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Warrants
 12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Warrants
21. Warrants

 

On December 8, 2020, the Company entered in a securities purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 9,489,800 shares of its common stock at a price of $5.18 per share, for aggregate gross proceeds to the Company of approximately $49 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. As part of the transaction, the institutional investors also received warrants ("Investor Warrants") for the purchase of up to 3,795,920 shares of the Company's common stock at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance. In addition, the placement agent for this transaction also received warrants ("Placement Agent Warrants") for the purchase of up to 379,592 shares of the Company's common stock at an exercise price of $6.475 per share exercisable for 36 months after 6 months from the issuance. The Company has performed a thorough reassessment of the terms of its warrants with reference to the provisions of ASC Topic 815-40-15-7I, regarding its exposure to changes in currency exchange rates. This reassessment has led to the management's conclusion that the Company's warrants issued to the investors should not be considered indexed to the Company's own stock because the warrants are denominated in U.S. dollar, which is different from the Company's functional currency, Renminbi. Warrants are remeasured at fair value with changes in fair value recorded in earnings in each reporting period.

 

There was a total of 4,175,512 warrants issued and outstanding as of December 31, 2020.

 

The fair value of the outstanding warrants was calculated using Binomial Model based on backward induction with the following assumptions:

 

Warrants holder  Investor Warrants   Placement Agent Warrants 
Appraisal Date (Inception Date)  December 10,
2020		   December 10,
2020		 
Market price per share (USD/share)  $5.36   $5.36 
Exercise price (USD/price)   6.46    6.475 
Risk free rate   0.2%   0.2%
Dividend yield   0.0%   0.0%
Expected term/ Contractual life (years)   3.0 years    3.0 years 
Expected volatility   211.5%   211.5%

 

Appraisal Date  December 31,
2020		   December 31,
2020		 
Market price per share (USD/share)  $5.06   $5.06 
Exercise price (USD/price)   6.46    6.475 
Risk free rate   0.2%   0.2%
Dividend yield   0.0%   0.0%
Expected term/ Contractual life (years)   2.9 years    2.9 years 
Expected volatility   187.6%   187.6%

 

The following is a reconciliation of the beginning and ending balances of warrants liability measured at fair value on a recurring basis using Level 3 inputs:

 

   Year ended
December 31,
2019		   Year ended
December 31,
2020		 
Balance at the beginning of the year  $       -   $- 
Warrants issued to institution investors   -    17,980,000 
Warrants issued to placement agent   -    1,875,000 
Warrants redeemed   -    - 
Fair value change of the issued warrants included in earnings   -    (2,072,000)
Balance at end of year   -    17,783,000 

 

The following is a summary of the warrant activity: 

 

   Number of
Warrants		   Average
Exercise Price		   Weighted Average Remaining Contractual Term in Years 
             
Outstanding at January 1, 2020   -   $-      
Exercisable at January 1, 2020   -   $-      
Granted   4,175,512    6.46    3 
Exercised / surrendered   -    -      
Expired   -    -      
Outstanding at December 31, 2020   4,175,512   $6.46    2.9 
Exercisable at December 31, 2020   3,795,920   $6.46    2.9