Convertible Bonds

12 Months Ended

Dec. 31, 2022

Convertible Bonds

Convertible Bonds

14. Convertible Bonds

	December 31, 2022		December 31, 2021
Brilliant King Group Limited (1)	$	12,000	$	12,000
Poseidon Sports Limited (1)		3,000		3,000
Vision Edge Limited (1)		20,000		20,000
Streeterville Capital, LLC (2)		7,676		13,603
Total convertible bonds, net of unamortized debt discount	$	42,676	$	48,603

(1) 2014 and 2015 Convertible Promissory Note and Amendments

In December 2014 and June 2015, the Group entered into three convertible promissory note purchase agreements with Brilliant King Group Limited (“Brilliant King”), Poseidon Sports Limited (“Poseidon”) and Vision Edge Limited (“Vision Edge”), respectively, whereby the Group agreed to sell and issue to these three investors convertible promissory notes in an aggregate principal amount of $35,000. The convertible notes bore no interest, and might be partially or wholly converted into shares of the Group’s ordinary shares at any time prior to maturity at the option of the investor.

The convertible promissory notes with Brilliant King and Poseidon were due and payable on June 11, 2016; the convertible promissory note with Vision Edge was due and payable on June 29, 2016, the conversion option of these convertible bonds had expired after the due dates. The Group defaulted the payment for all above outstanding convertible bonds of $35,000 in June 2016. The convertible notes bore no interest, and there were no default terms including default interest or penalty stated in the above convertible promissory notes. Both the Brilliant King Note and the Vision Edge Note were personally guaranteed by the Group’s Chairman of Board of Directors and Chief Executive Officer, Mr. Xiaofeng Peng. While the Group has been in negotiations with these bond holders, no updated settlement arrangements have been reached.

(2) 2021 and 2022 Convertible Promissory Note with Streeterville Capital, LLC and Amendments

On February 1, 2021, June 9, 2021, September 30, 2021 and November 12, 2021, the Group entered into convertible promissory notes purchase agreement with Streeterville Capital, LLC (“Streeterville”) with an aggregate principal amount of $16,840 (the “2021 Note”). On April 8, 2022, the Group entered into a convertible promissory note purchase agreement with Streeterville with an initial principal amount of $2,110 (the “2022 Note”). Both 2021 Note and 2022 Note had a 12-month term and carried interest at 10% per annum. The Group’s obligations under the 2021 Note and 2022 Note may be prepaid at any time, provided that in such circumstance the Group would pay 115% of any amounts outstanding under the note. The note could be convertible into shares of the Group’s ordinary share at a conversion price of $20 per share at any time after the issuance date.

Streeterville could redeem any portion of the note, at any time after six months from the issue date, subject to a maximum monthly redemption amount of $700 for 2021 Note and $350 for 2022 Note, the Group have the option to pay such redemptions in cash or the Company’s ordinary shares at the redemption conversion price, or by a combination thereof. The Group shall be required to pay the redemption amount in cash, if on the applicable redemption Date: (a) there is an Equity Conditions Failure, and such failure is not waived in writing by Lender; or (b) the closing trade price on the trading day immediately preceding the redemption date was less than $25.00 per share. “Equity Conditions Failure” means that any of the following conditions has not been satisfied on any given Redemption Date: (a) with respect to the applicable date of determination all of the conversion shares would be freely tradable under Rule 144 or without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of this Note); (b) no event of default shall have occurred or be continuing hereunder; (c) the average and median daily dollar volume of the ordinary shares on its principal market for the previous twenty and two hundred trading days shall be greater than $75; and (d) the market capitalization is greater than or equal to $30,000.

The Group issued 3,216,846 ordinary shares of the Company to settle 2021 Note, which was considered as extinguishment of convertible bonds and the loss on extinguishment of convertible bonds of $2,634 and nil were recorded for the year ended December 31, 2022 and 2021.

On October 28, 2022, the Group made an amendment to the 2021 Note to extend the maturity for an additional 1 year from the original maturity date for each of the remaining 2021 Note, the extension fee equal to two percent of the outstanding balances of the Note as of June 9, 2022, September 30, 2022 and November 12, 2022, which equal $30, $72 and $93, respectively. Besides, the Group made an amendment to the 2021 Note for the term of redemption conversion price. The modified Redemption Conversion Price should be the 80% of the lowest closing trade price in the 10 trading days immediately preceding the applicable redemption date. The redemption conversion price for the 2022 Note should be the lesser of $20 and 80% multiplied by the lowest closing trade price during the ten trading days immediately preceding the redemption date.

The Group deems the two amendments to the 2021 Note are substantively one amendment and evaluated the amendment in accordance with ASC 470, Debt (“ASC 470”). As the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement and as a concession is deemed to have been granted under ASC 470-60-55-10, the amendment is to be accounted for as a troubled debt restructuring under ASC 470-60. For the extension fee, as the extension fee is not incurred in granting equity interests and there is no gain recognized on restructuring because carrying amount of the payable is not larger than total undiscounted future cash flows, the extension fee was expensed for the year ended December 31, 2022.

The Group determines that the redemption feature embedded within the amended 2021 Note meets the definition of an embedded derivative and the Group estimates a fair value of the derivative liability using the Mento Carlo Simulation Model at the date of amendment. As the fair value of the derivative liability is less than the face value of the convertible debt, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt.

The Group issued 301,724 ordinary shares of the Company to redeem the amended 2021 Note, and reclassified $184 derivative liability into equity upon the redemption of the corresponding convertible debts.

The Group recorded a total of $3,407 debt discount upon the amendment of 2021 Note. Amortization of the debt discount of 2021 Note was $1,313 for the year ended December 31, 2022. The debt discount is amortized under effective interest rate 11.55% for 2021 Note.

The Group recorded a total of $110 debt discount upon the issuance of 2022 Note, including $10 of direct transaction costs incurred, and $100 original debt discount at issuance. Amortization of the debt discount of 2022 Note was $83 for the year ended December 31, 2022.

As of December 31, 2022 and 2021, the carrying amounts of the Group’s convertible bonds are $42,676 and $48,603, net of unamortized debt discount of $2,560 and $438, respectively.

On February 16, 2023, Streeterville delivered a Redemption Notice to the Group to redeem $350 of the 2022 Note with a deadline to pay the Redemption Amount by February 22, 2023. the Group failed to pay the Redemption Amount on time and such failure to pay is an Event of Default under the 2022 Note. Due to this Event of Default, (i) the base interest of the 2022 Note was increased to 15% per annum; (ii) the outstanding balance of the 2022 Note was increased by 15%; and (iii) the entire outstanding balance of the 2022 Note was accelerated and due on March 3, 2023 (See Note 22(b) and Note 26).

As of April 14, 2023, the Group has not made payments of the outstanding balance of the 2022 Note and the entire 2022 Note was in default.