Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Mar. 01, 2019 | Jun. 29, 2018 | |
Document and Entity Information | |||
Entity Registrant Name | WRAP TECHNOLOGIES, INC. | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Entity Central Index Key | 1,702,924 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Common Stock, Shares Outstanding | 27,364,607 | ||
Entity Public Float | $ 22,087,352 | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | true | ||
Entity Extended Transition Period | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Well-known Seasoned Issuer | No | ||
Document Fiscal Year Focus | 2,018 | ||
Document Fiscal Period Focus | FY |
Condensed Balance Sheets
Condensed Balance Sheets - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash | $ 12,358,896 | $ 3,083,976 |
Accounts receivable | 4,396 | 0 |
Inventories | 158,267 | 131,192 |
Prepaid expenses and other current assets | 114,863 | 11,446 |
Total current assets | 12,636,422 | 3,226,614 |
Property and equipment, net | 30,373 | 36,668 |
Intangible assets, net | 118,715 | 0 |
Other assets | 1,512 | 1,512 |
Total assets | 12,787,022 | 3,264,794 |
Current Liabilities: | ||
Accounts payable | 232,915 | 36,165 |
Accrued liabilities | 68,453 | 60,314 |
Deferred and accrued officer compensation | 96,000 | 96,000 |
Total current liabilities | 397,368 | 192,479 |
Commitments and contingencies (Note 9) | ||
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; 27,364,607 and 22,803,533 shares issued and outstanding, respectively | 2,736 | 2,280 |
Additional paid in capital | 16,791,254 | 4,137,936 |
Accumulated deficit | (4,404,336) | (1,067,901) |
Total stockholders' equity | 12,389,654 | 3,072,315 |
Total liabilities and stockholders' equity | $ 12,787,022 | $ 3,264,794 |
Condensed Balance Sheets (Paren
Condensed Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2018 | Dec. 31, 2017 |
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 | 27,364,607 | 22,803,533 |
Common stock, outstanding | 27,364,607 | 22,803,533 |
Condensed Statements of Operati
Condensed Statements of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Revenues: | ||
Product sales | $ 18,830 | $ 0 |
Other revenue | 4,320 | 0 |
Total revenues | 23,150 | 0 |
Cost of revenues | 18,611 | 0 |
Gross profit | 4,539 | 0 |
Operating expenses: | ||
Selling, general and administrative | 2,607,397 | 522,210 |
Research and development | 734,776 | 311,335 |
Total expenses | 3,342,173 | 833,545 |
Loss from operations | (3,337,634) | (833,545) |
Other income (expense): | ||
Interest income | 2,912 | 0 |
Interest expense | (1,304) | 0 |
Other | (409) | 0 |
Other income (expense) | 1,199 | 0 |
Net loss | $ (3,336,435) | $ (833,545) |
Net loss per basic common share | $ (.14) | $ (.04) |
Weighted average common shares used to compute net loss per basic common share | 23,578,291 | 20,194,560 |
Condensed Statement of Stockhol
Condensed Statement of Stockholders' Equity - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, shares at Dec. 31, 2016 | 17,445,408 | |||
Beginning Balance, amount at Dec. 31, 2016 | $ 1,745 | $ 440,755 | $ (234,356) | $ 208,144 |
Sale of common stock in January 2017 at $0.10447 per share, shares | 2,153,754 | |||
Sale of common stock in January 2017 at $0.10447 per share, amount | $ 215 | 224,785 | 225,000 | |
Shares issued to acquire merger subsidiary to effect reverse recapitalization, shares | 400,838 | |||
Shares issued to acquire merger subsidiary to effect reverse recapitalization, amount | $ 40 | (40) | ||
Sale of common stock in July 2017 at $0.10447 per share, shares | 475,000 | |||
Sale of common stock in July 2017 at $0.10447 per share, amount | $ 47 | 49,953 | 50,000 | |
Sale of common stock in public offering at $1.50 per share in fourth quarter of 2017, net of issuance costs | 2,328,533 | |||
Sale of common stock in public offering at $1.50 per share in fourth quarter of 2017, net of issuance costs | $ 233 | 3,422,483 | 3,422,716 | |
Share-based compensation expense | 0 | |||
Net loss for the period | (833,545) | (833,545) | ||
Ending Balance, shares at Dec. 31, 2017 | 22,803,533 | |||
Ending Balance, amount at Dec. 31, 2017 | $ 2,280 | 4,137,936 | (1,067,901) | 3,072,315 |
Sale of common stock and warrants at $3.00 per share and placement agent warrants in private offering, net of issuance costs, shares | 4,561,074 | |||
Sale of common stock and warrants at $3.00 per share and placement agent warrants in private offering, net of issuance costs, amount | $ 456 | 12,140,330 | 12,140,786 | |
Share-based compensation expense | 512,988 | 512,988 | ||
Net loss for the period | (3,336,435) | (3,336,435) | ||
Ending Balance, shares at Dec. 31, 2018 | 27,364,607 | |||
Ending Balance, amount at Dec. 31, 2018 | $ 2,736 | $ 16,791,254 | $ (4,404,336) | $ 12,389,654 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (3,336,435) | $ (833,545) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 21,875 | 6,661 |
Share-based compensation | 512,988 | 0 |
Changes in assets and liabilities: | ||
Accounts receivable | (4,396) | |
Inventories | (27,075) | (131,192) |
Prepaid expenses and other current assets | (63,982) | 16,853 |
Accounts payable | 196,750 | 24,100 |
Deferred and accrued officer compensation | 0 | 26,000 |
Accrued liabilities and other | 8,139 | 57,414 |
Net cash used in operating activities | (2,692,136) | (833,709) |
Cash Flows From Investing Activities: | ||
Capital expenditures for property and equipment | (14,225) | (35,103) |
Investment in patents and trademarks | (120,070) | 0 |
Net cash used in investing activities | (134,295) | (35,103) |
Cash Flows From Financing Activities: | ||
Sale of common stock and warrants | 13,683,222 | 3,767,800 |
Offering costs paid | (1,542,436) | (70,084) |
Payment of notes payable | (39,435) | 0 |
Net cash provided by financing activities | 12,101,351 | 3,697,716 |
Net increase in cash and cash equivalents | 9,274,920 | 2,828,904 |
Cash, beginning of period | 3,083,976 | 255,072 |
Cash, end of period | 12,358,896 | 3,083,976 |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||
Interest paid | 1,304 | 0 |
Non-cash investing and financing activities: | ||
Prepaid insurance financed with note payable | 39,435 | 0 |
Issuance costs relating to warrants issued to private offering selling agent | $ 664,427 | $ 0 |
1. ORGANIZATION AND SUMMARY OF
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2018 | |
Organization And Summary Of Significant Accounting Policies | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Organization and Business Description Wrap Technologies, Inc., a Delaware corporation (the “ Company The Company resulted from the March 31, 2017 merger of Wrap Technologies, LLC (“ Wrap LLC MegaWest Merger Prior to the Merger, on March 22, 2017, Wrap LLC acquired privately held MegaWest from Petro River Oil Corp. (“ Petro River Wrap LLC’s acquisition of MegaWest and its subsequent merger with and into the MegaWest wholly-owned subsidiary and exchange of member units for common stock was accounted for as a reverse recapitalization of Wrap LLC. Wrap LLC, now the Company, was deemed the accounting acquirer with MegaWest the accounting acquiree. The Company’s financial statements are in substance those of Wrap LLC, and are deemed to be a continuation of Wrap LLC’s business from its inception date of March 2, 2016. The balance sheet of the Company continues at historical cost, as the accounting acquiree had no assets or liabilities and no goodwill or intangible assets were recorded as part of the recapitalization of the Company. To reflect the recapitalization, historical common shares and additional paid-in capital have been retroactively adjusted using the exchange ratio of approximately 23,930.60 shares for each membership unit of Wrap LLC. Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“ U.S. GAAP Public and Private Offerings In December 2017, the Company completed a self-underwritten public offering raising gross proceeds of approximately $3.49 million from the sale of 2,328,533 shares of common stock at $1.50 per share. Three officers of the Company purchased an aggregate of 40,000 shares of the offering for an aggregate of $60,000. On October 30, 2018, the Company obtained gross cash proceeds of $13.68 million and net cash proceeds of approximately $12.14 million from the sale of 4,561,074 units (“ Units Stock Based Compensation The Company follows the fair value recognition provisions issued by the Financial Accounting Standards Board (“ FASB ASC ASC 718 ASU 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 and warrants exercisable into a total of 7,084,681 shares of common stock were outstanding at December 31, 2018. 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. Fair Value of Financial Instruments The carrying amounts of cash, accounts payable and accrued liabilities approximate fair values due to the short nature of these instruments. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash. Due to the relative short nature of such instrument, the carrying amount approximates fair value. The Company places its cash in a demand deposit account at one bank and such balances may at times be in excess of amounts insured by federal agencies, which is $250,000 as of December 31, 2018. The Company does not believe that it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not experienced any significant losses on its cash. 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. The following factors are considered when determining if collection of a receivable is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. There was no allowance for doubtful accounts recorded at December 31, 2018. Accounts that are deemed uncollectible will be written off against the allowance for doubtful accounts after all reasonable collection efforts have been exhausted. 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 of the Company’s inventory is determined by the weighted average cost method. Inventory is comprised of raw materials, assemblies and finished products intended for sale to customers . 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. Intangible Assets Intangible assets consisted of capitalized legal fees and filing costs related to obtaining patents and trademarks. Intangible assets are carried at cost, less accumulated amortization. Amortization for patents is computed on a straight-line basis over the estimated remaining lives of issued patents which is 20 years from the initial filing. Trademarks are amortized on a straight-line basis over ten years, the estimated useful life of the assets. 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 periods ended December 31, 2017 and 2018. 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, 2018, the Company had no warrants or other derivative financial instruments that require separate accounting as liabilities and periodic revaluation. Advertising and Promotion Costs The Company expenses advertising costs in the period in which they are incurred. The Company incurred advertising costs of $27,218 and $11,812 for the years ended December 31, 2018 and 2017, respectively. The Company incurred product promotion costs for demonstration products delivered to prospective customers of $192,484 for the year ended December 31, 2018. Advertising and promotion costs are included in selling, general and administrative expenses in the accompanying statements of operations. Research and Development Costs Research and development costs consist primarily of contract development costs and experimental work materials and certain startup patent costs. Research and development costs with no alternative use are expensed as incurred. Leases Leases entered into are classified as either capital or operating leases. At the time a capital lease is entered into, an asset is recorded, together with its related long-term obligation to reflect the purchase and financing. At December 31, 2018 and 2017, the Company had no capital lease obligations. Revenue Recognition In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ ASU 2014-09 ASC 340-40 Topic 606 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 $1,570 for the year ended December 31, 2018. Actual revenues from shipping and handling were $670 for the year ended December 31, 2018. 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 $428 at December 31, 2018. Segment Information The Company has one operating segment with one business activity, providing restraint solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. Income Taxes Until its reverse recapitalization on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. Instead, its losses were included in the income tax returns of the member partners. Accordingly, no provision or liability for federal or state income taxes has been included in these financial statements for the period prior to March 31, 2017 and no income tax expense was recorded for period ended December 31, 2018 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, 2018 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, 2018. Recent Issued Accounting Guidance Recently Adopted Accounting Pronouncement: In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this ASU are effective for the Company as of January 1, 2019 with early adoption permitted. The amendments in Part II of this ASU replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. The amendments in Part II of this ASU do not require any transition guidance. The adoption of this ASU did not have any impact on the Company’s historical financial statements and the Company was permitted and adopted retrospectively to January 1, 2018 the standard for any equity securities with down round features. As discussed above under “Revenue Recognition”, the Company adopted Topic 606 on January 1, 2018. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ ROU Effective the first quarter of 2019: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance. Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. We currently plan to adopt this standard using this modified retrospective approach. Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases classified as operating leases under current U.S. GAAP. The standard requires additional disclosures to enable users of financial statements to assess the amount, timing, and certainty of cash flows arising from leases. We intend to elect certain of the available practical expedients upon adoption. We have evaluated our existing lease portfolio and believe that our population of leases is low in number. We have implemented key processes and controls to enable the accurate assessment of leases and preparation of related financial information. We expect adoption of the standard will result in the recognition of an ROU asset and lease liability of approximately $12,900 for one operating lease as of January 1, 2019, with no impact to retained earnings. We had no capital leases at December 31, 2018. Effective the 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 Company is currently evaluating the effect, if any, that ASU 2018-13 will have on its financial statements. Other pronouncements: 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. |
2. REVENUE AND PRODUCT COSTS
2. REVENUE AND PRODUCT COSTS | 12 Months Ended |
Dec. 31, 2018 | |
Revenue And Product Costs | |
REVENUE AND PRODUCT COSTS | The Company had no historical revenue prior to the year ended December 31, 2018 and accordingly all revenue has been reported in accordance with Topic 606, which the Company adopted on January 1, 2018. There were no adjustments to prior period amounts nor changes to stockholders’ equity (accumulated deficit) required upon adoption. 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 revenues when control has transferred to the customer. The revenues and costs of training 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 December 31, 2018 the Company had no contract assets and no deferred revenue related to products or training for product delivered during the year. 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, 2018. 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 expenses. 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. |
3. INVENTORIES, NET
3. INVENTORIES, NET | 12 Months Ended |
Dec. 31, 2018 | |
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 weighted average cost method. Inventories consisted of the following: December 31, 2018 2017 Finished goods $ 82,313 $ 5,308 Work in process 12,695 5,484 Raw materials 63,259 120,400 $ 158,267 $ 131,192 |
4. PROPERTY AND EQUIPMENT, NET
4. PROPERTY AND EQUIPMENT, NET | 12 Months Ended |
Dec. 31, 2018 | |
Property And Equipment Net | |
PROPERTY AND EQUIPMENT, NET | Property and equipment consisted of the following: December 31, 2018 2017 Laboratory equipment $ 13,980 $ 12,730 Tooling 22,683 18,165 Computer equipment 12,608 4,151 Furniture and fixtures 9,595 9,595 58,866 44,641 Accumulated depreciation (28,493 ) (7,973 ) $ 30,373 $ 36,668 Depreciation expense was $20,520 and $6,661 for the years ended December 31, 2018 and 2017, respectively. |
5. INTANGIBLE ASSETS, NET
5. INTANGIBLE ASSETS, NET | 12 Months Ended |
Dec. 31, 2018 | |
Intangible Assets Net | |
INTANGIBLE ASSETS, NET | Intangible assets at December 31, 2018 consisted of patent and trademark costs of $120,070. Upon the Company’s first patent approval in July 2018 the Company commenced capitalizing patent and trademark costs which consist of legal and filing fees related to the prosecution of patent filings. When a patent or trademark is issued the cost is amortized using the straight-line method over the estimated remaining lives. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. Amortization expense was $1,355 for the year ended December 31, 2018. |
6. CURRENT LIABILITIES
6. CURRENT LIABILITIES | 12 Months Ended |
Dec. 31, 2018 | |
Current Liabilities | |
CURRENT LIABILITIES | Accounts payable includes $871 due to related party Syzygy Licensing, LLC (“ Syzygy Accrued liabilities consist of the following: December 31, 2018 2017 Patent costs $ 11,600 $ 900 Accrued compensation 55,493 50,000 Warranty costs 428 - Other 932 9,414 $ 68,453 $ 60,314 In January 2018, the Company financed $39,435 of insurance obligations pursuant to a short-term note agreement, which note accrued interest at a rate of 7.15% per annum, and which was payable in ten monthly principal and interest payments of $4,074 due through November 2018. The note was paid in November 2018. |
7. DEFERRED AND ACCRUED COMPENS
7. DEFERRED AND ACCRUED COMPENSATION | 12 Months Ended |
Dec. 31, 2018 | |
Deferred And Accrued Compensation | |
DEFERRED AND ACCRUED COMPENSATION | From March 2016 through February 2017, the Company accrued monthly compensation for the services of two officers in the aggregate amount of $7,000 per month payable to Syzygy. In March 2017 the Company accrued and deferred $6,000 compensation to each of the two officers. The balance payable to Syzygy as of December 31, 2018 was $84,000 and the accrued deferred compensation aggregated $12,000. These balances accrue without interest. No payment terms or schedule has been established. |
8. STOCKHOLDERS_ EQUITY AND SHA
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION | 12 Months Ended |
Dec. 31, 2018 | |
Stockholders Equity And Share-based Compensation | |
STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION | The Company’s authorized capital consists of 150,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. To reflect the recapitalization (see Note 1) historical shares of common stock and additional paid-in capital have been retroactively adjusted using the exchange ratio of approximately 23,930.60 shares of common stock for each member unit of Wrap LLC. Public Offering In December 2017, the Company completed a self-underwritten public offering raising gross proceeds of $3,492,800 from the sale of 2,328,533 shares of common stock at $1.50 per share. Net cash proceeds to the Company were $3,422,716 after deduction of $70,084 of offering costs. Three officers of the Company purchased an aggregate of 40,000 shares of the offering for an aggregate of $60,000. Private Offering On October 30, 2018 the Company consummated a private offering, pursuant to which it sold 4,561,074 units (“ Units In connection with the offering, the Company also issued placement agent warrants exercisable for 456,107 shares of common stock for two years at an exercise price of $3.00 per share. The estimated fair value of these warrants was $664,427, as determined using the Black-Scholes methodology (assuming estimated volatility of 49%, risk-free interest rate of 2.84%, 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. Stock Options Effective with the Merger, on March 31, 2017, the Company adopted and the shareholders approved the 2017 Stock Incentive Plan (the “ Plan In October 2018 the Company granted a consultant options outside of the Plan exercisable for 100,000 shares of common stock at an exercise price of $3.00 per share with 50% vesting ratably over 18 months and the balance vesting based on performance. The following table summarizes stock option activity for the year ended December 31, 2018: Weighted Average Options on Remaining Aggregate Common Exercise Contractual Intrinsic Shares Price Term Value Outstanding January 1, 2018 - - - $ - Granted 2,067,500 $ 1.68 4.44 - Exercised - - - - Forfeited, cancelled, expired - - - - Outstanding December 31, 2018 2,067,500 $ 1.68 4.44 $ 3,063,375 Vested and exercisable at December 31, 2018 225,000 $ 1.50 4.39 $ 371,250 The Company recorded stock-based compensation in its statements of operations as follows: Year Ended December 31, 2018 2017 Selling, general and administrative $ 417,151 $ - Research and development 95,837 - Total stock-based expense $ 512,988 $ - As of December 31, 2018, total estimated compensation cost of stock options granted but not yet vested was $970,576, which is expected to be recognized over the weighted average period of 1.1 years. 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 nonemployees: Year Ended December 31, 2018 Expected stock price volatility 47% to 49% Risk-free interest rate 2.67% to 2.99% Forfeiture rate 0 % Expected dividend yield 0 % Expected life of options - years 2.75 - 5.00 Weighted-average fair value of options granted $ 0.72 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, as it only recently commenced trading. 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 Company has elected to use the contract life of the option for nonemployee stock options. The following table summarizes information about stock options outstanding at December 31, 2018: Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 1.50 1,847,500 4.39 $ 1.50 225,000 $ 1.50 $ 3.00 - $3.61 220,000 4.82 $ 3.23 - - Warrants The Company has outstanding common stock purchase warrants as of December 31, 2018 as follows: Number of Exercise Price Description Common Shares Per Share Expiration Date Purchase Warrants (1) 4,561,074 $ 5.00 October 30, 2020 Agent Warrants 456,107 $ 3.00 October 30, 2020 (1) 333,334 warrants are held by a family trust of officer Elwood G. Norris. The above warrants resulted from the private offering consummated in October 2018. No warrants were exercised during the period from issuance to December 31, 2018. |
9. COMMITMENTS AND CONTINGENCIE
9. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2018 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Facility Leases Commencing December 1, 2016, the Company leased 1,890 square feet of improved office, assembly and warehouse space in Las Vegas, Nevada. The term of the lease agreement is 37 months, with a termination date of December 31, 2019. The gross monthly rent is currently $1,588, subject to certain possible adjustments. In January 2019 the Company entered into an amendment extending the lease to December 31, 2020 with a gross monthly rent of $2,100 per month for the year 2020. Rent expense for the year ended December 31, 2018 and 2017 was $18,157 and $18,120, respectively. The remaining future annual minimum lease obligations under the foregoing facility lease, as amended at December 31, 2018, are $19,051 and $25,200 for 2019 and 2020, respectively. In February 2019, the Company entered into a two-year lease commencing March 1, 2019 for 1906 square feet of office, assembly and warehousing space located in Lake Forest, California 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. 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 accrued $871 at December 31, 2018 for royalties incurred in 2018. Suppliers The Company has a number of components produced by outside suppliers, some of which are sourced from a single supplier, which can magnify the risk of shortages and decrease the Company’s ability to negotiate with suppliers on the basis of price. If supplier shortages occur, or quality problems arise, then 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. At December 31, 2018, the Company was committed for approximately $1.5 million for future component deliveries 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. |
10. INCOME TAXES
10. INCOME TAXES | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes | |
INCOME TAXES | Until its reverse recapitalization on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. 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, 2018, the Company has net operating loss carryforwards of approximately $3,591,000 to reduce future taxable income through 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, 2018, 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 of net operating loss carry forwards, because management has determined that it is more likely than not that we 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 has determined that the deferred tax assets and liabilities should not be valued at a federal statutory rate of 34% but rather at the rate in which the benefit of the deferred tax asset or liability will be realized by the Company. As such, the Federal statutory rate used to value the Company's deferred tax assets and liabilities is 21%. The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the period ended December 31, 2018 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 consists of the following: Year Ended December 31, 2018 2017 Current tax benefit $ - $ - Deferred tax benefit 678,000 136,000 Change in valuation allowance (678,000 ) (136,000 ) Income tax benefit (provision) $ - $ - 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: Year Ended December 31, 2018 2017 Income taxes benefit computed at federal statutory rate $ 701,000 $ 133,000 Research tax credits 15,000 6,000 Permanent differences and other (38,000 ) (3,000 ) Change in valuation allowance (678,000 ) (136,000 ) Income tax benefit (provision) $ - $ - 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: December 31, 2018 2017 Deferred tax assets: Net operating losses $ 756,000 $ 132,000 Research tax credits 23,000 6,000 Deferred compensation 20,000 20,000 Stock compensation 76,000 - Accruals and other - 13,000 875,000 171,000 Deferred tax liabilities: Depreciation and other 29,000 3,000 29,000 3,000 Net deferred tax assets 846,000 168,000 Less valuation allowance (846,000 ) (168,000 ) Net deferred taxes after valuation allowance $ - $ - |
11. RELATED PARTY TRANSACTIONS
11. RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Commencing in October 2017 the Company began reimbursing officer Mr. Elwood Norris $1,500 per month on a month to month basis for laboratory costs for an aggregate of $18,000 and $4,500 during the years ended December 31, 2018 and 2017, respectively. See Notes 1, 6, 7, 8 and 9 for additional related party transactions and information. |
1. ORGANIZATION AND SUMMARY O_2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Organization And Summary Of Significant Accounting Policies Policies | |
Organization and Business Description | Wrap Technologies, Inc., a Delaware corporation (the “ Company The Company resulted from the March 31, 2017 merger of Wrap Technologies, LLC (“ Wrap LLC MegaWest Merger Prior to the Merger, on March 22, 2017, Wrap LLC acquired privately held MegaWest from Petro River Oil Corp. (“ Petro River Wrap LLC’s acquisition of MegaWest and its subsequent merger with and into the MegaWest wholly-owned subsidiary and exchange of member units for common stock was accounted for as a reverse recapitalization of Wrap LLC. Wrap LLC, now the Company, was deemed the accounting acquirer with MegaWest the accounting acquiree. The Company’s financial statements are in substance those of Wrap LLC, and are deemed to be a continuation of Wrap LLC’s business from its inception date of March 2, 2016. The balance sheet of the Company continues at historical cost, as the accounting acquiree had no assets or liabilities and no goodwill or intangible assets were recorded as part of the recapitalization of the Company. To reflect the recapitalization, historical common shares and additional paid-in capital have been retroactively adjusted using the exchange ratio of approximately 23,930.60 shares for each membership unit of Wrap LLC. |
Basis of Presentation and Use of Estimates | The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“ U.S. GAAP |
Public and Private Offerings | In December 2017, the Company completed a self-underwritten public offering raising gross proceeds of approximately $3.49 million from the sale of 2,328,533 shares of common stock at $1.50 per share. Three officers of the Company purchased an aggregate of 40,000 shares of the offering for an aggregate of $60,000. On October 30, 2018, the Company obtained gross cash proceeds of $13.68 million and net cash proceeds of approximately $12.14 million from the sale of 4,561,074 units (“ Units |
Stock Based Compensation | The Company follows the fair value recognition provisions issued by the Financial Accounting Standards Board (“ FASB ASC ASC 718 ASU |
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 and warrants exercisable into a total of 7,084,681 shares of common stock were outstanding at December 31, 2018. 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. |
Fair Value of Financial Instruments | The carrying amounts of cash, accounts payable and accrued liabilities approximate fair values due to the short nature of these instruments. |
Concentrations of Credit Risk | Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash. Due to the relative short nature of such instrument, the carrying amount approximates fair value. The Company places its cash in a demand deposit account at one bank and such balances may at times be in excess of amounts insured by federal agencies, which is $250,000 as of December 31, 2018. The Company does not believe that it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not experienced any significant losses on its cash. |
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. The following factors are considered when determining if collection of a receivable is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. There was no allowance for doubtful accounts recorded at December 31, 2018. Accounts that are deemed uncollectible will be written off against the allowance for doubtful accounts after all reasonable collection efforts have been exhausted. 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 of the Company’s inventory is determined by the weighted average cost method. Inventory is comprised of raw materials, assemblies and finished products intended for sale to customers . |
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. |
Intangible Assets | Intangible assets consisted of capitalized legal fees and filing costs related to obtaining patents and trademarks. Intangible assets are carried at cost, less accumulated amortization. Amortization for patents is computed on a straight-line basis over the estimated remaining lives of issued patents which is 20 years from the initial filing. Trademarks are amortized on a straight-line basis over ten years, the estimated useful life of the assets. |
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 periods ended December 31, 2017 and 2018. |
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, 2018, the Company had no warrants or other derivative financial instruments that require separate accounting as liabilities and periodic revaluation. |
Advertising and Promotion Costs | The Company expenses advertising costs in the period in which they are incurred. The Company incurred advertising costs of $27,218 and $11,812 for the years ended December 31, 2018 and 2017, respectively. The Company incurred product promotion costs for demonstration products delivered to prospective customers of $192,484 for the year ended December 31, 2018. Advertising and promotion costs are included in selling, general and administrative expenses in the accompanying statements of operations. |
Research and Development Costs | Research and development costs consist primarily of contract development costs and experimental work materials and certain startup patent costs. Research and development costs with no alternative use are expensed as incurred. |
Leases | Leases entered into are classified as either capital or operating leases. At the time a capital lease is entered into, an asset is recorded, together with its related long-term obligation to reflect the purchase and financing. At December 31, 2018 and 2017, the Company had no capital lease obligations. |
Revenue Recognition | In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ ASU 2014-09 ASC 340-40 Topic 606 |
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 $1,570 for the year ended December 31, 2018. Actual revenues from shipping and handling were $670 for the year ended December 31, 2018. |
Warranty and 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 $428 at December 31, 2018. |
Segment Information | The Company has one operating segment with one business activity, providing restraint solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. |
Income Taxes | Until its reverse recapitalization on March 31, 2017, the Company was treated as a partnership for federal and state income tax purposes and did not incur income taxes. Instead, its losses were included in the income tax returns of the member partners. Accordingly, no provision or liability for federal or state income taxes has been included in these financial statements for the period prior to March 31, 2017 and no income tax expense was recorded for period ended December 31, 2018 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, 2018 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, 2018. |
Recent Accounting Pronouncements | Recently Adopted Accounting Pronouncement: In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this ASU are effective for the Company as of January 1, 2019 with early adoption permitted. The amendments in Part II of this ASU replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. The amendments in Part II of this ASU do not require any transition guidance. The adoption of this ASU did not have any impact on the Company’s historical financial statements and the Company was permitted and adopted retrospectively to January 1, 2018 the standard for any equity securities with down round features. As discussed above under “Revenue Recognition”, the Company adopted Topic 606 on January 1, 2018. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ ROU Effective the first quarter of 2019: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance. Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. We currently plan to adopt this standard using this modified retrospective approach. Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases classified as operating leases under current U.S. GAAP. The standard requires additional disclosures to enable users of financial statements to assess the amount, timing, and certainty of cash flows arising from leases. We intend to elect certain of the available practical expedients upon adoption. We have evaluated our existing lease portfolio and believe that our population of leases is low in number. We have implemented key processes and controls to enable the accurate assessment of leases and preparation of related financial information. We expect adoption of the standard will result in the recognition of an ROU asset and lease liability of approximately $12,900 for one operating lease as of January 1, 2019, with no impact to retained earnings. We had no capital leases at December 31, 2018. Effective the 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 Company is currently evaluating the effect, if any, that ASU 2018-13 will have on its financial statements. Other pronouncements: 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. |
3. INVENTORIES, NET (Tables)
3. INVENTORIES, NET (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Inventories Net Tables | |
Schedule of inventories | December 31, 2018 2017 Finished goods $ 82,313 $ 5,308 Work in process 12,695 5,484 Raw materials 63,259 120,400 $ 158,267 $ 131,192 |
4. PROPERTY AND EQUIPMENT, NET
4. PROPERTY AND EQUIPMENT, NET (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property And Equipment Net Tables | |
Property and equipment | December 31, 2018 2017 Laboratory equipment $ 13,980 $ 12,730 Tooling 22,683 18,165 Computer equipment 12,608 4,151 Furniture and fixtures 9,595 9,595 58,866 44,641 Accumulated depreciation (28,493 ) (7,973 ) $ 30,373 $ 36,668 |
6. CURRENT LIABILITIES (Tables)
6. CURRENT LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Current Liabilities Tables Abstract | |
Accrued liabilities | December 31, 2018 2017 Patent costs $ 11,600 $ 900 Accrued compensation 55,493 50,000 Warranty costs 428 - Other 932 9,414 $ 68,453 $ 60,314 |
8. STOCKHOLDERS_ EQUITY AND S_2
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Stockholders Equity And Sharebased Compensation Tables Abstract | |
Stock option activity | Weighted Average Options on Remaining Aggregate Common Exercise Contractual Intrinsic Shares Price Term Value Outstanding January 1, 2018 - - - $ - Granted 2,067,500 $ 1.68 4.44 - Exercised - - - - Forfeited, cancelled, expired - - - - Outstanding December 31, 2018 2,067,500 $ 1.68 4.44 $ 3,063,375 Vested and exercisable at December 31, 2018 225,000 $ 1.50 4.39 $ 371,250 |
Stock-based compensation | Year Ended December 31, 2018 2017 Selling, general and administrative $ 417,151 $ - Research and development 95,837 - Total stock-based expense $ 512,988 $ - |
Assumptions used to compute the fair value of options granted | Year Ended December 31, 2018 Expected stock price volatility 47% to 49% Risk-free interest rate 2.67% to 2.99% Forfeiture rate 0 % Expected dividend yield 0 % Expected life of options - years 2.75 - 5.00 Weighted-average fair value of options granted $ 0.72 |
Stock options outstanding | Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 1.50 1,847,500 4.39 $ 1.50 225,000 $ 1.50 $ 3.00 - $3.61 220,000 4.82 $ 3.23 - - |
Warrants | Number of Exercise Price Description Common Shares Per Share Expiration Date Purchase Warrants (1) 4,561,074 $ 5.00 October 30, 2020 Agent Warrants 456,107 $ 3.00 October 30, 2020 |
10. INCOME TAXES (Tables)
10. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes Tables | |
Provision for (benefit from) income taxes | Year Ended December 31, 2018 2017 Current tax benefit $ - $ - Deferred tax benefit 678,000 136,000 Change in valuation allowance (678,000 ) (136,000 ) Income tax benefit (provision) $ - $ - |
Reconciliation of the provision for income taxes | Year Ended December 31, 2018 2017 Income taxes benefit computed at federal statutory rate $ 701,000 $ 133,000 Research tax credits 15,000 6,000 Permanent differences and other (38,000 ) (3,000 ) Change in valuation allowance (678,000 ) (136,000 ) Income tax benefit (provision) $ - $ - |
Deferred tax assets and liabilities | December 31, 2018 2017 Deferred tax assets: Net operating losses $ 756,000 $ 132,000 Research tax credits 23,000 6,000 Deferred compensation 20,000 20,000 Stock compensation 76,000 - Accruals and other - 13,000 875,000 171,000 Deferred tax liabilities: Depreciation and other 29,000 3,000 29,000 3,000 Net deferred tax assets 846,000 168,000 Less valuation allowance (846,000 ) (168,000 ) Net deferred taxes after valuation allowance $ - $ - |
1. ORGANIZATION AND SUMMARY O_3
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Organization And Summary Of Significant Accounting Policies Details Narrative | |||
Loss from operations | $ (3,337,634) | $ (833,545) | |
Cash | 12,358,896 | 3,083,976 | $ 255,072 |
Current liabilities | $ 397,368 | $ 192,479 |
3. INVENTORIES, NET (Details)
3. INVENTORIES, NET (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Inventories Net Details | ||
Finished goods | $ 82,313 | $ 5,308 |
Work in process | 12,695 | 5,484 |
Raw materials | 63,259 | 120,400 |
Inventory | $ 158,267 | $ 131,192 |
4. PROPERTY AND EQUIPMENT, NE_2
4. PROPERTY AND EQUIPMENT, NET (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Property and equipment, gross | $ 58,866 | $ 44,641 |
Accumulated depreciation | (28,493) | (7,973) |
Property and equipment, net | 30,373 | 36,668 |
Laboratory equipment | ||
Property and equipment, gross | 13,980 | 12,730 |
Tooling | ||
Property and equipment, gross | 22,683 | 18,165 |
Computer equipment | ||
Property and equipment, gross | 12,608 | 4,151 |
Furniture and fixtures | ||
Property and equipment, gross | $ 9,595 | $ 9,595 |
4. PROPERTY AND EQUIPMENT, NE_3
4. PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Property And Equipment Net Details Narrative | ||
Depreciation expense | $ 21,875 | $ 6,661 |
6. CURRENT LIABILITIES (Details
6. CURRENT LIABILITIES (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Accrued liabilities | $ 68,453 | $ 60,314 |
Patent costs | ||
Accrued liabilities | 11,600 | 900 |
Accrued compensation | ||
Accrued liabilities | 55,493 | 50,000 |
Warranty costs | ||
Accrued liabilities | 428 | 0 |
Other | ||
Accrued liabilities | $ 932 | $ 9,414 |
8. STOCKHOLDERS_ EQUITY AND S_3
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details) | 12 Months Ended |
Dec. 31, 2018USD ($)$ / sharesshares | |
Stockholders' equity: | |
Number of options outstanding, beginning | shares | 0 |
Number of options granted | shares | 2,067,500 |
Number of options exercised | shares | 0 |
Number of options forfeited/cancelled | shares | 0 |
Number of options outstanding, ending | shares | 2,067,500 |
Number of options vested and exercisable | shares | 225,000 |
Weighted average exercise price outstanding, beginning | $ 0 |
Weighted average exercise price granted | 1.68 |
Weighted average exercise price exercised | 0 |
Weighted average exercise price forfeited/cancelled | 0 |
Weighted average exercise price outstanding, ending | 1.68 |
Weighted average exercise price vested and exercisable | $ 1.50 |
Weighted average remaining contractual term granted | 4 years 5 months 8 days |
Weighted average remaining contractual term outstanding, ending | 4 years 5 months 8 days |
Weighted average remaining contractual term vested and exercisable | 4 years 4 months 20 days |
Aggregate intrinsic value outstanding, beginning | $ | $ 0 |
Aggregate intrinsic value granted | $ 0 |
Aggregate intrinsic value exercised | $ | $ 0 |
Aggregate intrinsic value forfeited/cancelled | $ 0 |
Aggregate intrinsic value outstanding, ending | $ | $ 3,063,375 |
Aggregate intrinsic value vested and exercisable | $ | $ 371,250 |
8. STOCKHOLDERS_ EQUITY AND S_4
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Share-based compensation | $ 512,988 | $ 0 |
Selling, general and administrative | ||
Share-based compensation | 417,151 | 0 |
Research and development | ||
Share-based compensation | $ 95,837 | $ 0 |
8. STOCKHOLDERS_ EQUITY AND S_5
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details 2) | 12 Months Ended |
Dec. 31, 2018$ / shares | |
Forfeiture rate | 0.00% |
Expected dividend yield | 0.00% |
Weighted-average fair value of options granted | $ 0.72 |
Minimum | |
Expected stock price volatility | 47.00% |
Risk-free interest rate | 2.67% |
Expected life of options - years | 2 years 9 months |
Maximum | |
Expected stock price volatility | 49.00% |
Risk-free interest rate | 2.99% |
Expected life of options - years | 5 years |
8. STOCKHOLDERS_ EQUITY AND S_6
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details 3) - $ / shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Number of options outstanding | 2,067,500 | 0 |
Weighted average remaining contractual term outstanding | 4 years 5 months 8 days | |
Weighted average exercise price outstanding | $ 1.68 | $ 0 |
Number exercisable | 225,000 | |
Weighted average exercise price exerciseable | $ 1.50 | |
$ 1.50 | ||
Number of options outstanding | 1,847,500 | |
Weighted average remaining contractual term outstanding | 4 years 4 months 20 days | |
Weighted average exercise price outstanding | $ 1.50 | |
Number exercisable | 225,000 | |
Weighted average exercise price exerciseable | $ 1.50 | |
$3.00 - $3.61 | ||
Number of options outstanding | 220,000 | |
Weighted average remaining contractual term outstanding | 4 years 9 months 25 days | |
Weighted average exercise price outstanding | $ 3.23 | |
Number exercisable | 0 | |
Weighted average exercise price exerciseable | $ 0 |
8. STOCKHOLDERS_ EQUITY AND S_7
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details 4) | 12 Months Ended |
Dec. 31, 2018$ / sharesshares | |
Purchase Warrants | |
Number of Common Shares | shares | 4,561,074 |
Exercise Price Per Share | $ / shares | $ 5 |
Expiration Date | Oct. 30, 2020 |
Agent Warrants | |
Number of Common Shares | shares | 456,107 |
Exercise Price Per Share | $ / shares | $ 3 |
Expiration Date | Oct. 30, 2020 |
8. STOCKHOLDERS_ EQUITY AND S_8
8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Details Narrative) - $ / shares | Dec. 31, 2018 | Dec. 31, 2017 |
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 |
9. COMMITMENTS AND CONTINGENC_2
9. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Commitments And Contingencies Details Narrative | ||
Rent expense | $ 18,157 | $ 18,120 |
Future annual minimum lease obligations | ||
2,019 | 19,051 | |
2,020 | $ 25,200 |
10. INCOME TAXES (Details)
10. INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Taxes Details | ||
Current tax benefit | $ 0 | $ 0 |
Deferred tax benefit | 678,000 | 136,000 |
Change in valuation allowance | (678,000) | (136,000) |
Income tax benefit (provision) | $ 0 | $ 0 |
10. INCOME TAXES (Details 1)
10. INCOME TAXES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Taxes Details 1 | ||
Income taxes benefit computed at federal statutory rate | $ 701,000 | $ 133,000 |
Research tax credits | 15,000 | 6,000 |
Permanent differences and other | (38,000) | (3,000) |
Change in valuation allowance | (678,000) | (136,000) |
Income tax benefit (provision) | $ 0 | $ 0 |
10. INCOME TAXES (Details 2)
10. INCOME TAXES (Details 2) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Deferred tax assets: | ||
Net operating losses | $ 756,000 | $ 132,000 |
Research tax credits | 23,000 | 6,000 |
Deferred compensation | 20,000 | 20,000 |
Stock compensation | 76,000 | 0 |
Accruals and other | 0 | 13,000 |
Deferred tax assets | 875,000 | 171,000 |
Deferred tax liabilities: | ||
Depreciation and other | 29,000 | 3,000 |
Deferred tax liabilities | 29,000 | 3,000 |
Net deferred tax assets | 846,000 | 168,000 |
Less valuation allowance | (846,000) | (168,000) |
Net deferred taxes after valuation allowance | $ 0 | $ 0 |