Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | Apr. 28, 2020 | |
Document and Entity Information | ||
Entity Registrant Name | WRAP TECHNOLOGIES, INC. | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Entity Central Index Key | 0001702924 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 30,123,599 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Small Business | true | |
Entity Current Reporting Status | Yes | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | DE | |
Entity File Number | 000-55838 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q1 |
Condensed Balance Sheets
Condensed Balance Sheets - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 15,492,784 | $ 16,983,864 |
Accounts receivable | 383,709 | 195,347 |
Inventories, net | 2,288,133 | 2,244,541 |
Prepaid expenses and other current assets | 345,246 | 250,947 |
Total current assets | 18,509,872 | 19,674,699 |
Property and equipment, net | 239,948 | 242,876 |
Operating lease right-of-use asset, net | 231,303 | 260,931 |
Intangible assets, net | 262,176 | 230,283 |
Other assets, net | 12,681 | 12,681 |
Total assets | 19,255,980 | 20,421,470 |
Current Liabilities: | ||
Accounts payable | 449,716 | 406,967 |
Accrued liabilities | 215,831 | 194,294 |
Customer deposits | 222,388 | 343,724 |
Deferred revenue | 2,484 | 2,684 |
Operating lease liability - short term | 123,676 | 128,131 |
Total current liabilities | 1,014,095 | 1,075,800 |
Operating lease liability - long term | 123,676 | 150,018 |
Total liabilities | 1,137,771 | 1,225,818 |
Commitments and contingencies (Note 10) | ||
Stockholders' equity: | ||
Preferred stock - 5,000,000 authorized; par value $0.0001 per share; none issued and outstanding | 0 | 0 |
Common stock - 150,000,000 authorized; par value $0.0001 per share; 30,073,724 and 29,829,916 shares issued and outstanding each period, respectively | 3,007 | 2,983 |
Additional paid in capital | 33,191,001 | 31,922,493 |
Accumulated deficit | (15,075,799) | (12,729,824) |
Total stockholders' equity | 18,118,209 | 19,195,652 |
Total liabilities and stockholders' equity | $ 19,255,980 | $ 20,421,470 |
Condensed Balance Sheets (Paren
Condensed Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, authorized | 150,000,000 | 150,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, issued | 30,073,724 | 29,829,916 |
Common stock, outstanding | 30,073,724 | 29,829,916 |
Condensed Statements of Operati
Condensed Statements of Operations - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenues: | ||
Product sales | $ 674,613 | $ 113,953 |
Other revenue | 14,824 | 3,858 |
Total revenues | 689,437 | 117,811 |
Cost of revenues | 405,812 | 61,220 |
Gross profit | 283,625 | 56,591 |
Operating expenses: | ||
Selling, general and administrative | 2,140,250 | 1,187,876 |
Research and development | 533,478 | 374,819 |
Total operating expenses | 2,673,728 | 1,562,695 |
Loss from operations | (2,390,103) | (1,506,104) |
Other income (expense): | ||
Interest income | 44,518 | 25,410 |
Other | (390) | (87) |
Other income (expense) | 44,128 | 25,323 |
Net loss | $ (2,345,975) | $ (1,480,781) |
Net loss per basic and diluted common share | $ (0.08) | $ (0.05) |
Weighted average common shares used to compute net loss per basic and diluted common share | 29,976,825 | 27,364,607 |
Condensed Statements of Stockho
Condensed Statements of Stockholders Equity - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning balance, shares at Dec. 31, 2018 | 27,364,607 | |||
Beginning balance, amount at Dec. 31, 2018 | $ 2,736 | $ 16,791,254 | $ (4,404,336) | $ 12,389,654 |
Stock-based compensation expense | 227,047 | 227,047 | ||
Net loss for the period | (1,480,781) | (1,480,781) | ||
Ending balance, shares at Mar. 31, 2019 | 27,364,607 | |||
Ending balance, amount at Mar. 31, 2019 | $ 2,736 | 17,018,301 | (5,885,117) | 11,135,920 |
Beginning balance, shares at Dec. 31, 2019 | 29,829,916 | |||
Beginning balance, amount at Dec. 31, 2019 | $ 2,983 | 31,922,493 | (12,729,824) | 19,195,652 |
Common shares issued upon exercise of warrants at $3.00 per share, shares | 11,783 | |||
Common shares issued upon exercise of warrants at $3.00 per share, amount | $ 1 | 35,348 | 35,349 | |
Common shares issued upon exercise of warrants at $5.00 per share, shares | 119,400 | |||
Common shares issued upon exercise of warrants at $5.00 per share, amount | $ 12 | 596,988 | 597,000 | |
Common shares issued upon exercise of stock options, shares | 112,625 | |||
Common shares issued upon exercise of stock options, amount | $ 11 | 168,926 | 168,937 | |
Stock-based compensation expense | 467,246 | 467,246 | ||
Net loss for the period | (2,345,975) | (2,345,975) | ||
Ending balance, shares at Mar. 31, 2020 | 30,073,724 | |||
Ending balance, amount at Mar. 31, 2020 | $ 3,007 | $ 33,191,001 | $ (15,075,799) | $ 18,118,209 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (2,345,975) | $ (1,480,781) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 25,098 | 5,174 |
Warranty provision | 13,882 | 2,297 |
Inventory write-off | 0 | (12,975) |
Non-cash lease expense | 29,628 | 5,852 |
Share-based compensation | 467,246 | 227,047 |
Provision for doubtful accounts | 10,140 | 0 |
Changes in assets and liabilities: | ||
Accounts receivable | (198,502) | (58,646) |
Inventories | (43,592) | (521,449) |
Prepaid expenses and other current assets | (94,299) | (212,119) |
Accounts payable | 42,749 | 417,364 |
Operating lease liability | (30,797) | (5,120) |
Customer deposits | (149,141) | 0 |
Accrued liabilities and other | 35,460 | 41,977 |
Deferred revenue | (200) | 2,402 |
Net cash used in operating activities | (2,238,303) | (1,588,977) |
Cash Flows From Investing Activities: | ||
Capital expenditures for property and equipment | (19,569) | (39,198) |
Investment in patents and trademarks | (34,494) | (34,437) |
Long-term deposits | 0 | (2,805) |
Net cash used in investing activities | (54,063) | (76,440) |
Cash Flows From Financing Activities: | ||
Proceeds from exercise of warrants | 632,349 | 0 |
Proceeds from exercise of stock options | 168,937 | 0 |
Net cash provided by financing activities | 801,286 | 0 |
Net decrease in cash and cash equivalents | (1,491,080) | (1,665,417) |
Cash and cash equivalents, beginning of period | 16,983,864 | 12,358,896 |
Cash and cash equivalents, end of period | 15,492,784 | 10,693,479 |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||
Right-of-use assets and liabilites recorded during period | $ 0 | $ 87,588 |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Organization and Business Description Wrap Technologies, Inc., a Delaware corporation (the “ Company Nasdaq Basis of Presentation and Use of Estimates The Company’s unaudited interim financial statements and related notes included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“ US GAAP SEC 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., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued costs 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. Where necessary, the prior year’s information has been reclassified to conform to the current year presentation. Concentrations of Risk and Uncertainties Credit Risk Concentrations of Accounts Receivable and Revenue Concentration of Suppliers COVID-19 COVID-19 Stock-Based Compensation The Company follows the fair value recognition provisions issued by the Financial Accounting Standards Board (“ FASB ASC ASC 718 ASU The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. 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. The fair value of stock-based compensation is amortized to compensation expense over the vesting term. Revenue Recognition In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ ASU 2014-09 ASC 340-40 Topic 606 Accounts Receivable and Allowance for Doubtful Accounts The Company’s policy is to evaluate the collectability of accounts receivable based on an assessment of the collectability of specific customer accounts and then record an allowance for doubtful accounts to reduce the receivables to an amount that management reasonably estimates will be collected. There was no allowance for doubtful accounts recorded at December 31, 2019. At March 31, 2020 the Company established an allowance of $10,140 resulting in part from global uncertainty resulting from the COVID-19 virus. Accounts that are deemed uncollectible will be written off against the allowance for doubtful accounts. 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. Prior to October 1, 2019 substantially all of the Company’s inventory was determined by the weighted average cost method which approximated the first in first out (FIFO) cost method. Effective October 1, 2019, with the change to a new computerized inventory system, the Company commenced identifying FIFO layers. The Company believes this transition change to FIFO will improve financial reporting by better reflecting the current value of inventory on the balance sheet, more closely aligning the flow of physical inventory with the accounting for the inventory and providing better matching of revenues and expenses. As the Company has only recently started selling products, and had limited purchase and sales activity, the weighted average method approximated FIFO and this change to FIFO had no material effect on the prior balance sheet, statement of operations or cash flows. Accordingly, no retrospective changes were recorded. Inventory is comprised of raw materials, assemblies and finished products intended for sale to customers . 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 9,684,225 shares of Common Stock were outstanding at March 31, 2020. 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. Income Taxes Until its conversion to a corporation on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. Instead, its losses were included in the income tax returns of the member partners. No income tax expense was recorded for period ended March 31, 2020 due to losses incurred. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimates. Recent Issued Accounting Guidance Effective the First Quarter of 2020: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (“ Topic 820 Other Pronouncements: In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic ): Simplifying the Accounting for Income Taxes ASU 2019-12 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. |
REVENUE AND PRODUCT COSTS
REVENUE AND PRODUCT COSTS | 3 Months Ended |
Mar. 31, 2020 | |
Revenues: | |
REVENUE AND PRODUCT COSTS | The Company enters into contracts that include various combinations of products, accessories and services, such as training, 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 Performance obligations to deliver products and accessories are generally satisfied at the point in time the Company ships the product, as this is when the customer obtains control of the asset under our standard terms and conditions. The Company has elected to recognize shipping costs as an expense in cost of revenue when control has transferred to the customer. The revenue and cost of training associated with a customer contract are recognized when the training is completed, generally following delivery of related products. 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 March 31, 2020 the Company had deferred revenue of $2,484 related to future training and extended warranties. 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 March 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. |
INVENTORIES, NET
INVENTORIES, NET | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
INVENTORIES, NET | 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: March 31, December 31, 2020 2019 Finished goods $ 1,044,282 $ 653,323 Work in process 27,613 413 Raw materials 1,216,238 1,590,805 $ 2,288,133 $ 2,244,541 |
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET | 3 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT, NET | Property and equipment consisted of the following: March 31, December 31, 2020 2019 Laboratory equipment $ 51,126 $ 44,454 Tooling 61,259 59,004 Computer equipment 94,010 83,368 Furniture, fixtures and improvements 128,782 128,782 335,177 315,608 Accumulated depreciation (95,229 ) (72,732 ) $ 239,948 $ 242,876 Depreciation expense was $22,497 and $4,990 for the three months ended March 31, 2020 and 2019, respectively. |
INTANGIBLE ASSETS, NET
INTANGIBLE ASSETS, NET | 3 Months Ended |
Mar. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS, NET | Intangible assets consisted of the following: March 31, December 31, 2020 2019 Patents $ 199,783 $ 176,425 Trademarks 69,055 57,919 268,838 234,344 Accumulated amortization (6,662 ) (4,061 ) $ 262,176 $ 230,283 Amortization expense was $2,601 and $184 for the three months ended March 31, 2020 and 2019, respectively. |
ACCOUNTS PAYABLE AND ACCRUED LI
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 3 Months Ended |
Mar. 31, 2020 | |
Payables and Accruals [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | Accounts payable includes $31,649 and $18,809 due to related party Syzygy Licensing, LLC (“ Syzygy Accrued liabilities consist of the following: March 31, December 31, 2020 2019 Patent costs $ 7,500 $ 6,851 Accrued compensation 170,026 144,193 Warranty costs 27,805 13,923 Taxes and other 10,500 29,327 $ 215,831 $ 194,294 |
LEASES
LEASES | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
LEASES | 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. Amortization of ROU operating lease assets was $29,628 and $5,852 for the three months ended March 31, 2020 and 2019, respectively. Operating lease expense for capitalized operating leases included in operating activities was $30,797 and $5,120 for the three months ended March 31, 2020 and 2019, respectively. Operating lease obligations recorded on the balance sheet at March 31, 2020 are: Operating lease liability- short term $ 123,676 Operating lease liability - long term 123,676 Total Operating Lease Liability $ 247,352 Future lease payments included in the measurement of lease liabilities on the balance sheet at March 31, 2020 for future periods are as follows: Remainder of 2020 (nine months) $ 115,802 2021 101,406 2022 57,328 Total future minimum lease payments 274,536 Less imputed interest (27,184 ) Total $ 247,352 The weighted average remaining lease term is 2.1 years and the weighted average discount rate is 7.0%. The Company does not have any finance leases. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 3 Months Ended |
Mar. 31, 2020 | |
Stockholders' equity: | |
STOCKHOLDERS' EQUITY | 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 Summary of Stock Purchase Warrants The following table summarizes warrant activity during the three months ended March 31, 2020: Number Average Purchase Price Per Share Shares purchasable under outstanding warrants at December 31, 2019 6,620,620 $ 5.41 Stock purchase warrants issued - - Stock purchase warrants exercised (131,183 ) $ 4.82 Shares purchasable under outstanding warrants at March 31, 2020 6,489,437 $ 5.42 The Company has outstanding Common Stock purchase warrants as of March 31, 2020 as follows: Number of Exercise Price Description Common Shares Per Share Expiration Date Purchase Warrants (1) 4,095,840 $ 5.00 October 30, 2020 Agent Warrants 316,675 $ 3.00 October 30, 2020 Purchase Warrants 1,923,076 $ 6.50 June 18, 2021 Agent Warrants 153,846 $ 8.125 June 18, 2021 (1) Warrants to purchase 333,334 shares of common stock are held by a family trust of Elwood G. Norris, the Company’s Chief Technology Officer. The Company determined that the outstanding warrants issued in connection with prior stock offerings should be classified as equity in accordance with ASC 480. However, changes in director and officer ownership or other factors in future periods could require reclassification of outstanding warrants as a liability with changes in value thereafter reflected in the statement of operations. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
STOCK-BASED COMPENSATION | On March 31, 2017, the Company adopted, and the stockholders approved the 2017 Stock Incentive Plan (the “ Plan The Company generally recognizes stock-based compensation expense on the grant date and over the period of vesting or period that services will be provided. The following table summarizes stock option activity for the three months ended March 31, 2020: Weighted Average Options on Remaining Aggregate Common Exercise Contractual Intrinsic Shares Price Term Value 2,928,750 $ 2.96 3.71 Granted - - - Exercised (112,625 ) 1.50 - Forfeited, cancelled, expired - - - Outstanding March 31, 2020 2,816,125 $ 3.02 3.47 $ 4,632,305 Vested and exercisable at March 31, 2020 1,910,499 $ 2.31 3.32 $ 4,106,916 The Company uses the Black-Scholes option pricing model to determine the fair value of the options granted. No options were granted during the three months ended March 31, 2020 requiring fair value determination. The Plan provides for the grant of restricted stock units ( RSUs Weighted Average Service-Based Grant Date Vesting RSU's Fair Value Period Unvested at January 1, 2019 308,087 $ 6.77 Granted 73,992 $ 5.71 3 Years Vested - - Forfeited and cancelled (3,416 ) $ 7.24 Unvested at December 31, 2019 378,663 $ 6.56 The Company recorded stock-based compensation for options and RSUs in its statements of operations for the relevant periods as follows: For the Three Months Ended March 31, 2020 2019 Selling, general and administrative $ 429,098 $ 203,200 Research and development 38,148 23,847 Total stock-based expense $ 467,246 $ 227,047 As of March 31, 2020, total estimated compensation cost of stock options and RSUs granted but not yet vested was $3.4 million which is expected to be recognized over the weighted average period of 2.0 years. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Facility Leases See Note 7. Related Party Technology License Agreement The Company is obligated to pay royalties and pay development and patent costs pursuant to an exclusive Amended and Restated Intellectual Property License Agreement dated as of September 30, 2016 with Syzygy, a company owned and controlled by stockholders/officers Mr. Elwood Norris and Mr. James Barnes, both of whom are stockholders and officers of the Company. 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 $24,986 and $4,488 for royalties incurred during the three months ended March 31, 2020 and 2019, respectively. Purchase Commitments At March 31, 2020 the Company was committed for approximately $275,000 for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Commencing in October 2017 the Company began reimbursing Mr. Elwood Norris, an officer and stockholder of the Company, $1,500 per month on a month to month basis for laboratory facility costs, for an aggregate of $4,500 during the three months ended March 31, 2020 and 2019, respectively. See Notes 6, 8 and 10 for information on related party transactions. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On April 1, 2020 the Company granted 306,336 of service-based stock options to four executive officers. These stock options are exercisable at $4.26 per share vesting over three years with a ten-year term and subject to continued employment. The Company also granted 35,211 of performance based RSUs to one executive officer with performance based on 2020 objectives as determined by the Board of Directors. The Company also granted 122,222 service based RSUs to 16 employees vesting over three years. The RSUs had a grant date value of $4.26 per share. In April 2020, the Board of the Company approved, subject to stockholder ratification, an increase in the 2017 Stock Incentive Plan authorizing an additional 1,900,000 shares of Common Stock to a total of 6,000,000 shares. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law providing certain economic aid packages for small business. The Company qualifies as a small business under CARES and has submitted an application for funding under the Paycheck Protection Program. There can be no assurance of any future funding from this program. The Company evaluated subsequent events for their potential impact on the financial statements and disclosures through the date the financial statements were available to be issued, and determined that, except as disclosed herein, no subsequent events occurred that were reasonably expected to impact the financial statements presented herein. |
ORGANIZATION AND SUMMARY OF S_2
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Business Description | Wrap Technologies, Inc., a Delaware corporation (the “ Company Nasdaq |
Basis of Presentation and Use of Estimates | The Company’s unaudited interim financial statements and related notes included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“ US GAAP SEC 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., stock-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued costs 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. Where necessary, the prior year’s information has been reclassified to conform to the current year presentation. |
Concentrations of Risk and Uncertainties | Credit Risk Concentrations of Accounts Receivable and Revenue Concentration of Suppliers COVID-19 COVID-19 |
Stock-Based Compensation | The Company follows the fair value recognition provisions issued by the Financial Accounting Standards Board (“ FASB ASC ASC 718 ASU The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. 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. The fair value of stock-based compensation is amortized to compensation expense over the vesting term. |
Revenue Recognition | In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ ASU 2014-09 ASC 340-40 Topic 606 |
Accounts Receivable and Allowance for Doubtful Accounts | The Company’s policy is to evaluate the collectability of accounts receivable based on an assessment of the collectability of specific customer accounts and then record an allowance for doubtful accounts to reduce the receivables to an amount that management reasonably estimates will be collected. There was no allowance for doubtful accounts recorded at December 31, 2019. At March 31, 2020 the Company established an allowance of $10,140 resulting in part from global uncertainty resulting from the COVID-19 virus. Accounts that are deemed uncollectible will be written off against the allowance for doubtful accounts. 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. Prior to October 1, 2019 substantially all of the Company’s inventory was determined by the weighted average cost method which approximated the first in first out (FIFO) cost method. Effective October 1, 2019, with the change to a new computerized inventory system, the Company commenced identifying FIFO layers. The Company believes this transition change to FIFO will improve financial reporting by better reflecting the current value of inventory on the balance sheet, more closely aligning the flow of physical inventory with the accounting for the inventory and providing better matching of revenues and expenses. As the Company has only recently started selling products, and had limited purchase and sales activity, the weighted average method approximated FIFO and this change to FIFO had no material effect on the prior balance sheet, statement of operations or cash flows. Accordingly, no retrospective changes were recorded. Inventory is comprised of raw materials, assemblies and finished products intended for sale to customers . |
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 9,684,225 shares of Common Stock were outstanding at March 31, 2020. 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. |
Income Taxes | Until its conversion to a corporation on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. Instead, its losses were included in the income tax returns of the member partners. No income tax expense was recorded for period ended March 31, 2020 due to losses incurred. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimates. |
Recent Issued Accounting Guidance | Effective the First Quarter of 2020: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (“ Topic 820 Other Pronouncements: In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic ): Simplifying the Accounting for Income Taxes ASU 2019-12 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. |
INVENTORIES, NET (Tables)
INVENTORIES, NET (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventories | March 31, December 31, 2020 2019 Finished goods $ 1,044,282 $ 653,323 Work in process 27,613 413 Raw materials 1,216,238 1,590,805 $ 2,288,133 $ 2,244,541 |
PROPERTY AND EQUIPMENT, NET (Ta
PROPERTY AND EQUIPMENT, NET (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | March 31, December 31, 2020 2019 Laboratory equipment $ 51,126 $ 44,454 Tooling 61,259 59,004 Computer equipment 94,010 83,368 Furniture, fixtures and improvements 128,782 128,782 335,177 315,608 Accumulated depreciation (95,229 ) (72,732 ) $ 239,948 $ 242,876 |
INTANGIBLE ASSETS, NET (Tables)
INTANGIBLE ASSETS, NET (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible assets | March 31, December 31, 2020 2019 Patents $ 199,783 $ 176,425 Trademarks 69,055 57,919 268,838 234,344 Accumulated amortization (6,662 ) (4,061 ) $ 262,176 $ 230,283 |
ACCOUNTS PAYABLE AND ACCRUED _2
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Payables and Accruals [Abstract] | |
Accrued liabilities | March 31, December 31, 2020 2019 Patent costs $ 7,500 $ 6,851 Accrued compensation 170,026 144,193 Warranty costs 27,805 13,923 Taxes and other 10,500 29,327 $ 215,831 $ 194,294 |
LEASES (Tables)
LEASES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Operating lease liabilities | Operating lease liability- short term $ 123,676 Operating lease liability - long term 123,676 Total Operating Lease Liability $ 247,352 |
Future lease payments | Remainder of 2020 (nine months) $ 115,802 2021 101,406 2022 57,328 Total future minimum lease payments 274,536 Less imputed interest (27,184 ) Total $ 247,352 |
STOCKHOLDERS' EQUITY (Tables)
STOCKHOLDERS' EQUITY (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Stockholders' equity: | |
Warrant activity | Number Average Purchase Price Per Share Shares purchasable under outstanding warrants at December 31, 2019 6,620,620 $ 5.41 Stock purchase warrants issued - - Stock purchase warrants exercised (131,183 ) $ 4.82 Shares purchasable under outstanding warrants at March 31, 2020 6,489,437 $ 5.42 |
Stock purchase warrants | Number of Exercise Price Description Common Shares Per Share Expiration Date Purchase Warrants (1) 4,095,840 $ 5.00 October 30, 2020 Agent Warrants 316,675 $ 3.00 October 30, 2020 Purchase Warrants 1,923,076 $ 6.50 June 18, 2021 Agent Warrants 153,846 $ 8.125 June 18, 2021 (1) Warrants to purchase 333,334 shares of common stock are held by a family trust of Elwood G. Norris, the Company’s Chief Technology Officer. |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Stock option activity | Weighted Average Options on Remaining Aggregate Common Exercise Contractual Intrinsic Shares Price Term Value 2,928,750 $ 2.96 3.71 Granted - - - Exercised (112,625 ) 1.50 - Forfeited, cancelled, expired - - - Outstanding March 31, 2020 2,816,125 $ 3.02 3.47 $ 4,632,305 Vested and exercisable at March 31, 2020 1,910,499 $ 2.31 3.32 $ 4,106,916 |
Service-based RSU activity | Weighted Average Service-Based Grant Date Vesting RSU's Fair Value Period Unvested at January 1, 2019 308,087 $ 6.77 Granted 73,992 $ 5.71 3 Years Vested - - Forfeited and cancelled (3,416 ) $ 7.24 Unvested at December 31, 2019 378,663 $ 6.56 |
Stock-based compensation | For the Three Months Ended March 31, 2020 2019 Selling, general and administrative $ 429,098 $ 203,200 Research and development 38,148 23,847 Total stock-based expense $ 467,246 $ 227,047 |
INVENTORIES, NET (Details)
INVENTORIES, NET (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 1,044,282 | $ 653,323 |
Work in process | 27,613 | 413 |
Raw materials | 1,216,238 | 1,590,805 |
Inventory | $ 2,288,133 | $ 2,244,541 |
PROPERTY AND EQUIPMENT, NET (De
PROPERTY AND EQUIPMENT, NET (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Property and equipment, gross | $ 335,177 | $ 315,608 |
Accumulated depreciation | (95,229) | (72,732) |
Property and equipment, net | 239,948 | 242,876 |
Laboratory equipment | ||
Property and equipment, gross | 51,126 | 44,454 |
Tooling | ||
Property and equipment, gross | 61,259 | 59,004 |
Computer equipment | ||
Property and equipment, gross | 94,010 | 83,368 |
Furniture, fixtures and improvements | ||
Property and equipment, gross | $ 128,782 | $ 128,782 |
PROPERTY AND EQUIPMENT, NET (_2
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 22,497 | $ 4,990 |
INTANGIBLE ASSETS, NET (Details
INTANGIBLE ASSETS, NET (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Intangible assets, gross | $ 268,838 | $ 234,344 |
Accumulated amortization | (6,662) | (4,061) |
Intangible assets, net | 262,176 | 230,283 |
Patents | ||
Intangible assets, gross | 199,783 | 176,425 |
Trademarks | ||
Intangible assets, gross | $ 69,055 | $ 57,919 |
INTANGIBLE ASSETS, NET (Detai_2
INTANGIBLE ASSETS, NET (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 2,601 | $ 184 |
ACCOUNTS PAYABLE AND ACCRUED _3
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Payables and Accruals [Abstract] | ||
Patent costs | $ 7,500 | $ 6,851 |
Accrued compensation | 170,026 | 144,193 |
Warranty costs | 27,805 | 13,923 |
Other | 10,500 | 29,327 |
Accrued liabilities | $ 215,831 | $ 194,294 |
LEASES (Details)
LEASES (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
Operating lease liability - short term | $ 123,676 | $ 128,131 |
Operating lease liability - long term | 123,676 | 150,018 |
Total operating lease liability | $ 247,352 | $ 278,149 |
LEASES (Details 1)
LEASES (Details 1) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
Remainder of 2020 (nine months) | $ 115,802 | |
2021 | 101,406 | |
2022 | 57,328 | |
Total future minimum lease payments | 274,536 | |
Less imputed interest | (27,184) | |
Total | $ 247,352 | $ 278,149 |
LEASES (Details Narrative)
LEASES (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Leases [Abstract] | ||
Amortization of ROU operating lease assets | $ 29,628 | $ 5,852 |
Operating lease expense | $ 30,797 | $ 5,120 |
Weighted average remaining lease term | 2 years 1 month 6 days | |
Weighted average discount rate | 7.00% |
STOCKHOLDERS' EQUITY (Details)
STOCKHOLDERS' EQUITY (Details) | 3 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Stockholders' equity: | |
Warrants outstanding, beginning | shares | 6,620,620 |
Issued | shares | 0 |
Exercised | shares | (131,183) |
Warrants outstanding, ending | shares | 6,489,437 |
Average purchase price per share outstanding, beginning | $ / shares | $ 5.41 |
Issued | $ / shares | .00 |
Exercised | $ / shares | 4.82 |
Average purchase price per share outstanding, ending | $ / shares | $ 5.42 |
STOCKHOLDERS' EQUITY (Details 1
STOCKHOLDERS' EQUITY (Details 1) | 3 Months Ended | |
Mar. 31, 2020USD ($)$ / shares | ||
Purchase Warrants | ||
Number of common shares | $ | $ 4,095,840 | [1] |
Exercise price per share | $ / shares | $ 5 | |
Expiration date | Oct. 30, 2020 | |
Agent Warrants | ||
Number of common shares | $ | $ 316,675 | |
Exercise price per share | $ / shares | $ 3 | |
Expiration date | Oct. 30, 2020 | |
Purchase Warrants | ||
Number of common shares | $ | $ 1,923,076 | |
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 | |
[1] | Warrants to purchase 333,334 shares of common stock are held by a family trust of Elwood G. Norris, the Company's Chief Technology Officer. |
STOCKHOLDERS' EQUITY (Details N
STOCKHOLDERS' EQUITY (Details Narrative) - $ / shares | Mar. 31, 2020 | Dec. 31, 2019 |
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 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) | 3 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Share-based Payment Arrangement [Abstract] | |
Number of options outstanding, beginning | shares | 2,928,750 |
Number of options granted | shares | 0 |
Number of options exercised | shares | (112,625) |
Number of options forfeited/cancelled/expired | shares | 0 |
Number of options outstanding, ending | shares | 2,816,125 |
Number of options vested and exercisable | shares | 1,910,499 |
Weighted average exercise price outstanding, beginning | $ 2.96 |
Weighted average exercise price granted | .00 |
Weighted average exercise price exercised | 1.50 |
Weighted average exercise price forfeited/cancelled/expired | .00 |
Weighted average exercise price outstanding, ending | 3.02 |
Weighted average exercise price vested and exercisable | $ 2.31 |
Weighted average remaining contractual term outstanding, beginning | 3 years 8 months 16 days |
Weighted average remaining contractual term outstanding, ending | 3 years 5 months 19 days |
Weighted average remaining contractual term vested and exercisable | 3 years 3 months 25 days |
Aggregate intrinsic value outstanding, beginning | $ | $ 0 |
Aggregate intrinsic value granted | $ 0 |
Aggregate intrinsic value exercised | $ | $ 0 |
Aggregate intrinsic value forfeited/cancelled/expired | $ 0 |
Aggregate intrinsic value outstanding, ending | $ | $ 4,632,305 |
Aggregate intrinsic value vested and exercisable | $ | $ 4,106,916 |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) | 3 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Share-based Payment Arrangement [Abstract] | |
Unvested service-based RSUs outstanding, beginning | shares | 308,087 |
Granted | shares | 73,992 |
Vested | shares | 0 |
Forfeited and cancelled | shares | (3,416) |
Unvested service-based RSUs outstanding, ending | shares | 378,663 |
Grant date fair value, beginning | $ / shares | $ 6.77 |
Granted | $ / shares | 5.71 |
Vested | $ / shares | .00 |
Forfeited and cancelled | $ / shares | 7.24 |
Grant date fair value, ending | $ / shares | $ 6.56 |
Vesting period | 3 years |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Stock-based compensation | $ 467,246 | $ 227,047 |
Selling, general and administrative | ||
Stock-based compensation | 429,098 | 203,200 |
Research and development | ||
Stock-based compensation | $ 38,148 | $ 23,847 |
STOCK-BASED COMPENSATION (Det_4
STOCK-BASED COMPENSATION (Details Narrative) | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Share-based Payment Arrangement [Abstract] | |
Estimated compensation cost of stock options and RSUs granted but not yet vested | $ 3,400,000 |
Estimated compensation cost of stock options and RSUs granted but not yet vested, recognition period | 2 years |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Royalties | $ 24,986 | $ 4,488 |
Purchase commitment | $ 275,000 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Related Party Transactions [Abstract] | ||
Payment to related party during period | $ 4,500 | $ 4,500 |