Delaware
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98-0551945
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification Number)
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Large Accelerated Filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [X]
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Smaller reporting company [X]
Emerging growth company [X]
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Page
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PART I
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ITEM 1.
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Business
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ITEM1A.
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Risk Factors
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ITEM 1B.
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Unresolved Staff Comments
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ITEM 2.
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Properties
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ITEM 3.
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Legal Proceedings
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ITEM 4.
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Mine Safety Disclosures
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PART II
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ITEM 5.
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Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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ITEM 6.
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Selected Financial Data
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ITEM 7.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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ITEM 7A.
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Quantitative and Qualitative Disclosures about Market
Risk
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ITEM 8.
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Financial Statements and Supplementary Data
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ITEM 9.
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Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
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ITEM 9A.
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Controls and Procedures
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ITEM 9B.
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Other Information
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PART III
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ITEM 10.
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Directors, Executive Officers and Corporate Governance
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ITEM 11.
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Executive Compensation
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ITEM 12.
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Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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ITEM 13.
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Certain Relationships and Related Transactions and Director
Independence
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ITEM 14.
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Principal Accounting Fees and Services
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PART IV
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ITEM 15.
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Exhibits, Financial Statement Schedules
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Signatures
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Financial Statements
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F-1
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Date
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Milestone
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March 2, 2016
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Organized as Wrap Technologies, LLC, a Delaware limited liability
company on by our founders Elwood G. Norris, Scot Cohen and James
A. Barnes.
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December 2016
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Demonstrated our first prototype BolaWrap device.
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March 31, 2017
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Reorganized as a corporation and renamed Wrap Technologies,
Inc.
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November 2017
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Began demonstrations and trial field deployments of our first
production devices to a small number of U.S. law enforcement
agencies.
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December 2017
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Wrap became a public company by completing 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, par
value $0.0001 per share (“Common Stock”),
at a public offering price of $1.50 per share.
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July 31, 2018
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First U.S. patent granted on the BolaWrap deployment
system.
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October 2018
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Wrap demonstrated our new BolaWrap green line laser to the first
law enforcement agency.
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November 2018
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First international sale of BolaWrap.
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December 2018
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Common Stock uplisted to trade on the Nasdaq Capital Market under
symbol “WRTC”.
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May 2019
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Commenced distributing production green line laser equipped
BolaWrap 100 devices and associated cartridges.
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September 2019
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Relocated corporate headquarters from Las Vegas, Nevada to a new
sales, manufacturing, training and product development facility in
Tempe, Arizona.
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December 1, 2020
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Changed stock symbol to “WRAP” to align with our global
branding strategy.
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December 14, 2020
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Acquired NSENA, a developer and provider of a law
enforcement training platform employing immersive computer graphics
virtual reality with proprietary software, hardware and content. We
have rebranded the business as Wrap Reality and believe our content
library is one of the largest targeting law enforcement currently
consisting of 47 training modules.
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●
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Changes in tariff regulations;
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●
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Political instability, war, terrorism and other political
risks;
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●
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Foreign currency exchange rate fluctuations;
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●
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Establishing and maintaining relationships with local distributors,
agents and dealers;
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●
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Lengthy shipping times and accounts receivable payment
cycles;
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●
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Import and export control and licensing requirements;
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●
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Compliance with a variety of U.S. laws, including the Foreign
Corrupt Practices Act, by us or key subcontractors;
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●
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Compliance with a variety of foreign laws and regulations,
including unexpected changes in taxation and regulatory
requirements;
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●
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Greater difficulty in safeguarding intellectual property abroad
than in the U.S.; and
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●
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Difficulty in staffing and managing geographically diverse
operations.
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●
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Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
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●
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Obtain a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable
terms, if at all; and
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●
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Redesign products or services that incorporate the disputed
technology.
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Number of securities
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remaining available for
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Number of securities to be
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Weighted-average exercise
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future issuance under
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issued upon exercise of
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price of outstanding
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equity compensation plans
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outstanding options,
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options, warrants and
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(excluding securities
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Plan
Category
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warrants and rights
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rights
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reflected in column (a))
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(a)
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(b)
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(c)
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Equity
compensation plans approved by security holders
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4,359,592
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$4.58
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1,150,055
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Equity
compensation plans not approved by security holders
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-
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-
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-
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Total
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4,359,592
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$4.58
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1,150,055
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Year Ended December 31,
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Change
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||
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2020
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2019
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$
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%
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Revenues:
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|
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Product
sales
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$3,868,384
|
$656,071
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$3,212,313
|
490%
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Other
revenue
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75,673
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40,719
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34,954
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86%
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Total
revenues
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3,944,057
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696,790
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3,247,267
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466%
|
Cost
of revenues
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2,601,323
|
420,016
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2,181,307
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519%
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Gross profit
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1,342,734
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276,774
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1,065,960
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385%
|
|
|
|
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Operating expenses:
|
|
|
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Selling,
general and administrative
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11,630,644
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6,653,465
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4,977,179
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75%
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Research
and development
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2,788,887
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2,236,985
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551,902
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25%
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Total
operating expenses
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14,419,531
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8,890,450
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5,529,081
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62%
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Loss
from operations
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$(13,076,797)
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$(8,613,676)
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$(4,463,121)
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52%
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(a) List of documents filed as a part of this
report:
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(1) Index to
Financial Statements
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Report
of Independent Registered Public Accounting Firm
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F-2
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Balance
Sheets as of December 31, 2020 and 2019
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F-3
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Statements
of Operations for the Years Ended December 31, 2020 and
2019
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F-4
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Statements
of Stockholders’ Equity for the Years Ended December 31, 2020
and 2019
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F-5
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Statements
of Cash Flows for the Years Ended December 31, 2020 and
2019
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F-6
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Notes
to Financial Statements
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F-7
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(2) Financial
Statement Schedules
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All
schedules have been omitted because the information is not
applicable, is not material or because the information required is
included in the financial statements or the notes
thereto.
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(3) Index to
Exhibits
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The
exhibits listed on the accompanying index to exhibits immediately
following the financial statements are filed as part of, or hereby
incorporated by reference into, this Form 10-K.
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Exhibit Number
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Description
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Stock
Purchase Agreement, dated March 22, 2017, by and between Wrap
Technologies, LLC, Petro River Oil Corp., and Megawest Energy
Montana Corp. Incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, filed on April 17,
2017.
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Merger
Agreement between Wrap Technologies, LLC and Megawest Energy
Montana Corp., dated March 30, 2017. Incorporated by reference to
Exhibit 2.2 to the Registration Statement on Form S-1, filed on
April 17, 2017.
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Amended
and Restated Certificate of Incorporation of the Registrant.
Incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1, filed on April 17, 2017.
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Bylaws
of the Registrant. Incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1, filed on April 17,
2017.
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Form of
Common Stock Certificate. Incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Registration Statement on Form S-1, filed
on May 30, 2017.
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Form of
Investor Warrant, dated October 30, 2018. Incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K, filed on November
5, 2018.
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Form of
Placement Agent Warrant, dated October 30, 2018. Incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-K, filed
on November 5, 2018.
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Form of Investor Warrant, dated June 18, 2019. Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K, filed on June 18,
2019.
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Form of
Offering Agent Warrant, dated June 18, 2019. Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K, filed on June 18,
2019.
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Form of Warrant Agreement. Incorporated by reference to Exhibit 4.2
to the Current Report on Form 8-K, filed on June 2,
2020.
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Amended
and Restated Intellectual Property License Agreement, dated
September 30, 2016, by and between Wrap Technologies, LLC and
Syzygy Licensing LLC. Incorporated by reference to Exhibit 10.1 to
the Registration Statement on Form S-1, filed on April 17,
2017.
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2017
Equity Compensation Plan. Incorporated by reference to Exhibit 10.2
to the Registration Statement on Form S-1, filed on April 17,
2017.
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Form of Placement Agent Agreement, dated October 30, 2018.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed on November 5, 2018.
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Form of Registration Rights Agreement, dated October 30, 2018.
Incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed on November 5, 2018.
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Supplemental
Engagement Letter by and between Wrap Technologies, Inc. and
Katalyst Securities LLC, dated June 7, 2019. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed on June 13,
2019.
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Engagement Letter by and between Wrap Technologies, Inc., Dinosaur
Financial Group, LLC and Katalyst Securities LLC, dated June 12 ,
2019. Incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K, filed on June
18, 2019.
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Amended 2017 Equity Compensation Plan. Incorporated by
reference to Exhibit 10.1 to the Registration Statement on Form
S-8, filed on June 24, 2019.
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Industrial Real Estate Lease, dated May 10, 2019, by and between
Wrap Technologies, Inc. and JM Sky Harbor Properties LLC.
Incorporated by reference from Exhibit 10.1 to the Current Report
on Form 8-K, filed on June 6, 2019.
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Promissory
Note by and between Wrap Technologies, Inc. and Bank of America,
N.A. dated May 1, 2020. Incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K, filed on May 5,
2020.
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Consulting
Agreement by and between the Company and V3, effective April 1,
2020. Incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form S-8, filed on May 29, 2020.
|
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Amendment No. 2 to the Wrap Technologies, Inc. 2017 Equity
Compensation Plan. Incorporated by reference to Exhibit 10.1
to the Registration Statement on Form S-8, filed on June 17,
2020.
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Form of Subscription Agreement. Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, filed on June 2,
2020.
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Employment
Agreement by and between Wrap Technologies, Inc., and Marc T.
Thomas, dated July 30, 2020. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed on July 31,
2020.
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At-Will
Employment, Confidential Information, Non-Compete/Non-Solicitation,
Invention Assignment, and Arbitration Agreement, dated September 9,
2020 between the Company and Thomas Smith. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed on September 14,
2020.
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Asset
Purchase Agreement between NSENA Inc. and Wrap Reality, Inc. dated
as of December 14, 2020. In accordance with the instructions to
Item 601(b)(2) of Regulation S-K, the schedules and exhibits to
the Asset Purchase Agreement are not filed
herewith. The Asset Purchase Agreement identifies
such schedules and exhibits, including the general nature of their
content. The Company undertakes to provide such
schedules and exhibits to the SEC upon request. Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K, filed on September 14,
2020.
|
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Form of
At-Will Employment, Confidential Information, Non-Compete/
Non-Solicitation, Invention Assignment, and Arbitration Agreement
between the Key Employees and the Company dated December 14, 2020.
Incorporated by reference to Exhibit
2.2 to the Current Report on Form 8-K, filed on September 14,
2020.
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Code of Ethics of
the Registrant Applicable to Directors, Officers and
Employees.*
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Subsidiaries of Wrap
Technologies, Inc.*
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Consent of
Independent Registered Public Accounting Firm - Rosenberg Rich Baker Berman, P.A.
*
|
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Certification
pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934 *
|
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Certification
pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934 *
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Certifications
pursuant to 18 U.S.C. Section 1350. This certification is being
furnished solely to accompany this Annual Report on Form 10-K and
is not being filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and is not to be incorporated by
reference into any filing of the Company.*
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Extensible Business Reporting Language (XBRL)
Exhibits*
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase.
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101.DEF
|
XBRL Taxonomy Extension Definition Linkbase.
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101.LAB
|
XBRL Taxonomy Extension Labels Linkbase.
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101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase.
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Page
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Audited Consolidated Financial Statements:
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Report of Independent Registered Public Accounting
Firm
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F-2
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Consolidated Balance Sheets as of December 31, 2020 and
2019
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F-3
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|
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Consolidated Statements of Operations for the Years Ended December
31, 2020 and 2019
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F-4
|
|
|
|
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Consolidated Statements of Stockholders’ Equity for Years
Ended December 31, 2020 and 2019
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F-5
|
|
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|
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Consolidated Statements of Cash Flows for the Years Ended December
31, 2020 and 2019
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F-6
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Notes to Consolidated Financial Statements
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F-7
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/s/
Rosenberg Rich Baker Berman P.A.
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We have
served as the Company’s auditor since 2016.
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Somerset,
New Jersey
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March
4, 2021
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December
31,
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2020
|
2019
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$16,646,811
|
$16,983,864
|
Short-term
investments
|
24,994,360
|
-
|
Accounts
receivable, net
|
1,870,934
|
195,347
|
Inventories,
net
|
2,655,390
|
2,244,541
|
Prepaid expenses
and other current assets
|
759,445
|
250,947
|
Total
current assets
|
46,926,940
|
19,674,699
|
Property
and equipment, net
|
357,287
|
242,876
|
Operating
lease right-of-use asset, net
|
139,088
|
260,931
|
Intangible
assets, net
|
1,396,484
|
230,283
|
Other
assets
|
12,681
|
12,681
|
Total
assets
|
$48,832,480
|
$20,421,470
|
|
|
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LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$1,232,349
|
$406,967
|
Accrued
liabilities
|
721,075
|
194,294
|
Customer
deposits
|
2,095
|
343,724
|
Deferred
revenue
|
16,015
|
2,684
|
Operating lease
liability - short term
|
94,011
|
128,131
|
Business
acquisition liability - short term
|
275,000
|
-
|
Total
current liabilities
|
2,340,545
|
1,075,800
|
|
|
|
Long-term
liabilities:
|
|
|
Operating Lease
Liability - long term
|
56,006
|
150,018
|
Business
acquisition liability - long term
|
22,500
|
-
|
Total
long-term liabilities
|
78,506
|
150,018
|
Total
liabilities
|
2,419,051
|
1,225,818
|
|
|
|
Commitments
and contingencies (Note 13)
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
Preferred
stock - 5,000,000 authorized; par value $0.0001 per share; none
issued and outstanding
|
-
|
-
|
Common stock -
150,000,000 authorized; par value $0.0001 per share; 37,554,162 and
29,829,916 shares issued and outstanding each period,
respectively
|
3,756
|
2,983
|
Additional
paid-in capital
|
71,704,857
|
31,922,493
|
Accumulated
deficit
|
(25,310,033)
|
(12,729,824)
|
Accumulated
other comprehensive income
|
14,849
|
-
|
Total
stockholders' equity
|
46,413,429
|
19,195,652
|
Total
liabilities and stockholders' equity
|
$48,832,480
|
$20,421,470
|
|
Year Ended
December 31,
|
|
|
2020
|
2019
|
Revenues:
|
|
|
Product
sales
|
$3,868,384
|
$656,071
|
Other
revenue
|
75,673
|
40,719
|
Total
revenues
|
3,944,057
|
696,790
|
Cost of
revenues
|
2,601,323
|
420,016
|
Gross
profit
|
1,342,734
|
276,774
|
|
|
|
Operating
expenses:
|
|
|
Selling,
general and administrative
|
11,630,644
|
6,653,465
|
Research
and development
|
2,788,887
|
2,236,985
|
Total operating
expenses
|
14,419,531
|
8,890,450
|
Loss from
operations
|
(13,076,797)
|
(8,613,676)
|
|
|
|
Other
income (expense):
|
|
|
Interest
income
|
83,272
|
291,494
|
Debt
forgiveness income
|
416,683
|
-
|
Other
|
(3,367)
|
(3,306)
|
|
496,588
|
288,188
|
Net
loss
|
$(12,580,209)
|
$(8,325,488)
|
|
|
|
Net loss per basic
and diluted common share
|
$(0.37)
|
$(0.29)
|
Weighted average
common shares used to compute net loss per basic and diluted common
share
|
33,846,338
|
28,652,625
|
|
|
|
Comprehensive
loss:
|
|
|
Net
loss
|
$(12,580,209)
|
$(8,325,488)
|
Net
unrealized gain on short-term investments
|
14,849
|
-
|
Comprehensive
loss
|
$(12,565,360)
|
$(8,325,488)
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Additional
|
|
Other
|
Total
|
|
Common
Stock
|
|
Paid-In
|
Accumulated
|
Comprehensive
|
Stockholders'
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Equity
|
Balance
at December 31, 2018
|
27,364,607
|
$2,736
|
$16,791,254
|
$(4,404,336)
|
$-
|
$12,389,654
|
Sale of
Common Stock and warrants at $6.50 per share and placement agent
warrants in public offering, net of issuance costs
|
1,923,076
|
192
|
11,351,022
|
-
|
-
|
11,351,214
|
Common shares
issued upon exercise of warrants at $3.00 per share
|
127,649
|
13
|
382,934
|
-
|
-
|
382,947
|
Common shares
issued upon exercise of warrants at $5.00 per share
|
345,834
|
35
|
1,700,469
|
-
|
-
|
1,700,504
|
Common shares
issued upon exercise of stock options
|
38,750
|
4
|
58,121
|
-
|
-
|
58,125
|
Share-based
compensation expense
|
|
|
1,536,096
|
-
|
-
|
1,536,096
|
Common shares
issued for services
|
30,000
|
3
|
102,597
|
-
|
-
|
102,600
|
Net loss for
the period
|
-
|
-
|
-
|
(8,325,488)
|
-
|
(8,325,488)
|
Balance
at December 31, 2019
|
29,829,916
|
$2,983
|
$31,922,493
|
$(12,729,824)
|
$-
|
$19,195,652
|
Sale of
Common Stock and warrants at $6.00 per share in public offering,
net of issuance costs
|
2,066,667
|
207
|
11,666,999
|
-
|
-
|
11,667,206
|
Common shares
issued upon exercise of warrants at $3.00 per share, net of
issuance costs
|
328,458
|
33
|
960,993
|
-
|
-
|
961,026
|
Common shares
issued upon exercise of warrants at $5.00 per share, net of
issuance costs
|
3,890,839
|
389
|
18,718,605
|
-
|
-
|
18,718,994
|
Common shares
issued upon exercise of warrants at $6.00 per share, net of
issuance costs
|
675,000
|
68
|
3,847,432
|
-
|
-
|
3,847,500
|
Common shares
issued upon exercise of warrants at $6.50 per share, net of
issuance costs
|
261,679
|
26
|
1,646,292
|
-
|
-
|
1,646,318
|
Common shares
issued upon exercise of stock options
|
371,000
|
37
|
705,313
|
-
|
-
|
705,350
|
Common shares
issued upon vesting of restricted stock units
|
130,603
|
13
|
(13)
|
-
|
-
|
-
|
Share-based
compensation expense
|
-
|
-
|
2,236,743
|
-
|
-
|
2,236,743
|
Net
unrealized gain on short-term investments
|
-
|
-
|
-
|
-
|
14,849
|
14,849
|
Net loss for
the period
|
-
|
-
|
-
|
(12,580,209)
|
-
|
(12,580,209)
|
Balance
at December 31, 2020
|
37,554,162
|
$3,756
|
$71,704,857
|
$(25,310,033)
|
$14,849
|
$46,413,429
|
|
Year Ended
December 31,
|
|
|
2020
|
2019
|
Cash
Flows From Operating Activities:
|
|
|
Net
loss
|
$(12,580,209)
|
$(8,325,488)
|
Adjustments to
reconcile net loss to net cash
|
|
|
used
in operating activities:
|
|
|
Depreciation
and amortization
|
163,262
|
46,945
|
Warranty
provision
|
30,364
|
13,495
|
Inventory
obsolescence
|
(68,108)
|
(193,506)
|
Non-cash
lease expense
|
121,843
|
80,069
|
Share-based
compensation
|
2,236,743
|
1,536,096
|
Debt
forgiveness income
|
(416,683)
|
-
|
Non-cash
interest expense
|
2,321
|
-
|
Common
shares issued for services
|
-
|
102,600
|
Provision
for doubtful accounts
|
10,140
|
-
|
Changes
in assets and liabilities:
|
|
|
Accounts
receivable
|
(1,685,727)
|
(190,951)
|
Inventories
|
(342,741)
|
(1,892,768)
|
Prepaid
expenses and other current assets
|
(508,498)
|
(136,084)
|
Accounts
payable
|
825,382
|
174,052
|
Operating
lease liability
|
(128,132)
|
(62,851)
|
Customer
deposits
|
(341,629)
|
343,724
|
Accrued
liabilities and other
|
492,564
|
112,346
|
Deferred
compensation
|
-
|
(96,000)
|
Warranty
settlement
|
3,853
|
-
|
Deferred
revenue
|
(1,669)
|
2,684
|
Net cash used in
operating activities
|
(12,186,924)
|
(8,485,637)
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
Purchase of
short-term investments
|
(34,979,511)
|
-
|
Proceeds from
maturities of short-term investments
|
10,000,000
|
-
|
Capital
expenditures for property and equipment
|
(248,897)
|
(256,742)
|
Investment in
patents and trademarks
|
(128,914)
|
(114,274)
|
Purchase of
intangible assets
|
(543,563)
|
-
|
Business
acquisition
|
(210,000)
|
-
|
Long-term
deposits
|
-
|
(11,169)
|
Net cash used in
investing activities
|
(26,110,885)
|
(382,185)
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
Sale of common
stock and warrants
|
12,400,002
|
12,499,994
|
Offering costs paid
on sale of common stock and warrants
|
(732,796)
|
(1,148,780)
|
Proceeds from
exercise of warrants
|
26,190,483
|
2,112,117
|
Offering costs paid
on exercise of warrants
|
(1,016,645)
|
(28,666)
|
Proceeds from
exercise of stock options
|
705,350
|
58,125
|
Proceeds from bank
note
|
414,362
|
-
|
Net cash provided
by financing activities
|
37,960,756
|
13,492,790
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
(337,053)
|
4,624,968
|
Cash
and cash equivalents, beginning of period
|
16,983,864
|
12,358,896
|
Cash
and cash equivalents, end of period
|
$16,646,811
|
$16,983,864
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing
|
|
|
and
Financing Activities:
|
|
|
Business
acquisition liability
|
$297,500
|
$-
|
Business
acquisition cost in deferred revenue
|
$15,000
|
$-
|
Change in
unrealized gain on short-term investments
|
$14,849
|
$-
|
Right-of-use assets
and liabilities recorded during period
|
$-
|
$341,000
|
Issuance costs
relating to warrants issued to public offering selling
agent
|
$-
|
$205,894
|
Equipment
|
$10,250
|
Software
|
460,250
|
Customer
contracts
|
40,000
|
Tradenames
|
2,000
|
Noncompete
agreements
|
10,000
|
Deferred
revenue
|
(15,000)
|
Total
consideration
|
$507,500
|
Description
|
Useful life in years
|
Fair Value
|
Software
|
5
|
$460,250
|
Customer
contracts
|
1
|
40,000
|
Tradenames
|
1
|
2,000
|
Noncompete
agreements
|
2
|
10,000
|
Total
acquired intangible assets
|
|
$512,250
|
|
As of December
31, 2020
|
|||
|
Adjusted
|
Unrealized
|
Unrealized
|
Market
|
|
Cost
|
Gains
|
Losses
|
Value
|
Level
1:
|
|
|
|
|
Money Market
Funds
|
$6,034,757
|
$-
|
$-
|
$6,034,757
|
U.S. Treasury
securities considered cash equivalents
|
9,997,812
|
-
|
-
|
9,997,812
|
U.S. Treasury
securities in short-term investments
|
24,979,511
|
14,849
|
|
24,994,360
|
Total Financial
Assets
|
$41,012,080
|
$14,849
|
$-
|
$41,026,929
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
Finished
goods
|
$1,248,893
|
$653,323
|
Work in
process
|
64,451
|
413
|
Raw
materials
|
1,342,046
|
1,590,805
|
Inventories,
net
|
$2,655,390
|
$2,244,541
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
Production and lab
equipment
|
$147,781
|
$44,454
|
Tooling
|
80,936
|
59,004
|
Computer
equipment
|
180,573
|
83,368
|
Furniture, fixtures
and improvements
|
165,465
|
128,782
|
|
574,755
|
315,608
|
Accumulated
depreciation
|
(217,468)
|
(72,732)
|
Property and
equipment, net
|
$357,287
|
$242,876
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
Amortizable
intangible assets:
|
|
|
Patents
|
$279,294
|
$176,425
|
Trademarks
|
83,964
|
57,919
|
Purchased
software
|
662,250
|
-
|
Other
|
50,000
|
-
|
|
1,075,508
|
234,344
|
Accumulated
amortization
|
(22,587)
|
(4,061)
|
Total
amortizable
|
1,052,921
|
230,283
|
Indefinite life
assets (non-amortizable)
|
343,563
|
-
|
Total intangible
assets-net
|
$1,396,484
|
$230,283
|
2021
|
$186,266
|
2022
|
150,766
|
2023
|
145,766
|
2024
|
145,766
|
2025
|
145,766
|
Thereafter
|
278,591
|
Total estimated
amortization expense
|
$1,052,921
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
Patent and legal
costs
|
$64,800
|
$9,851
|
Accrued
compensation
|
562,792
|
144,193
|
Warranty
costs
|
48,140
|
13,923
|
Consulting
costs
|
2,083
|
7,500
|
Taxes and
other
|
43,260
|
18,827
|
Accrued
liabilities
|
$721,075
|
$194,294
|
Operating lease
liability- short term
|
$94,011
|
Operating lease
liability - long term
|
56,006
|
Total Operating
Lease Liability
|
$150,017
|
2021
|
101,406
|
2022
|
57,328
|
Total future
minimum lease payments
|
158,734
|
Less imputed
interest
|
(8,717)
|
Total
|
$150,017
|
|
Number
|
Average
Purchase
Price Per
Share
|
Shares purchasable
under outstanding warrants at December 31, 2018
|
5,017,181
|
$4.82
|
Stock purchase
warrants issued
|
2,076,922
|
$6.62
|
Stock purchase
warrants exercised
|
(473,483)
|
$4.46
|
Shares purchasable
under outstanding warrants at December 31, 2019
|
6,620,620
|
$5.41
|
Stock purchase
warrants issued
|
2,066,667
|
$6.00
|
Stock purchase
warrants exercised
|
(5,155,976)
|
$5.08
|
Stock purchase
warrants cancelled
|
(324,401)
|
$5.00
|
Shares purchasable
under outstanding warrants at December 31, 2020
|
3,206,910
|
$6.36
|
|
Number of
|
Exercise Price
|
|
Description
|
Common Shares
|
Per Share
|
Expiration Date
|
Purchase
Warrants
|
1,661,397
|
$6.50
|
June
18, 2021
|
Agent
Warrants
|
153,846
|
$8.125
|
June
18, 2021
|
Purchase
Warrants
|
1,391,667
|
$6.00
|
June
1, 2022
|
|
3,206,910
|
|
|
|
|
Weighted
Average
|
|
|
|
Options
on
|
|
Remaining
|
Aggregate
|
|
Common
|
Exercise
|
Contractual
|
Intrinsic
|
|
Shares
|
Price
|
Term
|
Value
|
Outstanding
December 31, 2018
|
2,067,500
|
$1.68
|
4.44
|
|
Granted
|
1,000,000
|
$5.41
|
-
|
|
Exercised
|
(38,750)
|
$1.50
|
-
|
|
Forfeited,
cancelled, expired
|
(100,000)
|
$1.50
|
-
|
|
Outstanding
December 31, 2019
|
2,928,750
|
$2.96
|
3.71
|
|
Granted
|
1,423,836
|
$6.66
|
-
|
|
Exercised
|
(371,000)
|
$1.90
|
-
|
|
Forfeited,
cancelled, expired
|
(50,000)
|
$3.00
|
-
|
|
Outstanding
December 31, 2020
|
3,931,586
|
$4.41
|
4.89
|
$5,176,337
|
Vested and
exercisable at December 31, 2020
|
2,091,084
|
$2.68
|
2.60
|
$4,965,155
|
|
For the Year
Ended
|
|
|
December
31,
|
|
|
2020
|
2019
|
Expected stock
price volatility
|
47%
|
49%
|
Risk-free interest
rate
|
0.38%
|
2.41%
|
Forfeiture
rate
|
0%
|
0%
|
Expected dividend
yield
|
0%
|
0%
|
Expected life of
options - years
|
5.64
|
3.50
|
Weighted-average
fair value of options granted
|
$2.90
|
$2.06
|
|
|
Weighted
|
|
|
|
|
|
Average
|
Weighted
|
|
Weighted
|
|
|
Remaining
|
Average
|
|
Average
|
Range
of
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
Exercise
Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Exercisable
|
Price
|
$1.50
|
1,422,750
|
2.39
|
$1.50
|
1,422,750
|
$1.50
|
$3.15 - $3.61
|
85,000
|
2.86
|
$3.75
|
85,000
|
$3.75
|
$4.26 - $6.58
|
2,073,836
|
5.89
|
$5.29
|
583,334
|
$5.41
|
$11.22
|
350,000
|
9.58
|
$11.22
|
-
|
-
|
|
|
Weighted
Average
|
Weighted
Average
|
|
Service-Based
|
Grant
Date
|
Vesting
|
|
RSU's
|
Fair
Value
|
Period
|
Unvested at
December 31, 2018
|
-
|
-
|
|
Granted
- service based
|
308,087
|
$6.77
|
3.00
Years
|
Unvested at
December 31, 2019
|
308,087
|
$6.77
|
|
Granted
- service based
|
310,874
|
$6.02
|
3.02
Years
|
Granted
- performance based
|
35,211
|
$4.26
|
|
Vested
|
(144,687)
|
$5.17
|
|
Forfeited
and cancelled
|
(81,479)
|
$6.47
|
|
Unvested at
December 31, 2020
|
428,006
|
$6.13
|
2.27
Years
|
|
For the Year
Ended
|
|
|
December
31,
|
|
|
2020
|
2019
|
Selling, general
and administrative
|
$1,956,818
|
$1,410,095
|
Research and
development
|
279,925
|
126,001
|
Total share-based
expense
|
$2,236,743
|
$1,536,096
|
|
Year Ended
December 31,
|
|
|
2020
|
2019
|
Current
tax benefit
|
$-
|
$-
|
Deferred
tax benefit
|
3,158,000
|
1,800,000
|
Change
in valuation allowance
|
(3,158,000)
|
(1,800,000)
|
Income tax benefit
(provision)
|
$-
|
$-
|
|
Year Ended
December 31,
|
|
|
2020
|
2019
|
Income
taxes benefit computed at federal statutory rate
|
$2,642,000
|
$1,748,000
|
State
income taxes, net of federal effect
|
216,000
|
114,000
|
Permanent
differences and other
|
300,000
|
(62,000)
|
Change
in valuation allowance
|
(3,158,000)
|
(1,800,000)
|
Income tax benefit
(provision)
|
$-
|
$-
|
|
December
31,
|
|
|
2020
|
2019
|
Deferred tax
assets:
|
|
|
Net operating
losses
|
$5,444,000
|
$2,430,000
|
Research tax
credits
|
45,000
|
26,000
|
Stock
compensation
|
542,000
|
239,000
|
Accruals and
other
|
169,000
|
9,000
|
|
6,200,000
|
2,704,000
|
Deferred tax
liabilities:
|
|
|
Depreciation and
other
|
396,000
|
58,000
|
|
396,000
|
58,000
|
Net deferred tax
assets
|
5,804,000
|
2,646,000
|
Less valuation
allowance
|
(5,804,000)
|
(2,646,000)
|
Net deferred taxes
after valuation allowance
|
$-
|
$-
|
|
For the
Year
|
|
|
Ended December
31,
|
|
|
2020
|
2019
|
Americas
|
$1,442,822
|
$481,622
|
Europe, Middle East
and Africa
|
1,046,499
|
116,547
|
Asia
Pacific
|
1,454,736
|
98,621
|
|
$3,944,057
|
$696,790
|
|
WRAP TECHNOLOGIES, INC
|
|
|
|
|
|
|
Date: March 4,
2021
|
By:
|
/s/ Thomas Smith
|
|
|
|
Thomas
Smith
|
|
|
|
Interim Chief
Executive Officer
|
|
Name
|
|
Position
|
|
Date
|
|
|
|
|
|
/s/
THOMAS SMITH
|
|
Interim
Chief Executive Officer
|
|
March 4, 2021
|
Thomas
Smith
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
JAMES A. BARNES
|
|
Chief
Financial Officer, Secretary and Treasurer
|
|
March 4, 2021
|
James
A. Barnes
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
/s/
SCOT COHEN
|
|
Executive
Chair of Board
|
|
March 4, 2021
|
Scot
Cohen
|
|
|
|
|
/s/DAVID
G. NORRIS
|
|
Director
|
|
March 4, 2021
|
David
G. Norris
|
|
|
|
|
/s/PATRICK
KINSELLA
|
|
Director
|
|
March 4, 2021
|
Patrick
Kinsella
|
|
|
|
|
/s/MICHAEL
PARRIS
|
|
Director
|
|
March 4, 2021
|
Michael
Parris
|
|
|
|
|
|
|
|
|
|
/s/WAYNE
R. WALKER
|
|
Director
|
|
March 4, 2021
|
Wayne
R. Walker
|
|
|
|
|
Subsidiary Name
|
Jurisdiction of Incorporation
|
Wrap Reality,
Inc.
|
Arizona
|
|
|
/s/ Rosenberg Rich Baker Berman, P.A.
Rosenberg Rich Baker Berman, P.A.
|
|
|
|
Somerset, New
Jersey
|
|
March 4, 2021
|
|
|
WRAP TECHNOLOGIES INC
|
|
|
|
|
|
|
Date: March 4,
2021
|
By:
|
/s/ Thomas P.
Smith
|
|
|
|
Thomas P. Smith
|
|
|
|
Interim Chief
Executive Officer and President (Principal Executive
Officer)
|
|
|
WRAP TECHNOLOGIES INC
|
|
|
|
|
|
|
Date: March 4,
2021
|
By:
|
/s/ James A.
Barnes
|
|
|
|
James A. Barnes
|
|
|
|
Chief Financial
Officer, Secretary and Treasurer
(Principal
Accounting Officer)
|
|
|
WRAP TECHNOLOGIES INC
|
|
|
|
|
|
|
Date: March 4,
2021
|
By:
|
/s/ Thomas P.
Smith
|
|
|
|
Thomas
P. Smith |
|
|
|
Interim Chief Executive Officer and President (Principal Executive Officer) |
|
|
WRAP TECHNOLOGIES INC
|
|
|
|
|
|
|
Date: March 4,
2021
|
By:
|
/s/ James A.
Barnes
|
|
|
|
James A.
Barnes |
|
|
|
Chief
Financial Officer, Secretary and Treasurer
(Principal
Accounting Officer)
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M>Y8Y_D*[ZL/Q-H1UFT5X2HNH<[,]&!ZJ:QKQ Organization and Business Description Wrap Technologies, Inc., a Delaware corporation
(the “Company”, “we”, “us”, and “our”), is a publicly
traded company with our Common Stock, par value $0.0001 per share (“Common Stock”), listed on the Nasdaq Capital
Market (“Nasdaq”) under the trading symbol “WRAP”. The Company is a developer and supplier of public
safety products and training services for law enforcement and security personnel. The Company’s primary product is the BolaWrap®
remote restraint device. The principal markets for the Company’s proprietary products and services are in North and South
America, Europe, Middle East and Asia. Principles of Consolidation The Company has one wholly-owned subsidiary,
Wrap Reality, Inc. formed in December 2020 (see Note 3) and has commenced selling its virtual reality training system primarily
targeting law enforcement agencies. The consolidated financial statements include the accounts of this subsidiary after elimination
of intercompany transactions and accounts. Basis of Presentation and Use of Estimates The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts,
valuation of inventory and intangible assets, warranty reserve, accrued costs, valuation allowance related to deferred tax assets
and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those estimates. Concentrations of Risk Credit Risk – Financial instruments
that potentially subject the Company to concentration of credit risk consisted primarily of cash, cash equivalents, U.S. treasury
bills and accounts receivable from customers. The Company maintains its cash and cash equivalent deposits at two domestic financial
institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash
and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company places its cash
and cash equivalents with high-credit quality financial institutions and are managed within established guidelines to mitigate
risks. To date, the Company has not experienced any losses on its cash and cash equivalents. Concentrations of Accounts Receivable and
Revenue – The Company has a limited number of domestic and international customers. The Company may experience concentrations
in both accounts receivable and revenue due to the timing of sales and collections of related payments (see Note 16). Concentration of Suppliers – The
Company relies on a limited number of component suppliers and contract suppliers. In particular, a single supplier is currently
the sole manufacturer of the Company’s laser assembly with some parts sole sourced from other suppliers. If supplier shortages
occur, or quality problems arise, production schedules could be significantly delayed or costs significantly increased, which could
in turn have a material adverse effect on the Company’s financial condition, results of operation and cash flows. Impact of COVID-19 – In
December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. In March 2020, the World
Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic. While
initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it spread to other
countries and infections have been reported globally. The extent to which the coronavirus impacts our operations will continue
to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of
the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus
or treat its impact, among others. In particular, the continued spread of the coronavirus globally or emergence of new strains
could adversely impact our operations, including our manufacturing and supply chain. Our operations could be negatively affected
if employees are quarantined as the result of exposure to a contagious illness. Similarly, travel restrictions resulting from the
rapid spread of contagious illnesses may have a material adverse effect on our business and results of operations. Cash and Cash Equivalents The Company considers all highly liquid investments
purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist
primarily of amounts invested in Money Market Funds and United States (“U.S.”) Treasury bills and are stated at fair
value. Short-Term Investments The Company’s short-term investments consist
of U.S. Treasury bills with original maturities beyond three months at the date of purchase and one year or less from the balance
sheet date. As of December 31, 2020, all of the Company’s short-term investments were classified as available-for-sale and
are carried at estimated fair value with any unrealized gains and losses, unrelated to credit loss factors, included in other comprehensive
income in our consolidated statements of stockholders’ equity. We adopted Accounting
Standards Codification (“ASC”) Topic 326 issued by the Financial
Accounting Standards Board (“FASB”) effective January 1, 2020, and
applied the credit loss guidance related to short-term investments prospectively as we had no historical short-term investments.
Because we do not have any history of losses for our short-term investments, our expected loss allowance methodology is
developed using published or estimated credit default rates for similar investments and current and future economic and market
conditions. Any unrealized losses related to credit loss factors are recorded through an allowance for credit losses
in other (expense) income, in our consolidated statements of operations, rather than as a reduction to the amortized cost basis
in other comprehensive (loss) income, when a decline in fair value has resulted from a credit loss. We determine realized gains
or losses on the sale of investments on a specific identification method, and record such gains or losses as other (expense) income,
in our consolidated statements of operations. We did not record a credit loss reserve
for short-term investments during the year ended December 31, 2020. Share-Based Compensation The Company follows the fair value recognition
provisions issued by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Codification
(“ASC”) Topic 718, Stock Compensation (“ASC 718”) and has adopted Accounting Standards Update
(“ASU”) 2018-07 for share-based transactions with non-employees. Share-based compensation expense recognized
during 2020 and 2019 includes stock option and restricted stock unit compensation expense. The
grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The grant date is the
date at which an employer and employee or non-employee reach a mutual understanding of the key terms and conditions of a share-based
payment award. The Black-Scholes option-pricing model requires inputs including the market
price of the Company’s Common Stock on the date of grant, the term that the stock options are expected to be outstanding,
the implied stock volatilities of several publicly-traded peers over the expected term of stock options, risk-free interest rate
and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The
grant date fair value of restricted stock units is based upon the market price of the Company’s Common Stock on the date
of the grant. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest
and account for forfeitures as they occur. The fair value of share-based compensation is amortized to compensation expense
over the vesting term. Loss per Share Basic loss per common share is computed by
dividing net loss for the period by the weighted-average number of shares of Common Stock outstanding during the period. Diluted
net loss per common share reflects the potential dilution of securities that could share in the earnings of an entity. The Company’s
losses for the periods presented cause the inclusion of potential Common Stock instruments outstanding to be antidilutive. Stock
options, restricted stock units and warrants exercisable or issuable for a total of 7,566,502 and 9,857,457 shares of Common Stock
were outstanding at December 31, 2020 and 2019, respectively. These securities are not included in the computation of diluted
net loss per common share for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company. Accounts Receivable and Allowance for Doubtful
Accounts The Company carries accounts receivable at historical
cost, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and establishes an
allowance for doubtful accounts for estimated losses. The Company’s expected loss allowance methodology for accounts receivable
is developed using historical collection experience, when available any published or estimated credit default rates for entities
that represent our customer base, current and future economic and market conditions and a review of the current status of customers'
trade accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers
that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution, payment
confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined
to be uncollectible. At December 31, 2020 the Company had an allowance
of $10,140 resulting in part from global uncertainty resulting from the COVID-19 virus. There was no allowance for doubtful accounts
recorded at December 31, 2019. If a major customer’s creditworthiness deteriorates, or actual defaults exceed our historical
experience, such estimates could change and impact our future reported financial results. Inventories Inventories are valued at the lower of cost
or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventory
is comprised of raw materials, assemblies and finished products intended for sale to customers. The Company evaluates the
need for reserves for excess and obsolete inventories determined primarily based upon estimates of future demand for the Company’s
products. At December 31, 2020 and 2019 the Company had
no reserve for obsolescence. Contract Manufacturers The Company employs contract manufacturers for
production of certain components and sub-assemblies. The Company may provide parts and components to such parties from time to
time, but recognizes no revenue or markup on such transactions. During 2020 and 2019, the Company performed assembly of products
in-house using components and sub-assemblies from a variety of contract manufacturers and suppliers. Property, Equipment and Depreciation Property and equipment is stated at cost. Depreciation
on property and equipment is computed over the estimated useful lives of three years using the straight-line method. The Company
intends, on any retirement or disposition of property and equipment, that the related cost and accumulated depreciation or amortization
will be removed and a gain or loss recorded. Business Combinations Transactions in which the Company obtains control
of a business are accounted for according to the acquisition method as described in ASC 805, Business Combinations. The assets
acquired and liabilities assumed are recognized and measured at their fair values as of the date control is obtained. The Company
measures goodwill as the excess of consideration transferred, which the Company also measures at fair value, over the net of the
acquisition date amounts of the identifiable assets acquired and liabilities assumed. Acquisition related costs in connection with
a business combination are expensed as incurred. Contingent consideration is recognized and measured at fair value at the acquisition
date and until paid is re-measured on a recurring basis and classified as a liability. Intangible Assets Intangible assets consisted of (a) capitalized
legal fees and filing costs related to obtaining patents and trademarks, (b) customer agreements, tradenames, software, non-solicitation
and non-compete agreements acquired in business combinations and valued at fair value at the acquisition date, and (c) the purchase
cost of indefinite-lived website domains. The estimated useful lives of identifiable intangible assets with definite useful lives
have been estimated to be between one and twenty years. Purchased website domain costs with an indefinite useful life are not subject
to amortization, but are subject to an annual impairment test, by comparing their carrying amount with their corresponding fair
value. For any given intangible asset with an indefinite useful life, if its fair value exceeds its carrying amount no impairment
loss shall be recognized. The carrying value of intangibles is periodically
reviewed and impairments, if any, are recognized when the future undiscounted cash flows realized from the assets is less than
its carrying value. Impairment of Long-Lived Assets Long-lived assets and identifiable intangibles
held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset or if changes
in facts and circumstances indicate, an impairment loss is recognized and measured using the asset’s fair value. The Company
did not recognize any impairment loss during the years ended December 31, 2020 and 2019. Classification and Valuation of Warrants The Company accounts for warrants as either
equity or liabilities based upon the characteristics and provisions of each particular instrument. Warrants valued and classified
as equity are recorded as additional paid-in capital based on the issue date fair value and no further adjustment to valuation
is made. As of December 31, 2020, the Company has no warrants or other derivative financial instruments that require separate accounting
as liabilities and periodic revaluation. Advertising and Promotion Costs Advertising costs are charged to expense as
incurred and were $287,266 and $165,119 for the years ended December 31, 2020 and 2019, respectively. The Company also incurred
product promotion costs for demonstration products delivered to prospective customers of $747,443 and $433,172 for the years ended
December 31, 2020 and 2019, respectively. Advertising and promotion costs are included in selling, general and administrative expenses
in the accompanying statements of operations. Demonstration and Training Costs The Company maintains a demonstration and training
department as a part of its sales and marketing activities and does not charge for product demonstrations or training. Training
is not a condition or requirement of sale as most sales are made through distributors to their end customers. The Company conducts
local and regional in-person, webinar and on-line demonstrations and use of force and escalation training to support law enforcement
agencies with no purchase requirement. Such training, when provided, may occur before or after initial or subsequent purchase or
field deployment of the Company’s products. The Company believes that law enforcement trainers and officers that have seen
demonstrations or have been trained about its products are more supportive of their departments purchase and deployment of product. Research and Development Costs Research and development costs consist primarily
of contract development costs and experimental work materials and certain startup costs. Research and development costs with no
alternative use are expensed as incurred. Leases At the commencement date of a lease, the Company
recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease
term. The lease liability is measured at the present value of lease payments over the lease term. As its leases typically do not
provide an implicit rate and due to lack of borrowing history or ability, the Company uses as its incremental borrowing rate a
low-grade debt rate published by the Federal Reserve Bank. The right-of-use (“ROU”) asset is measured at cost, which
includes the initial measurement of the lease liability and initial direct costs incurred by the Company and excludes lease incentives.
Lease liabilities are recorded as a current liability for the portion due within one year with the balance as a long-term
liability. ROU assets are recorded as operating lease right-of-use asset, net. Revenue Recognition In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (“ASU 2014-09”) and ASC Subtopic 340-40, Other Assets and Deferred Costs - Contracts
with Customers (“ASC 340-40”), (collectively, “Topic 606”). On January 1, 2018, the Company adopted Topic
606 and, as it had no prior revenue or contracts with customers, there was no transition required nor any impact on prior results.
ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification
of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction
price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. See Note 2
for additional information. Shipping and Handling Costs Shipping and handling costs are included in
cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs
were $75,106 and $22,177 for the years ended December 31, 2020 and 2019, respectively. Actual revenues from shipping and handling
were $62,679 and $21,414 for the years ended December 31, 2020 and 2019, respectively. Warranty Reserves The Company warrants its products and accessories
to be free from defects in materials and workmanship for a period of one year from the date of purchase. The warranty is generally
limited. The Company currently provides direct warranty service. International market warranties are generally similar to the U.S.
market. The Company establishes a warranty reserve based
on anticipated warranty claims at the time product revenues are recognized. Factors affecting warranty reserve levels include the
number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the
adequacy of the provision for warranty costs each reporting period. The warranty reserve was $48,140 and $13,923 at December 31,
2020 and 2019. Actual warranty costs could differ from estimates. Segment Information ASC Topic 280, “Segment Reporting,”
requires use of the “management approach” model for segment reporting. The management approach model is based on the
way a company’s management organizes segments within the company for making operating decisions and assessing performance.
The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. Income Taxes No income tax expense was recorded for the periods
ended December 31, 2020 and 2019 due to losses incurred. Deferred tax assets and liabilities are determined based on temporary
differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Company maintains a valuation allowance
with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing
the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current
period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward
period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change
in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in
income in the year of the change in estimates. Subsequent Events Management has evaluated events subsequent to
December 31, 2020 through the date the accompanying financial statements were filed with the Securities and Exchange Commission
and noted that there have been no events or transactions which would affect the Company’s financial statements for the year
ended December 31, 2020. Recently Issued Accounting Guidance
Adopted First Quarter of 2020: In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (“Topic 820”): Disclosure Framework Changes to the Disclosure Requirements for Fair Value
Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, to improve the effectiveness of
fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. This
ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after
December 15, 2019. The adoption of this standard in the first quarter ended March 31, 2020 had no impact on the Company’s
financial statements or disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments which
was further updated and clarified by the FASB through issuance of additional related ASUs. Under ASU 2016-13, existing
guidance on reporting credit losses for trade and other receivables and available for sale debt securities have been replaced with
a new forward-looking “expected loss” model that has resulted in the earlier recognition of allowances for losses.
The adoption of these standards in the first quarter ended March 31, 2020 had no impact on the Company’s financial statements
or disclosures. As part of our assessment of the adequacy of our allowances for credit losses, we consider a number of factors
including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of
receivables, expected loss rates and collateral exposures. Other Guidance: In December 2019, the FASB issued
Accounting Standards Update 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for
Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting
for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies
and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December
15, 2020, with early adoption permitted. We do not expect that the adoption of this ASU will have a significant impact on
our financial statements. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt
with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s
Own Equity “(Subtopic 815-40”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The
ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception
and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is
currently evaluating the impact of this standard on its financial statements and related disclosures. The Company has reviewed other recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected
to cause a material impact on its financial condition or the results of operations. The Company enters into contracts that include
various combinations of products, accessories. software and services, each of which are generally distinct and are accounted for
as separate performance obligations. A performance obligation is a promise in a contract
to transfer a distinct good or service to a customer, and is the unit of account in Topic 606. For contracts with a single performance
obligation, the entire transaction price is allocated to the single performance obligation. For contracts with multiple performance
obligations, the Company allocates the contract transaction price to each performance obligation using the Company’s estimate
of the standalone selling price (“SSP”) of each distinct good or service in a contract. The Company determines
standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling
price is not observable through past transactions, the Company estimates the standalone selling price considering available information
such as market conditions and internally approved pricing guidelines related to the performance obligations. Most of the Company’s products and accessories
are sold through domestic and international distributors. Performance obligations to deliver products and accessories are generally
satisfied at the point in time the Company ships the product, as this is when the customer obtains control of the asset under our
standard terms and conditions. Periodically, certain customers request bill and hold transactions for future delivery as scheduled
and designated by them. In such cases, revenue is not recognized until after control, title and risk of ownership has transferred
which is generally when the customer has requested such transaction under normal billing and payment terms and has been notified
that the product (i) has been completed according to customer specifications, (ii) has passed quality control inspections, and
(iii) has been tagged and packed for shipment, separated from other inventory and ready for physical transfer to the customer. The
value associated with custodial storage services is deemed immaterial in the context of such contracts and in total, and accordingly,
none of the transaction price is allocated to such service. The Company has elected to recognize shipping
costs as an expense in cost of revenue when control has transferred to the customer. Time-based virtual reality system contracts
generally include setup, training and the use of software and hardware for a fixed term, generally one to five years and support
and upgrade services during the same period. The Company does not sell time-based arrangements without setup, training and support
services and therefore revenues for the entire arrangement are recognized on a straight-line basis over the term. When hardware
is bundled and not sold separately the Company allocates the contract transaction price to each performance obligation using the
SSP of each distinct good and service in the contract. The timing of revenue recognition may differ
from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are
invoiced and a receivable is recorded. A contract asset is recognized when revenue is recognized prior to invoicing, or a contract
liability (deferred revenue) when revenue will be recognized subsequent to invoicing. At December 31, 2020 the Company’s
deferred revenue totaled $16,015, of which $14,125 related to virtual reality training and $1,890 related to extended warranties.
At December 31, 2019 the Company had deferred revenue of $2,684 related to future training contracted as part of a sale. The Company may also receive consideration,
per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a
contract liability. The Company recognizes an asset if there are
incremental costs of obtaining a contract with a customer such as commissions. These costs are ascribed to or allocated to the
underlying performance obligations in the contract and amortized consistent with the recognition timing of the revenue for any
such underlying performance obligations. The Company had no such assets at December 31, 2020 and December 31, 2019. The Company
will apply the practical expedient to expense any sales commissions related to performance obligations with an amortization of
one year or less when incurred within selling, general and administrative expense. Estimated costs for the Company’s standard
one-year warranty are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged
to cost of products sold. On December 14, 2020, the Company, through a
new wholly-owned subsidiary, Wrap Reality, Inc., entered into an Asset Purchase Agreement with NSENA Inc, a Delaware corporation,
to acquire all of NSENA’s tangible and intangible assets, properties, and rights held for use in connection with NSENA’s
virtual reality training business. The acquisition enhances the Company’s training services primarily targeting law enforcement
agencies. The Company paid to NSENA cash consideration
of $210,000 and recorded a short-term business acquisition liability of $275,000. The liability is payable $100,000 on March 15,
2021, $100,000 on June 15, 2021 and $75,000 on September 15, 2021. In addition, the Company assumed a $15,000 liability for unearned
revenues. As additional earn-out consideration, the Company agreed to pay NSENA 10% of net revenues (or a lesser amount equal to
50% of direct profit) from specific identified prospects that become revenue customers before September 30, 2021 but only on amounts
collected between Closing and June 30, 2022. The fair value of contingent consideration determined
as $22,500 is included as a long-term business acquisition liability on our consolidated balance sheet. The acquisition was accounted for under the
acquisition method of accounting. Under acquisition accounting, the acquired tangible and intangible assets and liabilities of
NSENA have been recorded at their respective fair values. The following table summarizes the estimates of fair value of the assets
acquired and liabilities assumed on December 14, 2020: A portion of the fair value of the consideration
transferred has been assigned to identifiable intangible assets as follows: Description All assets acquired were determined to be finite-lived
intangible assets and are being amortized on a straight-line basis over its estimated useful life with no residual value. Assets and liabilities recorded at fair value
on a recurring basis in the Consolidated Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis
or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair
values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about
how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer
a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance
also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs
to valuation techniques is briefly summarized as follows: Level 1—Inputs are unadjusted,
quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2—Inputs are observable,
unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the related assets or liabilities; and Level 3—Unobservable inputs that
are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. The Company’s cash equivalent Money Market
Funds and short-term investments consisting of U.S. Treasury bill securities are classified as Level 1 because they are valued
using quoted market prices. The following table shows the Company’s
cash and cash equivalents, Money Market Funds and short-term investments by significant investment category as of December
31, 2020. The Company only had cash and cash equivalents, including Money Market Funds of $16,618,498 at December 31, 2019 all
which were considered Level 1. Unrealized
gains or losses resulting from our short-term investments are recorded in accumulated other comprehensive gain or loss. As of
December 31, 2020, $14,849 was recorded to accumulated other comprehensive gain. Our financial instruments also include accounts
receivable, accounts payable, accrued liabilities and business acquisition liabilities. Due to the short-term nature of these instruments,
their fair values approximate their carrying values on the balance sheet. Inventory is recorded at the lower of cost or
net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventories
consisted of the following: During the years ended December 31, 2020 and
2019 the Company wrote off $68,108 and $193,506, respectively, of raw material and scrap parts primarily due to startup production,
model changes and improvements. Property and equipment consisted of the following: Depreciation expense was $144,736 and $44,239
for the years ended December 31, 2020 and 2019, respectively. Intangible assets consisted of the following: Amortization expense was $18,526 and $2,706
for the years ended December 31, 2020 and 2019, respectively. At December 31, 2020, annual amortization of
intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following: Accounts payable includes $52,950 due to related
party Syzygy Licensing, LLC (“Syzygy”) as of December 31, 2020. Accounts payable at December 31, 2020 also included
$10,000 due to related party V3 Capital Partners, LLC (see Note 14). Accrued liabilities consist of the following: Accrued compensation includes $555,000 in bonuses
and $7,792 in commissions payable at December 31, 2020. The Company adopted ASU 2016-02, Leases (“Topic
842”) on January 1, 2019 using the modified retrospective approach. The Company has elected not to apply ASC Topic 842
to arrangements with lease terms of 12 months or less. The adoption of the standard resulted in the recognition of a ROU asset
and lease liability of $12,900 for one operating lease as of January 1, 2019, with no impact to retained earnings. Prior year
amounts have not been restated. That lease is for 1,890 square feet of improved office and warehouse space in Las Vegas, Nevada.
In January 2019, the Company recorded an additional $17,101 ROU remeasurement asset and liability from an extension of the facility
lease to December 31, 2020. In March 2019, the Company recorded a $57,587 ROU asset and liability for a two-year facility operating
lease for 1,906 square feet of improved office and warehouse space in Lake Forest, California expiring in February 2021. In June
2019, the Company recorded a $253,412 ROU asset and liability for a 38-month facility operating lease for 11,256 square feet of
improved office, assembly, training and warehouse space in Tempe, Arizona expiring in July 2022. Amortization of ROU operating lease assets was
$121,844 and $80,069 for the years ended December 31, 2020 and 2019, respectively. Operating lease expense for capitalized operating
leases included in operating activities was $137,228 and $94,599 for the years ended December 31, 2020 and 2019, respectively.
Operating lease obligations recorded on the balance sheet at December 31, 2020 are: Future lease payments included in the measurement
of lease liabilities on the balance sheet at December 31, 2020 for future periods are as follows: The weighted average remaining lease term is
1.54 years and the weighted average discount rate is 7.0%. The Company did not have any short-term lease
expense during the years ended December 31, 2020 and December 31, 2019. The Company does not have any finance leases. The Company’s debt at December 31, 2020
included operating lease liabilities (see Note 9) and business acquisition liabilities (see Note 3). Debt at December 31, 2019
consisted of operating lease liabilities. On May 1, 2020, the Company received loan proceeds
of $414,362 from Bank of America, N.A. (the “Lender”), as a potentially forgivable loan (the “PPP Loan”)
from the U.S. Small Business Administration pursuant to the Paycheck Protection Program (the “PPP”) enacted
by Congress under Division A, Title 1 of the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES
Act”), which was enacted March 27, 2020. The PPP Loan was in the form of a two-year Promissory Note dated May 1, 2020
payable to the Lender (the “PPP Note”), bearing interest at a rate of 1% per annum. Under the terms of the CARES Act, the Company
subsequently applied for and in December 2020 was granted forgiveness for the PPP Loan plus interest. The Company’s PPP Loan
in the amount of $414,362 and accrued interest was forgiven in full by the Small Business Administration. The Company recognized
$416,683 in debt forgiveness income as a result of the forgiveness. The Company’s authorized capital consists
of 150,000,000 shares of Common Stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001
per share (“Preferred Stock”). 2019 Follow-On Public Offering On June 18, 2019, the Company consummated the
June 2019 Follow-On Offering, pursuant to which a total of 1,923,076 Units were offered and sold at the public offering price of
$6.50 per Unit. Each Unit sold 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 $6.50 per share. The offering resulted in the Company’s
receipt of gross cash proceeds of $12.5 million, or net cash proceeds of $11.35 million after deduction of commissions and offering
costs. In connection with the June 2019 Follow-On Offering,
the Company also issued placement agent warrants exercisable for 153,846 shares of Common Stock for two years at an exercise price
of $8.125 per share. The estimated fair value of these warrants was $205,894, as determined using the Black-Scholes methodology
(assuming estimated volatility of 49%, risk-free interest rate of 1.86%, and expected dividend yield of 0.0%). This amount was
recorded as both an increase to additional paid in capital and as a non-cash issuance cost of the offering. 2020 Follow-On Public Offering On June 2, 2020, the Company consummated a follow-on
public offering (the “Unit Offering”) whereby the Company offered and sold certain securities consisting of
one share of Common Stock and one detachable two-year warrant to purchase one share of Common Stock at an exercise price of $6.00
per share (a “Unit”) at the public offering price of $6.00 per Unit. Pursuant to the Unit Offering, the Company sold
2,066,667 Units, resulting in the Company’s receipt of gross cash proceeds of $12.4 million and net cash proceeds of $11.67
million after deduction of commissions and offering costs. Summary of Stock Purchase Warrants The following table summarizes warrant activity
during the years ended December 31, 2020 and 2019: Average Purchase Price Per Share During the year ended December 31, 2020 the
Company received gross proceeds of $26,190,483 from the exercise of 5,155,976 warrants and paid $1,016,645 as an agent fee to facilitate
exercise of certain warrants resulting in net proceeds of $25,173,838. Company officer Elwood Norris exercised 333,334 of these
warrants at $5.00 per share for cash of $1,666,670. During the year ended December 31, 2019 the
Company received gross proceeds of $2,112,117 from the exercise of 2,076,922 warrants and paid an agent fee of $28,666 for net
proceeds of $2,083,451. The Company has outstanding Common Stock purchase
warrants as of December 31, 2020 as follows: Expiration
Date On March 31, 2017, the Company adopted and the
stockholders approved the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Company Common
Stock for issuance as stock options and restricted stock units (“RSUs”) to employees, directors or consultants.
In May 2019, the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock and in
June 2020 ratified a further authorization of 1,900,000 shares of Common Stock for a total of 6,000,000 shares subject to the Plan. The Company generally recognizes share-based
compensation expense on the grant date and over the period of vesting or period that services will be provided. Stock Options The following table summarizes stock option
activity for the years ended December 31, 2019 and 2020: In connection with the NSENA acquisition in
December 2020 the Company granted 190,000 service-based options and 100,000 performance-based options for future services as employees
and consultants at an exercise price of $5.46 per share. Other than the 100,000 performance-based options, all outstanding options
at December 31, 2020 are service-based options. Subsequent to December 31, 2020 a total of 58,500
options were exercised for cash proceeds of $87,750. The Company uses the Black-Scholes option pricing
model to determine the fair value of the options granted. The following table summarizes the assumptions used to compute the fair
value of options granted to employees and non-employees: Estimated volatility is a measure of the amount
by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s
estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available.
The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period
equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient
historical data of its stock price. The risk-free interest rate assumption is based
upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.
The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to
pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock
options as the Company does not have sufficient historical data. The following table summarizes information about
stock options outstanding at December 31, 2020: Restricted Stock Units The Plan provides for the grant of restricted
stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs become vested.
In January 2019 the Company granted 263,087 service-based RSUs to officers and employees vesting over a period of three years.
In August and September 2019, the Company granted 45,000 service-based RSUs to employees vesting over a period of three years.
In January 2020 the Company granted 73,992 service-based RSUs to officers and directors vesting over a period of three years. In
April 2020 the Company granted 122,222 service-based RSUs to employees vesting over a period of three years. Also, in April 2020
the Company granted an officer 35,211 performance-based RSUs. During the period July 2020 to December 2020 the Company granted
114,660 service-based RSU’s to employees vesting over three and four years. The following table summarizes RSU activity
under the Plan for the years ended December 31, 2019 and 2020: Share-Based Compensation Expense The Company recorded share-based compensation
in its statements of operations for the relevant periods for options and RSUs as follows: As of December 31, 2020, total estimated compensation
cost of stock options granted and outstanding but not yet vested was $4.6 million which is expected to be recognized over the weighted
average period of 2.8 years. As of December 31, 2020, total estimated compensation cost of RSUs granted and outstanding but not
yet vested was $2.2 million which is expected to be recognized over the weighted average period of 2.3 years. Facility Leases See Note 9. Related Party Technology License Agreement The Company is obligated to pay royalties and
development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated as of
September 30, 2016 with Syzygy, a company owned and controlled by stockholders/officers Mr. Elwood Norris and Mr. James Barnes.
The agreement provides for royalty payments of 4% of revenue from products employing the licensed ensnarement device technology
up to an aggregate of $1,000,000 in royalties or until September 30, 2026, whichever occurs earlier. The Company recorded $143,390
and $23,297 for royalties incurred during the years ended December 31, 2020 and 2019, respectively. Purchase Commitments At December 31, 2020 the Company was committed
for approximately $2.2 million for future component deliveries and contract services that are generally subject to modification
or rescheduling in the normal course of business. Indemnifications and Guarantees Our officers and directors are indemnified as
to personal liability as provided by the Delaware law and the Company’s articles and bylaws. The Company may also undertake
indemnification obligations in the ordinary course of business related to its operations. The Company is unable to estimate with
any reasonable accuracy the liability that may be incurred pursuant to any such indemnification obligations now or in the future.
Because of the uncertainty surrounding these circumstances, the Company’s current or future indemnification obligations could
range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary
course of business. The Company has no liabilities recorded for such indemnities. Regulatory Agencies The Company may be subject to oversight from
regulatory agencies regarding firearms that arise in the ordinary course of its business. Litigation Securities Litigation On September 23, 2020, Carone Cobden filed a
putative class action complaint against the Company, former Chief Executive Officer David Norris (“Norris”),
Chief Financial Officer, James A. Barnes (“Barnes”), and President, Thomas Smith (“Smith”)
in the United States District Court for the Central District of California, docketed as Case No. 2-20-cv-08760-DMG-PVCx (the “Cobden
Complaint”). The Cobden Complaint alleges that the named defendants, in their capacities as officers of the Company,
knowingly made false or misleading statements or omissions regarding trials of the Company’s BolaWrap product conducted by
the Los Angeles Police Department (the “BolaWrap Pilot Program”). The Cobden Complaint also alleges that
the conduct of the named defendants artificially inflated the price of the Company’s traded securities, and that the disclosure
of certain adverse information to the public led to a decline in the market value of the Company’s securities. The
Cobden Complaint further alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder,
and defines the class period as July 31, 2020 through September 23, 2020. On October 1, 2020, Joseph Mercurio filed a
second putative class action complaint against the Company, Norris, Smith, and Barnes in the same court, which contains substantially
the same factual allegations and legal claims as set forth in the Cobden Complaint, and is docketed as Case No. 2-20-cv-09030-DMG-PVCx
(the “Mercurio Complaint”). On October 15, 2020, Paula Earley filed a third putative class action
complaint against the Company, Smith, Norris, Barnes, Chief Strategy Officer Mike Rothans (“Rothans”), and former Chief
Executive Officer, Marc Thomas (“Thomas”) in the same court, which contains many of the same factual allegations
and legal claims as set forth in the Cobden and Mercurio Complaints, but defines the class period as April 29, 2020 through September
23, 2020, and alleges additional false or misleading statements in connection with BolaWrap and the BolaWrap Pilot Program (the
“Earley Complaint”). The Earley Complaint is docketed as Case No. 2-20-cv-09444-DMG-PVCx. On November 3, 2020, the Hon. Dolly M.
Gee consolidated the three above-mentioned cases under the caption In re Wrap Technologies, Inc. Securities Exchange
Act Litigation, Case No. 20-8760-DMG (“PVCx”) (the “Securities Action”). On January
7, 2021, the Court appointed a lead plaintiff in the Securities Action, who designated its attorneys as lead counsel. On
January 21, 2021, Judge Gee ordered that a consolidated amended complaint be filed in the Securities Action on or before March
12, 2021, with defendants’ motion to dismiss to be filed on or before April 26, 2021, and a hearing on the motion to dismiss
to be held on July 23, 2021. The Company believes that the complaints underlying the Securities Action are without merit
and intends to vigorously defend against the claims raised therein. Shareholder Derivative Litigation On November 13, 2020, Naresh Rammohan filed
a shareholder derivative action in the United States District Court for the Central District of California against Smith, Barnes,
Rothans, Thomas, Norris, and Messrs. Scot Cohen, Patrick Kinsella, Michael Parris, and Wayne Walker, alleging unjust enrichment,
breach of fiduciary duty, waste of corporate assets, and contribution claims under the Securities Exchange Act of 1934, docketed
as Case No. 2:20-cv-10444-DMG-PVCx (the “Rammohan Complaint”). The Rammohan Complaint names the Company
as a nominal defendant and recites many of the allegations set forth in the Securities Action relating to the BolaWrap Pilot Program.
On January 20, 2021, Ray Westerman filed a second derivative complaint in the same court against the same parties, alleging breach
of fiduciary duty and contribution claims under the Securities Exchange Act of 1934, docketed as Case No. 2:21-cv-00550-DMG-PVCx
(the “Westerman Complaint”). On January 22, 2021, Jesse Lowe filed a third derivative complaint in the
same court against the same parties, alleging breach of fiduciary duty and asserting various claims under the Securities Exchange
Act of 1934, docketed as Case No. 2:21-cv-00597-DMG-PVCx (the “Lowe Complaint”). The above-mentioned derivative cases (collectively,
the “Derivative Actions”) each been have been transferred to Judge Gee as cases related to the Securities Action.
On January 27, 2021, the Judge Gee issued an order to show cause why the Derivative Actions should not be consolidated under the
caption In re Wrap Technologies, Inc. Shareholder Derivative Litigation, Case No. 2:20-10444-DMG-PVCx and stayed pending
the resolution of the anticipated motion to dismiss in the Securities Action. On February 5, 2021, the parties in the Derivative
Actions responded jointly to the order to show cause, stipulating that the case should be consolidated and stayed as suggested
by the Court. We believe that the Derivative Actions will be consolidated and stayed by the Court. As with the Securities
Action, the Company believes that the Derivative Actions are without merit and intends to vigorously defend against the claims
raised therein. Commencing in October 2017 the Company began
reimbursing Mr. Elwood Norris, an officer and stockholder of the Company, $1,500 per month on a month-to-month basis for laboratory
facility costs, for an aggregate of $18,000 during the year ended December 31, 2020 and 2019, respectively. From April 2020 through December 2020 the Company
engaged V3 Capital Partners, LLC (“V3”), a company owned and controlled by Scot Cohen, the Company’s Executive
Chairman, to provide certain investor, shareholder and marketing services, in consideration for the payment to V3 of $10,000 per
month on a month-to-month basis for an aggregate of $90,000 during the year ended December 31, 2020. In addition, the Company paid
V3 a bonus of $175,000 for assistance in a financing that was consummated in July 2020. See Notes 8, 11 and 13 for additional information
on related party transactions and obligations. Until its reverse recapitalization on March
31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. The
Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance
for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets
will not be realized. The Company did not provide any current or deferred
U.S. federal income tax provision or benefit for the periods presented because of operating losses since inception. As of December
31, 2020, the Company has federal net operating loss carryforwards of approximately $24,449,000 to reduce future taxable income
that will expire beginning in 2038. Certain changes in stock ownership can result in a limitation on the amount of net operating
loss and tax credit carryovers that can be utilized each year. As of December 31, 2020, management has not determined the extent
of any such limitations, if any. The Company provided a full valuation allowance
on the net deferred tax asset, consisting primarily of net operating loss carry forwards, because management has determined that
it is more likely than not that the Company will not earn income sufficient to realize the deferred tax assets during the carry
forward period. As a result of the change in future Federal statutory tax rates due to the passing of the Tax Cuts and Jobs Act
of 2017, management determined that the deferred tax assets and liabilities should be valued at a federal statutory rate of 21%. The Company has not taken a tax position that,
if challenged, would have a material effect on the financial statements for the periods ended December 31, 2020 and 2019 applicable
under FASB ASC 740. The Company did not recognize any adjustment to the liability for uncertain tax position and therefore did
not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company
remain open. The provision for (benefit from) income taxes
consist of the following: A reconciliation of the provision for income
taxes at the federal statutory rate of 21% to the Company’s provision for income tax is as follows: Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets
and liabilities for the periods presented: In accordance with ASU 2016-09, Compensation-Stock
Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, the Company recognizes windfall tax benefits
associated with the exercise of stock options as a component of tax expense (rather than equity). Accordingly, our federal and
state operating loss carryforwards include net windfall tax deductions from stock option exercises and RSU vesting of approximately
$720,000 and $144,000 during the years ended December 31, 2020 and 2019, respectively. Major Customers For the year ended December 31, 2020, revenues
from two distributors accounted for approximately 17% and 16% of revenues with no other single customer accounting for more than
10% of total revenues. These distributors accounted for 28% and 26% of accounts receivable at December 31, 2020. For the year ended
December 31, 2019, revenues from one distributor accounted for 22% revenues with no other single customer accounting for more than
10% of total revenues. This customer accounted for 54% of accounts receivable at December 31, 2019. The following table summarizes revenues by geographic
region. Revenues are attributed to countries based on customer’s delivery location. See Note 1 – Concentrations of Risks
for information on reliance on suppliers. Wrap Technologies, Inc., a Delaware corporation
(the “Company”, “we”, “us”, and “our”), is a publicly
traded company with our Common Stock, par value $0.0001 per share (“Common Stock”), listed on the Nasdaq Capital
Market (“Nasdaq”) under the trading symbol “WRAP”. The Company is a developer and supplier of public
safety products and training services for law enforcement and security personnel. The Company’s primary product is the BolaWrap®
remote restraint device. The principal markets for the Company’s proprietary products and services are in North and South
America, Europe, Middle East and Asia. The Company has one wholly-owned subsidiary,
Wrap Reality, Inc. formed in December 2020 (see Note 3) and has commenced selling its virtual reality training system primarily
targeting law enforcement agencies. The consolidated financial statements include the accounts of this subsidiary after elimination
of intercompany transactions and accounts. The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts,
valuation of inventory and intangible assets, warranty reserve, accrued costs, valuation allowance related to deferred tax assets
and recognition and measurement of contingencies) that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those estimates. Credit Risk – Financial instruments
that potentially subject the Company to concentration of credit risk consisted primarily of cash, cash equivalents, U.S. treasury
bills and accounts receivable from customers. The Company maintains its cash and cash equivalent deposits at two domestic financial
institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash
and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company places its cash
and cash equivalents with high-credit quality financial institutions and are managed within established guidelines to mitigate
risks. To date, the Company has not experienced any losses on its cash and cash equivalents. Concentrations of Accounts Receivable and
Revenue – The Company has a limited number of domestic and international customers. The Company may experience concentrations
in both accounts receivable and revenue due to the timing of sales and collections of related payments (see Note 16). Concentration of Suppliers – The
Company relies on a limited number of component suppliers and contract suppliers. In particular, a single supplier is currently
the sole manufacturer of the Company’s laser assembly with some parts sole sourced from other suppliers. If supplier shortages
occur, or quality problems arise, production schedules could be significantly delayed or costs significantly increased, which could
in turn have a material adverse effect on the Company’s financial condition, results of operation and cash flows. Impact of COVID-19 – In
December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. In March 2020, the World
Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic. While
initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it spread to other
countries and infections have been reported globally. The extent to which the coronavirus impacts our operations will continue
to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of
the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus
or treat its impact, among others. In particular, the continued spread of the coronavirus globally or emergence of new strains
could adversely impact our operations, including our manufacturing and supply chain. Our operations could be negatively affected
if employees are quarantined as the result of exposure to a contagious illness. Similarly, travel restrictions resulting from the
rapid spread of contagious illnesses may have a material adverse effect on our business and results of operations. The Company considers all highly liquid investments
purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist
primarily of amounts invested in Money Market Funds and United States (“U.S.”) Treasury bills and are stated at fair
value. The Company’s short-term investments consist
of U.S. Treasury bills with original maturities beyond three months at the date of purchase and one year or less from the balance
sheet date. As of December 31, 2020, all of the Company’s short-term investments were classified as available-for-sale and
are carried at estimated fair value with any unrealized gains and losses, unrelated to credit loss factors, included in other comprehensive
income in our consolidated statements of stockholders’ equity. The Company follows the fair value recognition
provisions issued by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Codification
(“ASC”) Topic 718, Stock Compensation (“ASC 718”) and has adopted Accounting Standards Update
(“ASU”) 2018-07 for share-based transactions with non-employees. Share-based compensation expense recognized
during 2020 and 2019 includes stock option and restricted stock unit compensation expense. The
grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The grant date is the
date at which an employer and employee or non-employee reach a mutual understanding of the key terms and conditions of a share-based
payment award. The Black-Scholes option-pricing model requires inputs including the market
price of the Company’s Common Stock on the date of grant, the term that the stock options are expected to be outstanding,
the implied stock volatilities of several publicly-traded peers over the expected term of stock options, risk-free interest rate
and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The
grant date fair value of restricted stock units is based upon the market price of the Company’s Common Stock on the date
of the grant. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest
and account for forfeitures as they occur. The fair value of share-based compensation is amortized to compensation expense
over the vesting term. Basic loss per common share is computed by dividing
net loss for the period by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss
per common share reflects the potential dilution of securities that could share in the earnings of an entity. The Company’s
losses for the periods presented cause the inclusion of potential Common Stock instruments outstanding to be antidilutive. Stock
options, restricted stock units and warrants exercisable or issuable for a total of 7,566,502 and 9,857,457 shares of Common Stock
were outstanding at December 31, 2020 and 2019, respectively. These securities are not included in the computation of diluted net
loss per common share for the periods presented as their inclusion would be antidilutive due to losses incurred by the Company. The Company carries accounts receivable at historical
cost, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and establishes an
allowance for doubtful accounts for estimated losses. The Company’s expected loss allowance methodology for accounts receivable
is developed using historical collection experience, when available any published or estimated credit default rates for entities
that represent our customer base, current and future economic and market conditions and a review of the current status of customers'
trade accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers
that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution, payment
confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined
to be uncollectible. At December 31, 2020 the Company had an allowance
of $10,140 resulting in part from global uncertainty resulting from the COVID-19 virus. There was no allowance for doubtful accounts
recorded at December 31, 2019. If a major customer’s creditworthiness deteriorates, or actual defaults exceed our historical
experience, such estimates could change and impact our future reported financial results. Inventories are valued at the lower of cost
or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventory
is comprised of raw materials, assemblies and finished products intended for sale to customers. The Company evaluates the
need for reserves for excess and obsolete inventories determined primarily based upon estimates of future demand for the Company’s
products. At December 31, 2020 and 2019 the Company had
no reserve for obsolescence. The Company employs contract manufacturers for
production of certain components and sub-assemblies. The Company may provide parts and components to such parties from time to
time, but recognizes no revenue or markup on such transactions. During 2020 and 2019, the Company performed assembly of products
in-house using components and sub-assemblies from a variety of contract manufacturers and suppliers. Property and equipment is stated at cost. Depreciation
on property and equipment is computed over the estimated useful lives of three years using the straight-line method. The Company
intends, on any retirement or disposition of property and equipment, that the related cost and accumulated depreciation or amortization
will be removed and a gain or loss recorded. Transactions in which the Company obtains control
of a business are accounted for according to the acquisition method as described in ASC 805, Business Combinations. The assets
acquired and liabilities assumed are recognized and measured at their fair values as of the date control is obtained. The Company
measures goodwill as the excess of consideration transferred, which the Company also measures at fair value, over the net of the
acquisition date amounts of the identifiable assets acquired and liabilities assumed. Acquisition related costs in connection with
a business combination are expensed as incurred. Contingent consideration is recognized and measured at fair value at the acquisition
date and until paid is re-measured on a recurring basis and classified as a liability. Intangible assets consisted of (a) capitalized
legal fees and filing costs related to obtaining patents and trademarks, (b) customer agreements, tradenames, software, non-solicitation
and non-compete agreements acquired in business combinations and valued at fair value at the acquisition date, and (c) the purchase
cost of indefinite-lived website domains. The estimated useful lives of identifiable intangible assets with definite useful lives
have been estimated to be between one and twenty years. Purchased website domain costs with an indefinite useful life are not subject
to amortization, but are subject to an annual impairment test, by comparing their carrying amount with their corresponding fair
value. For any given intangible asset with an indefinite useful life, if its fair value exceeds its carrying amount no impairment
loss shall be recognized. The carrying value of intangibles is periodically
reviewed and impairments, if any, are recognized when the future undiscounted cash flows realized from the assets is less than
its carrying value. Long-lived assets and identifiable intangibles
held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset or if changes
in facts and circumstances indicate, an impairment loss is recognized and measured using the asset’s fair value. The Company
did not recognize any impairment loss during the years ended December 31, 2020 and 2019. The Company accounts for warrants as either
equity or liabilities based upon the characteristics and provisions of each particular instrument. Warrants valued and classified
as equity are recorded as additional paid-in capital based on the issue date fair value and no further adjustment to valuation
is made. As of December 31, 2020, the Company has no warrants or other derivative financial instruments that require separate accounting
as liabilities and periodic revaluation. Advertising costs are charged to expense as
incurred and were $287,266 and $165,119 for the years ended December 31, 2020 and 2019, respectively. The Company also incurred
product promotion costs for demonstration products delivered to prospective customers of $747,443 and $433,172 for the years ended
December 31, 2020 and 2019, respectively. Advertising and promotion costs are included in selling, general and administrative expenses
in the accompanying statements of operations. The Company maintains a demonstration and training
department as a part of its sales and marketing activities and does not charge for product demonstrations or training. Training
is not a condition or requirement of sale as most sales are made through distributors to their end customers. The Company conducts
local and regional in-person, webinar and on-line demonstrations and use of force and escalation training to support law enforcement
agencies with no purchase requirement. Such training, when provided, may occur before or after initial or subsequent purchase or
field deployment of the Company’s products. The Company believes that law enforcement trainers and officers that have seen
demonstrations or have been trained about its products are more supportive of their departments purchase and deployment of product. Research and development costs consist primarily
of contract development costs and experimental work materials and certain startup costs. Research and development costs with no
alternative use are expensed as incurred. At the commencement date of a lease, the Company
recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease
term. The lease liability is measured at the present value of lease payments over the lease term. As its leases typically do not
provide an implicit rate and due to lack of borrowing history or ability, the Company uses as its incremental borrowing rate a
low-grade debt rate published by the Federal Reserve Bank. The right-of-use (“ROU”) asset is measured at cost, which
includes the initial measurement of the lease liability and initial direct costs incurred by the Company and excludes lease incentives.
Lease liabilities are recorded as a current liability for the portion due within one year with the balance as a long-term
liability. ROU assets are recorded as operating lease right-of-use asset, net. In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (“ASU 2014-09”) and ASC Subtopic 340-40, Other Assets and Deferred Costs - Contracts
with Customers (“ASC 340-40”), (collectively, “Topic 606”). On January 1, 2018, the Company adopted Topic
606 and, as it had no prior revenue or contracts with customers, there was no transition required nor any impact on prior results.
ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification
of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction
price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. See Note 2
for additional information. Shipping and handling costs are included in
cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs
were $75,106 and $22,177 for the years ended December 31, 2020 and 2019, respectively. Actual revenues from shipping and handling
were $62,679 and $21,414 for the years ended December 31, 2020 and 2019, respectively. The Company warrants its products and accessories
to be free from defects in materials and workmanship for a period of one year from the date of purchase. The warranty is generally
limited. The Company currently provides direct warranty service. International market warranties are generally similar to the U.S.
market. The Company establishes a warranty reserve based
on anticipated warranty claims at the time product revenues are recognized. Factors affecting warranty reserve levels include the
number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the
adequacy of the provision for warranty costs each reporting period. The warranty reserve was $48,140 and $13,923 at December 31,
2020 and 2019. Actual warranty costs could differ from estimates. ASC Topic 280, “Segment Reporting,”
requires use of the “management approach” model for segment reporting. The management approach model is based on the
way a company’s management organizes segments within the company for making operating decisions and assessing performance.
The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. No income tax expense was recorded for the periods
ended December 31, 2020 and 2019 due to losses incurred. Deferred tax assets and liabilities are determined based on temporary
differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Company maintains a valuation allowance
with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing
the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current
period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward
period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change
in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in
income in the year of the change in estimates. Management has evaluated events subsequent to
December 31, 2020 through the date the accompanying financial statements were filed with the Securities and Exchange Commission
and noted that there have been no events or transactions which would affect the Company’s financial statements for the year
ended December 31, 2020. Adopted First Quarter of 2020: In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (“Topic 820”): Disclosure Framework Changes to the Disclosure Requirements for Fair Value
Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, to improve the effectiveness of
fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. This
ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after
December 15, 2019. The adoption of this standard in the first quarter ended March 31, 2020 had no impact on the Company’s
financial statements or disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments which
was further updated and clarified by the FASB through issuance of additional related ASUs. Under ASU 2016-13, existing
guidance on reporting credit losses for trade and other receivables and available for sale debt securities have been replaced with
a new forward-looking “expected loss” model that has resulted in the earlier recognition of allowances for losses.
The adoption of these standards in the first quarter ended March 31, 2020 had no impact on the Company’s financial statements
or disclosures. As part of our assessment of the adequacy of our allowances for credit losses, we consider a number of factors
including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of
receivables, expected loss rates and collateral exposures. Other Guidance: In December 2019, the FASB issued
Accounting Standards Update 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for
Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting
for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies
and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December
15, 2020, with early adoption permitted. We do not expect that the adoption of this ASU will have a significant impact on
our financial statements. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt
with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s
Own Equity “(Subtopic 815-40”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The
ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception
and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is
currently evaluating the impact of this standard on its financial statements and related disclosures. The Company has reviewed other recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected
to cause a material impact on its financial condition or the results of operations. Description Average Purchase Price Per Share Expiration
Date 4%
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MD=F&<5Q2OBA-_B)._/!XSKY6TAJV%?!:D2ZP*04&C<*X=?;KUDO5>UEKF9&T
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M5^>J^2KGM6HV^RS[V':%/'H E+[F,01SVL!G(B?YE(5&('/TK/A&I6RL(!=Q!_O!-RY^N*A6VO4; L_3=;TS6&F&FW]O=>20)/)D#;
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M/7ICGSL?'6W89'ARX(/I
12 Months Ended
Cover [Abstract]
Entity Registrant Name
WRAP TECHNOLOGIES, INC.
Document Type
10-K
Document Period End Date
Dec. 31, 2020
Amendment Flag
false
Entity Central Index Key
0001702924
Current Fiscal Year End Date
--12-31
Entity Common Stock, Shares Outstanding
37,644,556
Entity Public Float
$ 196,229,092
Entity Filer Category
Non-accelerated Filer
Entity Emerging Growth Company
true
Entity Ex Transition Period
false
Entity Small Business
true
Entity Shell Company
false
Entity Interactive Data Current
Yes
Entity Incorporation, State or Country Code
DE
Entity File Number
000-55838
Entity Current Reporting Status
Yes
Entity Voluntary Filers
No
Entity Well-known Seasoned Issuer
No
Document Fiscal Year Focus
2020
Document Fiscal Period Focus
FY
Statement of Financial Position [Abstract]
Preferred stock, authorized
5,000,000
5,000,000
Preferred stock, par value
$ 0.0001
$ 0.0001
Preferred stock, issued
0
Preferred stock, outstanding
0
Common stock, authorized
150,000,000
150,000,000
Common stock, par value
$ 0.0001
$ 0.0001
Common stock, issued
37,554,162
29,829,916
Common stock, outstanding
37,554,162
29,829,916
12 Months Ended
Revenues:
Product sales
$ 3,868,384
$ 656,071
Other revenue
75,673
40,719
Total revenues
3,944,057
696,790
Cost of revenues
2,601,323
420,016
Gross profit
1,342,734
276,774
Operating Expenses:
Selling, general and administrative
11,630,644
6,653,465
Research and development
2,788,887
2,236,985
Total expenses
14,419,531
8,890,450
Loss from operations
(13,076,797)
(8,613,676)
Other Income (Expense):
Interest income
83,272
291,494
Debt forgiveness income
416,683
0
Other
(3,367)
(3,306)
Other income (expense)
496,588
288,188
Net loss
$ (12,580,209)
$ (8,325,488)
Net loss per basic and diluted common share
$ (0.37)
$ (0.29)
Weighted average common shares used to compute net loss per basic and diluted common share
33,846,338
28,652,625
Comprehensive loss
Net loss
$ (12,580,209)
$ (8,325,488)
Net unrealized gain on short-term investments
14,849
0
Comprehensive loss
$ (12,565,360)
$ (8,325,488)
12 Months Ended
Accounting Policies [Abstract]
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Revenues:
REVENUE AND PRODUCT COSTS
12 Months Ended
Business Combination, Description [Abstract]
ACQUISITION
Equipment
$
10,250
Software
460,250
Customer contracts
40,000
Tradenames
2,000
Noncompete agreements
10,000
Deferred revenue
(15,000
)
Total consideration
$
507,500
Useful life in years
Fair Value
Software
5
$
460,250
Customer contracts
1
40,000
Tradenames
1
2,000
Noncompete agreements
2
10,000
Total acquired intangible assets
$
512,250
12 Months Ended
Financial Instruments, Owned, at Fair Value [Abstract]
FINANCIAL INSTRUMENTS
As of December 31, 2020
Adjusted
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
Level 1:
Money Market Funds
$
6,034,757
$
-
$
-
$
6,034,757
U.S. Treasury securities considered cash equivalents
9,997,812
-
-
9,997,812
U.S. Treasury securities in short-term investments
24,979,511
14,849
24,994,360
Total Financial Assets
$
41,012,080
$
14,849
$
-
$
41,026,929
12 Months Ended
Inventory Disclosure [Abstract]
INVENTORIES, NET
December 31,
December 31,
2020
2019
Finished goods
$
1,248,893
$
653,323
Work in process
64,451
413
Raw materials
1,342,046
1,590,805
Inventories, net
$
2,655,390
$
2,244,541
12 Months Ended
Property, Plant and Equipment [Abstract]
PROPERTY AND EQUIPMENT, NET
December 31,
December 31,
2020
2019
Production and lab equipment
$
147,781
$
44,454
Tooling
80,936
59,004
Computer equipment
180,573
83,368
Furniture, fixtures and improvements
165,465
128,782
574,755
315,608
Accumulated depreciation
(217,468
)
(72,732
)
Property and equipment, net
$
357,287
$
242,876
12 Months Ended
Goodwill and Intangible Assets Disclosure [Abstract]
INTANGIBLE ASSETS, NET
December 31,
December 31,
2020
2019
Amortizable intangible assets:
Patents
$
279,294
$
176,425
Trademarks
83,964
57,919
Purchased software
662,250
-
Other
50,000
-
1,075,508
234,344
Accumulated amortization
(22,587
)
(4,061
)
Total amortizable
1,052,921
230,283
Indefinite life assets (non-amortizable)
343,563
-
Total intangible assets-net
$
1,396,484
$
230,283
2021
$
186,266
2022
150,766
2023
145,766
2024
145,766
2025
145,766
Thereafter
278,591
Total estimated amortization expense
$
1,052,921
12 Months Ended
Payables and Accruals [Abstract]
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31,
December 31,
2020
2019
Patent and legal costs
$
64,800
$
9,851
Accrued compensation
562,792
144,193
Warranty costs
48,140
13,923
Consulting costs
2,083
7,500
Taxes and other
43,260
18,827
Accrued liabilities
$
721,075
$
194,294
12 Months Ended
Leases [Abstract]
LEASES
Operating lease liability- short term
$
94,011
Operating lease liability - long term
56,006
Total Operating Lease Liability
$
150,017
2021
101,406
2022
57,328
Total future minimum lease payments
158,734
Less imputed interest
(8,717
)
Total
$
150,017
12 Months Ended
Debt Disclosure [Abstract]
DEBT
12 Months Ended
Stockholders' Equity:
STOCKHOLDERS' EQUITY
Number
Shares purchasable under outstanding warrants at December 31, 2018
5,017,181
$
4.82
Stock purchase warrants issued
2,076,922
$
6.62
Stock purchase warrants exercised
(473,483
)
$
4.46
Shares purchasable under outstanding warrants at December 31, 2019
6,620,620
$
5.41
Stock purchase warrants issued
2,066,667
$
6.00
Stock purchase warrants exercised
(5,155,976
)
$
5.08
Stock purchase warrants cancelled
(324,401
)
$
5.00
Shares purchasable under outstanding warrants at December 31, 2020
3,206,910
$
6.36
Number of
Exercise Price
Description
Common Shares
Per Share
Purchase Warrants
1,661,397
$
6.50
June 18, 2021
Agent Warrants
153,846
$
8.125
June 18, 2021
Purchase Warrants
1,391,667
$
6.00
June 1, 2022
3,206,910
12 Months Ended
Share-based Payment Arrangement [Abstract]
SHARE-BASED COMPENSATION
Weighted Average
Options on
Remaining
Aggregate
Common
Exercise
Contractual
Intrinsic
Shares
Price
Term
Value
Outstanding December 31, 2018
2,067,500
$
1.68
4.44
Granted
1,000,000
$
5.41
-
Exercised
(38,750
)
$
1.50
-
Forfeited, cancelled, expired
(100,000
)
$
1.50
-
Outstanding December 31, 2019
2,928,750
$
2.96
3.71
Granted
1,423,836
$
6.66
-
Exercised
(371,000
)
$
1.90
-
Forfeited, cancelled, expired
(50,000
)
$
3.00
-
Outstanding December 31, 2020
3,931,586
$
4.41
4.89
$
5,176,337
Vested and exercisable at December 31, 2020
2,091,084
$
2.68
2.60
$
4,965,155
For the Year Ended
December 31,
2020
2019
Expected stock price volatility
47
%
49
%
Risk-free interest rate
0.38
%
2.41
%
Forfeiture rate
0
%
0
%
Expected dividend yield
0
%
0
%
Expected life of options - years
5.64
3.50
Weighted-average fair value of options granted
$
2.90
$
2.06
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Range of
Number
Contractual
Exercise
Number
Exercise
Exercise Prices
Outstanding
Life (Years)
Price
Exercisable
Price
$
1.50
1,422,750
2.39
$
1.50
1,422,750
$
1.50
$
3.15 - $3.61
85,000
2.86
$
3.75
85,000
$
3.75
$
4.26 - $6.58
2,073,836
5.89
$
5.29
583,334
$
5.41
$
11.22
350,000
9.58
$
11.22
-
-
Weighted Average
Weighted Average
Service-Based
Grant Date
Vesting
RSU's
Fair Value
Period
Unvested at December 31, 2018
-
-
Granted - service based
308,087
$
6.77
3.00 Years
Unvested at December 31, 2019
308,087
$
6.77
Granted - service based
310,874
$
6.02
3.02 Years
Granted - performance based
35,211
$
4.26
Vested
(144,687
)
$
5.17
Forfeited and cancelled
(81,479
)
$
6.47
Unvested at December 31, 2020
428,006
$
6.13
2.27 Years
For the Year Ended
December 31,
2020
2019
Selling, general and administrative
$
1,956,818
$
1,410,095
Research and development
279,925
126,001
Total share-based expense
$
2,236,743
$
1,536,096
12 Months Ended
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Related Party Transactions [Abstract]
RELATED PARTY TRANSACTIONS
12 Months Ended
Income Tax Disclosure [Abstract]
INCOME TAXES
Year Ended December 31,
2020
2019
Current tax benefit
$
-
$
-
Deferred tax benefit
3,158,000
1,800,000
Change in valuation allowance
(3,158,000
)
(1,800,000
)
Income tax benefit (provision)
$
-
$
-
Year Ended December 31,
2020
2019
Income taxes benefit computed at federal statutory rate
$
2,642,000
$
1,748,000
State income taxes, net of federal effect
216,000
114,000
Permanent differences and other
300,000
(62,000
)
Change in valuation allowance
(3,158,000
)
(1,800,000
)
Income tax benefit (provision)
$
-
$
-
December 31,
2020
2019
Deferred tax assets:
Net operating losses
$
5,444,000
$
2,430,000
Research tax credits
45,000
26,000
Stock compensation
542,000
239,000
Accruals and other
169,000
9,000
6,200,000
2,704,000
Deferred tax liabilities:
Depreciation and other
396,000
58,000
396,000
58,000
Net deferred tax assets
5,804,000
2,646,000
Less valuation allowance
(5,804,000
)
(2,646,000
)
Net deferred taxes after valuation allowance
$
-
$
-
12 Months Ended
Revenue from Contract with Customer [Abstract]
MAJOR CUSTOMERS AND RELATED INFORMATION
For the Year
Ended December 31,
2020
2019
Americas
$
1,442,822
$
481,622
Europe, Middle East and Africa
1,046,499
116,547
Asia Pacific
1,454,736
98,621
$
3,944,057
$
696,790
12 Months Ended
Accounting Policies [Abstract]
Organization and Business Description
Principles of Consolidation
Basis of Presentation and Use of Estimates
Concentrations of Risk
Cash and Cash Equivalents
Short-Term investments
Share Based Compensation
Loss per Share
Accounts Receivable and Allowance for Doubtful Accounts
Inventories
Contract Manufacturers
Property, Equipment and Depreciation
Business Combinations
Intangible Assets
Impairment of Long-Lived Assets
Classification and Valuation of Warrants
Advertising and Promotion Costs
Demonstration and Training Costs
Research and Development Costs
Leases
Revenue Recognition
Shipping and Handling Costs
Warranty Reserves
Segment Information
Income Taxes
Subsequent Events
Recent Issued Accounting Guidance
12 Months Ended
Business Combination, Description [Abstract]
Assets and liabilities assumed
Equipment
$
10,250
Software
460,250
Customer contracts
40,000
Tradenames
2,000
Noncompete agreements
10,000
Deferred revenue
(15,000
)
Total consideration
$
507,500
Intangible assets
Useful life in years
Fair Value
Software
5
$
460,250
Customer contracts
1
40,000
Tradenames
1
2,000
Noncompete agreements
2
10,000
Total acquired intangible assets
$
512,250
12 Months Ended
Financial Instruments, Owned, at Fair Value [Abstract]
Level 1 Instruments
As of December 31, 2020
Adjusted
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
Level 1:
Money Market Funds
$
6,034,757
$
-
$
-
$
6,034,757
U.S. Treasury securities considered cash equivalents
9,997,812
-
-
9,997,812
U.S. Treasury securities in short-term investments
24,979,511
14,849
24,994,360
Total Financial Assets
$
41,012,080
$
14,849
$
-
$
41,026,929
12 Months Ended
Inventory Disclosure [Abstract]
Schedule of inventories
December 31,
December 31,
2020
2019
Finished goods
$
1,248,893
$
653,323
Work in process
64,451
413
Raw materials
1,342,046
1,590,805
Inventories, net
$
2,655,390
$
2,244,541
12 Months Ended
Property, Plant and Equipment [Abstract]
Property and equipment
December 31,
December 31,
2020
2019
Production and lab equipment
$
147,781
$
44,454
Tooling
80,936
59,004
Computer equipment
180,573
83,368
Furniture, fixtures and improvements
165,465
128,782
574,755
315,608
Accumulated depreciation
(217,468
)
(72,732
)
Property and equipment, net
$
357,287
$
242,876
12 Months Ended
Goodwill and Intangible Assets Disclosure [Abstract]
Summary of intangible assets
December 31,
December 31,
2020
2019
Amortizable intangible assets:
Patents
$
279,294
$
176,425
Trademarks
83,964
57,919
Purchased software
662,250
-
Other
50,000
-
1,075,508
234,344
Accumulated amortization
(22,587
)
(4,061
)
Total amortizable
1,052,921
230,283
Indefinite life assets (non-amortizable)
343,563
-
Total intangible assets-net
$
1,396,484
$
230,283
Amortization of intangible assets
2021
$
186,266
2022
150,766
2023
145,766
2024
145,766
2025
145,766
Thereafter
278,591
Total estimated amortization expense
$
1,052,921
12 Months Ended
Payables and Accruals [Abstract]
Summary of accrued liabilities
December 31,
December 31,
2020
2019
Patent and legal costs
$
64,800
$
9,851
Accrued compensation
562,792
144,193
Warranty costs
48,140
13,923
Consulting costs
2,083
7,500
Taxes and other
43,260
18,827
Accrued liabilities
$
721,075
$
194,294
12 Months Ended
Leases [Abstract]
Operating lease obligations
Operating lease liability- short term
$
94,011
Operating lease liability - long term
56,006
Total Operating Lease Liability
$
150,017
Future lease payments
2021
101,406
2022
57,328
Total future minimum lease payments
158,734
Less imputed interest
(8,717
)
Total
$
150,017
12 Months Ended
Stockholders' Equity:
Warrant activity
Number
Shares purchasable under outstanding warrants at December 31, 2018
5,017,181
$
4.82
Stock purchase warrants issued
2,076,922
$
6.62
Stock purchase warrants exercised
(473,483
)
$
4.46
Shares purchasable under outstanding warrants at December 31, 2019
6,620,620
$
5.41
Stock purchase warrants issued
2,066,667
$
6.00
Stock purchase warrants exercised
(5,155,976
)
$
5.08
Stock purchase warrants cancelled
(324,401
)
$
5.00
Shares purchasable under outstanding warrants at December 31, 2020
3,206,910
$
6.36
Summary of stock purchase warrants
Number of
Exercise Price
Description
Common Shares
Per Share
Purchase Warrants
1,661,397
$
6.50
June 18, 2021
Agent Warrants
153,846
$
8.125
June 18, 2021
Purchase Warrants
1,391,667
$
6.00
June 1, 2022
3,206,910
12 Months Ended
Share-based Payment Arrangement [Abstract]
Stock option activity
Weighted Average
Options on
Remaining
Aggregate
Common
Exercise
Contractual
Intrinsic
Shares
Price
Term
Value
Outstanding December 31, 2018
2,067,500
$
1.68
4.44
Granted
1,000,000
$
5.41
-
Exercised
(38,750
)
$
1.50
-
Forfeited, cancelled, expired
(100,000
)
$
1.50
-
Outstanding December 31, 2019
2,928,750
$
2.96
3.71
Granted
1,423,836
$
6.66
-
Exercised
(371,000
)
$
1.90
-
Forfeited, cancelled, expired
(50,000
)
$
3.00
-
Outstanding December 31, 2020
3,931,586
$
4.41
4.89
$
5,176,337
Vested and exercisable at December 31, 2020
2,091,084
$
2.68
2.60
$
4,965,155
Assumptions used to compute the fair value of options granted
For the Year Ended
December 31,
2020
2019
Expected stock price volatility
47
%
49
%
Risk-free interest rate
0.38
%
2.41
%
Forfeiture rate
0
%
0
%
Expected dividend yield
0
%
0
%
Expected life of options - years
5.64
3.50
Weighted-average fair value of options granted
$
2.90
$
2.06
Stock options outstanding
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Range of
Number
Contractual
Exercise
Number
Exercise
Exercise Prices
Outstanding
Life (Years)
Price
Exercisable
Price
$
1.50
1,422,750
2.39
$
1.50
1,422,750
$
1.50
$
3.15 - $3.61
85,000
2.86
$
3.75
85,000
$
3.75
$
4.26 - $6.58
2,073,836
5.89
$
5.29
583,334
$
5.41
$
11.22
350,000
9.58
$
11.22
-
-
Service-based RSU activity
Weighted Average
Weighted Average
Service-Based
Grant Date
Vesting
RSU's
Fair Value
Period
Unvested at December 31, 2018
-
-
Granted - service based
308,087
$
6.77
3.00 Years
Unvested at December 31, 2019
308,087
$
6.77
Granted - service based
310,874
$
6.02
3.02 Years
Granted - performance based
35,211
$
4.26
Vested
(144,687
)
$
5.17
Forfeited and cancelled
(81,479
)
$
6.47
Unvested at December 31, 2020
428,006
$
6.13
2.27 Years
Stock-based compensation
For the Year Ended
December 31,
2020
2019
Selling, general and administrative
$
1,956,818
$
1,410,095
Research and development
279,925
126,001
Total share-based expense
$
2,236,743
$
1,536,096
12 Months Ended
Income Tax Disclosure [Abstract]
Provision for (benefit from) income taxes
Year Ended December 31,
2020
2019
Current tax benefit
$
-
$
-
Deferred tax benefit
3,158,000
1,800,000
Change in valuation allowance
(3,158,000
)
(1,800,000
)
Income tax benefit (provision)
$
-
$
-
Reconciliation of the provision for income taxes
Year Ended December 31,
2020
2019
Income taxes benefit computed at federal statutory rate
$
2,642,000
$
1,748,000
State income taxes, net of federal effect
216,000
114,000
Permanent differences and other
300,000
(62,000
)
Change in valuation allowance
(3,158,000
)
(1,800,000
)
Income tax benefit (provision)
$
-
$
-
Deferred tax assets and liabilities
December 31,
2020
2019
Deferred tax assets:
Net operating losses
$
5,444,000
$
2,430,000
Research tax credits
45,000
26,000
Stock compensation
542,000
239,000
Accruals and other
169,000
9,000
6,200,000
2,704,000
Deferred tax liabilities:
Depreciation and other
396,000
58,000
396,000
58,000
Net deferred tax assets
5,804,000
2,646,000
Less valuation allowance
(5,804,000
)
(2,646,000
)
Net deferred taxes after valuation allowance
$
-
$
-
12 Months Ended
Revenue from Contract with Customer [Abstract]
Summary of revenues by geographic region
For the Year
Ended December 31,
2020
2019
Americas
$
1,442,822
$
481,622
Europe, Middle East and Africa
1,046,499
116,547
Asia Pacific
1,454,736
98,621
$
3,944,057
$
696,790
12 Months Ended
Accounting Policies [Abstract]
Antidilutive securities
7,566,502
9,857,457
Advertising costs
$ 287,266
$ 165,119
Product promotion costs
747,443
433,172
Shipping and handling costs
75,106
22,177
Revenues from shipping and handling
62,679
21,414
Warranty reserve
$ 48,140
$ 13,923
Fair value of assets and liabilities acquired
$ 507,500
Equipment
Fair value of assets and liabilities acquired
10,250
Software
Fair value of assets and liabilities acquired
460,250
Customer Contracts
Fair value of assets and liabilities acquired
40,000
Tradenames
Fair value of assets and liabilities acquired
2,000
Noncompete Agreements
Fair value of assets and liabilities acquired
10,000
Deferred Revenue
Fair value of assets and liabilities acquired
$ (15,000)
12 Months Ended
Intangible assets
$ 512,250
Software
Intangible assets
$ 460,250
Useful life
5 years
Customer Contracts
Intangible assets
$ 40,000
Useful life
1 year
Tradenames
Intangible assets
$ 2,000
Useful life
1 year
Noncompete Agreements
Intangible assets
$ 10,000
Useful life
2 years
12 Months Ended
Adjusted Cost
$ 41,012,080
Unrealized Gains
14,849
Unrealized Losses
0
Market Value
41,026,929
Money Market Funds
Adjusted Cost
6,034,757
Unrealized Gains
0
Unrealized Losses
0
Market Value
6,034,757
U.S. Treasury securities considered cash equivalents
Adjusted Cost
9,997,812
Unrealized Gains
0
Unrealized Losses
0
Market Value
9,997,812
U.S. Treasury securities in short-term investments
Adjusted Cost
24,979,511
Unrealized Gains
14,849
Unrealized Losses
0
Market Value
$ 24,994,360
Inventory Disclosure [Abstract]
Finished goods
$ 1,248,893
$ 653,323
Work in process
64,451
413
Raw materials
1,342,046
1,590,805
Inventory
$ 2,655,390
$ 2,244,541
12 Months Ended
Inventory Disclosure [Abstract]
Inventory write down
$ (68,108)
$ (193,506)
Property and equipment, gross
$ 574,755
$ 315,608
Accumulated depreciation
(217,468)
(72,732)
Property and equipment, net
357,287
242,876
Laboratory Equipment
Property and equipment, gross
147,781
44,454
Tooling
Property and equipment, gross
80,936
59,004
Computer Equipment
Property and equipment, gross
180,573
83,368
Furniture and Fixtures
Property and equipment, gross
$ 165,465
$ 128,782
12 Months Ended
Property, Plant and Equipment [Abstract]
Depreciation expense
$ 144,736
$ 44,239
Intangible assets, gross
$ 1,075,508
$ 234,344
Accumulated amortization
(22,587)
(4,061)
Total amortizable
1,052,921
230,283
Indefinite life assets (non-amortizable)
343,563
0
Intangible assets, net
1,396,484
230,283
Patents
Intangible assets, gross
279,294
176,425
Trademarks
Intangible assets, gross
83,964
57,919
Purchased software
Intangible assets, gross
662,250
0
Other
Intangible assets, gross
$ 50,000
$ 0
Goodwill and Intangible Assets Disclosure [Abstract]
2021
$ 186,266
2022
150,766
2023
145,766
2024
145,766
2025
145,766
Thereafter
278,591
Total estimated amortization expense
$ 1,052,921
12 Months Ended
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense
$ 18,526
$ 2,706
Accrued liabilities
$ 721,075
$ 194,294
Patent Costs
Accrued liabilities
64,800
9,851
Accrued Compensation
Accrued liabilities
562,792
144,193
Warranty Costs
Accrued liabilities
48,140
13,923
Consulting Costs
Accrued liabilities
2,083
7,500
Taxes and Other
Accrued liabilities
$ 43,260
$ 18,827
Leases [Abstract]
Operating lease liability- short term
$ 94,011
$ 128,131
Operating lease liability - long term
56,006
150,018
Total operating lease liability
$ 150,017
$ 278,149
Leases [Abstract]
2021
$ 101,406
2022
57,328
Total future minimum lease payments
158,734
Less imputed interest
(8,717)
Total
$ 150,017
$ 278,149
12 Months Ended
Leases [Abstract]
Amortization of ROU operating lease assets
$ 121,844
$ 80,069
Operating lease expense
$ 137,228
$ 94,599
Weighted average remaining lease term
1 year 6 months 14 days
Weighted average discount rate
7.00%
12 Months Ended
Stockholders' Equity:
Warrants outstanding, beginning
6,620,620
5,017,181
Issued
2,066,667
2,076,922
Exercised
(5,155,976)
(473,483)
Cancelled
(324,401)
0
Warrants outstanding, ending
3,206,910
6,620,620
Average purchase price per share outstanding, beginning
$ 5.41
$ 4.82
Issued
6.00
6.62
Exercised
5.08
4.46
Cancelled
5.00
.00
Average purchase price per share outstanding, ending
$ 6.36
$ 5.41
12 Months Ended
Number of common shares
$ 3,206,910
Purchase Warrants
Number of common shares
$ 1,661,397
Exercise price per share | $ / shares
$ 6.50
Expiration date
Jun. 18, 2021
Agent Warrants
Number of common shares
$ 153,846
Exercise price per share | $ / shares
$ 8.125
Expiration date
Jun. 18, 2021
Purchase Warrants
Number of common shares
$ 1,391,667
Exercise price per share | $ / shares
$ 6.00
Expiration date
Jun. 01, 2022
Stockholders' Equity:
Common stock, authorized
150,000,000
150,000,000
Common stock, par value
$ 0.0001
$ 0.0001
Preferred stock, authorized
5,000,000
5,000,000
Preferred stock, par value
$ 0.0001
$ 0.0001
12 Months Ended
Share-based Payment Arrangement [Abstract]
Expected stock price volatility
47.00%
49.00%
Risk-free interest rate
0.38%
2.41%
Forfeiture rate
0.00%
0.00%
Expected dividend yield
0.00%
0.00%
Expected life of options - years
5 years 7 months 20 days
3 years 6 months
Weighted-average fair value of options granted
$ 2.90
$ 2.06
12 Months Ended
Share-based Payment Arrangement [Abstract]
Unvested RSUs outstanding, beginning
308,087
0
Granted - service based
310,874
308,087
Granted - performance based
35,211
0
Vested
144,687
0
Forfeited and cancelled
81,479
0
Unvested service-based RSUs outstanding, ending
428,006
308,087
Unvested RSUs grant date fair value, beginning
$ 6.77
$ .00
Grant date fair value, service based
6.02
6.77
Grant date fair value, performance based
4.26
.00
Vested
5.17
.00
Forfeited and cancelled
6.47
.00
Unvested RSUs grant date fair value, ending
$ 6.13
$ 6.77
Vesting period
2 years 3 months 7 days
3 years
12 Months Ended
Share-based compensation
$ 2,236,743
$ 1,536,096
Selling, General and Administrative
Share-based compensation
1,956,818
1,410,095
Research and Development
Share-based compensation
$ 279,925
$ 126,001
12 Months Ended
Share-based Payment Arrangement [Abstract]
Service-based RSUs granted
310,874
308,087
Unrecognized compensation cost
$ 2,200,000
Unrecognized compensation cost, period of recognition
2 years 3 months 18 days
12 Months Ended
Commitments and Contingencies Disclosure [Abstract]
Royalties incurred
$ 143,390
$ 23,297
Purchase commitment
$ 2,200,000
12 Months Ended
Norris [Member]
Payment to related party during period
$ 18,000
V3 [Member]
Payment to related party during period
$ 265,000
12 Months Ended
Income Tax Disclosure [Abstract]
Current tax benefit
$ 0
$ 0
Deferred tax benefit
3,158,000
1,800,000
Change in valuation allowance
(3,158,000)
(1,800,000)
Income tax benefit (provision)
$ 0
$ 0
12 Months Ended
Income Tax Disclosure [Abstract]
Income taxes benefit computed at federal statutory rate
$ 2,642,000
$ 1,748,000
State income taxes, net of federal effect
216,000
114,000
Permanent differences and other
300,000
(62,000)
Change in valuation allowance
(3,158,000)
(1,800,000)
Income tax benefit (provision)
$ 0
$ 0
Deferred tax assets:
Net operating losses
$ 5,444,000
$ 2,430,000
Research tax credits
45,000
26,000
Stock compensation
542,000
239,000
Accruals and other
169,000
9,000
Deferred tax assets
6,200,000
2,704,000
Deferred tax liabilities:
Depreciation and other
396,000
58,000
Deferred tax liabilities
396,000
58,000
Net deferred tax assets
5,804,000
2,646,000
Less valuation allowance
(5,804,000)
(2,646,000)
Net deferred taxes after valuation allowance
$ 0
$ 0
Income Tax Disclosure [Abstract]
Operating loss carryforward
$ 720,000
$ 144,000
12 Months Ended
Revenues
$ 3,944,057
$ 696,790
Americas
Revenues
1,442,822
481,622
Europe, Middle East and Africa
Revenues
1,046,499
116,547
Asia Pacific
Revenues
$ 1,454,736
$ 98,621
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