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CONVERTIBLE PROMISSORY NOTE AND WARRANT | 6 Months Ended
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Jun. 30, 2023
CONVERTIBLE PROMISSORY NOTE AND WARRANT [Abstract] |
CONVERTIBLE PROMISSORY NOTE AND WARRANT | NOTE 13 - 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, 2023 are as follows:
|  | Liability component |
As of December 31, 2022 |  | $ | 57,372,827 |
Convertible promissory notes issued during the year |  |  | - |
Redemption of convertible promissory notes |  |  | (45,583,220 | )
Fair value change recognized |  |  | 114,546 |
As of June 30, 2023 |  |  | 11,904,153 |
The estimated fair value of the Note upon issuance date December 31, 2022 and as of June 30, 2023 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, 2023 |  |  | December 31, 2022 |
Face value principal payable |  |  | 11,904,179 |  |  |  | 57,488,000 |
Original conversion price |  |  | 1.2375 |  |  |  | 1.2375 |
Interest Rate |  |  | 8.00 | % |  |  | 8.00 | %
Expected term (years) |  |  | 0.05 |  |  |  | 0.55 |
Volatility |  |  | 63.10 | % |  |  | 75.13 | %
Market yield (range) |  |  | 9.63 | % |  |  | 18.02 | %
Risk free rate |  |  | 1.12 | % |  |  | 4.69 | %
Issue date |  | July 20, 2022 |  |  | July 20, 2022 |
Maturity date |  | July 19, 2023 |  |  | July 19, 2023 |
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 consolidated statement of operations. The movement of warrants during the six months ended June 30, 2023 are as follows:
|  | Investor warrants component |  |  | Placement agent warrants component |
As of December 31, 2022 |  | $ | 14,334,104 |  |  | $ | 3,456,404 |
Warrants issued during the year |  |  | - |  |  |  | - |
Exercise of warrants |  |  | (1,940,570 | ) |  |  | - |
Fair value change recognized |  |  | (187,704 | ) |  |  | (267 | )
As of June 30, 2023 |  |  | 12,205,830 |  |  |  | 3,456,137 |
The fair value for these two warrants were computed using the Binomial model with the following assumptions:
Fair Value Assumptions – Warrants |  | June 30, 2023 |  |  | December 31, 2022 |
Expected term (years) |  |  | 4.05 |  |  |  | 4.55 |
Volatility |  |  | 76.02 | % |  |  | 77.72 | %
Risk free rate |  |  | 4.19 | % |  |  | 4.13 | %

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