Wetouch Technology Inc. current report, 03 November 2021

Wetouch Technology Inc. — Form 8-K Summary

Business context and reporting period

Wetouch Technology Inc., a Nevada corporation with principal offices in Sichuan, China, filed a Form 8-K reporting a financing transaction. The report date was November 3, 2021; the related agreements were dated October 27, 2021, and the filing was signed November 5, 2021.

Key financial and capital structure metrics

  • Convertible note: $250,000 principal amount issued to Talos Victory Fund, LLC.
  • Cash proceeds: $225,000 gross proceeds, reflecting the note’s original issue discount.
  • Interest: 8% per annum, payable with principal on the one-year maturity date unless converted. Default interest increases to 16% if the obligation is not satisfied at maturity.
  • Financing fee: Craft Capital Management LLC received an $18,000 fee.
  • Warrant: Three-year warrant to purchase 200,000 common shares at $1.25 per share, subject to adjustment provisions.
  • Conversion terms: The lender may convert principal and accrued interest beginning on the earlier of 180 days after October 27, 2021, or the closing of a qualifying national-exchange uplisting offering generating at least $15 million in gross proceeds.
  • Potential dilution: The note and warrant may result in the issuance of common shares. The lender’s beneficial ownership is generally capped at 4.9% unless 61 days’ advance notice is provided.
  • The filing does not provide revenue, profit, cash-flow, margin, total-debt, or liquidity figures for a comparable reporting period.

Material changes versus the prior comparable period

The filing reports the creation of a new $250,000 convertible debt obligation, receipt of $225,000 in gross proceeds, and issuance of a warrant for 200,000 shares. It does not provide comparative operating or financial results.

Guidance, outlook, risks, contingencies, and unusual items

  • The lender may require repayment if the company receives cash proceeds, including customer receipts or equity-financing proceeds.
  • Voluntary prepayment before maturity requires a 10% penalty.
  • The company agreed not to issue certain securities with trading-price-based, reset, or future-determined conversion prices while the note remains outstanding.
  • The note conversion price is generally $0.75 per share, or 70% of the offering price in a qualifying uplisting offering completed within the specified 180-day period, subject to anti-dilution adjustments.
  • The warrant exercise price may adjust to 125% of the uplisting offering price, and both the note and warrant include lower-price adjustment provisions.
  • The warrant may be exercised on a cashless basis if the relevant trading-price condition is met, unless an effective resale registration statement covers the lender’s shares.
  • The company agreed to file a registration statement for shares underlying the note and warrant by December 26, 2021, and granted piggyback registration rights.
  • The securities were sold in reliance on the Section 4(a)(2) exemption from Securities Act registration.

Important facts for investors to verify

  • Confirm the full terms of the Securities Purchase Agreement, note, warrant, and registration rights agreement in Exhibits 4.4, 4.5, 10.14, and 10.15.
  • Verify the outstanding principal, accrued interest, maturity status, and any repayment or conversion activity after the filing date.
  • Assess the potential share dilution from conversion of the note and exercise or adjustment of the warrant.
  • Confirm whether the required registration statement was filed by December 26, 2021.
  • Review the company’s subsequent financial filings for liquidity, repayment capacity, additional financing, and compliance with the financing covenants.