Business Context and Reporting Period
Company: FingerMotion, Inc. (FNGR)
Filing Type: Form 8-K (Current Report)
Date of Report: August 9, 2022
Event: Entry into a Material Definitive Agreement involving a secured convertible promissory note and common stock purchase warrant with Lind Global Fund II LP.
Key Financial Metrics and Transaction Details
- Principal Amount: $4,800,000 (Secured, two-year, interest-free convertible promissory note).
- Funded Proceeds: $4,000,000 (Principal less a 20% coupon).
- Commitment Fee: $120,000 paid to the investor.
- Warrant Details: Right to acquire 3,478,261 shares at an exercise price of $1.75 per share, exercisable until August 9, 2027.
- Repayment Terms: Commencing 180 days after issuance, 18 consecutive monthly payments of $266,667. Payments may be made in cash (plus 3% premium) or shares (at 90% of average 5 lowest daily VWAPs, subject to a $0.86 floor price).
- Conversion Price: $2.00 per share, subject to customary adjustments and a 4.99% beneficial ownership limitation.
- Collateral: Security interest in all personal and fixture property of the Company; subsidiaries provided joint and several guarantees.
Material Changes and Covenants
This filing represents a new material debt obligation and potential equity dilution. Key structural changes include:
- Share Issuance Cap: A restriction limits total shares issued under the Note and Warrant to 8,561,451 without prior shareholder approval.
- Registration Rights: The Company must file a registration statement within 30 days for the resale of shares issuable under the Note and Warrant. The investor has piggyback registration rights.
- Participation Rights: The investor has the right to participate in 10% of any subsequent equity or debt financing until August 9, 2024.
- Negative Covenants: Restrictions on distributions, loans, and issuance of future priced securities.
Risks, Contingencies, and Default Provisions
The agreement contains significant risks and contingencies for the Company:
- Events of Default: Include payment defaults on other indebtedness over $50,000, failure to perform covenants, delisting, failure to obtain Rule 144 resale status within six months, or market capitalization falling below $20,000,000 for 10 consecutive days.
- Default Penalties: Upon default, the note becomes immediately due at 110% or 120% of the outstanding principal. The investor may convert at a discounted price (lower of conversion price or 80% of average 3 lowest daily VWAPs).
- Change of Control: Triggers a right for the investor to demand prepayment of the outstanding principal. Defined as a change in Board composition, a shareholder owning >40%, or sale of substantially all assets.
- Downside Protection: Conversion and exercise prices are subject to downward adjustment if new securities are issued at a lower price.
Investor Verification Checklist
- Verify the Company's current market capitalization to assess the risk of triggering the $20,000,000 default threshold.
- Confirm the status of the registration statement filing required within 30 days of August 9, 2022.
- Review the Company's liquidity position to ensure it can meet the 18 monthly payments of $266,667 starting 180 days post-issuance.
- Monitor the stock price relative to the $0.86 floor price and $2.00 conversion price to understand potential dilution scenarios.
- Check for any subsequent financings to determine if the investor's 10% participation right has been triggered.