S-1 1 wraps1_nov2018.htm REGISTRATION STATEMENT S-1
 

 
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)
 
Delaware
3480
98-0551945
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Number)
(I.R.S. Employer
Identification Number)
 
 
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):
 
Large accelerated filer
 
[  ]
  
Accelerated filer
 
[  ] 
 
 
 
 
 
 
Non-accelerated filer
 
[  ]  
  
Smaller reporting company
 
[X] 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
[X] 
 
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. [  ]
 
 
 

 
 
 
CALCULATION OF REGISTRATION FEE
 
 
 
 
 
 
 
 
 
 
Title of Each Class of Securities to be Registered
 
Amount to be Registered (1)
 
 
Proposed
Maximum
Aggregate
Offering Price (2)
 
 
Amount of
Registration
Fee (3)
 
Common Stock, par value $0.0001 per share
 
 
9,578,255
(3) 
 
$
38,456,693
 
 
$
4,660.96
 
 
 
(1)
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.
 
 
(2)
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.
 
 
(3)
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.
 
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.
 
 
 
 
 
 
 
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.
 
 
 
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED NOVEMBER 28, 2018
  
 
 
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:
 
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”);
 
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
 
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.
TABLE OF CONTENTS
 
 
 
 
ABOUT THIS PROSPECTUS
 
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.
 
 
 
 
 
 
PROSPECTUS SUMMARY
 
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.  
 
 
 
 
 
 
 
 
 
 
 
 
 
THE OFFERING
 
 
 
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.   
 
 
 
 
 
 
 
Common Stock being offered by selling stockholders
 
Up to 9,578,255 shares.
 
 
 
 
 
 
 
Common Stock outstanding as of November 27, 2018
 
27,364,607 shares.
 
 
 
 
 
 
 
Use of Proceeds
 
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.
 
 
 
 
 
 
 
Plan of Distribution
 
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.” 
 
 
 
 
 
 
 
Risk Factors
 
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.
 
 
 
 
 
 
 
Trading Symbol
 
WRTC
 
 
 
 
 
 
 
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:
 
 


     
 
 
5,017,181 shares of our Common Stock issuable upon the exercise of warrants issued in connection with the Private Placement;
 
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
 
●  
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.  

 
 
 
 
 
RISK FACTORS
 
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:
 
failure of product sales to meet planned projections;
 
working capital requirements to support business growth;
 
our ability to control spending; and
 
acceptance of our product in planned markets.
 
In the event we are required to raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of our 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:
 
successfully commercialize the BolaWrap™ 100, and develop additional future products for commercialization;
 
develop, obtain and maintain required regulatory approvals for commercialization of products we produce;
 
establish an intellectual property portfolio for the BolaWrap™ 100 and other future products;
 
establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;
 
gain market acceptance for the BolaWrap™ 100 and/or other future products; and
 
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.
 
 
-10-
 
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.
 
 
 
 
-11-
 
 
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.  
 
 
 
 
 
-12-
 
USE OF PROCEEDS
 
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.
 
 
 
 
 
 
-13-
 
SELLING STOCKHOLDERS
 
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.
 
 
-14-
 
 
 
 
   
   
 
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
  
 
Number (4)
 
 
Percent*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
  - 
  ** 
 
 
-15-
 
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%
 
 
 
-16-
 
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)
  - 
  ** 
 
 
-17-
 
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)
  - 
  ** 
 
 
-18-
 
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.
 
 
-19-
 
(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.
 
 
 
-20-
 
(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.
 
 
-21-
 
(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.
 
 
-22-
 
(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.
 
 
-23-
 
(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.
 
 
 
 
-24-
 
 
PLAN OF DISTRIBUTION
 
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).
 
 
 
 
-25-
 
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
 
High
 
 
Low
 
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.
 
 
 
-26-
 
 
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.
 
 
 
-27-
 
 
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.
 
 
 
-28-
 
BUSINESS
 
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:
 
verbal commands;
 
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.
 
 
 
-29-
 
 
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.
 
 
 
-30-
 
 
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.
 
 
 
-31-
 
 
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.
 
 
 
-32-
 
 
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.
 
 
 
-33-
 
 
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.
 
 
 
-34-
 
 
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.
 
 
 
-35-
 
 
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.
 
 
 
-36-
 
 
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. 
 
 
-37-
 
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.
 
 
 
-38-
 
 
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.
 
 
 
-39-
 
 
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.
 
 
 
-40-
 
 
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.
 
 
 
-41-
 
 
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;