders Equity And Share-based Compensation Details Narrative | ||
Common stock, authorized | 150,000,000 | 150,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
6. COMMITMENTS AND CONTINGENCIES (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
| |
Commitments And Contingencies Details Narrative | |
Rent expense | $ 13,590 |
Future annual minimum lease obligations | |
2017 | 3,062 |
2018 | 17,123 |
2019 | $ 19,051 |
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