8-K: Wytec Secures $157K Financing with Highly Dilutive Note

Wytec International, Inc. has secured $157,000 in financing through a highly dilutive promissory note with Labrys Fund II, L.P., carrying significant interest and conversion terms.

Summary

• Wytec International, Inc. entered into a Securities Purchase Agreement with Labrys Fund II, L.P. on October 3, 2025, which closed on October 6, 2025.
• Wytec sold a promissory note with a principal amount of $180,550 to Labrys for an aggregate cash purchase price of $157,000.
• The note includes an Original Issue Discount (OID) of $23,550 and a one-time interest charge of 12% ($21,666) applied to the principal on the issue date.
• The note has a maturity date of October 3, 2026.
• Amortization payments of $28,888 are scheduled monthly from April 3, 2026, to September 3, 2026, with all remaining outstanding amounts due on October 3, 2026.
• Upon an Event of Default or failure to make an Amortization Payment, Labrys has the right to convert all or any portion of the outstanding principal and interest into common stock.
• The conversion price is set at 65% of the lowest trading price of Wytec's common stock during the 20 trading day period immediately preceding the conversion date.
• A beneficial ownership limitation of 4.99% applies to conversions, which can be increased to 9.99% with 61 days' prior written notice.
• Wytec has the right to prepay the note in full within 181 calendar days of the issue date with a minimal discount (97-99% of principal and accrued interest) and no prepayment penalty.
• If Wytec receives aggregate cash proceeds of more than $500,000 from certain financing activities or asset sales, Labrys has the right to require Wytec to apply up to 25% of such proceeds above the threshold to repay the note.

Sentiment

Score: 2

Explanation: The financing provides immediate capital but comes with extremely unfavorable and dilutive terms, high costs, and significant restrictions, indicating a distressed financial situation and potential for substantial shareholder value erosion.

Positives

• Secured $157,000 in immediate capital for business development and general working capital.

Negatives

• The effective cost of capital is very high due to a $23,550 Original Issue Discount and a 12% one-time interest charge ($21,666) on a $157,000 cash infusion.
• The conversion price is set at a significant discount (65% of the lowest trading price over 20 days), leading to substantial potential dilution for existing shareholders.
• Numerous events of default, including failure to pay, conversion failures, breach of covenants, and even the inability to obtain a Rule 144 legal opinion, could trigger immediate repayment or conversion at unfavorable terms.
• A default interest rate of 22% per annum is applied to unpaid amounts, which could rapidly escalate the debt burden.
• The 'Most Favored Nation' clause means any more favorable terms offered to future investors must also be extended to Labrys, potentially hindering future financing efforts.
• Penalties for certain actions, such as $3,000 per day for failure to file an 8-K for material non-public information and a 25% penalty (minimum $25,000) for 3(a)(10) transactions, add to the company's financial risk.

Risks

• Significant shareholder dilution is highly probable due to the deeply discounted conversion price, which allows the lender to acquire shares at a substantial discount to market value.
• The high default interest rate (22%) poses a severe risk, as any missed payment could rapidly increase the outstanding debt and accelerate financial distress.
• Restrictive covenants within the agreement limit the company's operational and financing flexibility, potentially impeding strategic initiatives or necessary capital raises.
• The 'Most Favored Nation' clause could make it challenging or more expensive for the company to secure future financing from other investors.
• There is a risk of forced repayment of the note if the company raises more than $500,000 from other sources, potentially diverting crucial funds from business operations.
• The conversion features could lead to increased stock price volatility as the lender may sell converted shares into the market.
• The extensive list of events of default and associated penalties create significant legal and financial vulnerabilities for the company.

Future Outlook

The company has secured short-term financing to support business development and general working capital. However, the highly dilutive and restrictive terms of the note, coupled with significant penalties for non-compliance, suggest a challenging path forward for future capital raises and operational flexibility. The company will need to manage its cash flow carefully to meet the scheduled amortization payments and avoid triggering events of default.

Management Comments

• Management acknowledges that the execution and delivery of the Transaction Documents, the Note, and Conversion Shares, and the consummation of the transactions, have been duly authorized by the Board of Directors, requiring no further consent from the company, its Board, shareholders, or debt holders.
• Management understands and acknowledges the potentially dilutive effect of the Conversion Shares upon conversion of the Note to Common Stock, and that the obligation to issue Conversion Shares is absolute and unconditional regardless of the dilutive effect on other shareholders.
• The Purchase Price will be used for business development and general working capital, and not for other specified purposes such as repayment of insider debt or loans to affiliates.

Industry Context

This type of highly dilutive financing, often referred to as 'death spiral financing' or 'toxic debt,' is typically utilized by micro-cap or distressed companies that have limited access to traditional capital markets. It indicates a challenging financial position and can lead to significant shareholder value erosion. Companies in competitive or capital-intensive industries, or those with unproven business models, may resort to such financing when other options are exhausted.

Comparison to Industry Standards

• The 65% discount to the lowest trading price for conversion is significantly below typical market rates for convertible debt, which usually range from 0% to 20% premium to the current market price. This indicates a very high cost of capital and a strong preference for the lender to convert into equity at a favorable price.
• The combination of an Original Issue Discount, a one-time interest charge, and a high default interest rate (22%) far exceeds standard commercial lending rates, even for high-risk borrowers, highlighting the company's limited financing options.
• The extensive list of events of default and the 'Most Favored Nation' clause are common in highly distressed financing arrangements but are generally considered unfavorable compared to standard corporate debt agreements.
• The requirement for D&O insurance with two years of tail coverage is a standard risk mitigation for directors and officers, but its explicit mention and timing requirement in this context underscore the perceived risk by the lender.

Corporate Governance

Legal Proceedings

• All disputes arising under the agreement or related to the parties' relationship must be submitted to binding arbitration exclusively in the Commonwealth of Massachusetts.
• The company irrevocably waives any right to a jury trial for the adjudication of any dispute related to the note or transactions contemplated by the agreement.

Stakeholder Impact

• Shareholders face significant potential dilution from the convertible note, especially given the deeply discounted conversion price, which could substantially reduce the value of their holdings.
• Creditors (other than Labrys) may see an increase in the company's overall debt burden and a potentially weakened financial position due to the high cost of this financing.
• Management and employees may experience increased pressure to meet financial obligations and navigate restrictive covenants, potentially impacting strategic decision-making and operational flexibility.
• Future investors may be deterred by the 'Most Favored Nation' clause and the highly dilutive nature of this financing, making it more challenging for the company to raise capital on favorable terms.

Next Steps

• Wytec must make monthly amortization payments of $28,888 starting April 3, 2026, until the note matures on October 3, 2026.
• The company needs to ensure compliance with all covenants in the Securities Purchase Agreement and Promissory Note to avoid triggering events of default.
• Wytec must purchase director and officer insurance within 60 calendar days of the closing date, with two years of tail coverage.
• The company must maintain its listing on the Principal Market and comply with all reporting obligations under the 1934 Act and FINRA rules.
• Wytec is required to file a Form D with respect to the securities if necessary under Regulation D and comply with applicable state blue sky laws.

Key Dates

Recommendation

The financing terms are exceptionally punitive and highly dilutive, indicating severe financial distress. The significant discount on conversion (65% of the lowest trading price), coupled with a high effective interest rate and numerous restrictive covenants, creates an unsustainable capital structure. This arrangement is designed to benefit the lender at the expense of existing shareholders, leading to substantial value erosion. The company's acknowledgment of the dilutive effect and the absolute obligation to issue shares regardless of impact further underscores the unfavorable terms. Investors should consider exiting their positions to avoid further losses from impending dilution and the high risk of default.

Keywords

Wytec International, WYTC, Promissory Note, Convertible Debt, Dilution, Labrys Fund, SEC Filing, Financing, Capital Raise, Corporate Finance, OTCQB