CONVERTIBLE PROMISSORY NOTE AND WARRANT

6 Months Ended

Jun. 30, 2024

CONVERTIBLE PROMISSORY NOTE AND WARRANT [Abstract]

NOTE 14 - CONVERTIBLE PROMISSORY NOTE AND WARRANT

Convertible Promissory Note

On July 20, 2022, the Company issued to investors convertible promissory note (“Note”) in the aggregate principal amount of $61,215,000 due on July 19, 2023, unless earlier repurchased, converted or redeemed. The Note bears interest at a rate of 8% per annum, and the net proceed after deducting issuance expenses was $54,069,000.

The main terms of the Note are summarized as follows:

Conversion feature

At any time after the issue date until the Note is no longer outstanding, this Note shall be convertible, in whole or in part, into ordinary shares at the option of the holder, at any time and from time to time.

Redemption feature

If the Company shall carry out one or more subsequent financings in excess of US$25,000,000 in gross proceeds, the holder shall have the right to (i) require the Company to first use up to 10% of the gross proceeds of such subsequent financing if the aggregate outstanding principal amount of the Note is in excess of US$30,000,000 and (ii) require the Company to first use up to 20% of the gross proceeds of such subsequent financing if the outstanding principal amount of the Note is US$30,000,000 or less to redeem all or a portion of this Note for an amount in cash equal to the Mandatory Redemption Amount equal to 1.08 multiplied by the sum of principal amount subject to the mandatory redemption, plus accrued but unpaid interest, plus liquidated damages, if any, and any other amounts.

In addition, if the closing price of the ordinary shares on the principal trading market is below the floor price of $1.00 per share for a period of ten consecutive trading days, the holder shall have the right to require the Company to redeem the sum of principal amount plus accrued but unpaid interest under the Note.

Contingent interest feature

The Note is subject to certain customary events of default. If any event of default occurs, the outstanding principal amount, plus accrued but unpaid interest, liquidated damages and other amounts owing, shall become immediately due and payable, and at the holder’s election, in cash at the mandatory default amount or in ordinary shares at the mandatory default amount at a conversion price equal to 85% of the 10-day volume weighted average price. Commencing 5 days after the occurrence of any event of default, the interest shall accrue at an interest rate equal to the lesser of 10% per annum or the maximum rate permitted under applicable law.

The financial liability was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The remaining estimated fair value adjustment is presented as other expense in the consolidated statement of operations, change in fair value of convertible notes.

The movement of Note during the six months ended June 30, 2024 are as follows:

	Liability component
As of December 31, 2023	$	9,956,000
Convertible promissory notes issued during the period		-
Redemption of convertible promissory notes		-
Fair value change recognized		(5,000	)
As of June 30, 2024		9,951,000

The estimated fair value of the Note upon issuance date December 31, 2023 and as of June 30, 2024 was computed using a Monte Carlo Simulation Model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement. The unobservable inputs utilized for measuring the fair value of the Note reflects our assumptions about the assumptions that market participants would use in valuing the Note as of the issuance date and subsequent reporting period.

We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:

Fair Value Assumptions - Convertible Promissory Note	June 30, 2024 (Unaudited)			December 31, 2023
Face value principal payable		9,953,381			9,953,381
Original conversion price		12.375			12.375
Interest Rate		8.00	%		8.00	%
Expected term (years)		0.56			1.05
Volatility		54.77	%		53.46	%
Market yield (range)		20.45	%		13.93	%
Risk free rate		5.25	%		4.69	%
Issue date	July 20, 2022			July 20, 2022
Maturity date	January 19, 2025			January 19, 2025

Warrant

Accompany with the Note, the Company issued to the same investor warrants to purchase up to 24,733,336 ordinary shares of the Company, with an exercise price of $1.61 per share, which may be exercised by the holders on a cashless basis by using Black-Scholes model to determine the net settlement shares.

Additionally, after the Company completed the above Note financing, the Company issued to the placement agent warrants to purchase 2,473,334 ordinary shares of the Company at a same day, as part of the underwriter’s commission. The warrants were issued with an exercise price of $1.77 per share.

Both warrants are exercisable from the date of issuance and have a term of five years from the date of issuance. They were presented as liabilities on the consolidated balance sheet at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liabilities then, will be remeasured every reporting period with any change to fair value recorded as other income (expense) in the unaudited condensed consolidated statement of operations and comprehensive loss.

The movement of warrants during the six months ended June 30, 2024 are as follows:

	Investor warrants component			Placement agent warrants component
As of December 31, 2023	$	12,189,508		$	3,456,578
Warrants issued during the period		-			-
Exercise of warrants		-			-
Fair value change recognized		(2,713	)		(819	)
As of June 30, 2024		12,186,795			3,455,759

The fair value for these two warrants were computed using the Binomial model with the following assumptions:

	June 30, 2024 (Unaudited)			December 31, 2023
Fair Value Assumptions – Warrants
Expected term (years)		3.05			3.55
Volatility		65.20	%		72.11	%
Risk free rate		4.38	%		3.91	%