KWESST Micro Systems Inc. Announces Registered Direct Offering

Rhea-AI Summary

KWESST Micro Systems Inc. (NASDAQ: KWE) (TSXV: KWE) has announced a registered direct offering of 4,715,000 common shares at US$0.20 per share. Concurrently, the company will issue unregistered warrants to purchase up to 4,715,000 common shares at US$0.25 per share, exercisable immediately and expiring in five years. The offering, expected to close around August 13, 2024, aims to raise US$943,000 in gross proceeds. H.C. Wainwright & Co. is the exclusive placement agent. KWESST intends to use the net proceeds for working capital and general corporate purposes. The common shares are offered under a shelf registration statement, while the warrants are offered in a private placement under Section 4(a)(2) of the Securities Act.

Positive

• Raising US$943,000 in gross proceeds to strengthen the company's financial position
• Warrants issued at US$0.25, a 25% premium to the offering price, potentially providing additional future capital

Negative

• Offering price of US$0.20 per share may represent a discount to current market price, potentially diluting existing shareholders
• Issuance of new shares and warrants will dilute existing shareholders' ownership
• The company's need for additional capital may indicate financial challenges

Financial Analyst

KWESST's registered direct offering of $943,000 at $0.20 per share represents a significant dilution for existing shareholders, given the company's current market cap. The concurrent private placement of warrants at $0.25 could lead to further dilution if exercised. This capital raise suggests cash flow challenges, which is concerning for a small-cap company.

The use of proceeds for "working capital and general corporate purposes" lacks specificity, raising questions about the company's immediate financial needs. The involvement of H.C. Wainwright as the exclusive placement agent indicates difficulty in securing traditional financing. This offering may provide short-term relief but doesn't address underlying business challenges.

Legal Expert

The structure of this offering - combining registered shares with unregistered warrants - is a common approach for small-cap companies to maximize fundraising while minimizing SEC registration costs. However, it's worth noting that the unregistered warrants are being offered under Section 4(a)(2) and Regulation D, which restricts their sale to accredited investors.

The company's use of a shelf registration (Form F-3) suggests proactive planning for capital needs. However, the quick turnaround between filing (February 20) and effectiveness (March 4) may indicate urgency in fundraising. Investors should be aware that while the common shares are freely tradable, the warrants and underlying shares have resale restrictions.

Market Research Analyst

This offering price of $0.20 per share likely represents a discount to the current market price, which is typical for these transactions but can negatively impact stock performance in the short term. The $0.25 warrant exercise price provides a 25% premium, potentially limiting immediate dilution but also indicating low confidence in near-term price appreciation.

The small size of the offering ($943,000) raises questions about KWESST's ability to execute its business plan effectively. For a NASDAQ-listed company, this amount is unusually low and may not be sufficient to address underlying financial issues. Investors should closely monitor the company's burn rate and future financing needs, as additional dilutive offerings may be necessary.

Ottawa, Ontario--(Newsfile Corp. - August 12, 2024) - KWESST Micro Systems Inc. (NASDAQ: KWE) (TSXV: KWE) (TSXV: KWE.WT.U) ("KWESST" or the "Company"), today announced that it has entered into definitive agreements for the purchase and sale of 4,715,000 common shares at a purchase price of US$0.20 per common share in a registered direct offering. In a concurrent private placement, the Company will issue unregistered warrants to purchase up to 4,715,000 common shares at an exercise price of US$0.25 per share that will be immediately exercisable upon issuance and will expire five years following the date of issuance. The closing of the offering is expected to occur on or about August 13, 2024, subject to the satisfaction of customary closing conditions.

H.C. Wainwright & Co. is acting as the exclusive placement agent for the offering.

The gross proceeds to the Company from the offering are expected to be US$943,000 before deducting placement agent fees and other offering expenses payable by the Company. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes.

The common shares (but not the unregistered warrants and the common shares underlying the unregistered warrants) described above are being offered by the Company pursuant to a "shelf" registration statement on Form F-3 (File No. 333-277196) that was filed with the Securities and Exchange Commission (the "SEC") on February 20, 2024 and declared effective by the SEC on March 4, 2024. The offering of the common shares is being made only by means of a prospectus, including a prospectus supplement, forming a part of the effective registration statement. A final prospectus supplement and accompanying prospectus relating to the registered direct offering will be filed with the SEC. Electronic copies of the final prospectus supplement and accompanying prospectus may be obtained, when available, on the SEC's website at http://www.sec.gov or by contacting H.C. Wainwright & Co., LLC at 430 Park Avenue, 3rd Floor, New York, New York 10022, by phone at (212) 856-5711 or e-mail at placements@hcwco.com.

The unregistered warrants described above are being offered in a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and/or Regulation D promulgated thereunder and, along with the common shares underlying such unregistered warrants, have not been registered under the Securities Act, or applicable state securities laws. Accordingly, the unregistered warrants and underlying common shares may not be offered or sold in the United States, or to or for the account or benefit of U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act and all applicable state securities laws.

This press release does not constitute an offer to sell or the solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction.

About KWESST

KWESST (NASDAQ: KWE) (NASDAQ: KWESW) (TSXV: KWE) (FSE: 62UA) develops and commercializes breakthrough next-generation tactical systems for military and security forces. The company's current portfolio of offerings includes digitization of tactical forces for real-time shared situational awareness and targeting information from any source (including drones) streamed directly to users' smart devices and weapons. Other KWESST products include countermeasures against threats such as electronic detection, lasers and drones. These systems can operate stand-alone or integrate seamlessly with OEM products and battlefield management systems, and all come integrated with TAK. The company also has a new proprietary non-lethal product line branded PARA OPS™ with application across all segments of the non-lethal market, including law enforcement. The Company is headquartered in Ottawa, Canada with representative offices in London, UK and Abu Dhabi, UAE.

For more information, please visit https://kwesst.com/.

Forward-Looking Information and Statements

This press release contains "forward-looking statements" and "forward-looking information" within the meaning of Canadian and United States securities laws (collectively, "forward-looking statements"), which may be identified by the use of words such as "plans", "is expected", "expects", "scheduled", "intends", "contemplates", "anticipates", "believes", "foresees", "proposes" or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Such statements are based on the current expectations of KWESST's management and are based on assumptions and subject to risks and uncertainties. Although KWESST's management believes that the assumptions underlying such statements are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this press release may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting KWESST, including the completion of the offering, the satisfaction of customary closing conditions related to the offering, the intended use of proceeds from the offering, KWESST's inability to secure contracts (including subscriptions for KWESST Lightning on a paid basis), statements of work and orders for its products in 2024 and onwards for reasons beyond its control, the renewal or extension of agreements beyond their original term, the granting of patents applied for by KWESST, inability to finance the scale up to full commercial production levels for its physical products, inability to secure key partnership agreements to facilitate the outsourcing and logistics for its Arwen and PARA OPS products, overall interest in KWESST's products being lower than anticipated or expected; general economic and stock market conditions; adverse industry events; loss of markets; future legislative and regulatory developments in Canada, the United States and elsewhere; the inability of KWESST to implement its business strategies; risks and uncertainties detailed from time to time in KWESST's filings with the Canadian Security Administrators and the United States Securities and Exchange Commission, and many other factors beyond the control of KWESST. Although KWESST has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and KWESST undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Neither the TSX Venture Exchange nor its respective Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

The offering remains subject to the approval of the TSX Venture Exchange.

Contact:

David Luxton, Executive Chairman: luxton@kwesst.com
Sean Homuth, President and CEO: homuth@kwesst.com
Jason Frame, Investor Relations: frame@kwesst.com 587.225.2599

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/219556

FAQ

What is the price per share for KWESST's (KWE) registered direct offering on August 12, 2024?

KWESST Micro Systems Inc. (KWE) is offering common shares at a price of US$0.20 per share in its registered direct offering announced on August 12, 2024.

How many common shares is KWESST (KWE) offering in its August 2024 registered direct offering?

KWESST Micro Systems Inc. (KWE) is offering 4,715,000 common shares in its registered direct offering announced on August 12, 2024.

What are the terms of the warrants issued by KWESST (KWE) in its August 2024 private placement?

KWESST (KWE) is issuing unregistered warrants to purchase up to 4,715,000 common shares at an exercise price of US$0.25 per share. The warrants will be immediately exercisable upon issuance and will expire five years after the issuance date.

How much does KWESST (KWE) expect to raise from its August 2024 offering?

KWESST Micro Systems Inc. (KWE) expects to raise gross proceeds of US$943,000 from its registered direct offering announced on August 12, 2024.

What will KWESST (KWE) use the proceeds from its August 2024 offering for?

KWESST Micro Systems Inc. (KWE) intends to use the net proceeds from the offering for working capital and general corporate purposes.