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<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Organization and Business Description</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Wrap Technologies, Inc. (the “<i>Company</i>”)
is a developer of security products designed for use by law enforcement and security personnel. The Company's first product is
the BolaWrap™ 100 remote restraint device.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company resulted from the March 31, 2017
merger of Wrap Technologies, LLC (“<i>Wrap LLC</i>”) with and into its wholly-owned subsidiary MegaWest Energy Montana
Corp. (“<i>MegaWest</i>”). Wrap LLC ceased separate existence with MegaWest continuing as the surviving entity. MegaWest
changed its name to Wrap Technologies, Inc. and amended and restated new articles of incorporation authorizing 150,000,000 shares
of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. All outstanding 835.75 membership
units of Wrap LLC were exchanged for 20,000,000 shares of common stock of the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Wrap LLC acquired privately held MegaWest from
Petro River Oil Corp. (“<i>Petro River</i>”) on March 22, 2017 through the issuance of 16.75 membership units representing
a 2% ownership interest in Wrap LLC. Petro River is owned 11% by Scot Cohen its Executive Chairman who also was a Manager and 26%
owner of Wrap LLC and a director and officer of the Company. MegaWest had no assets or liabilities at the date of acquisition nor
at December 31, 2016 and is not considered an operating business.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 has been
accounted for as a reverse recapitalization of Wrap LLC. Wrap LLC, now the Company, is deemed the accounting acquirer with MegaWest
the accounting acquiree. The Company’s financial statements are in substance those of Wrap LLC and deemed to be a continuation
of its 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 was recorded as part of the recapitalization
of the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation and Use of Estimates</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“<i>U.S. GAAP</i>”).
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., recognition and measurement of contingencies and accrued costs) 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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Public Offering</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 40,000 shares of the offering for $60,000.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Going Concern</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Since inception in March 2016, the Company has
generated significant losses from operations and anticipates that it will continue to generate significant losses from operations
for the foreseeable future.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">While management believes it has adequate financial
resources for the next year, management cannot assure that if any future financing is required that it will be available on favorable
terms or at all. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance
of such securities would result in dilution to the Company’s existing stockholders. Furthermore, despite management’s
optimism regarding the Company’s technology and products, there is no guarantee that any products will perform as hoped or
that such products can be successfully commercialized.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Net Loss per Share</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 loss per
common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period
increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive
securities had been issued. There were no common Stock equivalents outstanding during the periods presented; accordingly, the Company’s
basic and diluted net loss per share are the same.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair Value of Financial Instruments</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The carrying amounts of cash, accounts payable
and accrued liabilities approximate fair values due to the short nature of these instruments.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Concentrations of Credit Risk</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2017. 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 equivalents.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Property, Equipment and Depreciation</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Impairment of Long-Lived Assets</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2016 and 2017.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Startup Costs</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expensed startup costs related to
the development of its business including approximately $24,600 incurred prior to legal formation. Patent legal costs incurred
are expensed as research and development costs until evidence of patentability is confirmed.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Advertising Costs</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising costs of $11,812 and $417 for the periods ended December 31,
2017 and 2016, respectively. Advertising costs are included in selling, general and administrative expenses in the accompanying
statements of operations.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Research and Development Costs</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Income Taxes</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 the period ended December 31, 2017 due to losses incurred.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities
generating the differences.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Recent Accounting Pronouncements</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, <i>Revenue from Contracts with Customers</i>
(Topic 606). ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification
of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction
price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. Subsequently,
the FASB issued the following accounting standard updates related to Topic 606, Revenue from Contracts with Customers:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASU 2016-08, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Principal versus Agent Considerations (Reporting Revenue Gross versus Net)</i> in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASU 2016-10, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Identifying Performance Obligations and Licensing</i> in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and its licensing.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASUs 2016-12 and 2016-20, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Narrow-Scope Improvements and Practical Expedients, and Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers</i>, respectively, issued in May and December 2016, respectively. These ASUs do not change the core principle of revenue recognition in Topic 606 but clarify the implementation guidance on a few narrow areas and add some practical expedients to the guidance.</font></td></tr>
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<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Topic 606 is effective for the Company
as of January 1, 2018, and permits the use of either a retrospective or a modified retrospective method. The Company currently
anticipates using the modified retrospective method and has no previously reported revenues.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2016, the FASB issued ASU 2016-01,
<i>Recognition and Measurement of Financial Assets and Financial Liabilities</i>, which provides targeted improvements to the recognition,
measurement, presentation and disclosure of financial assets and financial liabilities. Specific accounting areas addressed include
equity investments and financial liabilities reported under the fair value option and valuation allowance assessment resulting
from unrealized losses on available-for-sale securities. This ASU also changes certain presentation and disclosure requirements
for financial instruments. This ASU is to be applied by means of a cumulative effect adjustment to the balance sheet as of the
beginning of the fiscal year of adoption. This ASU is effective for the Company as of January 1, 2018. Early adoption, with
certain exceptions, is not permitted. The Company does not expect adoption of this ASU to have any impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU 2016-02,
<i>Leases (Topic 842)</i>, which requires lessees to recognize right-of-use assets and corresponding liabilities for all leases
with an initial term in excess of 12 months. This ASU is to be adopted using a modified retrospective approach, including a number
of practical expedients, that requires leases to be measured and recognized under the new guidance at the beginning of the earliest
period presented. This ASU is effective for the Company as of January 1, 2019. Early adoption is permitted. The Company is
currently evaluating the effect this ASU will have on its financial statements and related disclosures.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In August 2016, the FASB issued ASU 2016-15,
<i>Statement of Cash Flows (Topic 230)</i>: <i>Classification of Certain Cash Receipts and Cash Payments</i>, addressing eight
specific cash flow issues in an effort to reduce diversity in practice. This ASU is effective for the Company as of January 1,
2018. The Company does not expect adoption to have a material impact on its statements of cash flows.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In November 2016, the FASB issued ASU 2016-18,
<i>Restricted Cash</i>, which requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for the Company
as of January 1, 2018. The Company does not expect adoption of this ASU to have any impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2017, the FASB issued ASU 2017-09, <i>Scope
of Modification Accounting</i>, which amends the scope of modification accounting for share-based payment arrangements, provides
guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718, <i>Compensation – Stock Compensation</i>. This ASU is effective for the Company
as of January 1, 2018. The <font style="color: #2E2E2E">Company does not expect adoption of this ASU to have any impact on its
financial statements.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2017, the FASB issued ASU 2017-11<i>,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).</i> 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 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.  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 <font style="color: #2E2E2E">Company
does not expect adoption of this ASU to have any impact on its financial statements.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In March 2016, the FASB issued ASU 2016 –
09 “<i>Improvements to Employee Share-Based Payment Accounting</i>”, which simplifies the accounting for share-based
payment transactions including their income tax consequences, classification as either equity or liability awards, classification
on the statement of cash flows, and other areas. The method of adoption varies with the different aspects of the Update. The Update
is effective for the Company in the first quarter of fiscal year 2018. The Company does not expect this ASU to have a material
impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 9pt; text-align: justify">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 at December 31, 2017:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Finished goods</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">5,308</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Work in process</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5,484</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Raw materials</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">120,400</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">131,192</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment consisted of the following:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="text-align: center"><font style="font-size: 8pt"><b>December 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2016</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 76%"><font style="font-size: 8pt">Laboratory equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 0%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">12,730</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 0%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">7,342</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Tooling</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">18,165</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Computer equipment</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4,151</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Furniture and fixtures</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">9,595</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">2,196</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">44,641</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">9,538</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(7,973</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(1,312</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">36,668</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">8,226</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation expense was $6,661 and $1,312 for
the year ended December 31, 2017 and the period from March 2, 2016 to December 31, 2016, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective March 2016 the Company began accruing
monthly compensation for the services of two officers in the aggregate amount of $7,000 per month payable to Syzygy Licensing,
LLC (“<i>Syzygy</i>”). 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, 2017 was $84,000 and the accrued deferred compensation aggregated $12,000. These
balances accrue without interest. No payment terms or schedule has been established.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective with the merger, the Company adopted
and the shareholders approved on March 31, 2017 the 2017 Stock Incentive Plan authorizing 2,000,000 shares of common stock for
issuance as stock options and restricted stock units to employees, directors or consultants. At December 31, 2017, there has been
no option grants or restricted stock awards made and none were outstanding.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Facility Lease</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Commencing December 1, 2016 the Company leased
1,890 square feet of improved office, assembly and warehouse space in Las Vegas, Nevada for a period of 37 months terminating December
31, 2019. The gross monthly base rent is $1,550 increasing approximately 3.5% per year, subject to certain future adjustments.
The Company may receive an aggregate of three months of base rent concessions over the term of the lease subject to timely rent
payments.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Rent expense for the period ended December 31,
2017 and 2016 was $18,120 and $1,510, respectively. The remaining future annual minimum lease obligations under the foregoing facility
lease are $17,123 and $19,051 for the balance of 2018 and 2019, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Related Party Technology License Agreement</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 stockholder/officers Mr. Elwood Norris and Mr. James Barnes.
The agreement provides for royalties of 4% of revenues from products employing the licensed ensnarement device technology up to
an aggregate of $1,000,000 of royalties or until September 30, 2026, whichever is earlier.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Indemnifications and Guarantees</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Regulatory Agencies</u></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company may be subject to oversight from
regulatory agencies regarding firearms that arise in the ordinary course of its business.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2017, the Company has net operating loss carryforwards of approximately $630,000 to reduce future taxable income through 2037.
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, 2017, management has not determined the extent of any such limitations, if any.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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%.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2017 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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The provision for (benefit from) income taxes
consists of the following:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>Period Ended December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Current tax benefit</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax benefit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">136,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Change in valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(136,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Income tax benefit (provision)</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A reconciliation of the provision for income
taxes at the federal statutory rate of 35% to the Company’s provision for income tax is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>Period Ended December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Income taxes benefit computed at federal statutory rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">133,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Research tax credits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">6,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Permanent differences and other</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(3,000</font></td>
<td><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Change in valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(136,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Income tax benefit (provision)</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets
and liabilities for the periods presented:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>At December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax assets:</font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%; padding-left: 9pt"><font style="font-size: 8pt">Net operating losses</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">132,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Research tax credits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">6,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Deferred compensation</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">20,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Accruals and other</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">13,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">171,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax liabilities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Depreciation and other</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">3,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">3,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Net deferred tax assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">168,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Less valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(168,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Net deferred taxes after valuation allowance</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the period ended December 31, 2016 the
Company paid $25,409 of patent legal costs incurred by Syzygy for the ensnarement device technology pursuant to the license agreement
(see Note 6) with such technology subsequently assigned to the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Commencing in October 2017 the Company commenced
reimbursing officer Mr. Elwood Norris $1,500 per month on a month to month basis for laboratory costs for an aggregate of $4,500
during the year ended December 31, 2017.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">See Notes 1, 4 and 6 for additional related
party transactions and information.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Wrap Technologies, Inc. (the “<i>Company</i>”)
is a developer of security products designed for use by law enforcement and security personnel. The Company's first product is
the BolaWrap™ 100 remote restraint device.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company resulted from the March 31, 2017
merger of Wrap Technologies, LLC (“<i>Wrap LLC</i>”) with and into its wholly-owned subsidiary MegaWest Energy Montana
Corp. (“<i>MegaWest</i>”). Wrap LLC ceased separate existence with MegaWest continuing as the surviving entity. MegaWest
changed its name to Wrap Technologies, Inc. and amended and restated new articles of incorporation authorizing 150,000,000 shares
of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. All outstanding 835.75 membership
units of Wrap LLC were exchanged for 20,000,000 shares of common stock of the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Wrap LLC acquired privately held MegaWest from
Petro River Oil Corp. (“<i>Petro River</i>”) on March 22, 2017 through the issuance of 16.75 membership units representing
a 2% ownership interest in Wrap LLC. Petro River is owned 11% by Scot Cohen its Executive Chairman who also was a Manager and 26%
owner of Wrap LLC and a director and officer of the Company. MegaWest had no assets or liabilities at the date of acquisition nor
at December 31, 2016 and is not considered an operating business.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 has been
accounted for as a reverse recapitalization of Wrap LLC. Wrap LLC, now the Company, is deemed the accounting acquirer with MegaWest
the accounting acquiree. The Company’s financial statements are in substance those of Wrap LLC and deemed to be a continuation
of its 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 was recorded as part of the recapitalization
of the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“<i>U.S. GAAP</i>”).
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., recognition and measurement of contingencies and accrued costs) 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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 40,000 shares of the offering for $60,000.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Since inception in March 2016, the Company has
generated significant losses from operations and anticipates that it will continue to generate significant losses from operations
for the foreseeable future.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">While management believes it has adequate financial
resources for the next year, management cannot assure that if any future financing is required that it will be available on favorable
terms or at all. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance
of such securities would result in dilution to the Company’s existing stockholders. Furthermore, despite management’s
optimism regarding the Company’s technology and products, there is no guarantee that any products will perform as hoped or
that such products can be successfully commercialized.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 loss per
common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period
increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive
securities had been issued. There were no common Stock equivalents outstanding during the periods presented; accordingly, the Company’s
basic and diluted net loss per share are the same.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The carrying amounts of cash, accounts payable
and accrued liabilities approximate fair values due to the short nature of these instruments.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2017. 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 equivalents.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2016 and 2017.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expensed startup costs related to
the development of its business including approximately $24,600 incurred prior to legal formation. Patent legal costs incurred
are expensed as research and development costs until evidence of patentability is confirmed.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising costs of $11,812 and $417 for the periods ended December 31,
2017 and 2016, respectively. Advertising costs are included in selling, general and administrative expenses in the accompanying
statements of operations.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 the period ended December 31, 2017 due to losses incurred.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities
generating the differences.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, <i>Revenue from Contracts with Customers</i>
(Topic 606). ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification
of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction
price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. Subsequently,
the FASB issued the following accounting standard updates related to Topic 606, Revenue from Contracts with Customers:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASU 2016-08, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Principal versus Agent Considerations (Reporting Revenue Gross versus Net)</i> in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASU 2016-10, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Identifying Performance Obligations and Licensing</i> in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and its licensing.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" style="width: 100%">
<tr>
<td style="vertical-align: top; width: 48px; padding-left: 0.25in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">●</font></td>
<td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">ASUs 2016-12 and 2016-20, <i>Revenue from Contracts with Customers</i> (Topic 606): <i>Narrow-Scope Improvements and Practical Expedients, and Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers</i>, respectively, issued in May and December 2016, respectively. These ASUs do not change the core principle of revenue recognition in Topic 606 but clarify the implementation guidance on a few narrow areas and add some practical expedients to the guidance.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Topic 606 is effective for the Company
as of January 1, 2018, and permits the use of either a retrospective or a modified retrospective method. The Company currently
anticipates using the modified retrospective method and has no previously reported revenues.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2016, the FASB issued ASU 2016-01,
<i>Recognition and Measurement of Financial Assets and Financial Liabilities</i>, which provides targeted improvements to the recognition,
measurement, presentation and disclosure of financial assets and financial liabilities. Specific accounting areas addressed include
equity investments and financial liabilities reported under the fair value option and valuation allowance assessment resulting
from unrealized losses on available-for-sale securities. This ASU also changes certain presentation and disclosure requirements
for financial instruments. This ASU is to be applied by means of a cumulative effect adjustment to the balance sheet as of the
beginning of the fiscal year of adoption. This ASU is effective for the Company as of January 1, 2018. Early adoption, with
certain exceptions, is not permitted. The Company does not expect adoption of this ASU to have any impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU 2016-02,
<i>Leases (Topic 842)</i>, which requires lessees to recognize right-of-use assets and corresponding liabilities for all leases
with an initial term in excess of 12 months. This ASU is to be adopted using a modified retrospective approach, including a number
of practical expedients, that requires leases to be measured and recognized under the new guidance at the beginning of the earliest
period presented. This ASU is effective for the Company as of January 1, 2019. Early adoption is permitted. The Company is
currently evaluating the effect this ASU will have on its financial statements and related disclosures.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In August 2016, the FASB issued ASU 2016-15,
<i>Statement of Cash Flows (Topic 230)</i>: <i>Classification of Certain Cash Receipts and Cash Payments</i>, addressing eight
specific cash flow issues in an effort to reduce diversity in practice. This ASU is effective for the Company as of January 1,
2018. The Company does not expect adoption to have a material impact on its statements of cash flows.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In November 2016, the FASB issued ASU 2016-18,
<i>Restricted Cash</i>, which requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for the Company
as of January 1, 2018. The Company does not expect adoption of this ASU to have any impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2017, the FASB issued ASU 2017-09, <i>Scope
of Modification Accounting</i>, which amends the scope of modification accounting for share-based payment arrangements, provides
guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718, <i>Compensation – Stock Compensation</i>. This ASU is effective for the Company
as of January 1, 2018. The <font style="color: #2E2E2E">Company does not expect adoption of this ASU to have any impact on its
financial statements.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2017, the FASB issued ASU 2017-11<i>,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).</i> 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 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.  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 <font style="color: #2E2E2E">Company
does not expect adoption of this ASU to have any impact on its financial statements.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In March 2016, the FASB issued ASU 2016 –
09 “<i>Improvements to Employee Share-Based Payment Accounting</i>”, which simplifies the accounting for share-based
payment transactions including their income tax consequences, classification as either equity or liability awards, classification
on the statement of cash flows, and other areas. The method of adoption varies with the different aspects of the Update. The Update
is effective for the Company in the first quarter of fiscal year 2018. The Company does not expect this ASU to have a material
impact on its financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Finished goods</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">5,308</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Work in process</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5,484</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Raw materials</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">120,400</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">131,192</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="text-align: center"><font style="font-size: 8pt"><b>December 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2016</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 76%"><font style="font-size: 8pt">Laboratory equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 0%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">12,730</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 0%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">7,342</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Tooling</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">18,165</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Computer equipment</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4,151</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Furniture and fixtures</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">9,595</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">2,196</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">44,641</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">9,538</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(7,973</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(1,312</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">36,668</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">8,226</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>Period Ended December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Current tax benefit</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax benefit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">136,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Change in valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(136,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Income tax benefit (provision)</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>Period Ended December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%"><font style="font-size: 8pt">Income taxes benefit computed at federal statutory rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">133,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Research tax credits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">6,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Permanent differences and other</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(3,000</font></td>
<td><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Change in valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(136,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Income tax benefit (provision)</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"><b><u>At December 31, 2017</u></b></font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax assets:</font></td>
<td> </td>
<td colspan="2" style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 88%; padding-left: 9pt"><font style="font-size: 8pt">Net operating losses</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">132,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Research tax credits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">6,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Deferred compensation</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">20,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Accruals and other</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">13,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">171,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Deferred tax liabilities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt"><font style="font-size: 8pt">Depreciation and other</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">3,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">3,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Net deferred tax assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">168,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Less valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1pt solid"> </td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(168,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Net deferred taxes after valuation allowance</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">-</font></td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
5308
5484
120400
18120
1510
17123
19051
0
136000
0
13000
20000
6000
171000
168000
168000
0
3000
3000
-136000
6000
133000
-3000
132000
70084
0