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Equity
 6 Months Ended
Jun. 30, 2023
Equity [Abstract]  
Equity

Note 13 – Equity

 

Restricted net assets

 

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Highlight WFOE only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Highlight WFOE.

 

Highlight WFOE and Highlight Media are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Highlight WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Highlight Media may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.

 

As a result of the foregoing restrictions, Highlight WFOE and Highlight Media are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Highlight WFOE and Highlight Media from transferring funds to Highlight HK in the form of dividends, loans and advances. As of June 30, 2023 and December 31, 2022, amounts restricted are the net assets of Highlight WFOE and Highlight Media which amounted to $99,047 and $492,315, respectively.

 

Common stock

 

On May 4, 2023, the Company sold an aggregate of 310,168 shares of common stock of the Company, par value $0.0001 per share, and pre-funded warrants to purchase up to an aggregate of 844,351 shares of common stock are sold to certain purchasers, pursuant to a securities purchase agreement, dated May 1, 2023, as amended on May 16, 2023. The purchase price of each share of common stock is $8.35. The purchase price of each pre-funded warrant is $8.349, which equals the price per share of common stock being sold to the public in this offering, minus $0.001. The RD Offering is being made pursuant to a shelf registration statement (No. 333-254366) on Form S-3, which was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on March 26, 2021, and related prospectus supplement.

 

In the concurrent PIPE offering, the Company sold warrants to purchase up to 1,154,519 shares of common stock to the Purchasers, pursuant to a private warrant securities purchase agreement, dated May 1, 2023. In connection with the offering, the Company paid Univest Securities, LLC, the placement agent, a total cash fee equal to 7.0% of the aggregate gross proceeds received in the offering, a non-accountable expense allowance equal to 1% of the aggregate gross proceeds, and reimbursement for certain out-of-pocket accountable expenses incurred in this offering in the amount of $150,000. In addition, the Company issued to the placement agent warrants to purchase up to 115,452 shares of common stock at an exercise price of $10.02 per share, which represents 120% of the offering price of each share. The net proceeds from the Offering, after deducting placement agent discounts and commissions and estimated offering expenses payable by the Company, are approximately $8.5 million (assuming the warrants are not exercised). The Company used the net proceeds from the Offering for working capital and general corporate purposes.

 

On June 22, 2023, the Company entered into a software purchase agreement with Northeast Management LLC, a seller unaffiliated with the Company. Pursuant to the agreement, the Company agreed to purchase and the seller agreed to sell all of seller’s right, title, and interest in and to the certain software. The purchase price of the software shall be $750,000, payable in the form of issuance of 187,500 shares of common stock of the Company, valued at $4.00 per share. The Company plans to use the software to develop video games. On June 26, 2023, the Company issued the shares to the seller’s designees and the transaction was completed.

 

Warrants and options

 

On July 29, 2015, the Company sold 10,000,000 units at a purchase price of $5.00 per unit (“Public Units”) in its initial public offering. Each Public Unit consists of one share of the Company’s common stock, $0.0001 par value, and one warrant. Each warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $2.88 per half share ($5.75 per whole share). Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on 30 days after the consummation of its initial Business Combination with China Sunlong on February 6, 2018. The warrants expired on February 5, 2023. The warrants will be redeemable by the Company at a price of $0.01 per warrant upon 30 days prior written notice after the warrants become exercisable, only in the event that the last sale price of the common stock equals or exceeds $12.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given.

 

The sponsor of the Company purchased, simultaneously with the closing of the Public Offering on July 29, 2015, 500,000 units at $5.00 per unit in a private placement for an aggregate price of $2,500,000. Each unit purchased is substantially identical to the units sold in the Public Offering.

 

The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 800,000 units exercisable at $5.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing the initial Business Combination, the option will effectively represent the right to purchase up to 800,000 shares of common stock and 800,000 warrants to purchase 400,000 shares at $5.75 per full share for an aggregate maximum amount of $6,300,000. The units issuable upon exercise of this option are identical to those issued in the Public Offering.

 

In July 2016, the board of directors of the Company appointed two new directors. In August 2016, the sponsor of the Company granted an option to each of the two new directors to acquire 12,000 shares of common stock at a price of $4.90 per share vested immediately and exercisable commencing six months after closing of the initial Business Combination and expiring five years from the closing of the initial Business Combination.

 

The aforementioned warrants and options are deemed to be effective on February 6, 2018, the date of the consummation of its initial business combination with China Sunlong, as the Company was deemed to be the accounting acquiree in the transaction and the transaction was treated as a recapitalization of China Sunlong.

 

After the 1-for-30 reverse stock split effective on November 9, 2022, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which the options, warrants and other convertible securities are exercisable or convertible by thirty (30) and multiplying the exercise or conversion price thereof by thirty (30), all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding to the nearest whole share.

 

The summary of warrant activity is as follows:

 

       Exercisable
Into		   Weighted
Average		   Average
Remaining		 
   Warrants   Number of   Exercise   Contractual 
   Outstanding   Shares   Price   Life 
December 31, 2022   4,539,674    151,323   $172.5    0.36 
Granted/Acquired   
-
    
-
   $
-
    
-
 
Forfeited   
-
    
-
   $
-
    
-
 
Exercised   
-
    
-
    
-
    
-
 
June 30, 2023   4,539,674    151,323   $172.5    
-
 

 

The summary of option activity is as follows:

 

       Exercisable
Into		   Weighted
Average		   Average
Remaining		 
   Options   Number of   Exercise   Contractual 
   Outstanding   Shares   Price   Life 
December 31, 2022   824,000    27,467   $150.00    0.36 
Granted/Acquired   
-
    
-
   $
-
    
-
 
Forfeited   
-
    
-
   $
-
    
-
 
Exercised   
-
    
-
    
-
    
-
 
June 30, 2023   824,000    27,467   $150.00    
-