Business Context and Reporting Period
This Form 6-K filing by Farmmi, Inc. covers the month of November 2018. The report details a completed private placement transaction executed on November 1, 2018, involving the issuance of senior convertible notes and warrants to a single institutional investor.
Key Financial Metrics and Transaction Details
- Capital Raised: $7.5 million in aggregate principal amount of senior convertible notes.
- Interest Rate: Convertible Notes bear interest at 10% per year.
- Conversion Terms: Notes are initially convertible into 1,198,084 Ordinary Shares at a rate of $6.26 per share (subject to adjustment).
- Warrant Terms: Warrants to purchase 800,000 Ordinary Shares were issued with an initial exercise price of $6.53 per share. The exercise price may be lowered to the then-current Market Price one year after issuance if the Market Price is lower.
- Warrant Expiry: Warrants are exercisable between November 1, 2018, and November 1, 2022.
- Collateral: FarmNet Limited (owned by the CEO and Chairman) pledged 3 million Ordinary Shares to secure the Company's obligations.
Material Changes and Unusual Items
The primary material event is the $7.5 million private placement. The filing notes that the Company is subject to Nasdaq Marketplace Rule 4350(i). If shareholder approval is required under Nasdaq rules, the aggregate number of Ordinary Shares issuable under the Notes and Warrants would be limited to less than 20% of the Ordinary Shares outstanding as of November 1, 2018, prior to such approval.
Guidance, Outlook, and Use of Proceeds
Management stated that proceeds from the investment will be used for working capital and general corporate purposes. Specific potential uses include possible strategic acquisitions. The filing does not provide specific revenue guidance, profit forecasts, or liquidity metrics beyond the capital raised.
Investor Verification Checklist
- Verify the current number of Ordinary Shares outstanding to calculate the potential dilution impact of the 1,198,084 convertible shares and 800,000 warrant shares.
- Confirm whether shareholder approval is required under Nasdaq rules to determine if the issuance is capped at the 20% threshold.
- Review the attached Securities Purchase Agreement and Convertible Note forms for specific adjustment mechanisms regarding the conversion rate and warrant exercise price.
- Assess the financial stability of FarmNet Limited and the CEO/Chairman regarding the 3 million share pledge.