MLGO Secures $32.2M Cash via Deep-Discount Note From Parent WiMi

Rhea-AI Filing Summary

MicroAlgo Inc. (MLGO) filed a Form 6-K disclosing that on 20 June 2025 it issued an unsecured, 0% coupon, 360-day $35 million convertible promissory note to its parent company, WiMi Hologram Cloud Inc. The note carries an 8% original-issue discount, so the cash proceeds to MicroAlgo amount to $32.2 million.

Conversion mechanics: The holder may convert at any time at a price equal to 40% of the lowest closing price of MLGO’s Class A shares in the 60 trading days prior to conversion—a 60% discount. A concurrent 10-year lock-up restricts any sale or transfer of conversion shares, subject to limited exceptions.

Implications for investors:

• The deep, floating discount makes the instrument highly dilutive if exercised, especially if the share price weakens, because the share count issued on conversion rises as the market price falls.
• The note is a related-party transaction; terms overwhelmingly favor the parent, creating potential conflicts with minority shareholders.
• Although the structure delivers immediate liquidity without interest expense and defers any cash repayment for one year, the aggressive discount plus 8% OID represents a meaningful economic cost and could exert persistent downward pressure on the equity.

The filing attaches the Purchase Agreement, Convertible Note, and Lock-Up Agreement as Exhibits 99.1-99.3 and cautions that the summary is qualified in its entirety by the full documents.

Positive

• $32.2 million in immediate, interest-free liquidity strengthens short-term cash position.
• A 10-year lock-up limits near-term secondary selling pressure from converted shares.

Negative

• 60% floating discount conversion price can trigger substantial, unpredictable dilution.
• Related-party nature introduces significant conflicts of interest and weak governance oversight.
• Only 12-month maturity; if not converted, $35 million must be repaid in cash, creating refinancing risk.
• 8% original-issue discount imposes an immediate economic cost despite zero coupon.

Insights

Financial Analyst

TL;DR: Related-party $35 M note provides cash but embeds extreme 60% discounted convert, posing major dilution risk.

The financing injects $32.2 M of 0% debt, boosting short-term liquidity without interest burden. However, the 60% floating discount effectively places a perpetual at-the-money short on MLGO’s stock. If shares trade lower, conversion share count rises, increasing supply and price pressure—a classic death-spiral structure. The one-year maturity also compresses the timeline: absent conversion, the principal must be repaid in cash within 12 months, potentially straining resources. Net impact skews negative because dilution risk outweighs the temporary liquidity benefit.

Corporate Governance Expert

TL;DR: Highly favorable terms to parent highlight governance conflicts; minority holders face misaligned incentives.

This is a material related-party deal executed without evidence of an independent fairness review. The parent enjoys discounted entry, 10-year lock-up that preserves control, and no interest cost, while minority shareholders absorb dilution. Such conflict-laden structures typically attract regulatory and shareholder scrutiny. Lack of board safeguards or mention of independent directors amplifies governance risk, making the disclosure negative from a stewardship perspective.

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of June 2025

 

 

 

MICROALGO INC.

(Registrant’s Name)

 

 

 

Unit 507, Building C, Taoyuan Street,

Long Jing High and New Technology Jingu Pioneer Park,

Nanshan District, Shenzhen, People’s Republic of China

(Address of principal executive office)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F ☒     Form 40-F ☐

 

 

 

 

 

 

EXPLANATORY NOTE

 

Convertible Note Transaction with WiMi Hologram Cloud Inc.

 

On June 20, 2025, MicroAlgo Inc. (the “Company”) entered into a Convertible Note Purchase Agreement (the “Purchase Agreement”) with its parent company, WiMi Hologram Cloud Inc. (the “Purchaser”). Pursuant to the Purchase Agreement, the Company issued an Unsecured Convertible Promissory Note (the “Note”) to the Purchaser in the principal amount of $35,000,000 for a purchase price of $32,200,000.

 

Principal and Purchase Price: The Note has a principal amount of $35,000,000 and was issued with an 8% original issue discount for a purchase price of $32,200,000. The Note has a maturity date of 360 days from the date of issuance and bears no interest.

 

Conversion Feature: The Note is convertible at any time at the option of the Purchaser into Class A ordinary shares of the Company. The conversion price is set at a 60% discount to the lowest closing market price of the Company’s ordinary shares during the 60 trading days preceding the notice of conversion.

 

Lock-Up Agreement: Concurrently with the issuance of the Note, the Purchaser entered into a Lock-Up Agreement (the “Lock-Up Agreement”) restricting the sale or transfer of any Class A ordinary shares received upon conversion of the Note for a period of ten (10) years, subject to certain exceptions.

 

The foregoing descriptions of the Note Purchase Agreement, the Convertible Note and the Lock Up Agreement are summaries of the material terms of such agreements, do not purport to be complete and are qualified in their entirety by reference to the Note Purchase Agreement, and the Convertible Note, which are attached hereto as Exhibits 99.1, 99.2, and 99.3.

 

The conversion feature of the Note may result in substantial and unpredictable dilution to our existing shareholders.

 

The Note contains a floating conversion price feature that is highly favorable to the Purchaser. The conversion price is calculated at a 60% discount to the lowest closing price of our ordinary shares over the 60 trading days prior to conversion. This type of financing means that if the market price of our stock declines, the number of shares issuable upon conversion increases.

 

This creates a significant risk of substantial dilution to our existing shareholders, which may be difficult to predict. The downward pressure on our stock price resulting from the potential issuance of a large number of shares upon conversion could, in turn, lower the conversion price further, creating a cycle of continued dilution. The interests of the Purchaser as the holder of the Note may not be aligned with the interests of our public minority shareholders.

 

The transaction’s related-party nature and terms highly favorable to our parent company create significant conflicts of interest and risks for our public minority shareholders.

 

The financing has been provided by our parent company, WiMi Hologram Cloud Inc. Transactions with related parties inherently present potential conflicts of interest, such as dilution to existing shareholders. The terms of the Note, particularly the aggressive floating conversion price and the one-sided prepayment terms, are very favorable to the Purchaser.

 

Despite these risks, the financing structure allows the Company to secure capital during its growth phase while maintaining its status as a subsidiary of WiMi Hologram Cloud Inc. The conversion feature of the Note provides a mechanism for our parent company to maintain its controlling interest, which could be diluted if the Company were to raise capital through equity offerings to unaffiliated third-party investors.

 

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EXHIBIT INDEX

 

Exhibit No.	 	Description
99.1	 	Form of Convertible Note Purchase Agreement
99.2	 	Form of Convertible Note
99.3	 	Lock Up Agreement

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: June 20, 2025

 

 	MicroAlgo Inc.
 	 
 	/s/ Min Shu
 	Min Shu
 	Chief Executive Officer

 

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FAQ

What is the principal amount of MicroAlgo's new convertible note?

The note carries a principal of $35 million but was purchased for $32.2 million after an 8% discount.

At what price can WiMi convert the note into MLGO shares?

Conversion is allowed at 40% of the lowest closing price in the 60 trading days before notice—i.e., a 60% discount.

How long is the lock-up period on converted shares?

Any shares received on conversion are subject to a 10-year lock-up, with limited exceptions.

When does the convertible note mature?

The note matures 360 days from issuance, on or about 20 June 2026.

Why is the transaction considered a conflict of interest?

The lender, WiMi Hologram Cloud Inc., is MLGO’s parent, so terms favor a related party, potentially disadvantaging minority holders.