Business Context and Reporting Period
Company: Zhibao Technology Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: September 23, 2024
Context: The Company entered into a Material Definitive Agreement involving a multi-tranche financing arrangement with an institutional investor to secure working capital and general corporate purposes.
Key Financial Metrics and Transaction Details
- Total Financing Capacity: Up to $8.0 million across three tranches.
- Initial Funding (First Tranche Closing): $675,000 (net of 10% original issue discount).
- Securities Issued:
- Convertible Promissory Note: Principal amount up to $2,500,000.
- Warrant: To purchase up to 74,451 Ordinary Shares at $4.71/share.
- Pre-Funded Warrant: To purchase up to 191,522 Ordinary Shares at $0.0001/share.
- Transaction Costs: $47,250 (7% placement fee to EF Hutton LLC) and $6,750 in expenses.
- Debt Terms:
- Interest: 0% initially; 10% per annum upon Event of Default.
- Maturity: September 23, 2025.
- Repayment: Monthly installments commencing 60 days post-closing or upon effectiveness of Resale Registration Statement.
Material Changes and Future Obligations
The filing details a new debt obligation not present in prior periods. Future funding is contingent on specific milestones:
- First Tranche Remaining: Additional $675,000 upon filing of a Resale Registration Statement (Form F-1) and $900,000 upon execution of a Deposit Account Control Agreement (DACA).
- Second Tranche: $2,500,000 available 120 days after the Resale Registration Statement becomes effective.
- Third Tranche: Up to $3,000,000 available 180 days after the second tranche closing, subject to mutual consent.
- Collateral: The Company granted a security interest in its DACA account and all U.S.-located assets. Subsidiaries provided a joint and several guarantee.
Guidance, Risks, and Unusual Items
- Prepayment Triggers: The Investor may request prepayment of up to 25% of gross proceeds from future financings. In a Change of Control, the Investor may demand 120% of the outstanding principal plus accrued interest.
- Default Consequences: Upon an uncured Event of Default, interest accrues at 10% (or maximum legal rate), and the principal balance increases to 120% (Mandatory Default Amount), which becomes convertible.
- Beneficial Ownership Limitation: Conversion/exercise is capped at 4.99% of outstanding shares, extendable to 9.99% with notice.
- Registration Rights: The Company must file a Resale Registration Statement within 15 days and aim for effectiveness within 45-65 days depending on SEC review scope.
Investor Verification Checklist
- Verify the filing status and effectiveness date of the required Form F-1 Resale Registration Statement.
- Confirm the establishment of the Deposit Account Control Agreement (DACA) to unlock the remaining First Tranche funds.
- Assess the Company's ability to meet monthly principal repayment obligations starting 60 days post-closing.
- Review the specific definition of "Event of Default" in the Note to understand triggers for the 120% penalty and 10% interest rate.
- Monitor the Company's cash position to ensure it can service the debt without triggering a default or requiring immediate equity conversion.