Business Context and Reporting Period
This Form 6-K filing by Zhibao Technology Inc. (a foreign private issuer) covers the month of February 2025, specifically dated February 14, 2025. The report details the execution of a letter agreement and the consummation of the first closing of a second tranche of financing with an institutional investor, amending a previously disclosed securities purchase agreement.
Key Financial Metrics and Transaction Details
- Financing Proceeds (Second Tranche, First Closing): The Company received $630,000 net of a 10% original issue discount (OID). Gross proceeds were $700,000.
- Transaction Costs: The Company paid $44,100 (7% of gross proceeds) to the placement agent and $6,300 in expenses.
- Debt Instrument: A convertible promissory note ("Second Tranche Note") was issued with an initial principal amount of $700,000. The note bears no interest and matures on February 14, 2026.
- Equity Instrument: A warrant was issued to purchase up to 202,459 Class A ordinary shares at an initial exercise price of $1.69964 per share.
- Conversion Terms: The note is convertible at $1.69964 per share, subject to a floor price of $0.282.
- Repayment Structure: Monthly installments commence on the earlier of the 60-day anniversary or the effectiveness of the resale registration statement. Payments equal 105% of the principal divided by remaining months.
Material Changes and Financing Structure
The filing outlines a multi-stage financing structure under the amended agreement:
- Second Tranche Closings:
- First Closing: $700,000 face value (consummated Feb 14, 2025).
- Second Closing: $300,000 face value, contingent on SEC effectiveness of the resale registration statement.
- Third Closing: $1,500,000 face value, contingent on the share price reaching or exceeding $2.50 within 120 days of November 22, 2024 (extendable by 60 days).
- Amended Terms: The agreement increased the number of allowed payment deferrals/accelerations from five to six. It also introduced a provision allowing acceleration if the daily trading value (VWAP x volume) exceeds $5 million, which does not count against the six total accelerations.
- Price Adjustments: The Floor Price for conversion may be reduced (but not increased) every six months to 20% of the average VWAP of the preceding five trading days.
Outlook, Risks, and Contingencies
- Use of Proceeds: Funds are designated for working capital and general corporate purposes.
- Prepayment Triggers:
- New Financing: Investor may request prepayment of up to 25% of gross proceeds from any future equity or debt financing.
- Change of Control: Investor may require prepayment of 120% of the outstanding principal plus accrued interest.
- Default Provisions: Upon an Event of Default, interest accrues at 10% per annum (or maximum legal rate). The investor may demand the "Mandatory Default Amount" (120% of principal plus interest) and convert this amount into shares.
- Beneficial Ownership Limitation: Conversion or exercise is limited to prevent the investor from holding more than 4.99% of outstanding shares (increasable to 9.99% with notice).
- Regulatory Status: Securities were sold under Section 4(a)(2) exemption and are unregistered. Resale registration is pending for future tranches.
Investor Verification Checklist
- Verify the effectiveness date of the "Second Tranche Resale Registration Statement" to determine the timing of the second closing ($300,000) and the start of mandatory monthly payments.
- Monitor the Company's share price to assess the likelihood of triggering the third closing ($1.5 million), which requires a closing price of at least $2.50 within the specified 120-day window.
- Review the Company's cash flow projections to ensure ability to meet the 105% monthly repayment schedule commencing 60 days post-closing.
- Assess the dilution impact of the 202,459 warrants issued and potential future conversions under the 4.99% beneficial ownership cap.
- Confirm the status of the "Equity Conditions" defined in the Second Tranche Note, which are prerequisites for all subsequent closings.