Business context and reporting period
Wrap Technologies, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2017. The development-stage security technology company planned to introduce its first product, the BolaWrap 100 remote restraint device, in late 2017. It had not generated revenue, had no product customers or orders, and said it did not expect revenue until production quantities were available. The March 2017 merger was accounted for as a reverse recapitalization; the statements continue Wrap LLC’s financial history from its March 2016 inception.
Financial results and position
| Metric | Q3 2017 / Sep. 30, 2017 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None in Q3 2016 |
| Operating expenses and net loss, quarter | $151,544 | $68,288 in Q3 2016 |
| Operating expenses and net loss, period to date | $523,529 for nine months | $129,301 from inception through Sep. 30, 2016 |
| Cash | $23,708 | $255,072 at Dec. 31, 2016 |
| Current assets / current liabilities | $165,643 / $184,850 | $283,371 / $84,965 at Dec. 31, 2016 |
| Total assets / stockholders’ equity | $204,465 / $19,615 | $293,109 / $208,144 at Dec. 31, 2016 |
Quarterly SG&A was $105,210 versus $1,738; R&D was $46,334 versus $66,550 in the financial statements. The MD&A instead states prior-year quarterly R&D of $66,650, an inconsistency to verify. For the nine months, SG&A was $270,854 and R&D $252,675; the comparison period ran from inception through September 2016 and is shorter than nine months. Gross margin is not meaningful because there were no sales or product costs.
Net cash used in operating activities was $532,769 and investing activities used $33,595 in the first nine months of 2017; financing provided $335,000 from stock sales and subscriptions. The company reported no debt balance. Current liabilities exceeded current assets by $19,207. Cash flow and liquidity were supported by equity financing, not operations.
Changes, outlook, risks and unusual items
- Cash declined by $231,364 from year-end 2016. Inventories rose to $96,667 as the company prepared for production, and property and equipment, net, increased to $37,310.
- Management reported $616,300 in gross proceeds from its self-underwritten offering by the report date, including $60,000 subscribed by existing stockholders as of September 30. It said $556,300 was received in October. The offering covered up to 2,666,666 shares at $1.50 per share and could continue through August 15, 2018; further proceeds were not assured.
- Management concluded there was substantial doubt about the company’s ability to continue as a going concern through November 7, 2018. It estimated cash on hand plus October proceeds would fund operations only through approximately March 2018 and said additional capital would be required. Financing availability, terms, and potential shareholder dilution were uncertain.
- There were no material pending legal proceedings. Commitments included a facility lease with about $39,200 of remaining minimum payments and a related-party technology license requiring royalties of 4% of product revenue, capped at $1 million or ending September 30, 2026, whichever comes first. The company also reported $96,000 of deferred and accrued officer compensation, including $84,000 payable to a related entity; no payment schedule had been established.
- Key risks include failure to commercialize or gain market acceptance for the product, limited staffing and financing, regulatory and export restrictions, supplier dependence, product liability and warranty exposure, and unissued patents or other limited intellectual-property protection. The filing describes the device as subject to firearm regulation and U.S. export controls.
- Management stated disclosure controls were effective at a reasonable-assurance level and reported no material quarterly change in internal control over financial reporting. The filing’s cover page marks “No” to whether all required Exchange Act reports had been filed during the preceding 12 months; investors should verify the filing-status context.
Most important facts to verify
- Whether product introduction, production readiness, regulatory compliance, and initial customer sales occurred as planned; the filing reported no customers or orders.
- Actual cash runway, subsequent spending, and ability to obtain additional financing beyond the estimated March 2018 runway.
- Offering proceeds and share counts: 20,475,000 shares were outstanding at September 30, while 20,885,867 were reported outstanding on November 6.
- The conflicting Q3 2016 R&D figures ($66,550 in the statements versus $66,650 in MD&A), and the cover-page “No” response on prior required filings.
- Related-party compensation and license obligations, lease commitments, and potential dilution from future equity financing.