WRAP TECHNOLOGIES, INC. current report, 29 June 2023

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Business Context and Reporting Period

Company: WRAP TECHNOLOGIES, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: June 29, 2023
Event: Entry into a Material Definitive Agreement for a registered direct offering.

Key Financial Metrics and Transaction Details

This filing details a capital raise rather than periodic operating results. Key transaction metrics include:

  • Gross Proceeds: Expected $10 million.
  • Use of Proceeds: General corporate purposes.
  • Securities Issued:
    • 10,000 shares of Series A Convertible Preferred Stock (Stated value: $1,000/share).
    • Warrants to acquire up to 6,896,553 shares of Common Stock.
  • Conversion/Exercise Price: $1.45 per share.
  • Placement Agent Fees: 8% cash fee of gross proceeds plus warrants equal to 8% of the underlying shares.

Material Changes and Terms

The filing outlines significant terms regarding the new securities and corporate governance:

  • Dividends: Preferred Shares accrue 8% per annum, compounded monthly. In the event of a "Triggering Event" (e.g., failure to pay), the rate increases to 20% per annum.
  • Stockholder Approval: The Company must hold a stockholder meeting by October 1, 2023, to approve the issuance of shares exceeding 19.99% of outstanding common stock at prices below the Nasdaq "Minimum Price." Approximately 14.1% of outstanding shares have agreed to vote in favor.
  • Board Representation: Preferred Shareholders are entitled to elect one director on or before December 31, 2023.
  • Liquidation Preference: Holders are entitled to the greater of 150% of the Conversion Amount or the value if converted immediately prior to payment.
  • Redemption: The Company may redeem shares in cash starting 18 months after closing at 125% of the Conversion Amount.

Guidance, Risks, and Contingencies

Outlook and Conditions:

  • Closing Date: Expected July 3, 2023, subject to customary conditions.
  • Proxy Statement: A proxy statement regarding the Stockholder Approval Matters will be filed with the SEC and mailed to stockholders.
Risks and Contingencies:
  • Dilution: The offering involves significant potential dilution to existing common shareholders via conversion and warrant exercise.
  • Triggering Events: Failure to pay dividends or other defined events could accelerate dividend rates to 20% and impact financial flexibility.
  • Market Conditions: The Company's ability to settle conversions using shares is limited until Stockholder Approval is obtained.
Unusual Items:
  • The transaction includes a "full ratchet" anti-dilution provision for the Warrants.
  • Warrants include a "Board Reconstitution" provision allowing holders to force a cash buyout if three or more directors are replaced.

Investor Verification Checklist

  • Verify the final closing date and actual gross proceeds received.
  • Monitor the upcoming proxy statement for details on the October 1, 2023, stockholder vote.
  • Review the Certificate of Designations (Exhibit 3.1) for specific definitions of "Triggering Events."
  • Assess the impact of the 8% dividend rate and potential 20% acceleration on future cash flow.
  • Confirm the status of the 14.1% of shares committed to vote in favor of the offering.