XML 34 R24.htm IDEA: XBRL DOCUMENT

Note 16 - The Financing and Warrant Liabilities

6 Months Ended

Jun. 30, 2021

16.

The Financing and warrant liabilities

The February 2021 Financing:

On February 18, 2021 (the “Closing Date”), the Company consummated a registered direct offering of 5,212,000 shares of the Company’s common stock to certain institutional investors at a purchase price of US$3.59 per share (the “February 2021 Financing”). As part of the transaction, the Company also issued to the investors warrants to purchase up to 2,606,000 shares of the Company’s common stock at an exercise price of US$3.59 per share (the “2021 Investor Warrants”). The 2021 Investor Warrants are exercisable at any time on or after February 18, 2021 and on or prior to the close of business on August 18, 2024 (the third and one-half years anniversary of the Closing Date). The Company received gross proceeds of approximately US$18.7 million from the February 2021 Financing.

The placement agent of the February 2021 Financing received (i) a placement fee in the amount equal to 7% of the gross proceeds and (ii) warrants to purchase up to 364,840 shares of the Company’s common stock at an exercise price of US$4.4875 per share. (the “2021 Placement Agent Warrants” and together with the 2021 Investor Warrants, the “2021 Warrants”). The 2021 Placement Agent Warrants are exercisable at any time on or after August 18, 2021 (the six-month anniversary of the Closing Date) and on or prior to the close of business on August 18, 2024 (the third and one-half years anniversary of the Closing Date).

The initial exercise prices of the 2021 Warrants are subject to anti-dilution provisions that require adjustment of the number of shares of common stock that may be acquired upon exercise of the 2021 Warrants, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights offerings, pro-rata distributions, and certain fundamental transactions. The 2021 Warrants also contain “full ratchet” price protection in the event of subsequent issuances below the applicable exercise price (the “Down round feature”).

The 2021 Warrants may not be exercised if it would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common shares (the “Beneficial Ownership Limitation”). The holder of the 2021 Warrants, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the Company’s outstanding common shares. Any increase in the Beneficial Ownership Limitation will not be effective until the 61^st day after such notice is delivered to the Company.

Accounting for securities issued in the February 2021 Financing

The Company determined that the Company’s common stock issued in the February 2021 Financing should be classified as permanent equity as there was no redemption provision at the option of the holders that is not within the control the Company on or after an agreed upon date.

The Company analyzed the 2021 Warrants issued in the February 2021 Financing in accordance with ASC Topic 815 “Derivatives and Hedging”. In accordance with ASC Topic 815, the Company determined that the 2021 Warrants should not be considered index to its own stock, as the strike price of the 2021 Warrants is dominated in a currency (U.S. dollar) other than the functional currency of the Company (Renminbi or Yuan). As a result, the 2021 Warrants does not meet the scope exception of ASC Topic 815, therefore, should be accounted for as derivative liabilities and measure at fair value with changes in fair value be recorded in earnings in each reporting period.

Fair value of the warrants

The Company used Binomial model to determine the fair value of the 2021 Warrants based on the assumptions summarized as below:

	As of February 18, 2021

	2021 Investor Warrants			2021 Placement Agent Warrants

Stock price	$	4.48		$	4.48
Years to maturity		3.50			3.50
Risk-free interest rate		0.26	%		0.26	%
Dividend yield		-			-
Expected volatility		168	%		168	%
Exercise Price	$	3.59		$	4.4875

Fair value of the warrant	$	4.02		$	3.96

Warrant liabilities (US$’000)	$	10,476		$	1,445

Stock price is the closing bid price of the Company’s common stock at the respective valuation date. Years to maturity is the respective remaining contract life of the warrants. Yield-to-maturities in continuous compounding of the United States Government Bonds with the time-to-maturities same as the respective warrant are adopted as the risk-free rate. Annualized historical stock price volatility of the Company at the respective valuation date is deemed to be appropriate to serve as the expected volatility of the stock price of the Company. The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. Exercise price is the contractual exercise price of the 2021 Warrants.

Allocation of gross proceeds from the February 2021 Financing

The Company allocated the total proceeds from the February 2021 Financing as summarized below:

	Initial measurement
	(USD’000)

Investor Warrants		10,476
Common Stock (par value and additional paid in capital)		8,235
Total proceeds from the Financing		18,711

The 2021 Investor Warrants issued in the February 2021 Financing was initially measurement at fair value. The residual amount, representing difference between the total proceeds and the fair value of the 2021 Investor Warrants as of the Closing Date was assigned as the carrying value of the common stock issued in the February 2021 Financing.

Offering costs

Offering costs in the amount of approximately US$3.05 million consisting of cash payment of approximately US$1.31 million placement fee, approximately US$0.29 million other direct offering cost of professional service fees and fair value of the 2021 Placement Agent Warrants of approximately US$1.45 million, which were charged to additional paid-in-capital.

Subsequent measurement and changes in fair value of the warrant liabilities

The Company issued warrants to certain institutional investors and the Company’s placement agent in the registered direct offerings consummated in February 2021, December 2020 and January 2018, which warrants were accounted for as derivative liabilities and measure at fair value with changes in fair value be recorded in earnings in each reporting period.

For the six and three months ended June 30, 2021:

Warrants issued in the February 2021 Financing:

	2021 Investor Warrants						2021 Placement Agent Warrants
	June 30, 2021			March 31, 2021			June 30, 2021			March 31, 2021

Stock price	$	2.00		$	2.64		$	2.00		$	2.64
Years to maturity		3.14			3.38			3.14			3.38
Risk-free interest rate		0.48	%		0.41	%		0.48	%		0.41	%
Dividend yield		-			-			-			-
Expected volatility		114	%		168	%		114	%		168	%
Exercise Price	$	3.59		$	3.59		$	4.4875		$	4.4875

Fair value of the warrant	$	1.25		$	2.28		$	1.18		$	2.24

Warrant liabilities (US$’000)	$	3,257		$	5,942		$	431		$	817

Warrants issued in the 2020 Financing:

On December 14, 2020, the Company consummated a registered direct offering of 4,320,989 shares of the Company’s common stock to certain institutional investors at a purchase price of US$1.62 per share (the “2020 Financing”). As part of the transaction, the Company also issued, to the investors warrants to purchase up to 1,728,396 shares of the Company’s common stock at an exercise price of U$$2.03 per share (the “2020 Investor Warrants”), and to the placement agent, warrants to purchase up to 302,469 shares of the Company’s common stock on substantially the same terms as the 2020 Investor Warrants (the “2020 Placement Agent Warrants” and together with the 2020 Investor Warrants, the “2020 Warrants”). The 2020 Warrants are exercisable at any time on or after June 14, 2021 and on or prior to the close of business on December 14, 2023.

	2020 Investor Warrants and 2020 Placement Agent Warrants
	June 30, 2021			March 31, 2021			December 31, 2020

Stock price	$	2.00		$	2.64		$	1.35
Years to maturity		2.45			2.70			2.95
Risk-free interest rate		0.34	%		0.29	%		0.17	%
Dividend yield		-			-			-
Expected volatility		120	%		120	%		102	%
Exercise Price	$	2.03		$	2.03		$	2.03

Fair value of the warrant	$	1.40		$	1.95		$	0.74

Investor warrants liabilities (US$’000)	$	2,420		$	3,370		$	1,279

Placement agent warrants liabilities (US$’000)	$	423		$	590		$	224

Warrants issued in the 2018 Financing:

On January 17, 2018, the Company consummated a registered direct offering of 2,150,001 shares of the Company’s common stock to certain institutional investors at a purchase price of US$5.15 per share (“the 2018 Financing”). As part of the transaction, the Company also issued, to the investors warrants (the “2018 Investor Warrants”) to purchase up to 645,000 shares of the Company’s common stock at an exercise price of $6.60 per share. The 2018 Investors Warrants expired on July 18, 2020. The placement agent of the 2018 Financing received warrants to purchase up to 129,000 shares of the Company’s common stock at an exercise price of US$6.60 per share, with a three-year term (the “2018 Placement Agent Warrants” and together with the 2018 Investor Warrants, the “2018 Warrants”). On September 25, 2019, the exercise price of the 2018 Warrants was adjusted to US$1.4927. On January 18, 2021, the expiration date of the 2018 Placement Agent Warrants was extended to July 18, 2021.

	2018 Placement Agent Warrants
	June 30, 2021			March 31, 2021			December 31, 2020

Stock price	$	2.00		$	2.64		$	1.35
Years to maturity		0.05			0.30			0.05
Risk-free interest rate		0.04	%		0.03	%		0.08	%
Dividend yield		-			-			-
Expected volatility		74	%		206	%		59	%
Exercise Price	$	1.4927		$	1.4927		$	1.4927

Fair value of the warrant	$	0.51		$	1.55		$	0.02

Warrant liabilities (US$’000)	$	66		$	200		$	2

For the six and three months ended June 30, 2020:

Warrants issued in the 2018 Financing:

	2018 Investors warrants									2018 Placement agent warrants
	June 30, 2020			March 31, 2020			December 31, 2019			June 30, 2020			March 31, 2020			December 31, 2019

Stock price	$	1.00		$	0.95		$	1.17		$	1.00		$	0.95		$	1.17
Years to maturity		0.05			0.30			0.55			0.55			0.80			1.05
Risk-free interest rate		0.19	%		0.10	%		1.58	%		0.18	%		0.13	%		1.57	%
Dividend yield		-			-			-			-			-			-
Expected volatility		143	%		99	%		60	%		112	%		78	%		80	%
Exercise Price	$	1.4927		$	1.4927		$	1.4927		$	1.4927		$	1.4927		$	1.4927

Fair value of the warrant	$	0.02		$	0.07		$	0.11		$	0.20		$	0.12		$	0.28

Warrant Liabilities (US$’000)	$	13		$	45		$	71		$	26		$	16		$	36

Changes in fair value of warrant liabilities

Six and Three Months Ended June 30, 2021 (Unaudited)

									Change in Fair Value (gain)/loss
		As of June 31, 2021		As of March 31, 2021		As of February 18, 2021		As of December 31, 2020	Six Months Ended June 30, 2021			Three Months Ended June 30, 2021
	(US$’000)		(US$’000)		(US$’000)		(US$’000)		(US$’000)			(US$’000)

Warrants issued in the February 2021 Financing:
--Investor Warrants		3,257		5,942		10,476		*		(7,219	)		(2,685	)
--Placement Agent Warrants		431		817		1,445		*		(1,014	)		(386	)
Warrants issued in the 2020 Financing:
--Investor Warrants		2,420		3,370		*		1,279		1,141			(950	)
--Placement Agent Warrants		423		590		*		224		199			(167	)
Warrants issued in the 2018 Financing:
--Placement Agent Warrants		66		200		*		2		64			(134	)
		6,597		10,919		11,921		1,505		(6,829	)		(4,322	)

Six and Three Months Ended June 30, 2020 (Unaudited)

							Change in Fair Value (gain)/loss
		As of June 30, 2020		As of March 31, 2020		As of December 31, 2019	Six Months Ended June 30, 2020			Three Months Ended June 30, 2020
	(US$’000)		(US$’000)		(US$’000)		(US$’000)			(US$’000)

Warrants issued in the 2018 Financing:
--Investor Warrants		13		45		71		(58	)		(32	)
--Placement Agent Warrants		26		16		36		(10	)		10
Warrant liabilities		39		61		107		(68	)		(22	)

Warrants issued and outstanding as of June 30, 2021 and their movements during the six months then ended are as follows:

	Warrant Outstanding						Warrant Exercisable
	Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price

Balance, January 1, 2021		2,159,865		2.78	$	2.00		129,000		0.05	$	1.4927
Granted/Vested		2,970,840		3.14	$	3.70		4,636,865		2.84	$	2.91
Forfeited		-						-
Exercised		-						-
Balance, June 30, 2021 (Unaudited)		5,130,705		2.79	$	2.98		4,765,865		2.76	$	2.87