NOTE

. STOCKHOLDERS' EQUITY

Preferred Stock

Under the Company’s amended articles of incorporation, the Company is authorized to issue up to

5,000,000

shares of preferred stock in such series and with such rights and preferences as

may

be approved by the Board of Directors. As of

December 31, 2019

and

December 31, 2018,

there were

shares of preferred stock outstanding.

August 8, 2019,

the Company entered into a securities purchase agreement for the sale of (i)

2,700,000

shares of the Series A Preferred Stock that automatically converted into

2,700,000

shares of common stock, at a ratio of

1:1,

upon the approval of the Company’s stockholders, which occurred on

October 9, 2019,

and (ii)

2,700,000

common stock purchase warrants exercisable for

2,700,000

shares of Common Stock.

The rights of the Series A Preferred Stock included the following:

Conversion

. As described above, the Series A Preferred Stock automatically converted into

2,700,000

shares of Common Stock, at a ratio of

1:1,

upon the approval of the Company’s stockholders, which occurred on

October 9, 2019.

Prior to stockholder approval, the Preferred Stock was

not

convertible.

Anti-dilution Protection

. The Series A Preferred Stock did

not

contain any price-based anti-dilution protection.

Liquidation Preference

. In the event of the Company’s liquidation, dissolution or winding up (voluntary or involuntary), the holders of Preferred Stock were entitled to receive the same amount as a holder of common stock.

Voting Rights

. Shares of Series A Preferred Stock generally had

voting rights except as required by law and certain enumerated voting rights such as increasing the authorized shares of preferred stock.

Dividend Rights

. The holders of Series A Preferred Stock were entitled to receive dividends on shares of the Series A Preferred Stock equal (on an as if converted to common stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Series A Preferred Stock were

not

entitled to any other dividends.

Redemption

. The Series A Preferred Stock had

redemption rights. The Company was

not

obligated to redeem or repurchase any shares of Preferred Stock.

As the conversion trigger was dependent upon shareholder approval which is considered to be outside the control of the Company, the Series A Preferred Stock was considered to be contingently redeemable and as a result, was classified as mezzanine equity in the Company’s interim balance sheet as of

September 30, 2019.

Upon conversion of the Series A Preferred Stock into shares of the Company’s common stock in

October 2019,

it is classified as equity in the Company’s balance sheet as of

December 31, 2019.

The Company applied the fair value allocation methodology for allocating the proceeds of

$2.7

million received from the Series A financing. The Company

first

allocated

$2.0

million based on the fair value of the warrants as of the issuance date, with residual amount being allocated to the Series A Preferred Stock. See Note

11,

“Warrant Liability” for further discussion of the key assumptions used to value the warrants.

China Kington served as placement agent in exchange for a commission equal to

six

percent (

) of the gross proceeds, totaling

$162

thousand

The Company incurred additional issuance costs of

$33

thousand. The Company allocated

$93

thousand to the warrant liability, which was expensed during the period and

$102

thousand was recorded as a reduction to the Series A Preferred Stock.

October 9, 2019,

the Company held a special meeting of stockholders (the “Special Meeting”), at which the Company’s stockholders approved (i) the conversion of

2,700,000

shares of the Series A Preferred Stock into

2,700,000

shares of the Company’s common stock, and (ii) the

2,700,000

shares of Company common stock that

may

be issued upon the exercise of the

2,700,000

2019

Foreign Warrants, in accordance with the stockholder approval requirements of NYSE American LLC Company Guide Section

713

(a). A beneficial conversion feature of

$800

thousand was recorded as a discount to the preferred stock and an increase to additional paid in capital. Because the Series A Preferred Stock was perpetual, in

October 2019,

the Company fully amortized the discount related to the beneficial conversion feature on the deemed dividend in the consolidated statement of operations and comprehensive loss, which is reflected in the results for the year ended

December 31, 2019.

Common Stock

During the

first

quarter of

2018,

the Company entered into a share purchase agreement with OP Financial Investments Limited for the sale of an aggregate of

1,700,000

shares of the Company’s common stock, par value

$0.01

per share, for an aggregate purchase price of

$5.984

million (the “OP Private Placement”). The OP Private Placement closed on

February 8, 2018.

China Kington served as placement agent in exchange for a commission equal to

six

percent (

) of the gross proceeds, totaling

$359

thousand.

The Company also paid

$34

thousand to NYSE American for the listing of the additional shares.

March 29, 2019,

the Company entered into a Common Stock Purchase Agreement with Triton Funds LP, a Delaware limited partnership (“Triton”), pursuant to which the Company had the right to sell up to

$3.0

million of shares of common stock of the Company at a purchase price equal to

90%

of the lowest trading price of the common stock of the Company for the

five

business days prior to the applicable closing date. The Company also entered into a Registration Rights Agreement on

March 29, 2019

with Triton, pursuant to which the Company registered such shares for resale by Triton on a registration statement on Form S-

filed with the SEC on

April 1, 2019

and declared effective on

April 12, 2019.

In connection with the transaction with Triton Funds LP, the Company entered into a Letter Agreement with Triton Funds LLC, an affiliate of Triton, pursuant to which the Company issued

150,000

shares of common stock to Triton Funds LLC. During the

second

quarter of

2019,

the Company issued to Triton Funds LP an aggregate of

1,747,312

shares of the Company’s common stock, par value

$0.01

per share, for an aggregate purchase price of

$360

thousand. The Company also incurred and paid other offering costs of

$122

thousand. On

September 5, 2019,

the Company received an additional

$288

thousand in connection with the financing and recorded the amount in additional paid-in capital from issuance of common stock.

additional shares were issued related to the receipt of

$288

thousand. The Common Stock Purchase Agreement with Triton Funds LP expired as of

December 31, 2019

and the remaining registered but unsold shares were deregistered on

February 1, 2020.

June 26, 2019,

the Company entered into a private placement to sell

1,371,427

shares of Company common stock and warrants to purchase an additional

1,371,427

shares of Company common stock for an aggregate subscription price of

$2.4

million to

three

accredited investors including Messrs. Xiao Rui Liu, Hai Dong Pang and Ping Huang, each of whom subscribed for

$1.0

million,

$0.4

million and

$1.0

million, respectively. China Kington served as placement agent in exchange for a commission equal to

six

percent (

) of the gross proceeds, totaling

$144,000.

The Company also incurred and paid other offering costs of

$27

thousand.

August 8, 2019,

the Company entered into the

August

SPA for the sale and issuance of

4,198,566

shares of common stock at an offering price of

$1.00

per share. In connection with the

August

SPA, the Company issued

4,198,566

warrants to purchase

4,198,566

shares of Company common stock with an exercise price of

$1.15.

Ladenburg Thalmann & Co. Inc. (“Placement Agent”) served as placement agent for the transaction in exchange for a commission representing

six

percent (

) of the gross proceeds, totaling

$252

thousand, and the issuance of the

2019

Ladenburg Warrants to purchase up to

167,942

shares of the common stock with an exercise price of

$1.25.

In addition, the Company reimbursed the Placement Agent

$60

thousand for certain expenses. The Company also incurred and paid other offering costs of

$312

thousand. The

August

SPA limits the Company’s ability to issue new common stock or common stock equivalents for a period of

one

year (

six

months if it is an “at the market” offering with the Placement Agent) until the daily volume weighted average price of the Company’s common stock equals or exceeds

$2.00

for a period of

consecutive days. The Company is prohibited from redeeming in common stock or common stock equivalents in satisfaction of the Promissory Note with Iliad Research & Trading, L.P. and

may

only issue common stock in satisfaction of the Promissory Note if the stock price equals or exceeds

$2.00.

See Note

10,

“Convertible Note”, for detailed information related to the convertible note.

The Company applied the fair value allocation methodology for allocating the proceeds of

$4.2

million received from the financing. The Company

first

allocated

$3.1

million based on the fair value of the

2019

Domestic Warrants as of the issuance date, with the residual amount being allocated to the common stock. See Note

11,

“Warrant Liability” for further discussion of the key assumptions used to value the warrants.

In connection with the financing, the Company incurred issuance cost of

$488

thousand of which

$233

thousand was allocated to the warrant liability and expensed during the period and

$255

thousand was recorded as a reduction to additional paid-in capital from the issuance of common stock. As the

2019

Ladenburg Warrants were accounted for as a stock issuance cost,

$59

thousand was allocated to the warrant liability and expensed during the period and

$65

thousand was recorded as a reduction to additional paid-in capital from the issuance of common stock.

Stock Warrants

February 2016,

the strike prices of the

July 2011,

March 2015,

and

October 2015

Warrants were reduced to

$1.81

per share, pursuant to the price protection provisions in such warrants, because the Company sold common stock to Mr. Jian Ping Fu at that price.

May 2019,

the strike price of the

July 2011,

March 2015,

and

October 2015

Warrants was reduced to

$0.2061

per share, pursuant to the price protection provisions in such warrants, because the Company sold common stock to Triton Funds LP at that price.

As more fully described in Note

“Fair Value Measurements,” the

March 2015

Warrants were reclassified from warrant liabilities to equity upon adoption of ASU

2017

11.

Upon the down round feature being triggered in

May 2019

and the strike price being reduced to

$0.2061

per share resulting from the sale of common stock to Triton Funds LP at a price of

$0.2061

per share, the Company measured the value of the effect of the down round feature as the difference between (

) the

March 2015

Warrants’ fair value (without the down round feature) using the pre-trigger exercise price and (

) the

March 2015

Warrants’ fair value (without the down round feature) using the reduced exercise price in accordance with ASC

820,

Fair Value Measurements and Disclosures

, and as a result, recorded a

$29

thousand dividend, which is treated as a reduction to income available to common shareholders in the basic EPS calculation. The

July 2011

Warrants and

October 2015

Warrants were excluded from this exercise as they were classified as liabilities.

During the

second

quarter of

2019,

a total of

158,400

warrants to purchase

158,400

shares of common stock were exercised related to the

October 2015

Warrants resulting in gross proceeds of

$33

thousand. Please see Note

11,

“Warrant Liability”, for further details.

During the

second

quarter of

2019,

a total of

133,167

warrants to purchase

133,167

shares of common stock were exercised related to the

March 2015

Warrants. Out of the

133,167

warrants exercised,

70,000

warrants were exercised in a cashless transaction, resulting in

64,979

shares issued. The remaining warrants were exercised for gross proceeds of

$13

thousand.

June 2019,

the Company issued

1,371,427

warrants to purchase

1,371,427

shares of Company common stock in a private placement. Please see the preceding subsection, “Common Stock,” for further details regarding such private placement. Such warrants have a

one

(

)-year term and an exercise price of

$0.87,

callable by the Company if the closing price of the Company’s common stock, as reported on the NYSE American, is

$1.00

or greater.

July 2019,

a total of

102,602

warrants to purchase

102,602

shares of common stock were exercised related to the

October 2015

Warrants resulting in gross proceeds of

$21

thousand. Please see Note

11,

“Warrant Liability”, for further details.

August 2019,

the Company issued

4,198,566

warrants to purchase

4,198,566

shares of Company common stock in connection with a registered direct offering of common stock. Such warrants will be exercisable

six

months after date of issuance and will expire on

February 13, 2025,

with an exercise price of

$1.15.

The Company issued

167,942

warrants to purchase

167,942

shares of Company common stock to the Placement Agent in connection with such offering. Such warrants were exercisable immediately upon issuance and will expire on

August 8, 2024,

with an exercise price of

$1.25.

Please see the preceding subsection, “Common Stock,” for further details regarding such offering.

August 2019,

the Company also issued

2,700,000

warrants to purchase

2,700,000

shares of Company common stock in connection with its private placement of Series A Preferred Stock. Such warrants were exercisable upon shareholders’ approval and will expire on

February 13, 2025,

with an exercise price of

$1.15.

Please see the preceding subsection, “Preferred Stock,” for further details regarding such private placement.

The following table summarizes information about the Company's warrants outstanding at

December 31, 2019,

2018

and

2017,

and activity during the

three

years then ended.

				Weighted-
	Warrants			Average
	(in thousands)			Exercise
				Price
Outstanding at December 31, 2016		565		$	1.81
Warrants granted		-		$	-
Warrants exercised		(21	)	$	1.81
Warrants expired		-		$	-
Outstanding at December 31, 2017		544		$	1.81
Warrants granted		-		$	-
Warrants exercised		-		$	-
Warrants expired		-		$	-
Outstanding at December 31, 2018		544		$	1.81
Warrants granted		8,438		$	1.11
Warrants exercised		(394	)	$	0.21
Warrants expired		-		$	-
Outstanding at December 31, 2019		8,588		$	1.09