UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
FORM 10-Q/A
(Amendment No. 1)1)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2019March 31, 2021
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:001-35561
IDEANOMICS, INC.
(Exact name of registrant as specified in its charter)
| | | |
Nevada | 20-1778374 | ||
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
551441 Broadway, 19th FloorSuite 5116
New York, NY 1000610018
(Address of principal executive offices)
212-206-1216212-206-1216
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | |
Title of each | Trading Symbol(s) | Name of each exchange on which | ||||
Common stock, $0.001 par value per share | | IDEX | | Nasdaq | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x☒No ¨
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x☒No ¨
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company ☐ | |
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨☐No x
☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date: 133,871,256497,680,745 shares as ofNovember 11, 2019.18, 2021.
Explanatory Note
EXPLANATORY NOTE
On November 16, 2021, Ideanomics, Inc. (the “Company”, “we”, “our” or “us”) filed a Current Report on Form 8-K disclosing that the Company determined that our previously issued financial statements contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2021 and Quarterly Report on Form 10-Q for the period ended June 30, 2021 should no longer be relied upon due to errors in such condensed consolidated financial statements related to revenue reported by our affiliate Timios Holding Corp. (“Timios”), that provides title and agency services.
The following Form 10-Q/Aerrors were uncovered as part of the preparation of the Company’s condensed consolidated financial statements as of and for the quarterperiod ended September 30, 2019 is being filed2021. The preparation of the Company’s condensed consolidated financial statements as of and for the period ended September 30, 2021 also identified additional transactions and accounting practices not in accordance with U.S. generally accepted accounting principles (“US GAAP”).
This Amendment No. 1 to conformour Quarterly Report on Form 10-Q for the period ended March 31, 2021 (“Quarterly Report on Form 10-Q/A” or “Amendment No. 1) reflects the correction of the following errors identified subsequent to the disclosure contained infiling of our Quarterly Report on Form 10-Q for the Form S-1/Aperiod ended March 31, 2021, which was initially filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2020; specifically,May 17, 2021 (the “Original Form 10-Q”):
| A. | The Company determined that it did not present Timios title and agency services revenue and the related cost of revenue in accordance with US GAAP on the condensed consolidated statement of operations, as premiums from title insurance policies written by independent agencies were presented on a gross basis and did not properly present revenue and cost of revenue net of commission costs. |
| B. | The Company discovered that it did not properly account for its investment in Technology Metals Market Limited (“TM2”) in accordance with the equity method of accounting.In addition, the Company determined that it incorrectly presented equity income (loss) on its equity method investments as a component of interest and other income (expense) on the condensed consolidated statements of operations rather than as a separate financial statement caption below income taxes. |
| C. | The Company discovered certain errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its acquisitions. |
| D. | The Company determined that the errors in determining the estimated fair value of net assets acquired in its acquisitions resulted in an additional reduction to the Company’s deferred tax liabilities. |
| E. | The Company determined that it did not properly recognize income tax expense (benefit) for certain acquired entities subsequent to their respective acquisitions during the period ended March 31, 2021. |
For the convenience of the reader, we have included all items in this Amendment No. 1 which supersedes in its entirety the Original Form 10-Q.
The following sections in the Original Form 10-Q have been revised in this Amendment No. 1 to adjustreflect the numberrestatement:
| ● | Part I, Item 1, “Financial Statements” |
| ● | Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations" |
| ● | Part I, Item 4, “Controls and Procedures” |
| ● | Part II, Item 1A, “Risk Factors” |
| ● | the Chief Executive Officer and Chief Financial Officer certifications in Exhibits 31.1, 31.2, 32.1, and 32.2 |
This Amendment No. 1 does not reflect adjustments for events occurring after the filing of contingently issuable shares disclosed in Note 16the Original Form 10-Q except to the extent that they are otherwise required to be included and discussed herein and did not substantively modify or update the disclosures herein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, contained hereinset forth in Item 1 of this Quarterly Report on Form 10-Q/A, for details of the restatement and its impact on the condensed consolidated financial statements.
See “Item 4 — Controls and Procedures” that discloses a material weakness in the Company’s internal controls associated with the restatement, as well as management’s restated conclusion that the Company’s internal controls over financial reporting were not effective as of March 31, 2021.
2
We are also filing updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2 to adjust the disclosure related to GTDollar Coins (“GTB”) as it related to GTB being denominated in Bitcoin and Ethereum.this Amendment No. 1.
3
QUARTERLY REPORT ON FORM 10-Q10-Q/A (Amendment No. 1)
OF IDEANOMICS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 2019MARCH 31, 2021
TABLE OF CONTENTS
| | |
| ||
| | |
6 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 48 | |
59 | ||
59 | ||
| | |
| ||
| | |
61 | ||
61 | ||
67 | ||
67 | ||
67 | ||
67 | ||
68 | ||
| 70 |
References
4
Use of Terms
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” “the Company,” “IDEX,” or “Ideanomics,” are to the following:business of Ideanomics, Inc. (formerly known as “Seven Star Cloud Group, Inc.,” “SSC” and “Wecast Network, Inc.,”) a Nevada corporation, and its consolidated subsidiaries and variable interest entities.
In addition, unless the context otherwise requires and for the purposes of this report only:
| “ |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “ |
| ● | “ |
| ● | “ |
| ● | “ |
| ● | “PRC,” “China,” and |
| ● | “Renminbi” and “RMB” refer to the legal currency of |
| ● | “SEC” refers to the United States Securities and Exchange Commission; |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; |
| “ | |
| “Timios” refers to Timios Holdings Corp. and its affiliates which was acquired on January 8, 2021; |
| ● | “U.S. dollars,” “dollars,” “USD,” “US$,” and “$” refer to the legal currency of the United States; |
| ● | “VOD” refers to video on demand, which includes near video on demand (“NVOD,”) subscription video on demand (“SVOD,”) and transactional video on demand (“TVOD;”) and |
| ● | “Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company that is 51% owned by the Company; |
| ● | “WAVE” refers to Wireless Advanced Vehicle Electrification, Inc. which was acquired on January 15, 2021. |
5
PART I - FINANCIAL INFORMATION
IDEANOMICS, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Page |
7 | |
8 | |
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) | 9 |
10 | |
12 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 13 |
6
IDEANOMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD in thousands)
| September 30, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,686,596 | $ | 3,106,244 | ||||
| Accounts receivable, net | 2,941,245 | 19,370,665 | ||||||
| Licensed content, current | - | 16,958,149 | ||||||
| Prepayments | 1,013,384 | 2,042,041 | ||||||
| Other current assets | 2,371,913 | 3,594,942 | ||||||
| Total current assets | 8,013,138 | 45,072,041 | ||||||
| Property and equipment, net | 14,504,993 | 15,029,427 | ||||||
| Intangible assets, net | 81,960,331 | 3,036,352 | ||||||
| Goodwill | 10,028,073 | 704,884 | ||||||
| Long-term investments | 42,159,313 | 26,408,609 | ||||||
| Operating lease right of use assets | 6,845,031 | - | ||||||
| Other non-current assets | 1,252,797 | 3,983,799 | ||||||
| Total assets | $ | 164,763,676 | $ | 94,235,112 | ||||
| LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY | ||||||||
| Current liabilities: (including amounts of the consolidated VIEs without recourse to Ideanomics, Inc. See Note 4) | ||||||||
| Accounts payable | $ | 1,543,291 | $ | 19,265,094 | ||||
| Deferred revenue | 458,894 | 405,929 | ||||||
| Amount due to related parties | 2,565,812 | 800,822 | ||||||
| Other current liabilities | 9,141,870 | 5,321,697 | ||||||
| Current portion of operating lease liabilities | 912,271 | - | ||||||
| Convertible promissory note due to related parties | 1,288,032 | 4,140,055 | ||||||
| Total current liabilities | 15,910,170 | 29,933,597 | ||||||
| Deferred tax liabilities | - | 513,935 | ||||||
| Asset retirement obligations | 6,392,500 | 8,000,000 | ||||||
| Convertible promissory note due to related parties – long term | 3,000,000 | - | ||||||
| Convertible note - long term | 12,627,531 | 11,313,770 | ||||||
| Promissory note - long term | 3,000,000 | - | ||||||
| Operating lease liability-long term | 6,329,533 | - | ||||||
| Total liabilities | 47,259,734 | 49,761,302 | ||||||
| Commitments and contingencies (Note 18) | ||||||||
| Convertible redeemable preferred stock: | ||||||||
| Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of September 30, 2019 and December 31, 2018 | 1,261,995 | 1,261,995 | ||||||
| Equity: | ||||||||
| Common stock - $0.001 par value; 1,500,000,000 shares authorized, 132,696,071 shares and 102,766,006 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 132,696 | 102,765 | ||||||
| Additional paid-in capital | 255,737,318 | 195,779,576 | ||||||
| Accumulated deficit | (138,468,441 | ) | (149,975,302 | ) | ||||
| Accumulated other comprehensive loss | (1,557,346 | ) | (1,664,598 | ) | ||||
| Total IDEX shareholder’s equity | 115,844,227 | 44,242,441 | ||||||
| Non-controlling interest | 397,720 | (1,030,626 | ) | |||||
| Total equity | 116,241,947 | 43,211,815 | ||||||
| Total liabilities, convertible redeemable preferred stock and equity | $ | 164,763,676 | $ | 94,235,112 | ||||
| | | | | | |
| | March 31, 2021 |
| December 31, 2020 | ||
|
| (As restated) |
| | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 355,856 | | $ | 165,764 |
Accounts receivable, net | |
| 5,409 | |
| 7,400 |
Available-for-sale security | |
| 15,155 | |
| — |
Inventory | |
| 960 | |
| — |
Prepaid expenses | |
| 6,400 | |
| 2,629 |
Amount due from related parties | |
| 245 | |
| 240 |
Other current assets | |
| 479 | |
| 3,726 |
Held for sale assets (Fintech Village) | |
| 7,068 | |
| — |
Total current assets | |
| 391,572 | |
| 179,759 |
Property and equipment, net | |
| 631 | |
| 330 |
Fintech Village | |
| — | |
| 7,250 |
Intangible assets, net | |
| 77,815 | |
| 29,705 |
Goodwill | |
| 59,545 | |
| 1,165 |
Long-term investments | |
| 24,001 | |
| 8,570 |
Operating lease right of use assets | |
| 2,469 | |
| 155 |
Other non-current assets | |
| 7,438 | |
| 7,478 |
Total assets | | $ | 563,471 | | $ | 234,412 |
| | | | | | |
| | | | | | |
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK, REDEMABLE NON-CONTROLLING INTEREST AND EQUITY | | | | |
|
|
Current liabilities | | | | |
|
|
Accounts payable | | $ | 9,978 | | $ | 5,057 |
Deferred revenue | |
| 2,225 | |
| 1,129 |
Accrued salaries | |
| 4,831 | |
| 1,750 |
Amount due to related parties | |
| 1,235 | |
| 882 |
Other current liabilities | |
| 7,247 | |
| 2,235 |
Current portion of operating lease liabilities | |
| 637 | |
| 115 |
Current contingent consideration | |
| 8,481 | |
| 1,325 |
Promissory note-short term | |
| 869 | |
| 568 |
Convertible promissory note due to third parties | |
| 80,446 | |
| — |
Asset retirement obligations | |
| 4,653 | |
| — |
Total current liabilities | |
| 120,602 | |
| 13,061 |
Asset retirement obligations | |
| — | |
| 4,653 |
Deferred tax liabilities | |
| 884 | |
| — |
Operating lease liability-long term | |
| 1,826 | |
| 19 |
Non-current contingent consideration | |
| 8,630 | |
| 7,635 |
Other long-term liabilities | |
| 7,834 | |
| 7,275 |
Total liabilities | |
| 139,776 | |
| 32,643 |
Commitments and contingencies (Note 18) | | | | |
|
|
Convertible redeemable preferred stock and Redeemable non-controlling interest: | | | | |
|
|
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of March 31, 2021 and December 31, 2020 | | | 1,262 | |
| 1,262 |
Redeemable non-controlling interest | |
| 7,600 | |
| 7,485 |
Equity: | | | | |
|
|
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 419,469,800 shares and 344,906,295 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | |
| 419 | |
| 345 |
Additional paid-in capital | |
| 761,155 | |
| 531,866 |
Accumulated deficit | |
| (353,295) | |
| (346,883) |
Accumulated other comprehensive income | |
| 784 | |
| 1,256 |
Total IDEX shareholder’s equity | |
| 409,063 | |
| 186,584 |
Non-controlling interest | |
| 5,770 | |
| 6,438 |
Total equity | |
| 414,833 | |
| 193,022 |
Total liabilities, convertible redeemable preferred stock, redeemable non-controlling interest and equity | | $ | 563,471 | | $ | 234,412 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenue from third parties | $ | 249,512 | $ | 43,707,937 | $ | 949,384 | $ | 362,628,296 | ||||||||
| Revenue from related party | 2,854,178 | - | 43,554,178 | - | ||||||||||||
| Total revenue | 3,103,690 | 43,707,937 | 44,503,562 | 362,628,296 | ||||||||||||
| Cost of revenue from third parties | 243,360 | 42,844,876 | 750,290 | 115,729,433 | ||||||||||||
| Cost of revenue from related parties | - | - | 466,894 | 244,110,132 | ||||||||||||
| Gross profit | 2,860,330 | 863,061 | 43,286,378 | 2,788,731 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expense | 7,769,503 | 4,333,259 | 18,442,280 | 16,861,425 | ||||||||||||
| Research and development expense | - | 667,416 | - | 1,393,025 | ||||||||||||
| Professional fees | 1,388,842 | 1,927,431 | 3,918,461 | 3,280,729 | ||||||||||||
| Impairment of property and equipment | 2,298,887 | - | 2,298,887 | - | ||||||||||||
| Depreciation and amortization | 806,481 | 291,512 | 1,420,480 | 314,737 | ||||||||||||
| Total operating expense | 12,263,713 | 7,219,618 | 26,080,108 | 21,849,916 | ||||||||||||
| Income (loss) from operations | (9,403,383 | ) | (6,356,557 | ) | 17,206,270 | (19,061,185 | ) | |||||||||
| Interest and other income (expense) | ||||||||||||||||
| Interest expense, net | (639,395 | ) | (145,610 | ) | (1,955,476 | ) | (201,782 | ) | ||||||||
| Equity in loss of equity method investees | (40,369 | ) | (13,882 | ) | (606,390 | ) | (44,316 | ) | ||||||||
| Gain on disposal of subsidiaries | 1,057,363 | - | 1,057,363 | - | ||||||||||||
| Loss on remeasurement of DBOT investment | (3,178,702 | ) | - | (3,178,702 | ) | - | ||||||||||
| Other | (99,997 | ) | (925,771 | ) | (155,946 | ) | (558,271 | ) | ||||||||
| Income (loss) before income taxes and non-controlling interest | (12,304,483 | ) | (7,441,820 | ) | 12,367,119 | (19,865,554 | ) | |||||||||
| Income tax benefit | - | - | 513,935 | - | ||||||||||||
| Net income (loss) | (12,304,483 | ) | (7,441,820 | ) | 12,881,054 | (19,865,554 | ) | |||||||||
| Net (income) loss attributable to non-controlling interest | (1,407,384 | ) | 254,973 | (1,374,193 | ) | 637,314 | ||||||||||
| Net income (loss) attributable to IDEX common shareholders | $ | (13,711,867 | ) | $ | (7,186,847 | ) | $ | 11,506,861 | $ | (19,228,240 | ) | |||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
| Diluted | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 127,609,748 | 74,063,495 | 113,964,933 | 71,574,303 | ||||||||||||
| Diluted | 127,609,748 | 74,063,495 | 118,319,893 | 71,574,303 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, 2021 |
| March 31, 2020 | ||
| | (As restated) | | | | |
Revenue from sales of products (including revenue from related party of $1 and $0 for the three months ended March 31, 2021 and 2020, respectively) | | $ | 4,547 | | $ | 3 |
Revenue from sales of services | |
| 25,392 | | | 375 |
Total revenue | |
| 29,939 | | | 378 |
Cost of revenue from sales of products (including cost of revenue from related party of $7 and $0 for the | | | | | | |
three months ended March 31, 2021 and 2020, respectively) | |
| 4,354 | | | 2 |
Cost of revenue from sales of services | |
| 14,743 | | | 332 |
Total cost of revenue | |
| 19,097 | | | 334 |
Gross profit | |
| 10,842 | | | 44 |
| | | | | | |
Operating expenses: | | | | | | |
Selling, general and administrative expenses | |
| 11,851 | | | 5,827 |
Research and development expense | |
| 10 | | | — |
Professional fees | |
| 5,168 | | | 1,757 |
Impairment losses | |
| — | | | 887 |
Change in fair value of contingent consideration, net | |
| 494 | | | 532 |
Litigation settlement | |
| 5,000 | | | — |
Depreciation and amortization | |
| 1,128 | | | 476 |
Total operating expenses | |
| 23,651 | | | 9,479 |
| | | | | | |
Loss from operations | |
| (12,809) | | | (9,435) |
| | | | | | |
Interest and other expense: | | | | | | |
Interest expense, net | |
| (417) | | | (3,156) |
Loss on disposal of subsidiaries, net | |
| (212) | | | — |
Other expense | |
| (156) | | | (26) |
Loss before income taxes and non-controlling interest | |
| (13,594) | | | (12,617) |
| | | | | | |
Income tax benefit | |
| 7,256 | | | — |
Equity in loss of equity method investees | | | (237) | | | (3) |
| | | | | | |
Net loss | |
| (6,575) | | | (12,620) |
| | | | | | |
Net loss attributable to non-controlling interest | |
| 163 | | | 272 |
| | | | | | |
Net loss attributable to IDEX common shareholders | | $ | (6,412) | | $ | (12,348) |
| | | | | | |
Earnings (loss) per share | | | | | | |
Basic | | $ | (0.02) | | $ | (0.08) |
Diluted | |
| (0.02) | | $ | (0.08) |
| | | | | | |
Weighted average shares outstanding: | | | | | | |
Basic | |
| 391,131,793 | |
| 157,859,642 |
Diluted | |
| 391,131,793 | |
| 157,859,642 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net income (loss) | $ | (12,304,483 | ) | $ | (7,441,820 | ) | $ | 12,881,054 | $ | (19,865,554 | ) | |||||
| Other comprehensive income (loss), net of nil tax | ||||||||||||||||
| Foreign currency translation adjustments | 23,502 | 708,140 | 102,481 | 565,315 | ||||||||||||
| Comprehensive income (loss) | (12,280,981 | ) | (6,733,680 | ) | 12,983,535 | (19,300,239 | ) | |||||||||
| Comprehensive loss attributable to non-controlling interest | (1,470,410 | ) | 243,078 | (1,419,916 | ) | 614,298 | ||||||||||
| Comprehensive income (loss) attributable to IDEX common shareholders | $ | (13,751,391 | ) | $ | (6,490,602 | ) | $ | 11,563,619 | $ | (18,685,941 | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITYCOMPREHENSIVE INCOME (LOSS) (Unaudited) (USD in thousands)
| Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
| Common Stock | Par Value | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Ideanomics Shareholders' | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
| Balance, January 1, 2018 | 68,509,090 | $ | 68,509 | $ | 158,449,544 | $ | (126,693,022 | ) | $ | (782,074 | ) | $ | 31,042,957 | $ | (1,289,367 | ) | $ | 29,753,590 | ||||||||||||||
| Share-based compensation | - | - | 121,190 | - | - | 121,190 | - | 121,190 | ||||||||||||||||||||||||
| Common stock issuance for RSU vested | 13,464 | 13 | (13 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issuance for option exercised | 42,501 | 43 | 2,589 | - | - | 2,632 | - | 2,632 | ||||||||||||||||||||||||
| Common stock issued for warrant exercised | 300,000 | 300 | 524,700 | - | - | 525,000 | - | 525,000 | ||||||||||||||||||||||||
| Net loss | - | - | - | (3,721,369 | ) | - | (3,721,369 | ) | (91,444 | ) | (3,812,813 | ) | ||||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | - | - | - | - | (32,481 | ) | �� | (32,481 | ) | (9,148 | ) | (41,629 | ) | |||||||||||||||||||
| Balance, March 31, 2018 (restated) | 68,865,055 | $ | 68,865 | $ | 159,098,010 | $ | (130,414,391 | ) | $ | (814,555 | ) | $ | 27,937,929 | $ | (1,389,959 | ) | $ | 26,547,970 | ||||||||||||||
| Share-based compensation | - | - | 3,239,727 | - | - | 3,239,727 | - | 3,239,727 | ||||||||||||||||||||||||
| Investment from GTD and SSS | - | - | 5,900,000 | - | - | 5,900,000 | - | 5,900,000 | ||||||||||||||||||||||||
| Common stock issuance for RSU vested | 1,227,244 | 1,227 | (1,227 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issuance for acquisition of BDCG | 3,000,000 | 3,000 | 7,797,000 | - | - | 7,800,000 | - | 7,800,000 | ||||||||||||||||||||||||
| Net loss | - | - | - | (8,320,024 | ) | - | (8,320,024 | ) | (290,897 | ) | (8,610,921 | ) | ||||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | - | - | - | - | (121,465 | ) | (121,465 | ) | 20,269 | (101,196 | ) | |||||||||||||||||||||
| Balance, June 30, 2018 | 73,092,299 | $ | 73,092 | $ | 176,033,510 | $ | (138,734,415 | ) | $ | (936,020 | ) | $ | 36,436,167 | $ | (1,660,587 | ) | $ | 34,775,580 | ||||||||||||||
| Share-based compensation | - | - | 11,530 | - | - | 11,530 | - | 11,530 | ||||||||||||||||||||||||
| Investment from GTD and SSS | - | - | 5,288,502 | - | - | 5,288,502 | - | 5,288,502 | ||||||||||||||||||||||||
| Common stock issued for warrant exercised | 343,714 | 344 | 601,156 | - | - | 601,500 | - | 601,500 | ||||||||||||||||||||||||
| Common stock issuance for option exercised | 40,295 | 40 | (40 | ) | - | - | - | - | ||||||||||||||||||||||||
| Common stock issuance for Star Thrive Group Limited | 3,770,493 | 3,770 | 6,869,138 | - | - | 6,872,908 | - | 6,872,908 | ||||||||||||||||||||||||
| Conversion feature of convertible note | - | - | 1,384,614 | - | - | 1,384,614 | - | 1,384,614 | ||||||||||||||||||||||||
| Acquisition of Grapevine | - | - | - | - | - | 1,154,419 | 1,154,419 | |||||||||||||||||||||||||
| Net loss | - | - | - | (7,186,847 | ) | - | (7,186,847 | ) | (254,973 | ) | (7,441,820 | ) | ||||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | - | - | - | - | 696,245 | 696,245 | 11,895 | 708,140 | ||||||||||||||||||||||||
| Balance, September 30, 2018 | 77,246,801 | 77,246 | 190,188,410 | (145,921,262 | ) | (239,775 | ) | 44,104,619 | (749,246 | ) | 43,355,373 | |||||||||||||||||||||
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, 2021 |
| March 31, 2020 | ||
| | (As restated) | | | | |
Net loss | | $ | (6,575) | | $ | (12,620) |
Other comprehensive income (loss), net of NaN tax: | |
|
| |
|
|
Foreign currency translation adjustments | |
| (860) | |
| 7 |
Comprehensive loss | |
| (7,435) | |
| (12,613) |
Comprehensive loss (gain) attributable to non-controlling interest | |
| 552 | |
| (249) |
Comprehensive loss attributable to IDEX common shareholders | | $ | (6,883) | | $ | (12,862) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited) (USD in thousands)
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||
Common Stock | Par Value | Additional Paid-in Capital | Retained Earnings/ Accumulated (Deficit) | Accumulated Other Comprehensive Income (Loss) | Ideanomics Shareholders' equity | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
| Balance, January 1, 2019 | 102,766,006 | $ | 102,765 | $ | 195,779,576 | $ | (149,975,302 | ) | $ | (1,664,598 | ) | $ | 44,242,441 | $ | (1,030,626 | ) | $ | 43,211,815 | ||||||||||||||
| Share-based compensation | - | - | 224,484 | - | - | 224,484 | - | 224,484 | ||||||||||||||||||||||||
| Common stock issuance for restricted shares | 129,840 | 130 | (130 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Common Stock issuance for acquisition-SolidOpinion (Note 5(a)) | 4,500,000 | 4,500 | 7,150,500 | - | - | 7,155,000 | - | 7,155,000 | ||||||||||||||||||||||||
| Common stock issuance for convertible debt (Note 12(b)) | 1,166,113 | 1,166 | 2,048,834 | - | - | 2,050,000 | - | 2,050,000 | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | 19,926,515 | - | 19,926,515 | (17,761 | ) | 19,908,754 | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | - | - | - | - | 172,133 | 172,133 | (25,295 | ) | 146,838 | |||||||||||||||||||||||
| Balance, March 31, 2019 | 108,561,959 | $ | 108,561 | $ | 205,203,264 | $ | (130,048,787 | ) | $ | (1,492,465 | ) | $ | 73,770,573 | $ | (1,073,682 | ) | $ | 72,696,891 | ||||||||||||||
| Share-based compensation | - | - | 3,702,636 | - | - | 3,702,636 | - | 3,702,636 | ||||||||||||||||||||||||
| Common stock issuance for asset acquisition-Fintalk (Note 5(b)) | 2,860,963 | 2,861 | 5,347,139 | - | - | 5,350,000 | - | 5,350,000 | ||||||||||||||||||||||||
| Common stock issuance for acquisition of non-controlling interest Grapevine (Note 5(c)) | 590,671 | 591 | 491,027 | - | - | 491,618 | (491,618 | ) | - | |||||||||||||||||||||||
| Investment from SSSIG1 | 575,431 | 576 | (576 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Net income (loss) | - | - | - | 5,292,213 | - | 5,292,213 | (15,430 | ) | 5,276,783 | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | - | - | - | - | (75,851 | ) | (75,851 | ) | 7,992 | (67,859 | ) | |||||||||||||||||||||
| Balance, June 30, 2019 | 112,589,024 | $ | 112,589 | $ | 214,743,490 | $ | (124,756,574 | ) | $ | (1,568,316 | ) | $ | 88,531,189 | $ | (1,572,738 | ) | $ | 86,958,451 | ||||||||||||||
| Share-based compensation | - | - | 2,547,107 | - | - | 2,547,107 | - | 2,547,107 | ||||||||||||||||||||||||
| Common stock issuance for acquisition of BlackHorse Ventures2 | 815,217 | 815 | 1,499,475 | - | - | 1,500,290 | - | 1,500,290 | ||||||||||||||||||||||||
| Common stock issuance for acquisition of Glory Connection (Note 5(e)) | 12,190,000 | 12,190 | 24,367,810 | - | - | 24,380,000 | - | 24,380,000 | ||||||||||||||||||||||||
| Common stock issuance for acquisition of DBOT (Note 5(f)) | 5,851,830 | 5,852 | 9,708,186 | - | - | 9,714,038 | 104,648 | 9,818,686 | ||||||||||||||||||||||||
| Common stock issuance for releasing Grapevine as collateral | 250,000 | 250 | 372,250 | - | - | 372,500 | - | 372,500 | ||||||||||||||||||||||||
| Common stock issuance for Convertible note (Note 12(c)) | 1,000,000 | 1,000 | 2,499,000 | - | - | 2,500,000 | - | 2,500,000 | ||||||||||||||||||||||||
| Deconsolidation of Amer (Note 5(h)) | - | - | - | - | - | 445,894 | 445,894 | |||||||||||||||||||||||||
| Net income (loss) | - | - | - | (13,711,867 | ) | - | (13,711,867 | ) | 1,407,384 | (12,304,483 | ) | |||||||||||||||||||||
| Foreign curency translation adjustments, net of nil tax | - | - | - | - | 10,970 | 10,970 | 12,532 | 23,502 | ||||||||||||||||||||||||
| Balance, September 30, 2019 | 132,696,071 | 132,696 | 255,737,318 | (138,468,441 | ) | (1,557,346 | ) | 115,844,227 | 397,720 | 116,241,947 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 | |||||||||||||||||||||
| | | | | | | | | | | | Accumulated | | | | | | | | | | ||
| | | | | | | Additional | | | | Other | | Ideanomics | | Non- | | | | |||||
| | Common | | Par | | Paid-in | | Accumulated | | Comprehensive | | Shareholders’ | | controlling | | Total | |||||||
|
| Stock |
| Value |
| Capital |
| (Deficit) |
| Loss |
| equity |
| Interest* |
| Equity | |||||||
Balance, January 1, 2020 |
| 149,692,953 | | $ | 150 | | $ | 282,554 | | $ | (248,481) | | $ | (664) | | $ | 33,559 | | $ | 25,178 | | $ | 58,737 |
Share-based compensation |
| — | |
| — | |
| 2,202 | |
| — | |
| — | |
| 2,202 | |
| — | |
| 2,202 |
Common stock issuance for professional fee |
| 429,000 | |
| — | |
| 240 | |
| — | |
| — | |
| 240 | |
| — | |
| 240 |
Common stock issuance for convertible note |
| 1,454,424 | |
| 1 | |
| 613 | |
| — | |
| — | |
| 614 | |
| — | |
| 614 |
Common stock issuance for acquisition |
| 10,883,668 | |
| 11 | |
| 6,737 | |
| — | |
| — | |
| 6,748 | |
| — | |
| 6,748 |
Common stock issuance for warrant exercise |
| 1,000,000 | |
| 1 | |
| 999 | |
| — | |
| — | |
| 1,000 | |
| — | |
| 1,000 |
Measurement period adjustment |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (11,454) | |
| (11,454) |
Non-controlling shareholder contribution |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 100 | |
| 100 |
Net income (loss) |
| — | |
| — | |
| — | |
| (12,348) | |
| — | |
| (12,348) | |
| (378) | |
| (12,726) |
Foreign currency translation adjustments, net of nil tax |
| — | |
| — | |
| — | |
| — | |
| (16) | |
| (16) | |
| 23 | |
| 7 |
Balance, March 31, 2020 |
| 163,460,045 | | $ | 163 | | $ | 293,345 | | $ | (260,829) | | $ | (680) | | $ | 31,999 | | $ | 13,469 | | $ | 45,468 |
* | Excludes accretion of dividend for redeemable non-controlling interest. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes:
10
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | |||||||||||||||||||||
| | (As restated) | |||||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | | | | | | Additional | | | | | Other | | Ideanomics | | Non- | | | | ||||
| | Common | | Par | | Paid-in | | Accumulated | | Comprehensive | | Shareholders’ | | controlling | | | | ||||||
|
| Stock |
| Value |
| Capital |
| Deficit |
| Income |
| equity |
| Interest* |
| Total Equity | |||||||
Balance, January 1, 2021 |
| 344,861,295 | | $ | 345 | | $ | 531,866 | | $ | (346,883) | | $ | 1,256 | | $ | 186,584 | | $ | 6,438 | | $ | 193,022 |
Share-based compensation |
| — | |
| — | |
| 2,040 | |
| — | |
| — | |
| 2,040 | |
| — | |
| 2,040 |
Common stock issuance for acquisition |
| 10,181,299 | |
| 10 | |
| 32,367 | |
| — | |
| — | |
| 32,377 | |
| — | |
| 32,377 |
Common stock issuance for professional fee |
| 440,909 | |
| — | |
| 1,162 | |
| — | |
| — | |
| 1,162 | |
| — | |
| 1,162 |
Common stock issued under employee stock incentive |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
plan |
| 475,000 | |
| — | |
| 251 | |
| — | |
| — | |
| 251 | |
| — | |
| 251 |
Common stock issuance for at the market offering |
| 17,615,534 | |
| 18 | |
| 53,389 | |
| — | |
| — | |
| 53,407 | |
| — | |
| 53,407 |
Common stock issuance for convertible note |
| 45,895,763 | |
| 46 | |
| 140,080 | |
| — | |
| — | |
| 140,126 | |
| — | |
| 140,126 |
Net loss* |
| — | |
| — | |
| — | |
| (6,412) | |
| — | |
| (6,412) | |
| (280) | |
| (6,692) |
Foreign currency translation adjustments, net of nil tax |
| — | |
| — | |
| — | |
| — | |
| (472) | |
| (472) | |
| (388) | |
| (860) |
Balance, March 31, 2021 |
| 419,469,800 | | $ | 419 | | $ | 761,155 | | $ | (353,295) | | $ | 784 | | $ | 409,063 | | $ | 5,770 | | $ | 414,833 |
* | Excludes accretion of dividend for redeemable non-controlling interest. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1In 2018, the Company entered into a subscription agreement and amended agreements with SSSIG to purchase $1.1 million
11
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD in total in 2018 and issued 575,431 shares of common stock in June 2019.thousands)
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, 2021 |
| March 31, 2020 | ||
| | (As restated) | | | | |
| | | | | | |
Cash flows from operating activities: |
| | | | | |
Net loss | | $ | (6,575) | | $ | (12,620) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | | | | | | |
Share-based compensation expense | |
| 2,040 | | | 2,202 |
Depreciation and amortization | |
| 1,128 | | | 476 |
Non-cash interest expense | |
| 417 | | | 3,156 |
Income tax benefit | |
| (7,621) | | | — |
Loss on disposal of subsidiaries, net | |
| 212 | | | — |
Equity in losses of equity method investees | |
| 237 | | | 3 |
Issuance of common stock for professional fees | | | 1,162 | | | — |
Impairment losses | |
| — | | | 887 |
Change in fair value of contingent consideration | |
| 494 | | | 532 |
Change in assets and liabilities (net of amounts acquired): | | | | | | |
Accounts receivable | |
| 2,600 | | | 571 |
Inventory | |
| 117 | | | — |
Prepaid expenses and other assets | |
| 1,653 | | | 1,928 |
Accounts payable | |
| 2,438 | | | 275 |
Deferred revenue | |
| (613) | | | 23 |
Amount due to related parties (interest) | |
| 348 | | | 856 |
Accrued expenses, salary and other current liabilities | |
| 4,534 | | | (2,147) |
Net cash provided by (used in) operating activities | |
| 2,571 | | | (3,858) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of property and equipment | |
| (157) | | | (15) |
Acquisition of subsidiaries, net of cash acquired | |
| (55,265) | | | — |
Investments in long-term investment | |
| (15,707) | | | — |
Investment in debt securities | |
| (15,000) | | | — |
Net cash used in investing activities | |
| (86,129) | | | (15) |
| | | | | | |
Cash flows from financing activities | | | | | | |
Proceeds from issuance of convertible notes | |
| 220,000 | | | 2,000 |
Proceeds from exercise of warrants and issuance of common stocks | |
| 53,659 | | | 1,000 |
Proceeds from noncontrolling interest shareholder | |
| — | | | 7,147 |
Repayment of amounts due to related parties | |
| — | | | (2,999) |
Net cash provided by financing activities | |
| 273,659 | | | 7,148 |
Effect of exchange rate changes on cash | |
| (9) | | | 6 |
Net increase in cash and cash equivalents | |
| 190,092 | | | 3,281 |
| | | | | | |
Cash and cash equivalents at the beginning of the period | |
| 165,764 | | | 2,633 |
| | | | | | |
Cash and cash equivalents at the end of the period | | $ | 355,856 | | | 5,914 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for income tax | | $ | — | | $ | — |
Cash paid for interest | | $ | — | | $ | — |
| | | | | | |
Issuance of shares for acquisition of DBOT | | $ | — | | $ | 6,748 |
Tree Technologies measurement period adjustment | | $ | — | | $ | 11,895 |
Issuance of shares for acquisition | | $ | 32,377 | | $ | — |
Issuance of shares for convertible notes conversion | | $ | 140,126 | | $ | — |
2On July 16, 2019, the Company entered into a share subscription agreement to subscribe 1,186 Pre-A preferred shares of BlackHorse Ventures, a Cayman Islands company, for a consideration of $1,500,290 paid in the form of common shares of the Company. The subscription shares represent 10% of the share capital of BlackHorse Ventures on a fully diluted basis.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
12
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended | ||||||||
| September 30,2019 | September 30, 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 12,881,054 | $ | (19,865,554 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Share-based compensation expense | 6,474,227 | 3,372,447 | ||||||
| Depreciation and amortization | 1,420,480 | 314,737 | ||||||
| Non-cash interest expense | 2,265,921 | - | ||||||
| Equity in losses of equity method investees | 606,390 | 44,316 | ||||||
| Digital currency received as payment for services | (40,700,000 | ) | - | |||||
| Gain on disposal of subsidiaries | (1,057,363 | ) | - | |||||
| Impairment of property and equipment | 2,298,887 | |||||||
| Loss on remeasurement of DBOT investment | 3,178,702 | - | ||||||
| Change in operating assets and liabilities, net of effects of businesses acquired: | ||||||||
| Accounts receivable | (2,814,198 | ) | (78,572,438 | ) | ||||
| Prepaid expenses and other assets | 2,446,822 | (3,332,696 | ) | |||||
| Accounts payable | 1,024,370 | 6,560,434 | ||||||
| Deferred revenue | 149,723 | 366,474 | ||||||
| Amount due to related parties | (104,323 | ) | 71,939,834 | |||||
| Accrued expenses, salary and other current liabilities | 3,217,279 | 1,530,544 | ||||||
| Net cash used in operating activities | (8,712,029 | ) | (17,641,902 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | (1,809,092 | ) | (167,891 | ) | ||||
| Proceeds from disposal of subsidiaries | 694,282 | - | ||||||
| Acquisition of subsidiaries, net of cash acquired | 246,929 | (2,840,219 | ) | |||||
| Payments for long term investments | (870,000 | ) | (2,035,190 | ) | ||||
| Net cash used in investing activities | (1,737,881 | ) | (5,043,300 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of convertible note | 4,802,300 | 12,000,000 | ||||||
| Proceeds from issuance of shares and warrant | 2,500,000 | 19,186,771 | ||||||
| Borrowings from related parties | 1,764,992 | - | ||||||
| Net cash provided by financing activities | 9,067,292 | 31,186,771 | ||||||
| Effect of exchange rate changes on cash | (37,030 | ) | (48,638 | ) | ||||
| Net (decrease)/increase in cash and restricted cash | (1,419,648 | ) | 8,452,931 | |||||
| Cash and cash equivalents at the beginning of the period | 3,106,244 | 7,577,317 | ||||||
| Cash and cash equivalents at the end of the period | $ | 1,686,596 | $ | 16,030,248 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Disposal of assets in exchange of GTB | $ | 20,218,920 | $ | - | ||||
| Service Revenue received in GTB | $ | 40,700,000 | $ | - | ||||
| Issuance of shares for acquisition of intangible assets | $ | 10,005,000 | $ | - | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
IDEANOMICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations |
Nature of Operations
Ideanomics, Inc. (Nasdaq: IDEX) is a Nevada corporation that primarily operates in Asia and the United States through its subsidiaries and Asia. The Company is comprised of two operating segments (i) our Legacy YOD business with primary operations in the PRC which has been winding down operations over the last 12 months and (ii) our Mobile Energy Group (MEG) (formally known as our Wecast Service) business, which is transitioning to focus on the commercial fleet market for electric vehicles in addition to the Company’s existing fintech advisory business. Our MEG business operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs for fleet operators of commercial Electronic Vehicles (EV). MEG operates through a series of joint ventures with the leading companies in the commercial EV space, principally in China, and earns fees for every transaction completed based on the spread for group buying of vehicles and fees derived from the arrangement of financing and energy management such as commercial purchasing of pre-paid electricity credits. MEG focuses on commercial EV rather than passenger EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – which is expected to take between ten to fifteen years. We focus on four distinct commercial vehicles types with supporting income streams: 1) Closed-area heavy commercial, in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3) Buses and Coaches; 4) Taxis. The purchase and financing of vehicles provides for one-time fees and the charging and energy management provides for recurring revenue streams. In July 2019 the company invested in Glory Connection Snd. Bhd, (Glory) a vehicle manufacturer based in Malaysia. Glory holds the only license granted so far for the manufacture of electric vehicles in Malaysia and is in the process of setting up its manufacturing and assembly capabilities.
We continue to develop our FinTech services which principally consist of our ownership of the Delaware Board of Trade (DBOT) ATS, Intelligenta for marketing AI solutions to the Financial Services industry and FinTech Village, a 58 acre development site in West Hartford, Connecticut.
The fintech business intends to offer customized services based on best-in-class blockchain, AI and other technologies to mature and emerging businesses across various industries. To do so, we are building a financial technology ecosystem through license agreements, joint ventures and strategic investments, which we refer to as our “Fintech Ecosystem”.
Basis of Presentation
In this Form 10-Q, unlessvariable interest entities (“VIEs.”) Unless the context otherwise requires, the use of the terms "we," "us", "our"“we,” “us,” “our” and the “Company” in these notes to condensed consolidated financial statements refers to Ideanomics, Inc,Inc., its consolidated subsidiaries and variable interest entities (“VIEs”).VIEs.
On April 24, 2018,The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Through March 31, 2021, the Company completedoperates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital.
With two acquisitions closing in the acquisitionthree months ended March 31, 2021, the Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may, in the future, have multiple reportable segments. At a minimum these are thought to be Ideanomics Mobility, which would encompass the entities with businesses centered in the electric vehicle (“EV”) market, and Ideanomics Capital, which would encompass business centered in the finance/real estate market, and a corporate entity, with the combination/consolidation of a 100% equity ownership in Shanghai Guang Ming Investment Management (“Guang Ming”), a PRC limited liability company. Oneall three comprising the consolidated operations of the two selling shareholdersCompany.
Ideanomics Mobility is driving EV adoption by assembling a related party, an affiliatesynergistic ecosystem of Bruno Wu (“Dr. Wu”). Guang Ming holds a special fund management license. The acquisition will helpsubsidiaries and investments across the Company develop a fund management platform. Under Accounting Standard Codification (“ASC”) 805-50-05-5three key pillars of EV: Vehicles, Charging, and ASC 805-50-30-5,Energy. These three pillars provide the transaction was accountedfoundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a reorganization of entities under common control, inService (“CaaS”) and Vehicle as a manner similarService (“VaaS.”)
Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to a pooling of interest, using historical costs. As a result of the reorganization, the net assets of Guang Ming were transferred to the Company,improve efficiency, transparency, and the accompanying consolidated financial statements as of andprofitability for the three and nine months ended September 30, 2018 have been prepared as if the current corporate structure had been in place at the beginningfinancial services industry.
Basis of the periods presented in which the common control existed.
Presentation
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated onin consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.
We useThe Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182020 filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019March 31, 2021 (“2018 Annual Report”2020 Form 10-K.”).
13
Immaterial Revision to Prior Period
The Company determined that a legal agreement the Company entered into whereby the Company took possession of a property in Qingdao, China for no consideration was incorrectly accounted for as a lease in accordance with ASC 842, Leases. The Company determined that the error was immaterial to the condensed consolidated financial statements, however, the Company has revised its condensed consolidated financial statements to properly account for this transaction. The adjustment to the condensed consolidated balance sheet as of December 31, 2020 is, as follows (in thousands):
| | | | | | | | | |
|
| December 31, |
| | |
| December 31, | ||
| | 2020 | | | | | 2020 | ||
Account | | (As Reported) | | Adjustment | | (As Revised) | |||
| | | | | | | | | |
Operating lease right of use assets | | $ | 7,117 | | $ | (6,962) | | $ | 155 |
Other non-current assets | |
| 516 | |
| 6,962 | | | 7,478 |
Current portion of lease liabilities | |
| 430 | |
| (315) | | | 115 |
Other current liabilities | |
| 1,920 | |
| 315 | | | 2,235 |
Operating lease liability – long-term | |
| 6,759 | |
| (6,740) | | | 19 |
Other long-term liabilities | |
| 535 | |
| 6,740 | | | 7,275 |
See Note 2 for adjustments for this matter as of and for the period ended March 31, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, we evaluate ourmanagement evaluates the Company’s estimates, including those related to the bad debt allowance, variable considerations, fair values of financial instruments, intangible assets (including digital currencies) and goodwill, useful lives of intangible assets and property and equipment, asset retirement obligations, income taxes, and contingent liabilities, among others. We base ourThe Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Significant Accounting Policies
For a detailed discussion about Ideanomics’ significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Ideanomics’ consolidated financial statements included in the Company’s 2020 Form 10-K. During the three months ended March 31, 2021, the Company acquired two businesses, Timios Holdings Corp. (“Timios”) and Wireless Advanced Vehicle Electrification, Inc. (“WAVE”) which resulted in the adoption of the following accounting policies with respect to those businesses:
Timios
Fair Value MeasurementsTitle Revenue
Accounting standards requirePremiums from title insurance policies written by independent agencies are recognized net of commission costs when the categorizationpolicies are reported to Timios and not before the effective date of financial assets and liabilities,the policy. Regulation of title insurance rates varies by state. Premiums are charged to customers based on the inputsrates predetermined in coordination with each states’ respective Department of Insurance.
Closing Revenue
A closing or escrow is a transaction pursuant to the valuation technique, intoan agreement of a three-level fair value hierarchy. The various levelsbuyer, seller, borrower, or lender wherein an impartial third-party, such as Timios, acts in a fiduciary capacity on behalf of the fair value hierarchyparties in accordance with the terms of such
14
agreement in order to accomplish the directions stated therein. Services provided include, among others, acting as escrow or other fiduciary agent, obtaining releases, and conducting the actual closing or settlement. Closing and escrow fees are described as follows:
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company reviews the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis and evaluate and adjust the unobservable inputs used in the fair value measurements based on current market conditions and third party information.
Our financial assets and liabilities that are measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities and convertible notes. The fair values of these assets approximate carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.
Our financial assets that are measured at fair value on a nonrecurring basis include goodwill and other intangible assets, asset retirement obligations, and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. There were no material impairments and no material adjustments to equity securities using the measurement alternative for the three and nine months ended September 30, 2019 and 2018.
Digital Currency
Digital currency consists of GTDollar Coins (“GTB”).
GTB is received in connection with the services agreement and assets purchase agreement with GT Dollar Pte. Ltd. (“GTD”), our minority shareholder at thesame time of the transaction (Note 3closing of the related real estate transaction.
Appraisal Revenue
Revenue from appraisal services are primarily related to establishing the ownership, legal status and 14 (b)). Asvaluation of September 30, 2019, GTD has disposed of its investmentthe property in the Company and is no longer a minority shareholder.
GTB is a type of digital asset that is not a fiat currency and is not backed by hard assets or other financial instruments, andreal estate transaction. In these cases, Timios does not representissue a title insurance policy or perform duties of an investmentescrow agent. Revenues from these services are recognized upon delivery of the service to the customer.
Title Plant
Title plant consists of costs incurred to construct the title plant and to obtain, organize and summarize historical information for Glenn County title searches. These costs were capitalized until such time as the plant was deemed operational to conduct title searches and issue title insurance policies. Management has determined that the title plant has been properly maintained, has an indeterminable life, and in GTD or a right to access GTD’s platform. As a result, the value of GTB is determined by the value that various market participants place on GTB through their transactions. GTB holders make or lose money from buying and selling GTB. To date, the Asia EDX exchangeaccordance with Accounting Standards Codification (“ASC”) Topic 950, Financial Services – Title Plant, has not permitted holders of GTBbeen amortized. The costs to exchange digital currencies held in accounts atmaintain the exchange for fiat. The company is unable to predict when our cryptocurrency holdings will be convertible into fiat and consequently does not consider them to be partcurrent status of the company’s liquid resources.title plant are recorded as a current period expense.
Software Development Costs
Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital currencies under current GAAP, the Company has determined to accountSoftware developed or obtained for these currencies as indefinite-lived intangible assetsinternal use in accordance with ASC 350, Intangibles-Goodwill350-40, Internal-Use Software, is capitalized during the application development stage. In accordance with authoritative guidance, the Company begins to capitalize costs to develop software when preliminary development efforts are successfully completed, management has authorized and Other until further guidance is issued by the FASB.
Indefinite-lived intangible assets are recorded at costcommitted project funding, and are not subject to amortization, but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than notprobable that the asset is impaired. If, at the time of an impairment test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized. The fair value of GTB currency was a Level 2 measurement (see Note 3) based upon the consideration agreed by GTDproject will be completed, and the Companysoftware will be used as intended. Once the project has been completed, these costs are amortized to expense on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these criteria together with a discount considering volatility, riskcosts incurred for training and limitations at contract inception.
Assets and Liabilities Held for Sale
maintenance are expensed as incurred. The Company classifies assetssoftware development costs associated with the development of the Company’s products and liabilities (disposal group)services as intangible assets. For the three months ended March 31, 2021 the Company capitalized software development costs of $0.3 million.
Escrow and Trust Deposits
In providing escrow services, Timios holds funds for others in a fiduciary capacity, pending completion of real estate transactions. A separate, self-balancing set of accounting records is maintained by Timios to be sold asrecord escrow transactions. Escrow trust funds held for sale inothers are not Timios’s and, therefore, are excluded from the period in which allaccompanying condensed consolidated balance sheet, however, Timios remains contingently liable for the disposition of the following criteriathese deposits. Escrow trust balances at March 31, 2021 were $77.8 million. It is a common industry practice for financial institutions where escrow funds are met: management, having the authoritydeposited to approve the action, commitseither reimburse or to a plan to sell the disposal groups; the disposal group is availabledirectly provide for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal group; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify as a completed sale within one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changescertain costs related to the plan will be made or thatdelivery of escrow services. Timios follows the plan will be withdrawn.practice of non-recognition of costs borne by the financial institution where escrow funds are deposited.
WAVE
Inventory
The Company initially measures a disposal group that is classified as held for saleInventories, which include the costs of material, labor and overhead, are stated at the lower of itscost or net realizable value, with cost generally computed on a first-in, first-out (“FIFO”) basis. Estimated losses from obsolete and slow-moving inventories are recorded to reduce inventory values to their estimated net realizable value and are charged to costs of revenue. At the point of loss recognition, a new cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in a recovery in carrying valuevalue.
15
Revenue
For product sales, WAVE considers practical and contractual limitations in determining whether there is an alternative use for the product. For example, long-term design and build contracts are typically highly customized to a customer’s specifications. For contracts with no alternative use and an enforceable right to payment for work performed to date, including a reasonable profit if the contract were terminated at the customer’s convenience for reason other than nonperformance, WAVE recognizes revenue over time. All other product sales are recognized at a point in time.
For contracts recognized over time, WAVE uses the cost-to-total cost method or fair value less anythe units of delivery method, depending on the nature of the contract, including length of production time.
For contracts recognized at a point in time, WAVE recognizes revenue when control passes to the customer, which is generally based on shipping terms that address when title and risk and rewards pass to the customer. However, WAVE also considers certain customer acceptance provisions as certain contracts with customers include installation, testing, certification or other acceptance provisions. In instances where contractual terms include a provision for customer acceptance, WAVE considers whether they have previously demonstrated that the product meets objective criteria specified by either the seller or customer in assessing whether control has passed to the customer.
For service contracts, WAVE recognizes revenue as the services are rendered if the customer is benefiting from the service as it is performed, or otherwise upon completion of the service. Separately priced extended warranties are recognized as a separate performance obligation over the warranty period.
The transaction price in WAVE’s contracts consists of fixed consideration and the impact of variable consideration including returns, rebates and allowances, and penalties. Variable consideration is generally estimated using a probability-weighted approach based on historical experience, known trends, and current factors including market conditions and status of negotiations.
For design and build contracts, WAVE may at times collect progress payments from the customer throughout the term of the contract, resulting in contract assets or liabilities depending on the timing of the payments. Contract assets consist of unbilled amounts when revenue recognized exceeds customer billings. Contract liabilities consist of advance payments and billings in excess of revenue recognized.
Design and engineering costs for highly complex products to sell. Any loss resulting from this measurementbe sold under a long-term production-type contract are deferred and amortized in a manner consistent with revenue recognition of the related contract or anticipated contract. Other design and development costs are deferred only if there is a contractual guarantee for reimbursement. Costs to obtain a contract (e.g., commissions) for contracts greater than one year are deferred and amortized in a manner consistent with revenue recognition of the related contract.
Product Warranties
WAVE’s standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. Accruals for estimated expenses related to product warranties are made at the time revenue is recognized and are recorded as a component of costs of revenue. WAVE estimates the liability for warranty claims based on standard warranties, the historical frequency of claims and the cost to replace or repair products under warranty. Factors that influence the warranty liability include the number of units sold, the length of warranty term, historical and anticipated rates of warranty claims and the cost per claim. The warranty liability as of March 31, 2021 is $0.6 million and is included in “Other long-term liabilities” within the condensed consolidated balance sheet.
Effects of COVID 19
Novel Coronavirus 2019 (“COVID-19”) is an infectious disease cause by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the periodongoing COVID-19 pandemic. As of May 7, 2021, over 156.4 million cases had been reported across the globe, resulting in which3.3 million deaths.
16
The spread of COVID-19 has caused significant disruption to society as a whole, including the heldworkplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for sale criterialimited or extended periods of time, with the exception of government designated essential services.
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020 and continuing, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels for worldwide immunization against COVID-19 remains challenging.
The future effects of the virus are met. Gains are not recognizeddifficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the sale ofability to implement vaccination programs in a disposal group until the date of sale. short time frame.
The Company assesses the fair value of a disposal group, less any costsdoes not anticipate significant adverse effects on its operations’ revenue as compared to sell, each reporting period it remains classified as held for sale and reports any subsequent losses as an adjustment to the carrying value of the disposal group.
Reclassifications of a General Nature
Certain amountsits business plan in the prior periods presented have been reclassifiednear- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.
The Company continues to conform tomonitor the current period financial statement presentation. These reclassifications have no effectoverall situation with COVID-19 and its effects on previously reported net income. Note 2 provides information about our adoption of new accounting standards for leases.both local, regional and global economies.
| New Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
We adoptedIn December 2019, the Financial Accounting Standards Board (FASB)(“FASB”) issued Accounting Standards Update No. 2019-12 (“ASU”ASU 2019-12”) No. 2016-02, Leases“Income Taxes (Topic 842), as740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions currently provided for in ASC 740, “Income Taxes” (“ASC 740,”) and by amending certain other requirements of ASC 740. The changes resulting from ASU 2019-12 will be made on a retrospective or modified retrospective basis, depending on the specific exception or amendment. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 effective January 1, 2019, using a modified retrospective transition method and as a result,2021. The effect of the consolidated balance sheet prior to January 1, 2019adoption of ASU 2019-12 was not restated, continues to be reported under ASC Topic 840, Leases, or ASC 840. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.
The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January 1, 2019, using the original lease term as the tenor. As permitted under the transition guidance, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. Adoption of the new standard resulted in the recording of operating right of use assets and the related lease liabilities of approximately $3.6 million and $3.7 million, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities was immaterial. The standard did not materially impact our consolidated operating results and had no impact on cash flows. Please see Note 10.
material.
In June 2018,August 2020, the FASB issued ASU No. 2018-07, Improvements2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to Nonemployee Share-Based Payment Accounting,be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting, and (2) convertible debt instruments issued with substantial premiums for which largely aligns the measurement and classification guidance for share-based payments to nonemployees withpremiums are recorded as additional paid-in capital. ASU 2020-06 also amends the guidance for share-based paymentsthe derivatives scope exception for contracts in an entity’s own equity to employees.reduce form-over-substance-based accounting conclusions. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The ASU also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606,Revenue from Contracts with Customers. The ASU requires a modified retrospective transition approach. WeCompany adopted ASU 2018-07 as of January 1, 2019 and there is no impact to our consolidated financial statement because we did not have such payments in 2019.
In July 2017, the FASB issued ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The new standard applies to issuers of financial instruments with down-round features. A down-round provision is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price. The ASU amends (1) the classification of such instruments as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. For the Company, this ASU was2020-06 effective January 1, 2019. Please see Note 12.2021. As the Company had no outstanding convertible instruments as of that date, the adoption of ASU 2020-06 had no effect.
17
Standards Issued andTable of Contents
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards UpdateASU No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326):(“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326:”) Measurement of Credit Losses on Financial Instruments"Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. WeIn November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326,) Derivatives and Hedging (Topic 815,) and Leases (Topic 842)” (“ASC 2019-10,”) which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective January 1, 2020. We are2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on ourthe consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.
In May 2021, the FASB issued ASU No. 2021-04 (“ASU 2021-04”) “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40)” which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, and provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 also provides guidance on the recognition of the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. The Company recognizes revenue when its customer obtains controlwill adopt ASU 2021-04 on January 1, 2022. Management is currently evaluating the effect of promised goodsthe adoption of ASU 2021-04 on the consolidated financial statements. The effect will largely depend on the terms of written call options or servicesfinancings issued or modified in an amount that reflects the consideration whichfuture.
Note 2.Restatement of Previously Reported Condensed Consolidated Financial Statements
As previously disclosed on Form 8-K filed on November 16, 2021, the Company expectsdetermined that the Company’s previously issued financial statements for the period ended March 31, 2021 should no longer be relied upon due to receiveerrors in exchange for those goods orsuch condensed consolidated financial statements related to revenue reported by Timios that provides title and agency services.
All The preparation of the Company’s condensed consolidated financial statements identified additional transactions and accounting practices not in accordance with U.S. GAAP.
The following errors were identified as part of the restatement:
| A. | The Company determined that it did not present Timios title and agency services revenue and the related cost of revenue in accordance with US GAAP on the condensed consolidated statement of operations, as premiums from title insurance policies written by independent agencies were presented on a gross basis and did not properly present revenue and cost of revenue net of commission costs. |
| B. | The Company discovered that it did not properly account for its investment in Technology Metals Market Limited (“TM2”) in accordance with the equity method of accounting. In addition, the Company determined that it incorrectly presented equity income (loss) on its equity method investments as a component of interest and other income (expense) on the condensed consolidated statements of operations rather than as a separate financial statement caption below income taxes. |
| C. | The Company discovered certain errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its acquisitions. |
18
| D. | The Company determined that the errors in determining the estimated fair value of net assets acquired in its acquisitions resulted in an additional reduction to the Company’s deferred tax liabilities. |
| E. | The Company determined that it did not properly recognize income tax expense (benefit) for certain acquired entities subsequent to their respective acquisitions during the period ended March 31, 2021. |
19
The following reflects the restatement adjustments recorded in connection with the Company’s restatement of its condensed consolidated financial statements:
| | | | | | | | | | | |
| | Consolidated Balance Sheet | |||||||||
| | March 31, 2021 | |||||||||
| | As | | | | | | | | | |
| | Previously | | | | | | | | | |
|
| Reported |
| Adjustment |
| As Restated |
| Reference | |||
Assets | | | | | | | | | | | |
Cash and cash equivalents | | $ | 355,856 | | $ | — | | $ | 355,856 |
|
|
Accounts receivable, net | |
| 5,409 | |
| — | |
| 5,409 |
|
|
Available for sale security | |
| 15,155 | |
| — | |
| 15,155 |
|
|
Inventory | |
| 960 | |
| — | |
| 960 |
|
|
Prepaid expenses | |
| 6,400 | |
| — | |
| 6,400 |
|
|
Amount due from related parties | |
| 245 | |
| — | |
| 245 |
|
|
Other current assets | |
| 479 | |
| — | |
| 479 |
|
|
Current assets held for sale | |
| 7,068 | |
| — | |
| 7,068 |
|
|
Total current assets | |
| 391,572 | |
| — | |
| 391,572 |
|
|
Property and equipment, net | |
| 631 | |
| — | |
| 631 |
|
|
Intangible assets, net | |
| 92,525 | |
| (14,710) | |
| 77,815 |
| C |
Goodwill | |
| 51,084 | |
| 8,461 | |
| 59,545 |
| C |
Long-term investments | |
| 24,179 | |
| (178) | |
| 24,001 |
| B |
Operating lease – right of use assets | |
| 9,338 | |
| (6,869) | |
| 2,469 |
| * |
Other noncurrent assets | |
| 569 | |
| 6,869 | |
| 7,438 |
| * |
Total assets | | $ | 569,898 | | $ | (6,427) | | $ | 563,471 |
|
|
Liabilities and Stockholders’ Equity | |
|
| |
|
| |
|
|
|
|
Accounts payable | | $ | 9,978 | | $ | — | | $ | 9,978 |
|
|
Deferred revenue | |
| 2,225 | |
| — | |
| 2,225 |
|
|
Accrued salaries | |
| 4,831 | |
| — | |
| 4,831 |
|
|
Due to related party | |
| 1,235 | |
| — | |
| 1,235 |
|
|
Other current liabilities | |
| 7,112 | |
| 135 | |
| 7,247 |
| *, E |
Current portion of lease liabilities | |
| 955 | |
| (318) | |
| 637 |
| * |
Current contingent consideration | |
| 8,481 | |
| — | |
| 8,481 |
|
|
Note payable | |
| 869 | |
| — | |
| 869 |
|
|
Note payable – related party | |
| — | |
| — | |
| — |
|
|
Convertible promissory note to third parties | |
| 80,446 | |
| — | |
| 80,446 |
|
|
Asset retirement obligations | |
| 4,653 | |
| — | |
| 4,653 |
|
|
Total current liabilities | |
| 120,785 | |
| (183) | |
| 120,602 |
|
|
Asset retirement obligations | |
| — | |
| — | |
| — |
|
|
Deferred tax liabilities | |
| 1,290 | |
| (406) | |
| 884 |
| C, D, E |
Operating lease liability – long term | |
| 8,485 | |
| (6,659) | |
| 1,826 | | * |
Non-current contingent consideration | |
| 8,630 | | | — | |
| 8,630 | | |
Other long-term liabilities | |
| 1,175 | |
| 6,659 | |
| 7,834 |
| * |
Total liabilities | |
| 140,365 | |
| (589) | |
| 139,776 |
|
|
| | | | | | | | | | | |
Convertible redeemable preferred stock and Redeemable non-controlling interest: | | | | | | | | | | | |
Series A Preferred stock | |
| 1,262 | |
| — | |
| 1,262 | | |
Redeemable non-controlling interest | |
| 7,600 | |
| — | |
| 7,600 | | |
| | | | | | | | | | | |
Stockholders’ equity: | |
| | |
| | | | | | |
Preferred stock | |
| — | |
| — | |
| — | | |
Common stock, | |
| 419 | |
| — | |
| 419 | | |
Additional paid-in capital | |
| 761,155 | |
| — | |
| 761,155 | | |
Accumulated deficit | |
| (347,457) | |
| (5,838) | |
| (353,295) | | |
Accumulated other comprehensive income | |
| 784 | |
| — | |
| 784 | | |
Total IDEX stockholders’ equity | |
| 414,901 | |
| (5,838) | |
| 409,063 | | |
Noncontrolling interests | |
| 5,770 | |
| — | |
| 5,770 | | |
Total stockholders’ equity | |
| 420,671 | |
| — | |
| 414,833 | | |
Total liabilities and stockholders’ equity | | $ | 569,898 | | $ | (6,427) | | $ | 563,471 | | |
20
Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2021
| | | | | | | | | | | |
| | As | | Restatement | | As | | | |||
|
| Reported ** |
| Adjustments |
| Restated |
| Reference | |||
| | | | | | | | | | | |
Revenue - sales of products | | $ | 4,547 | | $ | — | | $ | 4,547 |
|
|
Revenue - sales of services | |
| 28,162 | |
| (2,770) | |
| 25,392 |
| A |
Total Revenue | |
| 32,709 | |
| (2,770) | |
| 29,939 |
|
|
| | | | | | | | | | | |
Cost of revenue - sales of products | |
| 4,354 | |
| — | |
| 4,354 |
|
|
Cost of revenue - sales of services | |
| 17,513 | |
| (2,770) | |
| 14,743 |
| A |
Total Cost of revenue | |
| 21,867 | |
| (2,770) | |
| 19,097 |
|
|
Gross Profit | |
| 10,842 | |
| — | |
| 10,842 |
|
|
| | | | | | | | | | | |
Operating Expenses | |
|
| |
|
| |
|
|
|
|
| | | | | | | | | | | |
Selling, general and administrative | |
| 12,005 | |
| (154) | |
| 11,851 |
| (1) |
Research and development | |
| 10 | |
| — | |
| 10 |
|
|
Professional fees | |
| 5,168 | |
| — | |
| 5,168 |
|
|
Impairment losses | |
| — | |
| — | |
| — |
|
|
Change -fair value of contingent consideration | |
| 494 | |
| — | |
| 494 |
|
|
Litigation settlement | |
| 5,000 | |
| — | |
| 5,000 |
|
|
Depreciation and amortization | |
| 1,128 | |
| — | |
| 1,128 |
|
|
Total operating expenses | |
| 23,805 | |
| (154) | |
| 23,651 |
|
|
| | | | | | | | | | | |
Loss from operations | |
| (12,963) | |
| 154 | |
| (12,809) |
|
|
| | | | | | | | | | | |
Interest and other expense: | |
|
| |
|
| |
|
|
|
|
Interest expense, net | |
| (417) | |
| — | |
| (417) |
|
|
Loss on disposal of subsidiaries | |
| (212) | |
| — | |
| (212) |
|
|
Conversion expense | |
| — | |
| — | |
| — |
|
|
Gain on measurement of investments | |
| — | |
| — | |
| — |
|
|
Other income (expense), net | |
| (2) | |
| (154) | |
| (156) |
| (1) |
| | | | | | | | | | | |
Loss before income taxes and non-controlling interest | |
| (13,594) | |
| — | |
| (13,594) |
|
|
| | | | | | | | | | | |
Income tax benefit | |
| 12,916 | |
| (5,660) | |
| 7,256 |
| C,D,E |
Equity in loss of equity method investees | |
| (59) | |
| (178) | |
| (237) |
| B |
| | | | | | | | | | | |
Net loss | |
| (737) | |
| (5,838) | |
| (6,575) |
|
|
| | | | | | | | | | | |
Deemed dividend related to warrant repricing | |
| — | |
| — | |
| — |
|
|
| | | | | | | | | | | |
Net loss attributable to common shareholders | |
| (737) | |
| (5,838) | |
| (6,575) |
|
|
| | | �� | | | | | | | | |
Net loss attributable to non-controlling interest | |
| 163 | |
| — | |
| 163 |
|
|
| | | | | | | | | | | |
Net loss attributable to IDEX common shareholders | | $ | (574) | | $ | (5,838) | | $ | (6,412) |
|
|
| | | | | | | | | | | |
Earnings per share, basic & fully diluted | | $ | (0.00) | | $ | — | | $ | (0.02) |
|
|
| | | | | | | | | | | |
Weighted average number of common shares | |
| 391,131,793 | |
| 0 | |
| 391,131,793 |
|
|
** Reflects the presentation of equity in loss of equity method as a separate financial statement caption below income tax benefit.
22
(1)Reflects immaterial error correction for the classification of other income.
Condensed Consolidated Statement of Comprehensive Income (Loss) for the Three Months ended March 31, 2021
| | | | | | | | | | | |
| | As | | Restatement | | As | | | |||
|
| Reported |
| Adjustments |
| Restated |
| Notes | |||
| | | | | | | | | | | |
Net loss | | $ | (737) | | $ | (5,838) | | $ | (6,575) |
| |
Other comprehensive income (loss), net of tax: | | | | |
|
| |
|
| | |
Foreign currency translation adjustments | |
| (860) | |
| — | |
| (860) | | |
Comprehensive loss | |
| (1,597) | |
| (5,838) | |
| (7,435) | | |
Comprehensive loss (gain) attributable to non-controlling interest | |
| 552 | |
| — | |
| 552 | | |
Comprehensive loss attributable to IDEX | | $ | (1,045) | |
| (5,838) | | $ | (6,883) | | |
Condensed Consolidated Statement of Equity for the Three Months Ended March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common | | Par | | | | Accumulated | | | | IDEX | | | | | | Total | |||||
|
| Stock |
| Value |
| APIC |
| Deficit |
| AOCI |
| Equity |
| NCI |
| Equity | |||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Balance - March 31, 2021 (as reported) |
| 419,469,800 | | $ | 419 | | $ | 761,155 | | $ | (347,457) | | $ | 784 | | $ | 414,901 | | $ | 5,770 | | $ | 420,671 |
Adjustments |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Equity method investment |
| | |
| | |
| | |
| (178) | |
|
| |
| (178) | |
|
| |
| (178) |
Income tax effects | | | | | | | | | | | (5,660) | | | | | | (5,660) | | | | | | (5,660) |
Balance - March 31, 2021 (as restated) |
| 419,469,800 | | $ | 419 | | $ | 761,155 | | $ | (353,295) | | $ | 784 | | $ | 409,063 | | $ | 5,770 | | $ | 414,833 |
23
Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2021
24
| | | | | | | | | | | |
| | As | | Restatement | | As | |
| |||
|
| Reported |
| Adjustments |
| Restated |
| Notes | |||
Cash flows from operating activities: |
| |
|
| |
|
| |
|
|
|
Net loss | | $ | (737) | | $ | (5,838) | | $ | (6,575) |
| B, C, D,E |
| | | | | | | | | | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
|
| |
|
| |
|
|
|
|
Share-based compensation | |
| 2,040 | |
| — | |
| 2,040 |
|
|
Depreciation and amortization | |
| 1,128 | |
| — | |
| 1,128 |
|
|
Non-cash interest expense | |
| 417 | |
| — | |
| 417 |
|
|
Allowance for doubtful accounts | |
| — | |
| — | |
| — |
|
|
Litigation settlement | |
| 5,000 | |
| (5,000) | |
| — |
| (1) |
Income tax benefit | |
| (13,281) | |
| 5,660 | |
| (7,621) |
| C,D,E |
Loss on disposal of subsidiaries | |
| 212 | |
| — | |
| 212 |
|
|
Equity in losses of equity method investees | |
| 59 | |
| 178 | |
| 237 |
| B |
Issuance of common stock for professional fees | | | — | | | 1,162 | | | 1,162 | | (1) |
Gain on extinguishment of liability | |
| — | |
| — | |
| — |
|
|
Gain on remeasurement of investment | |
| — | |
| — | |
| — |
|
|
Impairment losses | |
| — | |
| — | |
| — |
|
|
Settlement of ROU operating lease liabilities | |
| — | |
| — | |
| — |
|
|
Change in fair value of contingent consideration | |
| 494 | |
| — | |
| 494 |
|
|
| | | | | | | | | | | |
Change in assets and liabilities: | |
|
| |
|
| |
|
|
|
|
Accounts receivable | |
| 2,600 | |
| — | |
| 2,600 |
|
|
Inventory | |
| 117 | |
| — | |
| 117 |
|
|
Prepaid expenses and other assets | |
| 1,653 | | | | |
| 1,653 |
|
|
Accounts payable | |
| 2,438 | | | | |
| 2,438 |
|
|
Deferred revenue | |
| (613) | | | | |
| (613) |
|
|
Amount due to related parties | |
| 348 | | | | |
| 348 |
|
|
Accrued expenses, salary and other current liabilities | |
| 696 | | | 3,838 | |
| 4,534 |
| (1) |
Net cash provided by operating activities | |
| 2,571 | |
| — | |
| 2,571 |
|
|
| | | | | | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
|
|
|
|
Acquisition of property and equipment | |
| (157) | | | | |
| (157) |
|
|
Disposal of subsidiaries | |
| — | |
| | |
| — |
|
|
Acquisition of subsidiaries | |
| (55,265) | | | | |
| (55,265) |
|
|
Investment in long-term investment | |
| (15,707) | | | | |
| (15,707) |
|
|
Notes receivable | |
| — | |
| | |
| — |
|
|
Investment in debt securities | |
| (15,000) | | | | |
| (15,000) |
|
|
Net cash used in investing activities | |
| (86,129) | |
| — | |
| (86,129) |
|
|
| | | | | | | | | | | |
Cash flows from financing activities | |
|
| |
|
| |
|
|
|
|
Proceeds from issuance of convertible notes | |
| 220,000 | | | | |
| 220,000 |
|
|
Proceeds from exercise of options and warrants | |
| 53,659 | | | | |
| 53,659 |
|
|
Proceeds from noncontrolling interest shareholder | |
| — | |
| | |
| — |
|
|
Borrowings from SBA PPP | |
| — | |
| | |
| — |
|
|
Repayment of amounts due to related parties | |
| — | |
| | |
| — |
|
|
Net cash provided by financing activities | |
| 273,659 | |
| — | |
| 273,659 |
|
|
| | | | | | | | | | | |
Effect of exchange rate changes on cash | |
| (9) | | | | |
| (9) |
|
|
| | | | | | | | | | | |
Net increase in cash and cash equivalents | |
| 190,092 | |
| — | |
| 190,092 |
|
|
Cash and cash equivalents - beginning of period | |
| 165,764 | |
| — | |
| 165,764 |
|
|
Cash and cash equivalents - end of period | | $ | 355,856 | |
| — | | $ | 355,856 |
|
|
25
(1)Reflects immaterial error corrections for the classification of certain operating activities.
Note 3.Fuzhou Note Receivable
In May 2020, Energy Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited (“Zhengtong”) in the amount of 3.0 million RMB ($0.4 million). The note receivable is derived from Mobile Energy Group (formerly Wecast Services). not collateralized. Zhengtong agreed to repay 3.3 million RMB ($0.5 million) within three months of the disbursement date. The Company has recorded a reserve of $0.5 million against this note receivable.
Note 4.Revenue
The following table presents oursummarizes the Company’s revenues disaggregated by revenue source, geography (based on ourthe Company’s business locations)locations,) and timing of revenue recognition.recognition (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||||||||
| | | | | | | ||||||||||||||||
|
| Three Months Ended | ||||||||||||||||||||
| | March 31, | | March 31, | ||||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||||||
| | (As restated) |
|
| | |||||||||||||||||
| Geographic Markets | | | | | | | ||||||||||||||||
| Singapore | $ | - | $ | - | $ | - | $ | 260,034,401 | ||||||||||||||
Malaysia | | $ | 7 | | $ | 3 | ||||||||||||||||
| USA | 249,512 | 200,660 | 41,649,384 | 200,660 | |
| 26,876 | |
| 323 | ||||||||||||
| Hong Kong/PRC | 2,854,178 | 43,507,277 | 2,854,178 | 102,393,235 | ||||||||||||||||||
PRC | |
| 3,056 | |
| 52 | ||||||||||||||||
| Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 | | $ | 29,939 | | $ | 378 | ||||||||
| Services Lines | ||||||||||||||||||||||
| Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||||||||
| Crude oil | $ | - | $ | - | $ | - | $ | 260,034,401 | ||||||||||||||
| Consumer electronics | - | 43,432,556 | - | 102,081,176 | ||||||||||||||||||
| Digital asset management services | - | - | 40,700,000 | - | ||||||||||||||||||
| Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | - | ||||||||||||||||||
| | | | | | | ||||||||||||||||
Product or Service | |
|
| |
|
| ||||||||||||||||
Electric vehicles* | | $ | 3,019 | | $ | 55 | ||||||||||||||||
Charging and batteries* | |
| 1,882 | |
| — | ||||||||||||||||
Title and escrow services | |
| 24,841 | |
| — | ||||||||||||||||
| Digital advertising services and other | 249,512 | 275,381 | 949,384 | 512,719 | |
| 197 | |
| 323 | ||||||||||||
| Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 | | $ | 29,939 | | $ | 378 | ||||||||
| | | | | | | ||||||||||||||||
| Timing of Revenue Recognition | | | | | | | ||||||||||||||||
| Products and services transferred at a point in time | $ | 3,103,690 | $ | 43,707,937 | $ | 3,803,562 | $ | 362,628,296 | | $ | 29,554 | | $ | 378 | ||||||||
| Services provided over time | - | - | 40,700,000 | - | |
| 385 | |
| — | ||||||||||||
| Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 | | $ | 29,939 | | $ | 378 | ||||||||
*The revenues were recorded on either a Principal or Agent basis, depending on the terms of the underlying transaction, including the ability to control the product and the level of inventory risk taken. All of the revenue from the sale of electric vehicles, as well as revenue from the sale of charging and batteries in the three months ended March 31, 2021, were recorded on a Principal basis. In the three months ended March 31, 2020, the EV revenues were recorded on an Agency (Net) basis because the Company acted as an agent rather than principal in these transactions.
Note 5.Available for Sale Security
On January 28, 2021, the Company invested $15.0 million in Silk EV via a convertible promissory note. Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (“Silk-FAW”) to produce fully electric, luxury vehicles for the Chinese and global auto markets.
The terms of the convertible promissory note are as follows:
| The principal amount is $15.0 million; |
| ● | The interest rate is 6%; |
| ● | The maturity date is January 28, 2022; |
26
Mobile Energy Group revenue (formerly Wecast Services)
Mobile Energy Group is engaged in the sourcing, procurement, financing and managementTable of commercial fleets of electronic vehicles. Historically, the Mobile Energy Group were mainly engaged in the logistics management, including sales of crude oil, consumer electronics, and digital consulting services such as assets management and marketing services. As of September 30, 2019, we no longer have control over Amer, the subsidiary that engaged in consumer electronics business, as disclosed in Note 5(h).Contents
Logistics management revenue:
Revenue from the sales of crude oil and consumer electronics is recognized when the customer obtains control of the Company’s crude oil and consumer electronics, which occurs at a point in time, usually upon shipment or upon acceptance. The contracts are generally short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year.
| ● | Upon a qualified equity financing, as defined, the outstanding principal and accrued interest shall convert into equity securities sold in the qualified equity financing at a conversion price equal to the cash price for the equity securities times 0.80; |
| ● | The events of default are as follows: |
o | SILK EV fails to pay timely the principal and accrued interest due under this note; |
o | SILK EV files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or |
o | An involuntary petition is filed against SIK EV under bankruptcy or similar statute. |
The most significant judgment is determining whether we are the principal or agentCompany accounts for the sales of crude oil and consumer electronics. We report revenues from these transactions on a gross basis where we are the principal considering the following principal versus agent indicators:Silk EV note as an available for sale security at its fair value, with changes in fair value, if any, recorded in other comprehensive income.
During the fourth quarter of 2018, we began experiencing market demand for non-logistics management revenue -generating opportunities and have begun focusing our efforts on these new market fintech services opportunities, while phasing out of the oil trading and electronics trading businesses.
Digital asset management service with GTD:
On March 14, 2019, the Company entered into a service agreement with GTD, one of our minority shareholders, to provide digital asset management services including consulting, advisory and management services which will be delivered in two phases. There are two performance obligations: (1) the development of a master plan for GTD’s assets for 7,083,333 GTB agreed by both parties; and (2) exclusive marketing and business development management services for a fee as percentage (0.25%) of the total market value of GTB ; based on a 10-day average of the 10 business days leading up to the end of a respective calendar month, and paid on the first day of each new calendar month. No marketing and business development management services were delivered by the Company during the current quarter and, furthermore, the company does not anticipate providing these services in the fourth quarter.
The Company recognizes revenue for the master plan development services over the contract period based on the progress of the services provided towards completed satisfaction. Based on ASC 606-10-32, at contract inception, the Company considered the following factors to estimate the value of GTB (noncash consideration): a) it only trades in one exchange, which operations have been less than one year; b) its historical volatility is high; c) the Company’s intention to hold the majority of GTB, as part of our digital asset management services; and d) associated risks discussed in Note 19 (f). Therefore, the value of 7,083,333 GTB using Level 2 measurement was approximately $40.7 million with a 76% discount to the fixed contract price agreed upon by both parties when signing the contract. We considered similar assets exchanges in Singapore and considered the volatility of the quoted prices and determined a discount of 76%. The estimated value of GTB is calculated using the Black-Scholes valuation model using the following assumptions: expected terms 3.0 years; volatility 155%; dividend yield: zero and risk free interest rate 2.25%.
The Company considers the payments for marketing and business development management services as performance based consideration, in accordance with ASC 606 on constraining estimates of variable consideration, including the following factors:
As of September 30, 2019, all performance obligations associated with the development of the master plan for GTD’s assets have been satisfied. Accordingly, the Company recognized revenue of $0 and $40.7 million, for the three months and nine months ended September 30, 2019, respectively. No marketing and business development management services were delivered by the Company during the current quarter and, furthermore, the company does not anticipate providing these services in the fourth quarter.
Taxis Commission Revenue:
During Q2 2019, the Company signed an agreement with iUnicorn (also known as Shenma Zhuanche) to form a strategic joint venture (“JV”) that will focus on green finance and integrated marketing services for new energy taxi vehicles as part of Ideanomics’ Mobile Energy Group (“MEG”). The Company agreed to contribute advisory and sales resources which include arranging ABS-based auto financing with its bank partners, and will have 50.01% ownership interest in the JV and will have control of the board. iUnicorn, which will own 49.99% of the JV, agreed to contribute its vehicles sales orders in Sichuan province. The JV will generate revenues from commissions on vehicle sales order and ABS fees related to the financing, which will vary accordingly to manufacturer and vehicle model.
During Q3 2019, the JV took over an order of 4,172 EV taxis from a third-party and helped facilitate the completion of the order in Q3 2019. As part of the transaction, Qianxi agreed to pay a commission of $2.9 million to the JV for facilitating the completion of this order. There is no other remaining performance obligation relating to this commission. In addition, the commission revenue is considered revenue from related party as the minority shareholder of the JV is an affiliate of our customer, Qianxi.
Legacy YOD revenue
Since 2017, we have run our legacy YOD segment with limited resources. No revenue was recognized for the nine months ended September 30, 2019 and 2018. As of September 30, 2019, we have ceased operations in the YOD segment.
Arrangements with multiple performance obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the observable prices charged to customers or adjusted market assessment or using expected cost plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors.
Variable consideration
Certain customers may receive discounts, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. Our revenue reserves, consisting of various discounts and allowances, which are components of variable consideration as discussed above, are considered an area of significant judgment. Additionally, our digital asset management service revenue, as discussed above, is calculated as a percentage (0.25%) of the total market value of GTB. For these areas of significant judgment, actual amounts may ultimately differ from our estimates and are adjusted in the period in which they become known.
Deferred revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.
Our payment terms vary by the type and location of our customer and the products or services offered. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.
Practical expedients and exemptions
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
We consolidate VIEs in which we hold a variable interest and are the primary beneficiary through contractual agreements. We are the primary beneficiary because we have the power to direct activities that most significantly affect their economic performance and have the obligation to absorb the majority of their losses or benefits. The results of operations and financial position of these VIEs are included in our consolidated financial statements.
For these consolidated VIEs, their assets are not available to us and their creditors do not have recourse to us. As of September 30, 2019 and December 31, 2018, assets (mainly long-term investments) that can only be used to settle obligations of these VIEs were approximately $0.2 million and $3.5 million, respectively, and the Company is the major creditor for the VIEs.
In order to operate our Legacy YOD business in PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company entered into a series of contractual agreements with two VIEs: Beijing Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”) and Tianjin Sevenstarflix Network Technology Limited (“SSF”). These contractual agreements will expire in March 2030 and April 2036, respectively and may not be terminated by the VIEs, except with the consent of the Company , or , in event of a material breach of the agreement by the Company. Currently, the Company is still evaluating the overall operating strategy for YOD legacy business and does not have plan to provide any funding to these two VIEs. Please refer to Note 19(a) for associated regulatory risks.
Based on the contracts we entered with VIEs’ shareholders, we consider that there is no asset of the VIEs that can be used only to settle obligation of the Company, except for the registered capital of VIEs amounting to RMB 38.2 million (approximately $5.7 million).
Note 6.Acquisitions and Divestitures |
Acquisitions
(a) Assets Acquisition of SolidOpinion, Inc (“SolidOpinion”)
On February 19, 2019, the Company completed the acquisition of certain assets from SolidOpinion in exchange for 4,500,000 shares of the Company’s common stock. The assets include cash ($2.5 million) and intellectual property (“IP”) which is complementary to the IP of Grapevine. The parties agreed that 450,000 of such shares of common stock (“Escrow Shares”) will be held in escrow until February 19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the agreement. SolidOpinion have the rights to vote and receive the dividends paid with respect to the Escrow Shares.
(b)Assets Acquisition of Fintalk Assets (“Fintalk”)
In September 2018, the Company entered into an agreement to purchase Fintalk Assets from Sun Seven Star International Limited, a Hong Kong company and an affiliate of Dr. Wu. FinTalk Assets include the rights, titles and interest in a secure mobile financial information, social, and messaging platform that has been designed for streamlining financial-based communication for professional and retail users. The purchase price for Fintalk Assets was $7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded in prepaid expense as of December 31, 2018 because the transaction had not closed.
In June 2019, the Company entered into an amendment to the agreement which amended the purchase price for Fintalk Assets to $6.35 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair market value of $5.35 million. The Company issued 2,860,963 shares ($1.87 per share) in June 2019 and completed the transaction. In addition, upon completion of transaction the $1.0 million cash paid in 2018 was reclassified from prepaid expense to intangible assets.
(c)Acquisition of Grapevine Logic, Inc. (“Grapevine”)
In September 2018, the Company completed the acquisition of a 65.65% share of Grapevine for $2.4 million in cash. Fomalhaut Limited (“Fomalhaut”), a British Virgin Islands company and an affiliate of Dr. Wu, the Chairman of the Company, is the non-controlling equity holder of 34.35% in Grapevine (the “Fomalhaut Interest”). Fomalhaut entered into an option agreement, effective as of August 31, 2018 (the “Option Agreement”), with the Company pursuant to which the Company provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company (the “Option”). The aggregate exercise price for the Option is the fair market value of the Fomalhaut Interest as of the close of business on the date preceding the date upon which the Option is exercised, and is payable in a combination of 1/3 in cash and 2/3 in the Company’s shares of common stock at the then market value on the exercise date. The Option Agreement will expire on August 31, 2021.
In May 2019, the Company entered into two amendments to the Option Agreement, The aggregate exercise price for the Option is amended to the greater of (i) fair market value of the Fomalhaut Interest in Grapevine as of the close of business on the date preceding the date upon which the option is exercised; and (ii) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price shall be paid in the form of common stock of the Company.
In June 2019, the Company issued 590,671 shares in exchange for a 34.35% ownership in Grapevine as a result of the exercise of the Option, at the completion of this transaction the Company owned 100% of Grapevine. At the completion date of the transaction, the carrying amount of the non-controlling interest in Grapevine was approximately $0.5 million. The difference between the value of the consideration exchanged of approximately $1.1 million and the carrying amount of the non-controlling interest in Grapevine is recorded as a debit to Additional Paid in Capital based on ASC 810-10-45-23.
(d)Termination of agreements with Tree Motion Sdn. Bhd. (“Tree Motion”)
Effective July 18, 2019, Ideanomics, Inc. (the “Company”) terminated its Acquisition Agreement with Tree Motion Sdn. Bhd., a Malaysian company (“Tree Motion”), pursuant to which the Company was to acquire 51% of Tree Motion in exchange for 25,500,000 shares of the Company’s common stock at $2.00 per share. Further, the Company terminated its Acquisition Agreement to acquire 11.22% of Tree Motion’s parent company, Tree Manufacturing Sdn. Bhd. (the “Parent Company”) for 12,190,000 shares of the Company’s common stock; provided, however, that the Company has acquired 250 acres in Malaysia-China Kuantan Industrial Park (MCKIP), the 1st Malaysia National Industrial Park joint developed by both Malaysia and China for $620,000.
(e)Acquisition of Glory Connection Sdn. Bhd (“Glory”)
On July 18, 2019, Ideanomics, Inc. (the “Company”) entered into an Acquisition Agreement (“Glory Agreement”) to purchase a 34% interest in Glory Connection Sdn. Bhd. a Malaysian Company, from its shareholder Beijing Financial Holding Limited, a Hong Kong registered company, for the consideration of 12,190,000 restricted common shares of Ideanomics (IDEX), representing $24.4 million at $2.00 per share. As part of this transaction, the Company was also granted an option to purchase a 40% interest in Bigfair Holdings Limited (“Bigfair”) from its shareholder Beijing Financial Holding Limited for an exercise price of $13.2 million in the form of common shares of Ideanomics. Bigfair currently holds a 51% ownership stake in Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the option was exercised, the Company would have 20.4% indirect ownership in Glory in addition to the 34% direct ownership it already has. As of September 30, 2019, the Company does not have control of Glory and has accounted for Glory as an equity method investment.
The Company has performed a valuation analysis and allocated $23,000,000 and $1,380,000 of the consideration transferred to the equity method investment and the call option, respectively. The call option is accounted for as an equity security without readily determinable fair value. Pro forma results of operations for Glory have not been presented because they are not material to the consolidated results of operations. Glory is currently in the process of ramping up its operations.
The following table summarizes the income statement information of Glory as of September 30, 2019:
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
| Revenue | $ | 2,041 | $ | 3,936 | ||||
| Gross Profit | 1,379 | 769 | ||||||
| Net loss from operations | 173,465 | 354,502 | ||||||
| Net loss | 171,719 | 352,606 | ||||||
| Net loss attributable to Glory | $ | 95,477 | $ | 195,121 | ||||
(f) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire 6,918,547 shares in DBOT in exchange for 4,427,870 shares of the Company’s common stock at $2.11 per share. In July 2019, the Company entered into another securities purchase agreement to acquire an additional 2,224,937 shares in DBOT in exchange for 1,423,960 shares of the Company’s common stock at $2.11 per share. The two transactions, which increased the Company’s ownership in DBOT to 99.04%, were completed in July 2019. The securities purchase agreements required the Company to issue additional shares of the Company’s common stock (“True-Up Common Stock”) in the event the stock price of the common stock fall below $2.11 at the close of trading on the date immediately preceding the lock-up date, which is 9 months from the closing date. The Company accounted for the additional True-Up Common Stock consideration as a liability in accordance with ASC 480. We recorded this liability at fair value of $2,217,034 on the date of acquisition. As of September 30, 2019, we remeasured this liability to $2,327,919 and the remeasurement loss of $(110,885) was recorded in the other income/(expense) of the income statement.
DBOT operates three companies: (i) DBOT ATS LLC, an SEC recognized Alternative Trading System; (ii) DBOT Issuer Services LLC, focused on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers; and (iii) DBOT Technology Services LLC, focused on the provision of market data and marketplace connectivity.
The consolidated statements of operation for the three months ended September 30, 2019 include the results of DBOT. Supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2018 is as follows:
Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||
| Revenue | $ | 43,798,865 | $ | 44,612,471 | $ | 363,004,917 | ||||||
| Net Income (loss) attributable to IDEX common shareholders | $ | (7,818,047 | ) | $ | 10,582,474 | $ | (21,387,162 | ) | ||||
The unaudited pro forma results of operations do not purport to represent what the Company’s results of operations would actually have been had the acquisition occurred on January 1, 2018. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
For all intangible assets acquired, continuing membership agreements have useful life of 20 years and the customer list has useful life of 3 years.
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in DBOT recognized:
| Cash | $ | 246,929 | ||
| Other financial assets | 1,686,464 | |||
| Financial liabilities | (4,411,140 | ) | ||
| Noncontrolling interest | (104,649 | ) | ||
| Goodwill | 9,323,189 | |||
| Intangible asset – continuing membership agreement | 8,255,440 | |||
| Intangible asset – customer list | 58,830 | |||
| $ | 15,055,063 |
Divestitures
The Company may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders.
(g)Red Rock Global Capital LTD (“Red Rock”)
In May 2019, the Company determined to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of Dr. Wu, to sell its entire interest in Red Rock for a consideration of $700,000. The Company decided to sell Red Rock primarily because it has incurred operating losses andnot acquired any companies nor disposed of any subsidiaries in the year ended December 31, 2020, with the exception of the disposition of its business is no longer needed based on our strategic plan. The transaction was completedremaining 10.0% interest in July 2019 and the company recorded a disposal gain of $552,215.
(h) Amer Global Technology Limited (“Amer”Amer.”)
On June In the three months ended September 30, 2019,2020, the Company entered into an agreement with BCC Technologysold its remaining 10.0% interest in Amer to Fintalk Media Inc., a related party, for a nominal amount. As the Company Limited (“BCC”) and Tekang Holdings Technology Co., Ltd (“Tekang ”) pursuant to which Tekang will inject certain assetshad no basis in its remaining interest in Amer, the gain recognized on the sale was de minimis.
2021 Acquisitions
The Company has completed the below acquisitions in the robotics and electronic internet industry and IOTthree months ended March 31, 2021. The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as business consisting of manufacturing data, supply chain management & financing, and lease financing of industrial robotics into Amer in exchange for 71.81% of ownership interest in Amer. The parties subsequently entered into several amendments including (1) changing the name of Amer to Logistorm Technology Limited, (2) issuing 39,500 new shares in Amer or 71.81% ownership interest to BCC instead of Tekang, (3) issuing 5,500 new shares in Amer or 10% ownership interest to Merry Heart Technology Limited (“MHT”) and (4)combinations. Accordingly, consideration paid by the Company to complete the acquisitions is responsibleinitially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for 20%of any potential tax obligation associated with Amer, if Amer failsassets acquired and liabilities assumed are provisional and subject to be publicly listed in 36change during the measurement period, which is up to 12 months from the acquisition date.
Timios Holdings Corp.
On January 8, 2021, the Company completed the acquisition of privately held Timios and its affiliates pursuant to the stock purchase agreement (the “Timios Agreement”) entered into on November 11, 2020. Pursuant to the Timios Agreement, the Company acquired 100% of the outstanding capital stock of Timios for a purchase price of $40.0 million, net of cash acquired of $6.5 million. The full purchase price was paid in cash. Pursuant to the Timios Agreement, $5.1 million of the cash consideration was paid into escrow pending a one year indemnification review. Timios provides title and escrow services for real estate transactions. Revenue of $24.8 million and net income of $3.4 million have been included in the condensed consolidated financial statements since the acquisition date.
Wireless Advanced Vehicle Electrification, Inc.
On January 15, 2021, the Company completed the acquisition of privately held WAVE pursuant to an agreement and plan of merger (the “WAVE Agreement”) entered into on January 4, 2021. WAVE is a provider of wireless charging solutions for medium and heavy-duty electric vehicles.
Pursuant to the WAVE Agreement, the Company acquired 100% of the outstanding capital stock of WAVE for an aggregate purchase price of $55.0 million in a combination of $15.0 million of cash plus a total of 12.6 million unregistered shares of the Company’s common stock, valued at $40.0 million at the date of closing. Pursuant to the Wave Agreement, $5 million of the cash consideration was paid into escrow pending a one year indemnification review. The WAVE Agreement provided that 3.6 million shares of the Company’s common stock be held back at closing, to be released upon the receipt of certain customer consents not obtained prior to closing. As of March 31, 2021, 2.4 million of the Company’s common stock remains
27
unissued pending receipt of the consents. Since receipt of the consents is probable, the Company has included these common shares as contingent consideration as of the acquisition date of $7.7 million. If any such consent is not obtained within six months following the closing date, the portion of the common stock allocated to such consent in the WAVE Agreement will not be issued to the sellers.
In addition to the purchase price to be paid at closing, the WAVE Agreement contains three earnouts that could result in additional payments of up to $30.0 million to the sellers based upon: (1) revenue and gross profit margin metrics in calendar year 2021; (2) revenue and gross profit margin metrics in calendar year 2022; and (3) revenue and gross profit margin metrics for 2021 and 2022 collectively. The Company considers this earnout to be contingent consideration that as of the acquisition date is unlikely to occur and has therefore attributed zero value for purposes of the preliminary purchase price allocation. The Company will continue to monitor the fair value of this transaction. Thecontingent considerations with any changes being recorded in the statement of operations if and when a change occurs.
Ideanomics has also agreed to a performance and retention plan for the benefit of certain WAVE’s employees which could result in up to $10.0 million paid to such employees if certain gross revenue targets and certain gross profit margins are achieved for calendar years 2021 and 2022. Consistent with the conclusion on the earnout contingent consideration, the Company concluded that it’shas not probable that this contingent liability would be incurred. As a resultaccrued any of this transaction,retention plan as the Company’s ownership interestrevenue and gross profit margin criteria are unlikely to be met.
Revenue of $1.8 million and net loss of $0.6 million have been included in Amer was diluted from 55% to 10%. The transaction was completed on August 31, 2019.the condensed consolidated financial statements since the acquisition date.
Acquisition Method Accounting Estimates
The Company recognizedinitially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a disposal gainone year period following the acquisition date. The determination of $505,148the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
28
The table below reflects the Company’s provisional estimates of the acquisition date fair values of the assets acquired and liabilities assumed for the Timios and Wave acquisitions (in thousands):
| | | | | | |
|
| Timios |
| WAVE | ||
| | (As restated) | | (As restated) | ||
Purchase Price | | | |
| |
|
Cash paid at closing, including working capital estimates | | $ | 46,576 | | $ | 15,000 |
Fair value of common stock | |
| — | |
| 32,377 |
Fair value of contingent consideration | |
| — | |
| 7,657 |
Total purchase consideration | | $ | 46,576 | | $ | 55,034 |
| | | | | | |
Purchase Price Allocation | | | | | | |
Assets acquired | | | | | | |
Current assets | |
| 7,292 | |
| 2,130 |
Property, plant and equipment | |
| 429 | |
| — |
Other assets | |
| 48 | |
| — |
Intangible assets – tradename | |
| 7,780 | |
| 12,630 |
Intangible assets – lender relationships | |
| 14,790 | |
| — |
Intangible assets – patents | |
| — | |
| 13,000 |
Intangible assets – licenses | |
| 1,000 | |
| — |
Indefinite lived title plant | |
| 500 | |
| — |
Goodwill | |
| 24,252 | |
| 34,142 |
Total assets acquired | |
| 56,091 | |
| 61,902 |
| | | | | | |
Liabilities assumed: | | | | | | |
Current liabilities | |
| (4,306) | |
| (3,778) |
Deferred tax liability | |
| (5,209) | |
| (3,090) |
Total liabilities assumed | |
| (9,515) | |
| (6,868) |
| | | | | | |
Net assets acquired | | $ | 46,576 | | $ | 55,034 |
| | | | |
|
| Timios |
| WAVE |
Intangible assets – tradename |
| 15 |
| 15 |
Intangible assets – lender relationships |
| 7 |
| — |
Intangible assets – patents |
| — |
| 14 |
Intangible assets – licenses |
| 15 |
| — |
Weighted average useful life |
| 10 |
| 14.5 |
Amortization expense related to intangible assets created as a result of the deconsolidating Amer. $95,104Timios and WAVE acquisitions of the gain is attributable to the 10% ownership interest retained in Amer. In addition, on the date Amer was deconsolidated, the Company$0.8 million has been recorded a bad debt expense of $622,286 relating to a receivable due from Amer to a subsidiary of the Company.
The following table summarizes the Consolidated Statement of Operations for the three months ended March 31, 2021. Estimated amortization expense related to these intangible assets for each of the years subsequent to March 31, 2021 is as follows (amounts in thousands):
| | | |
2021 remaining |
| $ | 3,551 |
2022 | |
| 4,469 |
2023 | |
| 4,469 |
2024 | |
| 4,469 |
2025 | |
| 4,469 |
2026 and beyond | |
| 26,990 |
Total | | $ | 48,417 |
Goodwill in the amount of $24.3 million and nine34.1 million was recorded as a result of the acquisitions of Timios and WAVE, respectively. The goodwill from both acquisition represents future economic benefits that we expect to achieve as a result of the acquisition, Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is not expected to be deductible for tax purposes for either the Timios or WAVE
29
acquisitions. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequent if certain indicators of impairment are present.
Transaction Costs
Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. Transaction costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions. The Company incurred transaction costs of $0.3 million during the three months ended September 30, 2018, on anMarch 31, 2021. Transaction costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows.
Pro forma Financial Information
The unaudited pro forma basis,results presented below include the effects of the Company’s acquisitions as if the dilutionacquisitions had occurred on January 1, 2020. The pro forma adjustments are based on historically reported transactions by the acquired companies. The pro forma results do not include any anticipated synergies or other expected benefits of the Company’s interest in Amer had been consummated asacquisitions. The unaudited pro forma financial information below is not necessarily indicative of January 1, 2018:
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||
| Revenue | $ | 275,380 | $ | 260,547,120 | ||||
| Net loss from operations | (6,305,340 | ) | (18,548,258 | ) | ||||
| Net loss | (7,390,597 | ) | (19,351,526 | ) | ||||
| Net loss attributable to IDEX common shareholders | $ | (7,158,674 | ) | $ | (18,945,524 | ) | ||
Pro formaeither future results of operations foror results that might have been achieved had the period ended September 30, 2019 have not been presented because they are not material to the consolidated results of operations. Amer has no revenue and minimal operating expense in 2019.acquisitions occurred on January 1, 2020.
| | | | | | |
|
| Three Months |
| Three Months | ||
| | Ended March 31, | | Ended March 31, | ||
| | 2021 | | 2020 | ||
(Amounts in thousands, except per share and share data) |
| |
|
| |
|
| | | | | | |
Total revenue | | $ | 31,379 | | $ | 13,898 |
| | | | | | |
Net loss attributable to IDEX common shareholders | |
| (6,552) | |
| (12,058) |
| | | | | | |
Earnings (loss) per share | |
|
| |
|
|
Basic and Diluted | | $ | (0.02) | | $ | (0.07) |
| | | | | | |
Weighted average shares outstanding | |
|
| |
|
|
Basic and Diluted | |
| 393,191,290 | |
| 170,448,990 |
Note 7. Accounts Receivable |
Accounts receivable is mainly from our Mobile Energy Group (formerly Wecast Services) business and consisted of the following:
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Accounts receivable, gross | $ | 2,941,348 | $ | 19,370,665 | ||||
| Less: allowance for doubtful accounts | (103 | ) | - | |||||
| Accounts receivable, net | $ | 2,941,245 | $ | 19,370,665 | ||||
The following table outlinessummarizes the agingCompany’s accounts receivable (in thousands):
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2021 | | 2020 | ||
Accounts receivable | | $ | 6,625 | | $ | 8,619 |
Less: allowance for doubtful accounts | |
| (1,216) | |
| (1,219) |
Accounts receivable, net | | $ | 5,409 | | $ | 7,400 |
The gross balance includes the taxi commission revenue receivables of $1.2 million and $1.2 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co, as of March 31, 2021 and December 31, 2020, respectively.
30
The following table summarizes the movement of the allowance for doubtful accounts receivable:(in thousands):
September 30, 2019 | December 31, 2018 | |||||||
| Within 90 days | $ | 2,941,245 | $ | 1,219,526 | ||||
| 91-180 days | - | 633 | ||||||
| 181-365 days | - | 12,385,193 | ||||||
| More than 1 year | - | 5,765,313 | ||||||
| Total | $ | 2,941,245 | $ | 19,370,665 | ||||
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2021 | | 2020 | ||
Balance at the beginning of the period | | $ | (1,219) | | $ | — |
Decrease in the allowance for doubtful accounts | |
| 3 | |
| (1,219) |
Balance at the end of the period | | $ | (1,216) | | $ | (1,219) |
The decrease in balance is mainly dueDue to the deconsolidationforeign exchange rate changes, there was $2,505 increase in the allowance for doubtful accounts for the three months ended March 31, 2021. In the year ended December 31, 2020, the Company fully reserved its accounts receivable of Amer as of September 30, 2019 as disclosed in Note 5(h). Our payment term is usually within 180 days upon$1.2 million from the receipts of the goods. The Company has reviewed the outstanding balance by customers and concluded that the outstanding balances are collectible.related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co.
Note 8.Property and Equipment, net |
The following is a breakdown oftable summarizes the Company’s property and equipment:equipment (in thousands):
| September 30, | December 31, | |||||||||||||
| 2019 | 2018 | |||||||||||||
| Furnitures and office equipment | 602,548 | 357,064 | ||||||||||||
| | | | | | | ||||||||
|
| March 31, |
| December 31, | ||||||||||
| | 2021 | | 2020 | ||||||||||
Furniture and office equipment | | $ | 568 | | $ | 315 | ||||||||
| Vehicle | 60,951 | 63,135 | |
| 247 | |
| 229 | ||||||
| Leasehold improvements | 239,781 | 200,435 | |
| 339 | |
| 246 | ||||||
| Total property and equipment | 903,280 | 620,634 | |
| 1,154 | |
| 790 | ||||||
| Less: accumulated depreciation | (482,548 | ) | (186,514 | ) | |
| (523) | |
| (460) | ||||
Property and equipment, net | |
| 631 | |
| 330 | ||||||||
Fintech Village | | | | | | | ||||||||
| Land | 3,042,777 | 3,042,777 | |
| — | |
| 2,750 | ||||||
Building1 | 308,779 | 2,607,666 | ||||||||||||
| Assets Retirement Obligations - Environmental Remediation | 8,000,000 | 8,000,000 | ||||||||||||
| Capitalized direct development cost | 2,732,705 | 944,864 | ||||||||||||
Assets retirement obligations - environmental remediation | |
| — | |
| 4,500 | ||||||||
| Construction in progress (Fintech Village) | 14,084,261 | 14,595,307 | |
| — | |
| 7,250 | ||||||
| Property and Equipment, net | $ | 14,504,993 | $ | 15,029,427 | | $ | 631 | | $ | 7,580 | ||||
Note
1 The $2.3 million decrease from the prior year represents the impairment charge recorded in connection with four of the five existing buildings on Fintech Village which are expected to be demolished.
The Company recorded depreciation expense of $90,787 and $31,536, which is included in its operating expense, of $65,862 and $14,820 for the three months ended September 30, 2019March 31, 2021 and 20182020, respectively.
Global Headquarters for Technology and $102,991Innovation in Connecticut (“Fintech Village”)
On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and $32,941subsequently signed a sale contract on March 15, 2021. The Company believes that Fintech Village met the criteria for held for sale classification on January 28, 2021. As the nine months ended September 30, 2019sale is expected to be completed within one year, the land with a carrying amount of $2.6 million and 2018, respectively.
the asset retirement cost of $4.5 million are recorded as “Held for sale assets (Fintech Village”) in the current asset section of the condensed consolidated balance sheet. The Company has estimated the costs to sell Fintech Village to be $0.2 million and has recorded these costs in “Loss on disposal of subsidiaries, net.”
The Company recorded $8.0 million of Asset Retirement Obligations which are related to our legal contractualasset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The Capitalized direct development costs mainly representasset retirement obligations are not classified as held for sale as the architectural costs.purchaser will not assume these liabilities. However, as the sale of Fintech Village is expected to be completed within one year, the asset retirement obligations, which will be derecognized upon the sale, have been classified as current liabilities in the condensed consolidated balance sheet.
The following table summarizes the activity in the asset retirement obligation for the three months ended March 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| January 1, |
| Liabilities |
| Remediation |
| Accretion |
| | |
| March 31, | |||||
| | 2021 | | Incurred | | Performed | | Expense | | Revisions | | 2021 | ||||||
Asset retirement obligation | | $ | 4,653 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,653 |
31
| Note 9. Goodwill and Intangible Assets |
Goodwill
ChangesThe following table summarizes changes in the carrying value of goodwill consist of following:
| Nine months ended September 30, 2019 | Year Ended December 31, 2018 | |||||||
| At the beginning of the year | 704,884 | - | ||||||
| Goodwill Acquired1 | 9,323,189 | 704,884 | ||||||
| At the end of the period | 10,028,073 | 704,884 | ||||||
Note
1 The change in carrying amount of goodwill in the current year was the result of the acquisition of DBOT as disclosed in Note 5(f).(in thousands):
| | | |
| | | (As restated) |
Balance as of January 1, 2020 |
| $ | 23,344 |
Measurement period adjustments | |
| (12,848) |
Effect of change in foreign currency exchange rates | |
| (8) |
Impairment loss | |
| (9,323) |
Balance as of December 31, 2020 | |
| 1,165 |
Acquisitions | |
| 49,933 |
Adjustment (see Note 2. Restatement of Previously Reported Condensed Consolidated Financial Statements) | | | 8,461 |
Effect of change in foreign currency exchange rates | |
| (14) |
Balance as of March 31, 2021 | | $ | 59,545 |
| | | |
Intangible Assets
InformationThe following table summarizes information regarding amortizing and indefinite lived intangible assets consisted(in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | |||||||||||||||||
| | (As restated) | | | | | | | | | | ||||||||||
|
| Weighted |
| | |
| | | | | | | | | | | | | | | |
|
| Average |
| Gross |
| | |
| | |
| Gross | | | | | | | |||
|
| Remaining |
| Carrying |
| Accumulated | | Net | | Carrying | | Accumulated | | Net | |||||||
|
| Useful Life |
| Amount |
| Amortization |
| Balance |
| Amount |
| Amortization |
| Balance | |||||||
Amortizing Intangible Assets | | | | | | | | | | | | | | | | | | | | | |
Influencer network (a) |
| | 1.8 | | $ | 1,137 | | $ | (546) | | $ | 591 | | $ | 1,137 | | $ | (462) | | $ | 675 |
Customer contract (a) |
| | 0.4 | |
| 500 | |
| (431) | |
| 69 | |
| 500 | |
| (389) | |
| 111 |
Continuing membership agreement (b) |
| | 18.3 | |
| 1,179 | |
| (626) | |
| 553 | |
| 1,179 | |
| (619) | |
| 560 |
Trade name (a) |
| | 12.4 | |
| 110 | |
| (19) | |
| 91 | |
| 110 | |
| (17) | |
| 93 |
Technology platform (a) |
| | 0.8 | |
| 290 | |
| (145) | |
| 145 | |
| 290 | |
| (97) | |
| 193 |
Land use rights (c) |
| | 97.8 | |
| 27,298 | |
| (207) | |
| 27,091 | |
| 28,162 | |
| (142) | |
| 28,020 |
Timios licenses (d) |
| | 14.8 | |
| 1,000 | |
| (15) | |
| 985 | |
| — | |
| — | |
| — |
Timios tradename (d) |
| | 14.8 | |
| 7,780 | |
| (109) | |
| 7,671 | |
| — | |
| — | |
| — |
Timios lender relationships (d) |
| | 6.8 | |
| 14,790 | |
| (332) | |
| 14,458 | |
| — | |
| — | |
| — |
WAVE tradename (f) |
| | 39.8 | |
| 13,000 | |
| (153) | |
| 12,847 | |
| — | |
| — | |
| — |
WAVE patents (f) |
| | 14.8 | |
| 12,630 | |
| (174) | |
| 12,456 | |
| — | |
| — | |
| — |
Total |
| | | | | 79,714 | |
| (2,757) | |
| 76,956 | |
| 31,378 | |
| (1,726) | |
| 29,652 |
Indefinite lived intangible assets |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Timios Title plant (d) |
| | | |
| 500 | |
| | |
| 500 | |
|
| |
|
| |
|
|
Website name |
| | | |
| 25 | |
| — | |
| 25 | |
| 25 | |
| — | |
| 25 |
Timios software in development (e) |
| | — | |
| 305 | |
| — | |
| 305 | |
| — | |
| — | |
| — |
Patent |
| | | |
| 28 | |
| — | |
| 28 | |
| 28 | |
| — | |
| 28 |
Total | | | | | $ | 80,572 | | $ | (2,757) | | $ | 77,815 | | $ | 31,431 | | $ | (1,726) | | $ | 29,705 |
| (a) | During the third quarter of 2018, the Company completed the acquisition of 65.7% share of Grapevine. In connection with the business analysis of Grapevine, the Company determined that the attrition rate of the influencer network had accelerated, and performed an impairment analysis, and recorded an impairment loss of $0.8 million during the year ended December 31, 2020. As a result of this analysis of the influencer network, the Company determined that the remaining useful life of the influencer network should be reduced to two years, effective January 1, 2021. also determined that remaining useful life of the technology should be reduced to one year, effective January 1, 2021. |
| (b) | During the third quarter of 2019, the Company completed the acquisition of additional shares in DBOT, which increased its ownership to 99.0 %. Intangible assets of $8.3 million were recognized on the date of acquisition. As part of the determination of the fair value of DBOT’s intangible assets during the year ended December 31, 2020, the Company |
32
Table of the following:Contents
| September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||
| Weighted Average Remaining | Gross Carry | Accumulated | Accumulated Impairment | Net | Gross Carry | Accumulated | Accumulated Impairment | Net | ||||||||||||||||||||||||||||
| Useful Life | Amount | Amortization | Loss | Balance | Amount | Amortization | Loss | Balance | ||||||||||||||||||||||||||||
| Amortizing Intangible Assets | ||||||||||||||||||||||||||||||||||||
| Animation Copyright (Note 14 (b)) | - | $ | - | $ | - | $ | - | $ | - | $ | 301,495 | $ | (64,606 | ) | $ | - | $ | 236,889 | ||||||||||||||||||
| Software and licenses | - | 97,308 | (97,308 | ) | - | - | 97,308 | (93,251 | ) | - | 4,057 | |||||||||||||||||||||||||
| SolidOpinion IP (Note 5 (a)) | 4.4 | 4,655,000 | (543,084 | ) | - | 4,111,916 | - | - | - | - | ||||||||||||||||||||||||||
| Fintalk intangible assets (Note 5 (b)) | 4.8 | 6,350,000 | (317,500 | ) | - | 6,032,500 | - | - | - | - | ||||||||||||||||||||||||||
| Influencer network | 8.9 | 1,980,000 | (214,500 | ) | - | 1,765,500 | 1,980,000 | (66,000 | ) | - | 1,914,000 | |||||||||||||||||||||||||
| Customer contract1 | 2.0 | 558,830 | (185,458 | ) | - | 373,372 | 500,000 | (55,556 | ) | - | 444,444 | |||||||||||||||||||||||||
| Continuing Membership Agreement1 | 19.8 | 8,255,440 | (103,193 | ) | - | 8,152,247 | - | - | - | - | ||||||||||||||||||||||||||
| Trade name | 13.9 | 110,000 | (7,944 | ) | - | 102,056 | 110,000 | (2,444 | ) | - | 107,556 | |||||||||||||||||||||||||
| Technology platform | 5.9 | 290,000 | (44,881 | ) | - | 245,119 | 290,000 | (13,808 | ) | - | 276,192 | |||||||||||||||||||||||||
| Total amortizing intangible assets | $ | 22,296,578 | $ | (1,513,868 | ) | $ | - | $ | 20,782,710 | $ | 3,278,803 | $ | (295,665 | ) | $ | - | $ | 2,983,138 | ||||||||||||||||||
| Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||||||
| Website name | 159,504 | - | (134,290 | ) | 25,214 | 159,504 | - | (134,290 | ) | 25,214 | ||||||||||||||||||||||||||
| Patent | 28,000 | - | - | 28,000 | 28,000 | - | - | 28,000 | ||||||||||||||||||||||||||||
| GTB (Note 14 (b)) | 61,124,407 | - | - | 61,124,407 | - | - | - | - | ||||||||||||||||||||||||||||
| Total intangible assets | $ | 83,608,489 | $ | (1,513,868 | ) | $ | (134,290 | ) | $ | 81,960,331 | $ | 3,466,307 | $ | (295,665 | ) | $ | (134,290 | ) | $ | 3,036,352 | ||||||||||||||||
Note
1 During the third quarter of 2019, the Company completed the acquisition of additional shares in DBOT which increased its ownership in DBOT to 99.04%. $8,314,270 of intangible assets were recognized on the date of acquisition as disclosed in Note 5(f).
| utilized the cost method to determine the fair value of the continuing membership agreement, and determined the fair value was $0.6 million, and recorded an impairment loss of $7.1 million during the year ended December 31, 2020. |
| (c) | During the fourth quarter of 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. Tree Technologies holds the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia. |
| (d) | During the first quarter of 2021, the Company completed the acquisition of 100.0% interest in Timios. Refer to Note 6 for additional information related to the acquisition. |
| (e) | Relates to software development costs capitalized during the first quarter of 2021 at Timios. The asset is yet to be placed into service; amortization of the completed asset will commence once it is ready to be placed into service. |
| (f) | During the first quarter of 2021, the Company completed the acquisition of 100.0% interest in WAVE. Refer to Note 6 for additional information related to the acquisition. |
Amortization expense relating to intangible assets was $764,010$1.0 million and $276,692$0.4 million for the three months ended September 30, 2019March 31, 2021 and 2018 and $1,317,419 and $281,796 for the nine months ended September 30, 2019 and 2018,2020, respectively.
The following table outlinessummarizes the expected amortization expense for the following years:years (in thousands):
Amortization to be | |||||
| Years ending December 31, | recognized | ||||
| 2019 (excluding the nine months ended September 30, 2019) | $ | 761,702 | |||
| 2020 | 3,046,811 | ||||
| 2021 | 2,991,255 | ||||
| 2022 | 2,870,339 | ||||
| 2023 | 2,860,534 | ||||
| 2024 and thereafter | 8,252,069 | ||||
| Total amortization to be recognized | $ | 20,782,710 | |||
| | | |
|
| Amortization to be | |
| | recognized | |
Years ending December 31, |
| (As restated) | |
2021 (excluding the three months ended March 31, 2021) | | $ | 4,059 |
2022 | |
| 5,127 |
2023 | |
| 4,789 |
2024 | |
| 4,789 |
2025 | |
| 4,789 |
2026 and thereafter | |
| 53,403 |
Total | | $ | 76,956 |
Note 10. Long-term Investments |
Long-termThe following table summarizes the Company’s long-term investmentsconsisted of Non-marketable Equity Investment and Equity Method Investment as below: (in thousands):
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Non-marketable Equity Investment | $ | 9,147,170 | $ | 9,452,103 | ||||
| Equity Method Investment | 33,012,143 | 16,956,506 | ||||||
| Total | $ | 42,159,313 | $ | 26,408,609 | ||||
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2021 | | 2020 | ||
| | (As restated) | | (As revised) | ||
Non-marketable equity investments | | $ | 4,778 | | $ | 6,014 |
Equity method investments | |
| 19,223 | |
| 2,556 |
Total | | $ | 24,001 | | $ | 8,570 |
Non-marketable equity investment
Our non-marketableNon-marketable equity investments are investments in privately held companies without readily determinable fair values. These investmentsvalues are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership, among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount. There is no
33
Based on management’s analysis of certain investment’s performance, 0 impairment forlosses were recorded in the ninethree months ended September 30, 2019.March 31, 2021 and 2020.
On January 28, 2021, the Company entered into a simple agreement for future equity (the “SAFE”) with Technology Metals Market Limited (“TM2”) pursuant to which Ideanomics invested £1.5 million ($2.1 million.) If there is an equity financing (of above one million pounds (1,000,000) during the twelve months immediately following execution of the SAFE, on the initial closing of such equity financing the SAFE will automatically convert into the number of ordinary shares equal to the purchase amount divided by the lowest price per share of the ordinary shares paid during such equity financing. If no equity financing has taken place during the twelve-month period immediately following the date of the SAFE, the parties shall in good faith attempt for one month to agree a fair value per ordinary share represented by the SAFE, following which the SAFE shall convert into the number of ordinary shares equal to the purchase amount divided by such fair value. If the parties are unable to establish a fair value per ordinary share within such one-month period, they shall jointly appoint and remunerate an expert valuer who shall deliver to both TM2 and Ideanomics simultaneously a written determination of fair value per ordinary share. Following receipt by both parties of such written determination, the SAFE shall convert into ordinary shares equal to the purchase amount divided by such fair value as determined by the expert valuer.
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting consist of the following:(in thousands):
| September 30, 2019 | ||||||||||||||||||||||||||||
| Foreign currency | ||||||||||||||||||||||||||||
| December 31, | Loss on | Reclassification | translation | September 30, | ||||||||||||||||||||||||
| 2018 | Addition | investment | to subsidiaries | adjustments | 2019 | |||||||||||||||||||||||
| Wecast Internet | (i) | $ | 4,114 | $ | - | $ | (5 | ) | $ | - | $ | 1,930 | $ | 6,039 | ||||||||||||||
| Hua Cheng | (ii) | 308,666 | - | (32,890 | ) | - | (37,210 | ) | 238,566 | |||||||||||||||||||
| Shandong Media | (iii) | - | - | - | - | - | - | |||||||||||||||||||||
| BDCG | (iv) | 9,800,000 | - | - | - | - | 9,800,000 | |||||||||||||||||||||
| DBOT | (v) | 6,843,726 | - | (3,719,735 | ) | (3,123,991 | ) | - | - | |||||||||||||||||||
| Glory | (vi) | - | 23,000,000 | (32,462 | ) | - | - | 22,967,538 | ||||||||||||||||||||
| Total | $ | 16,956,506 | $ | 23,000,000 | $ | (3,785,092 | ) | $ | (3,123,991 | ) | $ | (35,280 | ) | $ | 33,012,143 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | |||||||||||||||||||
| | (As restated) | |||||||||||||||||||
|
| | |
| | |
| Income (loss) |
| Impairment |
| | | | Dilution loss | | | | |||
|
| January 1, 2021 |
| Addition |
| on investment |
| losses |
| Disposal |
| due to investee share issuance |
| March 31, 2021 | |||||||
Solectrac (a) | | $ | 2,556 | | $ | 0 | | $ | (59) | | $ | 0 | | $ | 0 | | $ | (31) | | $ | 2,466 |
TM2 (b) | |
| 1,227 | |
| 2,153 | |
| (178) | |
| 0 | |
| 0 | |
| 0 | |
| 3,202 |
Energica (c) | |
| 0 | |
| 13,555 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 13,555 |
Total | | $ | 3,783 | | $ | 15,707 | | $ | (237) | | $ | 0 | | $ | 0 | | $ | (31) | | $ | 19,223 |
All the investments above are privately held companies; therefore, quoted market prices are not available. We have not received any dividends since initial investments.
(i) Wecast Internet
Starting from October 2016, we have 50% interest in Wecast Internet Limited (“Wecast Internet”) and initial investment was invested RMB 1,000,000 (approximately $149,750). Wecast Internet is in the process of liquidation and the remaining carrying value is immaterial.
(ii) Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd.(“Hua Cheng”)
The Company held 39%has received no dividends from equity ownership in Hua Cheng, a company established to provide integrated value-added service solutions for the delivery of VOD and enhanced content for cable providers.
(iii) Shandong Lushi Media Co., Ltd (“Shandong Media”)
The Company held 30% equity ownership in Shandong Media, a print based media business, for Legacy YOD business. The accumulated operating loss of Shandong Media reduced the Company’s investment in Shandong Media to zero. The Company has no obligation to fund future operating losses.
(iv) BBD Digital Capital Group Ltd. (“BDCG”)
In 2018, we signed a joint venture agreement with two unrelated parties, to establish BDCG locatedmethod investees in the United States for providing block chain services for financial or energy industries by utilizing AIthree months ended March 31, 2021 and big data technology in the United States. The Company received 40% equity ownership in BDCG from the initial joint venture agreement. 2020.
(a) Solectrac, Inc. (“Solectrac”)
On April 24, 2018,October 22, 2020, the Company acquired 20% equity ownership in BDCG from one noncontrolling party1.4 million common shares, representing 15.0% of the total common shares outstanding, of Solectrac for a purchase price of $0.91 per share, for total consideration of $9.8$1.3 million. On November 19, 2020, Ideanomics acquired an additional 1.3 million which consistsshares of $2 millioncommon stock for $1.00 per share, for a subsequent investment of $1.3 million. The Company’ ownership in cashSolectrac was diluted to 24.3% as of March 31 2021 due to the new share issuance by Solectrac during the three months ended March 31 2021.
Solectrac develops, assembles and $7.8 million paid indistributes 100% battery-powered electric tractors-an alternative to diesel tractors-for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the formworld to power their tractors by using the sun, wind, and other clean renewable sources of energy.
(b) Technology Metals Market Limited (“TM2”)
On December 20, 2019, the Company acquired 20 common shares, representing 10.0% of the Company’s common stock (valued at $2.60 per share and equal to 3then outstanding shares for 1.7 million shares of the Company’s common stock), increasingstock valued at 1,000,000 British pounds (approximately $1.2 million). In connection with the Company’s ownership to 60% in BDCG. The remaining 40%acquisition of BDCG are held by Seasail ventures limited (“Seasail”). The accounting treatment of20 common shares, the joint venture is based on the equity method due to variable substantive participating rights (in accordance with ASC 810-10-25-11) granted to Seasail. The new entity is currently in the process of ramping up its operations. In April 2019, the company rebranded the name of the BDCG joint venture to Intelligenta. As part of the rebranding, Intelligenta’s strategy will now include credit services, corporation services, index services and products, and capital market services and products.
(v) Delaware Board of Trade Holdings, Inc. (“DBOT”)
Refer to Note 5(f).
(vi) Glory Connection Sdn. Bhd (“Glory”)
Refer to Note 5(e).
We lease certain office space and equipment from third parties. Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning in 2019 and later, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtainCompany also received the right to substantially allappoint 1 person (of 4) to the economic benefit fromboard of directors. Accordingly, the useCompany has significant influence over TM2.
TM2 is a London based digital commodities issuance and trading platform for technology metals. It connects institutional investors, proprietary traders and retail investors with metals suppliers – miners, refiners, recyclers and mints. The platform
34
focuses specifically on new metals that currently don’t have an active trading marketplace, such as rhodium, lithium, cobalt, rhenium, etc.
(c) Energica Motor Company S.P.A. (“Energica”)
On March 3, 2021, the Company entered into an investment agreement with Energica Motor Company S.P.A (“Energica.”) The Company invested €10.1 million ($13.6 million) for 6.1 million ordinary shares of Energica at a subscription price of €1.78 ($2.21) for each ordinary share. Pursuant to the purchase of the asset throughoutshares the period, and (3) whether we haveCompany will hold 20.0% of Energica’s share capital. From March 3, 2021 through September 30, 2021 the Company has the right to direct the useparticipate in any equity financing by Energica. Ideanomics will not be able to sell any of the asset. At inceptionshares for a period of 90 days.
Energica is the world’s leading manufacturer of high performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup. Energica motorcycles are currently on sale through the official network of dealers and importers.
The Company has decided to account for Energica on a lease, we allocateone quarter lag as Energica, which is publicly traded on the considerationMilan stock exchange, is only required to prepare and file semi-annual and annual financial statements, and the time frame in which the filings must be complete is much more lenient than in the contractU.S. Energica prepares its financial statements in accordance with Article 2423 et seq of the Italian Civil Code, rather than U.S. GAAP. Energica’s financial statements will either be prepared in or reconciled to each lease component based on its relative stand-alone price to determine the lease payments. Leases entered intoU. S. GAAP prior to January 1, 2019, are accounted for under ASC 840the Company recording its share of Energica’s earnings or losses, and were not reassessed. We account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the nonlease components (e.g.,common-area maintenance costs).
Most leases include one or more optionsquarter lag will be utilized to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal options is at our sole discretion. Our leases do not include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. All our leases are operating lease. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases and initial direct costs on our right-of-use asset and lease liability was not material.accomplish this, as well as related disclosure matters.
Note 11. Leases
As of September 30, 2019, ourMarch 31, 2021, the Company’s operating lease right of use assets and operating lease liabilityliabilities are approximately $6.8$2.5 million and $7.2$2.5 million, respectively. The weighted-average remaining lease term is 6.64.4 years and the weighted-average discount rate is 7.5%3.5%.
For the three and nine months ended September 30, 2019,The following table summarizes the components of lease expense were as follows:(in thousands):
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
| Operating Lease Cost | $ | 390,577 | $ | 1,264,049 | ||||
| Short-Term Lease Cost | 78,076 | 250,924 | ||||||
| Sublease Income | (10,605 | ) | (10,605 | ) | ||||
| Total Lease Cost | $ | 458,048 | $ | 1,504,368 | ||||
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, 2021 |
| March 31, 2020 | ||
| | (As restated) | | | | |
Operating lease cost | | $ | 169 | | $ | 487 |
Short-term lease cost | |
| 88 | |
| 85 |
Sublease income | |
| — | |
| (32) |
Total | | $ | 257 | | $ | 540 |
SupplementalThe following table summarizes supplemental information related to leases was as follows:(in thousands):
Nine Months Ended September 30, 2019 | ||||||||||
| | | | | | | ||||
| | Three Months Ended | ||||||||
|
| March 31, 2021 |
| March 31, 2020 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
| |
|
| |
| ||||
| Operating cash flows from operating leases | $ | 967,565 | | $ | 165 | | $ | 553 | ||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 935,242 | ||||||||
Right of use assets obtained in exchange for new operating lease liabilities | |
| 1,763 | |
| 322 | ||||
MaturityThe additional right of use assets were acquired in the Timios and WAVE acquisitions. The facilities acquired are office buildings in U.S. locations where they conduct business.
35
The following table summarizes the maturity of operating lease liability is as follows:liabilities (in thousands):
| Maturity of Lease Liability | Operating Lease | |||||||
| 2019 (excluding the nine months ended September 30, 2019) | $ | 332,549 | ||||||
| 2020 | 1,307,783 | |||||||
| | | | |||||
| | Leased Property | ||||||
| | Costs | ||||||
Years ending December 31 |
| (As restated) | ||||||
| 2021 | 1,328,160 | | $ | 605 | ||||
| 2022 | 1,422,965 | |
| 648 | ||||
| 2023 | 1,474,391 | |
| 575 | ||||
| 2024 and thereafter | 3,377,653 | |||||||
2024 | |
| 252 | |||||
2025 | |
| 190 | |||||
2026 and thereafter | |
| 406 | |||||
| Total lease payments | 9,243,501 | |
| 2,675 | ||||
| Less: Interest | (2,001,696 | ) | ||||||
Less: interest | |
| (213) | |||||
| Total | $ | 7,241,805 | | $ | 2,462 | |||
Other Current Assets
Note 12. Promissory Notes
“Other current assets” were approximately $2.4 million and $3.6 millionThe following table summarizes the outstanding promissory notes as of September 30, 2019March 31, 2021 and December 31, 2018, respectively. Components2020 (dollars in thousands):
| | | | | | | | | | | | | | |
| | | | March 31, | | December 31, | ||||||||
| | |
| 2021 | | 2020 | ||||||||
|
| Interest Rate |
| Principal Amount |
| Carrying Amount* |
| Principal Amount |
| Carrying Amount* | ||||
Vendor Note Payable |
| 0.25%-4 | % | $ | 105 | | $ | 105 | | $ | 105 | | $ | 105 |
Small Business Association Paycheck Protection Program |
| 1.0 | % |
| 760 | |
| 764 | |
| 460 | |
| 463 |
Promissory Note |
| 4.0 | % |
| 80,000 | |
| 80,446 | |
| — | |
| — |
Total |
| | | $ | 80,865 | | | 81,315 | | $ | 565 | |
| 568 |
Less: Current portion |
| | |
| | |
| (81,315) | |
|
| |
| (568) |
Long-term Note, less current portion |
| | | | | | $ | 0 | |
|
| | $ | 0 |
*Carrying amount includes the accrued interest.
As of "Other current assets" that were more than 5 percent of total current assets: (1) other receivable due from third parties in our subsidiaries located in PRC and Hong Kong in the amount of $1.7 million and $3.3 million for the period ended September 30, 2019March 31, 2021 and December 31, 2018 and (2) $0.6 million receivable due from ID Venturas 7 relating to the convertible debenture executed on September 27, 2019. As disclosed in Note 12(c), we have received the $0.6 million in October.
Other Current Liabilities
“Other current liabilities” were approximately $9.1 million and $5.3 million as of September 30, 2019 and December 31, 2018, respectively. Components of "Other current liabilities" that were more than 5 percent of total current liabilities: (1) $2.3 million liability relating to additional True-Up Common Stock consideration from the DBOT acquisition as disclosed in Note 5 (f) and (2) other payable due to third parties in the amount of $5.1 million and $4.6 million for the period ended September 30, 2019 and December 31, 2018, respectively.
The following is the summary of outstanding convertible notes as of September 30, 2019 and December 31, 2018:
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Convertible Note-Mr. McMahon(Note 14 (a)) | $ | 3,229,808 | $ | 3,140,055 | ||||
| Convertible Note-SSSIG (Note 14 (a)) | 1,288,032 | 1,000,000 | ||||||
| Convertible Note-Advantech | 12,382,806 | 11,313,770 | ||||||
| $2.05 million Senior Secured Convertible Note - ID Venturas 7 | 626,387 | - | ||||||
| $2.5 million Senior Secured Convertible Note - ID Venturas 7 | 14,917 | - | ||||||
| Total | $ | 17,541,950 | $ | 15,453,825 | ||||
| Short-term Note | 1,914,419 | 4,140,055 | ||||||
| Long-term Note | 15,627,531 | 11,313,770 | ||||||
(a) $12 million Convertible Note - Advantech
On June 28, 2018, the Company entered into a convertible note purchase agreement with Advantech Capital Investment II Limited (“Advantech”) in the aggregate principal amount of $12,000,000 (the Notes). The Notes bear interest at a rate of 8%, mature on June 28, 2021, and are convertible into approximately 6,593,406 shares of the Company’s common stock at a conversion price of $ 1.82 per share. The difference between the conversion price and the fair market value of the common stock on the commitment date (transaction date) resulted in a beneficial conversion feature recorded of approximately $1.4 million. For the three months ended September 30, 2019 and 2018, total interest expense recognized relating to the beneficial conversion feature was $117,000 and $112,000, respectively. For the nine months ended September 30, 2019 and 2018, total interest expense recognized relating to the beneficial conversion feature was $347,000 and $112,000, respectively. The agreement also requires the Company to comply with certain covenants, including restrictions on the use of the proceeds and other convertible note offering. As of September 30, 2019,2020, the Company was in compliance with all ratios and covenants.
The Company had various debt instruments outstanding as of March 31, 2020. As of March 31, 2020, the total principal amount outstanding was $28.9 million, and the carrying amount, net of debt discounts arising from beneficial conversion features and including accrued interest, was $19.0 million. These debt instruments were either converted into common stock of the Company or repaid on or prior to their scheduled maturity dates in the year ended December 31, 2020.
(b) $2.05In the three months ended March 31, 2020, the Company received aggregate gross proceeds of $2.0 million Senior Securedfrom the issuance of convertible notes to YA II PN, Ltd. (“YA PN II,”) pursuant to a previous securities purchase agreement.
In the three months ended March 31, 2020, the Company recorded interest expense related to these debt instruments of $3.2 million, including amortization of the beneficial conversion features of $2.7 million.
$37.5 Million Convertible Debenture due in August 2020 - ID Ventura 7
July 4 2021 – YA II PN
On February 22, 2019,January 4, 2021, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”),YA II PN, whereby the Company issued $2,050,000a convertible note of senior secured convertible note.$37.5 million, and received aggregate gross proceeds of $37.5 million. The note bearswas scheduled to mature on July 4, 2021 and bore interest at aan annual rate of 10% per year payable either4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $2.00. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash or in kind atredemption price equal to the optionprincipal to be redeemed, plus
36
accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company on a quarterly basis and matures on August 22, 2020. In addition, IDV is entitled toother obligations and rights of the following: (i)parties.
During the convertiblethree months ended March 31, 2021, the note, is senior secured; (ii) convertible at $1.84 per share of Company common stock at the option of IDV (approximately 1,114,130 shares), subject to adjustments if subsequent equity shares have a lower conversion price, (ii) 1,166,113plus accrued and unpaid interest, was converted into 18.8 million shares of common stock of the Company and (iii) a warrant exercisable for 150% of the number of shares of common stock which the note is convertible into (approximately 1,671,196 shares) at an exercise price of $1.84 per share and will expire 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the Warrants to $1.00,
The Company received aggregate gross proceeds of $2 million, net of $50,000 for the issuance expenses paid by IDV. Total funds received were allocated to convertible note, common stocks and warrants based on their relative fair values in accordance with ASC 470-20-30. The value of the convertible note and common stocks was based on the closing price on February 22, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 111.83% and an interest rate of 2.48%. The relative fair value of the warrants was recorded as additional paid-in capital and reduced the carrying amount of the convertible note. The Company recognized a beneficial conversion feature discount on convertible note at its intrinsic value, which was the fair value of the common stock at the commitment date for convertible note, less the effective conversion price. The Company recognized approximately $600,000 of beneficial conversion feature as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible note in the accompanying consolidated balance sheet.
The discounts on the convertible note for the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $1,424,000.Company. Total interest expense recognized relating to the discount was approximately $175,000 and $626,000$25,479 for the three and nine months ended September 30, 2019, respectively.March 31, 2021.
Interest on the convertible note is payable quarterly starting from April 1, 2019. The convertible note is redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the convertible note plus additional warrants and accrued and unpaid interest to the date of redemption.
The security purchase agreement contains customary representations, warranties and covenants. The convertible note is collateralized by the Company’s equity interest in Grapevine, which had a carrying amount of $2.4 million as of September 30, 2019. The Company has the right to request for the removal of the guarantee and collateral by issuance of additional 250,000 shares of common stock. On September 27, 2019, the Company issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of the warrants, within 180 days following the closing of the transaction.
The Company is also subject to penalty fee at 8% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion shares upon conversion.
(c) $2.5 million Senior Secured$37.5 Million Convertible Debenture due in MarchJuly 15 2021 - ID Ventura 7
– YA II PN
On September 27, 2019,January 15, 2021, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”),YA II PN, whereby the Company issued $2,500,000a convertible note of senior secured convertible note.$37.5 million, and received aggregate proceeds of $37.5 million. The note bearswas scheduled to mature on July 15, 2021 and bore interest at aan annual rate of 10% per year payable either4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $3.31. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash or in kind atredemption price equal to the optionprincipal to be redeemed, plus accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company on a quarterly basis and matures onother obligations and rights of the parties.
During the three months ended March 27, 2021. In addition, IDV is entitled to31, 2021, the following: (i) the convertible note, is senior secured; (ii) convertible at $1.84 per share of Company common stock at the option of IDV (approximately 1,358,696 shares), subject to adjustments if subsequent equity shares have a lower conversion price, (ii) 1,000,000plus accrued and unpaid interest, were converted into 11.3 million shares of common stock of the Company. Total interest expense recognized was $46,301 for the three months ended March 31, 2021.
$65.0 Million Convertible Debenture due July 28 2021 – YA II PN
On January 28, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $65.0 million, and received aggregate proceeds of $65.0 million. The note was scheduled to mature on July 28, 2021 and bore interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $4.12. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company and (iii) a warrant exercisable for 150%other obligations and rights of the number ofparties.
During the three months ended March 31, 2021, the note, plus accrued and unpaid interest, were converted into 15.8 million shares of common stock which the note is convertible into (approximately 2,038,043 shares) at an exercise price of $1.84 per share and will expire 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the Warrants to $1.00,
The Company will receive aggregate gross proceeds of $2.5 million, net of $66,195 for the issuance expenses paid by IDV. The Company received $1.8 million proceed in September and the remaining $633,805 was received in October. Total gross proceeds were allocated to convertible note, common stocks and warrants based on their relative fair values in accordance with ASC 470-20-30. The value of the convertible note and common stocks was based on the closing price on September 27, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 110.36% and an interest rate of 1.55%. The relative fair value of the warrants was recorded as additional paid-in capital and reduced the carrying amount of the convertible note. The Company recognized a beneficial conversion feature discount on convertible note at its intrinsic value, which was the fair value of the common stock at the commitment date for convertible note, less the effective conversion price. The Company recognized approximately $989,000 of beneficial conversion feature as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible note in the accompanying consolidated balance sheet.
The discounts on the convertible note for the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $2,488,000.Company. Total interest expense recognized relating to the discount was approximately $12,000 and $12,000$53,699 for the three and nine months ended September 30, 2019, respectively.March 31, 2021.
$80.0 Million Convertible Debenture due August 8, 2021 – YA II PN
Interest onOn February 8, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note is payable quarterly starting from October 1, 2019.of $80.0 million, and received aggregate proceeds of $80.0 million. The convertible note is redeemablescheduled to mature on August 8, 2021 and bears interest at an annual rate of 4.0%, which increases to 18.0% in the optionevent of default. The note has a fixed conversion price of $4.95. The conversion price is not subject to adjustment except for subdivisions or combinations of common stock. The Company has the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contains customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
Total interest expense recognized was $0.4 million for the three months ended March 31, 2021.
Vendor Notes Payable
On May 13, 2020, DBOT entered into a settlement agreement with a vendor whereby the existing agreement with the vendor was terminated, the vendor ceased to provide services, and all outstanding amounts were settled. In connection with this agreement, DBOT paid an initial $30,000 and executed an unsecured promissory note in wholethe amount of $60,000, bearing
37
interest at 0.25% per annum, and payable in 2 installments of $30,000. The first installment was due on December 31, 2020 and was repaid, and the remaining payment is due on August 31, 2021.
In the three months ended March 31, 2020 the Company ceased to use the premises underlying one lease and vacated the real estate. In the three months ended June 30, 2020, the Company completed negotiations with the landlord to settle the remaining operating lease liability of $0.9 million by issuing a promissory note for $0.1 million, bearing an annual interest rate of 4.0%, and which is due and payable on December 31, 2021.
Small Business Association Paycheck Protection Program
On April 10, 2020, the Company borrowed $0.3 million at an initial redemption priceannual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan was originally payable in 18 installments of $18,993 commencing on November 10, 2020, with a final payment due on April 10, 2022. With several amendments, the loan is currently payable monthly commencing on September 10, 2021, with a final payment due on April 10, 2025. The Company may apply for forgiveness of this loan in the next twelve months in an amount equal to the sum of the principal amountfollowing costs incurred in the eight weeks following the disbursement of the convertible note plus additional warrantsloan: (1) payroll costs, (2) interest on a covered mortgage obligation, (3) payment on a covered rent obligation, and accrued and unpaid interest to(4) any covered utility payment.
On May 1, 2020, Grapevine borrowed $0.1 million at an annual rate of 1.0% from a commercial bank through the dateSmall Business Association Paycheck Protection Program. The loan was originally payable in 18 installments of redemption.
The security purchase agreement contains customary representations, warranties and covenants. The convertible noteapproximately $7,000 commencing on December 1, 2020, with a final payment due on May 1, 2022. With several amendments, the loan is collateralized by the Company’s equity interest in DBOT, which hadcurrently payable commencing on October 1, 2021, with a carrying amount of $14.3 million as of September 30, 2019.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of the warrants, within 120 days following the closing of the transaction.
final payment due on April 10, 2025. The Company is also subjectplanning to penalty feerepay the loan in the next few months.
On May 3, 2020, WAVE borrowed $0.3 million at 8% per annuman annual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan was originally payable in 18 installments of $12,630 commencing on November 1, 2020, with a final payment due on May 3, 2022. After the issuance of an additional grace period, payments will commence on April 3, 2021 and will continue until the original maturity date of May 3, 2022. WAVE used the loan for late payments of interestsqualifying expenses and compensationthe Company expects to qualify for full or partial forgiveness under the loss of IDV on failure to timely deliver conversion shares upon conversion.program in the next few months.
Total interest expense recognized was $1,138 in the three months ended March 31, 2021.
Note 13.Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
Our boardThe Board of directorsDirectors has authorized 5050.0 million shares of convertible preferred stock, $0.001 par value, issuable in series.
As of September 30, 2019March 31, 2021 and December 31, 2018, 7,000,0002020, 7.0 million shares of Series A preferred stock were issued and outstanding and is convertible, at any time at the option of the holder, into 933,333 shares of common stock (subject to customary adjustments).outstanding. The Series A preferred stock shall be entitled to tenone vote per common stock on an as-converted basis and is only entitled to receive dividends when and if declared by the board. On liquidation, both seriesBoard.
Redeemable Non-controlling Interest
The Company and Qingdao Chengyang Xinyang Investment Company Limited (“Qingdao”) formed an entity named Qingdao Chengyang Mobo New Energy Vehicle Sales Service Company Limited (“New Energy.”) Qingdao entered into a capital subscription agreement for a total of preferred stockRMB 200.0 million ($28.0 million), and made the first capital contribution of RMB 50.0 million in the three months ended March 31, 2020. The remaining RMB 150.0 million ($21.0 million) are entitledpayable in 3 installments of RMB 50.0 million ($7.0 million) upon New Energy attaining certain revenue or market value benchmarks.
The investment agreement stipulates that New Energy must pay Qingdao dividends at the rate of 6.0%. After one year, Qingdao may sell its investment to a liquidation preference of $0.50 per share.an institutional investor, and after three years may redeem its investment for the face amount plus 6.0% interest less dividends paid. The shares are not redeemable except on liquidation or if thereredemption feature is a change in control ofneither mandatory nor certain. Due to the redemption feature, the Company or a sale of all or substantially all ofhas classified the assets of the Company. The conversion price of the Series A may only be adjusted for standard anti-dilution, such as stock splits and similar events. The Series A preferred stocks are considered to be equity instruments and therefore the embedded conversion options have not been separated. Because the preferred stocks have conditions for their redemption that may be outside the control of the Company, they have been classifiedinvestment outside of Shareholders’ Equity, inpermanent equity.
38
The following table summarizes activity for the mezzanine sectionredeemable non-controlling interest (in thousands):
| | | | | |
| | Three months ended | |||
|
| March 31, 2021 |
| March 31, 2020 | |
Beginning balance | | $ | 7,485 |
| — |
Initial investment | |
| |
| 7,047 |
Accretion of dividend | |
| 115 |
| 106 |
Loss attributable to non-controlling interest | |
| (154) |
| (80) |
Adjustment to redemption value | |
| 154 |
| 80 |
Ending balance | | $ | 7,600 |
| 7,153 |
Common Stock
The Board of our balance sheet.
Common Stock
Our board of directorsDirectors has authorized 1,500 million shares of common stock, $0.001 par value.
2021 Equity Transactions
On February 26, 2021, the Company entered into a sales agreement with Roth Capital Partners, LLC (“Roth Capital.”) in accordance with the terms of the sales agreement, the Company may offer and sell from time to time through Roth Capital the Company’s common stock having an aggregate offering price of up to $150.0 million (the “Placement Shares.”) The Placement Shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333- 252230.) The Company is not obligated to sell any Placement Shares pursuant to the sales agreement. Subject to the terms and conditions of the sales agreement, Roth Capital will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of the Nasdaq Stock Market (“Nasdaq,”) to sell the Placement Shares from time to time based upon the Company’s instructions, including any price, time or size limits or other customary parameters or conditions the Company may impose. Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. The Company shall pay to Roth Capital in cash, upon each sale of Placement Shares pursuant to the Agreement, an amount equal to 3.0% of the gross proceeds from each sale of Placement Shares. During the three months ended March 31, 2021, the Company issued 17.6 million shares of common stock and received net proceeds of $53.4 million after deducting $1.7 million commission and transaction fees.
Refer to Note 6 for information related to the issuance to common stock for acquisitions, Note 12 for information related to issuance of common stock with convertible notes, Note 15 for information related to the issuance to common stock for option exercise.
2020 Equity Transactions
During the three months ended March 31, 2020, the Company issued 10.9 million shares of common stock related to the DBOT acquisition, issued 1.5 million shares of common stock related to convertible notes and 1.0 million shares of common stock related to warrant exercise.
Note 14.Related Party Transactions
(a) Convertible Notes
$3.0 Million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, ourthe Company’s Vice Chairman, made a loan to the Company in the amount of $3,000,000.$3.0 million. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3,000,000 (the “Note”)$3.0 million at a 4%4.0% interest rate computed on the basis of a 365-day year. WeThe Company entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.5)$1.50), convertible stocks (changed from of Series E Preferred Stock to Common Stock). The last amendment was made on May 9, 2020, and extension ofextended the maturity date to December 31, 2020.
2022. For the three and nine months ended September 30, 2019,March 31, 2020, the Company recorded interest expense of approximately $30,000 and $90,000, respectively,$29,918 related to the note.
39
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the Note. ForOn June 5, 2020, the three and nine months ended September 30, 2018,Note was converted into 5.1 million shares of common stock. The Company paid the Company also recordedaccumulated interest expense of approximately $30,000 and $90,000, respectively, related$0.3 million in cash prior to the Note. Interest payable was $229,808 and $140,055 as of September 30, 2019 and December 31, 2018, respectively.conversion.
$2.5 Million Convertible Promissory Note with SSSIG
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $2,500,000.$2.5 million. The convertible promissory note bears interest at a rate of 4%4.0%, matureswas scheduled to mature on February 8, 2020, and iswas convertible into the shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG.
As of September 30, 2019, the Company received $1.3 million from SSSIG. The Company has not received the remaining $1.2 million as of the date of this report. For the three and nine months ended September 30, 2019,March 31, 2020, the Company recorded interest expense of approximately $13,000 and $36,000, respectively,$12,489 related to the Note.convertible promissory note. The Company did not pay the interest in cash on this note.
The Company received $1.3 million from SSSIG, and did not receive the remaining $1.2 million. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 2.2 million shares of common stock.
$1.0 Million Convertible Promissory Note with SSSIG
(b) Transactions with GTD
Disposal of Assets in exchange of GTB
In MarchOn November 25, 2019, the Company completedentered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the saleaggregate principal amount of $1.0 million. The convertible promissory note bore interest at a rate of 4.0%, was initially scheduled to mature on November 25, 2021, and was convertible into the shares of the following assets (with total carrying amountCompany’s common stock at a conversion price of approximately $20.4 million) to GTD, a minority shareholder based in Singapore, in exchange for 1,250,000 GTB. The Company considers the arrangement as a nonmonetary transaction and the fair values of GTB are not reasonably determinable due to the reasons described in Note 3. Therefore, GTB received are recorded$1.25 per share anytime at the carrying amountoption of SSSIG. For the assets exchanged andthree months ended March 31, 2020, the Company recorded interest expense of $3,493. The Company did not recognize any gain or loss basedpay the interest in cash on ASC 845-10-30.this note.
The Company received $0.25 million from SSSIG and did not receive the remaining $0.75 million. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 0.4 million shares of common stock.
Digital asset management services(b) Severance payments
Please referPursuant to Note 3.
(c) Crude Oil Trading
Forprevious severance agreements with certain executives, the nineCompany paid $0.1 million in the three months ended SeptemberJune 30, 2018, we purchased crude oil in the amount of approximately $244.1 million from three suppliers that a minority shareholder of the Company has significant influence upon because this minority shareholder has significant influence on both our Singapore joint venture2020, and these three suppliers. The Company has recorded the purchaseremaining $0.1 million in “Other current liabilities” on a separate line item referenced as “Cost of revenue from related parties” in its financial statements. There is no outstanding balance due (in Accounts Payable) as of September 30, 2019. No such related party transactions occurred for the same period in 2019.
(d) Severance payments
On February 20, 2019, the Company accepted the resignation of former Chief Executive Officer, former Chief Investment Officer and former Chief Strategy Officer and agreed to pay approximately $837,000 in total for salary, severance and expenses. The Company paid $637,000 in the first quarter of year 2019 and recorded $200,000 in other current liabilities on ourcondensed consolidated balance sheet as of September 30, 2019. The $837,000 severance expenses were recorded in the Selling, generalMarch 31, 2021 and administrative expenses of the income statement.December 31, 2020.
(e) Borrowing from(c) Transaction with Dr. Wu. and his affiliates
On June 5, 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings at a conversion price of $0.59 per common share, contingent upon the immediate conversion of these amounts. On June 5, 2020, the borrowings of $1.5 million, including the $0.4 million transferred from Beijing Financial Holding Limited, were converted into 2.6 million shares of common stock.
DuringAs of March 31, 2021 and December 31, 2020, the third quarterCompany has receivables of 2019, the Company’s net borrowings$0.2 million and $0.2 million, respectively, due from Dr. Wu and his affiliates increased byand recorded in “Amounts due from related parties” in the consolidated balance sheets.
As of March 31 2021 and December 31 2020, the Company has payables of $1.0 million. Wemillion and $0.6 million, respectively, due to Dr. Wu and his affiliates and recorded these borrowings in amount“Amounts due to related parties on ourparties” in the consolidated balance sheetsheets. The increase is mainly due to $0.4 million accrued service charges payable to SSSIG for the period from January 1, 2021 through March 31, 2021.
40
Service agreement with SSSIG
The Company entered a service agreement with SSSIG for the period from July 1, 2020 through June 30, 2021 for $1.4 million in exchange for consulting services from SSSIG. The services include but are not limited to human resources, finance and legal advice. The Company recorded the service charges of $0.4 million in “Professional fees” for the three months ended March 31, 2021, and $0.6 million in “Amount due to related parties” as of September 30, 2019. These borrowings bear no interest.March 31, 2021. The Company is in the process of renegotiating the service agreement.
(d) Amounts due from and due to Glory
(f) AcquisitionGlory has made partial payment of Fintalk Assets$0.5 million on behalf of the Company to acquire the land use rights and the Company has made payments of $0.2 million on behalf of Glory for some of its operational expenses during the year ended December 31, 2020. The net balance of $0.3 million due to Glory as result of these payments is recorded in “Amount due to related parties” as of March 31, 2021 and December 31, 2020.
Please refer(e) Long Term Investment to Note 5(b).
(g) Asset for Sale-Red Rock Global Capital LTD (“Red Rock”)
Please refer to Note 5(g).
(h) Acquisition of Grapevine Logic. (“Grapevine”)
Please refer to Note 5(c).
(i) Amer Global Technology Limited (“Amer”)
Please refer to Note 5(h).
(j)Taxis commission revenue from Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co. (“Shenma”) to acquire its 1.72% ownership in Qianxi for consideration of $4.9 million, which was to be paid in 6 installments. Shenma was required to complete the share transfer registration prior to May 31, 2020, otherwise it will be required to return the consideration to the Company. The Company has paid $0.5 million as of March 31, 2021 and December 31, 2020 and recorded it on the “Other Non-Current Assets” since the share transfer registration is not completed yet. The Company is currently taking actions to resolve these matters.
Please refer to
Note 3.
15.Share-Based Compensation
As of September 30, 2019,March 31, 2021, the Company had 14,971,43125.8 million options, 55,5860.1 million restricted shares and 3,709,2401.1 million warrants outstanding.
The Company awards common stock and stock options to employees, consultants, and directors as compensation for their services, and accounts for its stock option awards to employees, consultants, and directors pursuant to the provisions of ASC 718,Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, ourthe Company’s Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which options or other similar securities may be granted. AsOn October 22, 2020, the Company’s shareholders approved the amendment and restatement of September 30, 2019, the 2010 Plan. The maximum aggregate number of shares of our common stock that may be issued under the 2010 Plan is 31,500,000increased from 31.5 million shares to 56.8 million shares. As of September 30, 2019,March 31, 2021, options and restricted shares available for issuance are 14,160,32623.6 million shares.
The company recordedFor the three months ended March 31, 2021 and 2020, total share-based payments expense was $2.0 million and $2.2 million, respectively.
41
(a) Stock Options
The following table summarizes stock option activity for the three months ended September 30, 2019 and 2018 and $6,474,227 and $3,372,447 for the nine months ended September 30, 2019 and 2018, respectively.March 31, 2021:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
|
| |
| Weighted | | Average | | | | |
|
| |
| Average |
| Remaining |
| Aggregate | ||
|
| Options |
| Exercise |
| Contractual | | Intrinsic | ||
|
| Outstanding |
| Price |
| Life (Years) |
| Value | ||
Outstanding at January 1, 2021 |
| 25,087,416 | | $ | 1.29 |
| — | | $ | — |
Granted |
| 1,705,000 | |
| 3.01 |
| — | |
| — |
Exercised |
| (480,834) | |
| 0.54 |
| — | |
| — |
Expired |
| (156,255) | |
| 0.53 |
| — | |
| — |
Forfeited |
| (395,830) | |
| 0.53 |
| — | |
| — |
Outstanding at March 31, 2021 |
| 25,759,497 | |
| 1.44 |
| 7.72 | |
| 39,294,450 |
Vested as of March 31, 2021 |
| 17,006,683 | |
| 1.60 |
| 6.87 | |
| 23,226,636 |
Expected to vest as of March 31, 2021 |
| 8,752,814 | |
| 1.12 |
| 9.37 | |
| 16,067,814 |
(a)Stock Options
Stock option activity for the nine months ended September 30, 2019 is summarized as follows:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregated | ||||||||||||||
| Options | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Life (Years) | Value | |||||||||||||
| Outstanding at January 1, 2019 | 1,706,431 | $ | 3.28 | 4.08 | $ | - | ||||||||||
| Granted | 14,325,000 | 1.98 | 8.75 | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | (83,333 | ) | 1.98 | - | - | |||||||||||
| Forfeited | (976,667 | ) | 1.98 | - | - | |||||||||||
| Outstanding at September 30, 2019 | 14,971,431 | $ | 2.13 | 8.72 | $ | - | ||||||||||
| Vested and expected to be vested as of September 30, 2019 | 14,971,431 | $ | 2.13 | 8.72 | $ | - | ||||||||||
| Options exercisable at September 30, 2019 (vested) | 5,529,977 | $ | 2.38 | 7.55 | $ | - | ||||||||||
As of September 30, 2019, approximately $14,255,266March 31, 2021, $8.0 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of approximately 1.41.24 years. The total intrinsic value of shares exercised in the three months ended March 31, 2021 and 2020 was $0.5 million and $0, respectively. The total fair value of shares vested forin the ninethree months ended September 30, 2019March 31, 2021 and 20182020 was $6,010,085$1.9 million and $319,001,$2.2 million, respectively. Cash received from options exercised duringin the ninethree months ended September 30, 2019March 31, 2021 and 2018 was approximately2020 were $0.3 million and $0, and $2,632, respectively.
The following table summarizes the assumptions used to estimate the fair values of the share options granted in the three months ended March 31, 2021 and 2020.
(b)Warrants
| | | | | |
| | Three Months Ended | | ||
| March 31, 2021 | March 31, 2020 | | ||
Expected term (in years) | 5.51-5.53 | — | | ||
Expected volatility | 120%-122 | % | — | % | |
Expected dividend yield | — | % | — | % | |
Risk free interest rate | 0.51%-1.01 | % | — | % | |
(b) Warrants
In connection with certain of the Company’s financings, the Warner Brother Agreement and the service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The warrants issued to Warner Brother were expired without exercise on January 31, 2019. The Company issued warrants to IDV in connection with senior secured convertible notes (See Note 12) and the weighted average exercise price was $1.84$4.00 and the weighted average remaining life was approximately 4.731.36 years.
| September 30, 2019 | December 31, 2018 | |||||||||||||
| Number of | Number of | |||||||||||||
| Warrants | Warrants | |||||||||||||
| Outstanding and | Outstanding and | Exercise | Expiration | |||||||||||
| Warrants Outstanding | Exercisable | Exercisable | Price | Date | ||||||||||
| 2014 Broker Warrants (Series E Financing) | - | 60,000 | $ | 1.75 | 1/31/19 | |||||||||
| $2.05 million IDV Senior Secured Convertible Debenture | 1,671,196 | - | $ | 1.84 | 2/22/2024 | |||||||||
| $2.5 million IDV Senior Secured Convertible Debenture | 2,038,044 | - | 1.84 | 9/27/2024 | ||||||||||
| 3,709,240 | 60,000 | |||||||||||||
| | | | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 |
|
| |
| |
| | Number of | | Number of | | | | | |
| | Warrants | | Warrants | | | | | |
| | Outstanding and | | Outstanding and | | Exercise | | Expiration | |
Warrants Outstanding | | Exercisable | | Exercisable | | Price | | Date | |
Service providers |
| 200,000 |
| 200,000 | | $ | 5.00 | | July 1, 2022 |
Service providers |
| 700,000 |
| 700,000 | |
| 2.50 | | February 28, 2022 - October 1, 2022 |
Service provider |
| 100,000 |
| — | |
| 7.50 | | January 1, 2023 |
Service provider |
| 100,000 |
| — | |
| 9.00 | | January 1, 2023 |
Total |
| 1,100,000 |
| 900,000 | |
|
| |
|
On September 24, 2018, the Company entered into employment agreements with three executives. As part of their employment agreements, they are entitled to warrants for an aggregate of 8,000,000 shares at an exercise price of $5.375 per share (the “Exercise Price”), which is a 25% premium to the $4.30 per share closing market price of the Company’s common stock on September 7, 2018, the date upon which the terms of the employment agreements were mutually agreed. In February 2019, the rights to receive warrants were terminated due to the resignation of three executives.
(c)Restricted Shares
In January 2019, the Company granted 129,840 restricted shares to the two independent directors under the “2010 Plan” which was approved as part of the 2018 independent board compensation plan by the Board of Directors. The restricted shares were all vested immediately since commencement date. The aggregated grant date fair value of all those restricted shares was $161,001.
A summary of the unvested restricted shares is as follows:
| Weighted-average | ||||||||
| Shares | fair value | |||||||
| Non-vested restricted shares outstanding at January 1, 2019 | 87,586 | $ | 2.46 | |||||
| Granted | 129,840 | $ | 1.24 | |||||
| Forfeited | (3,000 | ) | $ | 2.60 | ||||
| Vested | (158,840 | ) | $ | 1.49 | ||||
| Non-vested restricted shares outstanding at September 30, 2019 | 55,586 | $ | 2.37 | |||||
As of September 30, 2019,March 31, 2021, there was $33,800$0 of unrecognized compensation cost related to unvested restricted shares. This amount is expected to be recognized over a weighted-average period
42
Note 16.Earnings (Loss) Per Common Share
The following table summarizes the Company’s earnings (loss) per share for the three months ended March 31, 2021 and 2020 (USD in thousands, except per share amounts):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, |
| March 31, | ||
| | 2021 | | 2020 | ||
|
| (As restated) |
| | | |
Net loss attributable to common stockholders | | $ | (6,412) | | $ | (12,348) |
Basic weighted average common shares outstanding | |
| 391,125,134 | |
| 157,859,642 |
Effect of dilutive securities | |
|
| |
|
|
Convertible preferred shares- Series A | |
| — | |
| — |
Convertible promissory notes | |
| — | |
| — |
Diluted potential common shares | |
| 391,125,134 | |
| 157,859,642 |
Earnings (loss) per share: | |
|
| |
|
|
Basic | | $ | (0.02) | | $ | (0.08) |
Diluted | | $ | (0.02) | | $ | (0.08) |
Basic earnings (loss) per common share attributable to ourthe Company’s shareholders is calculated by dividing the net earnings (loss)loss attributable to ourthe Company’s shareholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share is calculated by taking net earnings (loss),loss, divided by the diluted weighted average common shares outstanding. The calculations of basic and diluted earnings (loss) per share for the three months and nine months ended, 2019 and 2018 are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net earnings (loss) attributable to common stockholders | $ | (13,711,867 | ) | $ | (7,186,847 | ) | $ | 11,506,861 | $ | (19,228,240 | ) | |||||
| Interest expense attributable to convertible promissory note | - | - | 125,485 | - | ||||||||||||
| Net earnings (loss) assuming dilution | (13,711,867 | ) | (7,186,847 | ) | 11,632,346 | (19,228,240 | ) | |||||||||
| Basic | ||||||||||||||||
| Basic weighted average common shares outstanding | 127,609,748 | 74,063,495 | 113,964,933 | 71,574,303 | ||||||||||||
| Effect of dilutive securities | - | - | - | - | ||||||||||||
| Convertible preferred shares- Series A | - | - | 933,333 | - | ||||||||||||
| Conversion of restricted shares and employee stock options | - | - | 22,823 | - | ||||||||||||
| Convertible promissory notes | - | - | 2,777,687 | - | ||||||||||||
| Contingently issuable shares | - | - | 621,117 | - | ||||||||||||
| Diluted potential common shares | 127,609,748 | 74,063,495 | 118,319,893 | 71,574,303 | ||||||||||||
| Net earnings (loss) per share: | ||||||||||||||||
| Basic | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
| Diluted | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
In 2018, dilutedDiluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares wasis anti-dilutive.
The following table includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have a contractual obligation to share in our earnings (losses)the Company’s losses and thus these shares were not included in the computation of diluted earnings (loss)loss per share because the effect was antidilutive.antidilutive (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||||||
| | | | | ||||||||||||||||
|
| March 31, |
| December 31, | ||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||||
| Warrants | 3,709,240 | 60,000 | 3,709,240 | 60,000 |
| 1,100 |
| 900 | ||||||||||||
| Options | 14,971,431 | 1,797,017 | 14,965,598 | 1,797,017 | ||||||||||||||||
Options and RSUs |
| 25,844 |
| 25,172 | ||||||||||||||||
| Series A Preferred Stock | 933,333 | 933,333 | - | 933,333 |
| 933 |
| 933 | ||||||||||||
DBOT contingent shares |
| 1,013 |
| 1,013 | ||||||||||||||||
| Convertible promissory note and interest | 12,417,909 | 10,227,507 | 9,324,911 | 10,227,507 |
| 16,162 |
| — | ||||||||||||
| Contingently issuable shares | 2,322,808 | - | - | - | ||||||||||||||||
| Total | 34,354,721 | 13,017,857 | 27,999,749 | 13,017,857 |
| 45,052 |
| 28,018 | ||||||||||||
Note 17.Income Taxes
During the ninethree months ended September 30, 2019, the Company recordedMarch 31, 2021 there was an income tax benefit of $513,935, $152,876 resulting$7.2 million. This principally consisted of a reduction in the Company’s valuation allowance that resulted from lossesthe acquisitions of Grapevine Logic, Inc. offsettingTimios and WAVE. In both cases intangible assets were recognized for financial reporting purposes that were not recognized for income tax purposes. This, in combination with some smaller temporary differences of Timios and WAVE, resulted in the recognition of $8.3 million deferred tax liabilities. The federal tax returns of Timios and WAVE will be included in the Ideanomics and subsidiaries consolidated U.S. federal tax return. WAVE will be included in the state tax returns of Ideanomics. The federal deferred tax liabilities, that were recognized onand the acquisition of Grapevine Logic, Inc. and a $361,059 reduction ofWAVE state deferred tax liabilities created, resulted in the valuation allowance on Ideanomics, Inc.Ideanomics’ deferred tax assets in excess of those reversed to offset Ideanomics, Inc.’s income. The reduction in valuation allowance resulted from Ideanomics, Inc.’s acquisition of additional ownership interests in Grapevine Logic, Inc. which caused Grapevine Logic, Inc.being reduced by an equal amount. Ideanomics’ net deferred tax assets that had previously been judged to be included inmore likely that not to be unable to reduce the Company’s income tax liability and consequently were completely offset by a consolidated tax return with Ideanomics, Inc. beginning June 30, 2019. This meant that $361,059valuation allowance. Once the acquisitions of Ideanomics, Inc.’sTimios and WAVE occurred, a portion of Ideanomics’ deferred tax assets could be utilized to offset Grapevine Logic Inc.’s remainingin offsetting the newly acquired deferred tax liabilities. Thisliabilities, this resulted in an effectivea $7.4 million one-time income tax ratebenefit.
43
Timios has taxable income reported on certain separate state tax returns and consequently has related state income tax expense. The effectivenet state income tax rateexpense for Timios was $0.2 million for the ninethree months ended September 30, 2019 differs fromMarch 31, 2021. There are 0 other material income tax expenses or benefits for the U.S. statutorythree months ended March 31, 2021 because of net operating loss and deferred tax rate primarilyassets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100% valuation allowance against its net deferred tax assets, excluding Timios’ net state deferred tax liabilities, due to the effectits history of taxes on foreign earnings, non-deductible expensespre-tax losses and the reduction inlikelihood that the beginning of the year deferred tax assets will not be realized.
During the three months ended March 31, 2020 income tax expense is NaN because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance.
As of September 30, 2019, the Company had approximately $9.9 millionestablished a 100% valuation allowance against its net deferred tax assets due to its history of pre-tax losses and the U.S domestic cumulativelikelihood that the deferred tax loss carryforwards and approximately $30.9 million of the foreign cumulative tax loss carryforwards which mayassets will not be available to reduce future income tax liabilities in certain jurisdictions. The remaining 2018 U.S. tax loss is not subject to expiration under the new Tax Law. The foreign tax loss carryforwards will expire beginning year 2019 through 2023.
realized.
There was nowere 0 identified unrecognizeduncertain tax benefitpositions as of September 30, 2019. We are not aware of any unrecorded tax liabilities which would impact our financial position or our results of operations.March 31, 2021 and December 31, 2020.
Note 18.Commitments and Contingencies
Lawsuits and Legal Proceedings
From time to time, wethe Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm ourthe business.
Shareholder Class Action
Actions and Derivative Litigation
On July 19, 2019, a purported class action, now captioned Jose Pinto Claro Da Fonseca MirandaRudani v. Ideanomics, et al. Inc., was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers.officers and directors. The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018.
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics et al. Inc., was filed in the United State District Court for the Southern District of New York against the Company and certain current officers and directors of the Company. Additionally, on July 7, 2020, a purported securities class action captioned Kim v. Ideanomics, et al, was filed in the Southern District of New York against the Company and certain current officers and directors of the Company. Both cases alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division. On November 4, 2020, the Lundy and Kim actions were consolidated and is now titled “In re Ideanomics, Inc. Securities Litigation.” In December 2020, the Court appointed Rene Aghajanian as lead plaintiff and an amended complaint was filed in February 2021, alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al., 1:20-cv-05333. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, 20-cv-5333, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, 20-cv-608, alleging violations and allegations similar to the Toorani and Elleisy litigation.
As previously disclosed, there was a mediation scheduled for April 21 and 22, 2021 for the above-referenced filed civil actions. In the Rudani action, the parties reached a settlement in principle, subject to finalizing a settlement agreement and
44
approval of the Court, for $5,000,000. As to the shareholder derivative cases, the parties have advised the Court in the Southern District of New York that the parties are currently engaged in a dialogue pertaining to settlement. As to the action titled In re Ideanomics, Inc. Securities Litigation pending in the Southern District of New York, the defendants filed a motion to dismiss on May 6, 2021. While the Company believes that the Class Action isthese actions are without merit, and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the pending lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with thesethe pending and unresolved litigations.
SEC Investigation
(a)PRC Regulations
The PRC market in whichAs previously reported, the Company operates poses certain macro-economicis subject to an investigation by the SEC and regulatory riskscontinues to respond to various information and uncertainties. These uncertainties extend todocument requests from the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated.SEC. The Company conducts legacy YOD business in China through a series of contractual arrangements (See Note 4). The Company believes that these contractual arrangements are in compliance with PRC law and are legally enforceable. If Sinotop Beijing, SSF or their respective legal shareholders fail to perform the obligations under the contractual arrangements or any dispute relating to these contracts remains unresolved, we can enforce its rights under the VIE contracts through PRC law and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. If we had direct ownership of Sinotop Beijing and SSF, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Sinotop Beijing or SSF, which in turn could affect changes at the management level, subject to any applicable fiduciary obligations. However, under the current contractual arrangements, the Company relies on Sinotop Beijing, SSF and their respective legal shareholders to perform their contractual obligations to exercise effective control. The Company also gives no assurance that PRC government authorities will not take a view in the future that is contrary to the opinion of the Company. If the current ownership structure of the Company and its contractual arrangementsfully cooperating with the VIEsSEC’s requests and their equity holders were found to be in violationcannot predict the outcome of any existing or future PRC laws or regulations, the Company's ability to conduct its business could be affectedthis investigation.
Note 19.Concentration of Credit and the Company may be required to restructure its ownership structure and operations in the PRC to comply with the changes in the PRC laws which may result in deconsolidation of the VIEs.Foreign Currency Risks
From time to time the PRC government imposes regulations that limit the amount and timing of foreign payments from companies operating in the PRC. Our ability to repatriate cash held in the PRC, or obtain funding from sources in the PRC, may be restricted by such regulations.
In addition, the telecommunications, information and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign owned entities, like YOD WFOE, may operate. The PRC government may issue from time to time new laws or new interpretations on existing laws to regulate areas such as telecommunications, information and media, some of which are not published on a timely basis or may have retroactive effect. For example, there is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. Administrative and court proceedings in China may also be protracted, resulting in substantial costs and diversion of resources and management attention. While such uncertainty exists, the Company cannot assure that the new laws, when it is adopted and becomes effective, and potential related administrative proceedings will not have a material and adverse effect on the Company's ability to control the affiliated entities through the contractual arrangements. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and the Company’s legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on the Company’s ability to conduct business in the PRC.
(b)Major Customers
For the nine months ended September 30, 2018, one customer individually accounted for more than 10% of the Company’s revenue from third parties. One customer individually accounted for more than 10% of the Company’s net accounts receivables as of September 30, 2018, respectively.
For the nine months ended September 30, 2019, one customer individually accounted for more than 10% of the Company’s revenue. One customer individually accounted for more than 10% of the Company’s net accounts receivables as of September 30, 2019, respectively.
(c)Major Suppliers
For the nine months ended September 30, 2018, two suppliers individually accounted for more than 10% of the Company’s cost of revenues. Two suppliers individually accounted for more than 10% of the Company’s accounts payable and amount due to related parties as of September 30, 2018.
For the nine months ended September 30, 2019, one supplier individually accounted for more than 10% of the Company’s accounts payable as of September 30, 2019.
(d)(a) Concentration of Credit Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable. As of September 30, 2019 and DecemberMarch 31, 2018,2021, the Company’s cash was held by financial institutions (located in the PRC, Hong Kong, Malaysia, the United StatesU.S. and Singapore) that management believes have acceptable credit. Accounts receivable are typically unsecured and are mainly derived from revenues from Mobile Energy Group (formerly Wecast Services).unsecured. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.
(e)(b) Foreign Currency Risks
We have certain operating transactions that are denominated in RMB and aA portion of the Company’s assets and liabilities that isoperating transactions are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”PBOC.”). Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.
Cash consist of cash on hand and demand deposits at banks, which are unrestricted as to withdrawal.
Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
Cash and time deposits maintained at banks consist of the following:
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| RMB denominated bank deposits with financial institutions in the PRC | $ | 110,005 | $ | 1,523,622 | ||||
| US dollar denominated bank deposits with financial institutions in the PRC | $ | 30,666 | $ | 133,053 | ||||
| HKD denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”) | $ | 17,985 | $ | 13,133 | ||||
| US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”) | $ | 13,708 | $ | 44,182 | ||||
| US dollar denominated bank deposits with financial institutions in Singapore (“Singapore”) | $ | 569,707 | $ | 697,099 | ||||
| SGD denominated bank deposits with financial institutions in Singapore | $ | 70,432 | - | |||||
| US dollar denominated bank deposits with financial institutions in The United States of America (“USA”) | $ | 874,093 | $ | 695,155 | ||||
| Total | $ | 1,686,596 | $ | 3,106,244 | ||||
As of September 30, 2019 and December 31, 2018, deposits of $855,915 and $0 were insured. To limit exposure to credit risk relating to bank deposits, the Company primarily places bank deposits only with large financial institutions in the PRC, HK SAR, USA, Singapore and Cayman with acceptable credit rating.
(f)Digital Currency Risks
As of September 30, 2019, the Company holds 8,333,333 GTB. The risks related to our holdings of GTB include:
For our U.S. employees, during 2019, the Company introduced a new 401(k) defined contribution plan which provides 100% employer matching up to 4% of each employee’s pay. Employee is eligible to participate after six months of employment. Company 401(k) matching contributions were approximately $8,700 and $487 for the three months ended September 30, 2019 and 2018 and $8,700 and $3,242 for the nine months ended September 30, 2019 and 2018, respectively.
Full time employees in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to make contributions based on certain percentages of the employees’ basic salaries. Other than such contributions, there is no further obligation under these plans. The total contribution for such PRC employee benefits was $113,654 and $235,811 for the three months ended September 30, 2019 and 2018 and $267,868 and $607,872 for the nine months ended September 30, 2019 and 2018, respectively.
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
We operate our business in two operating segments: Legacy YOD and Mobile Energy Group (formerly Wecast Services). Segment disclosures are on a performance basis consistent with internal management reporting. The Company does not allocate expenses below segment gross profit since these segments share the same executive team, office space, occupancy expenses, information technology infrastructures, human resources and finance department.
Information about segments during the periods presented were as follows:
| Nine Months Ended | ||||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Revenue | ||||||||
| -Legacy YOD | $ | - | $ | - | ||||
| -Mobile Energy Group (formerly Wecast Services) | 44,503,562 | 362,628,296 | ||||||
| Total revenue | 44,503,562 | 362,628,296 | ||||||
| Cost of revenue | ||||||||
| -Legacy YOD | - | - | ||||||
| -Mobile Energy Group (formerly Wecast Services) | 1,217,184 | 359,839,565 | ||||||
| Gross profit | $ | 43,286,378 | $ | 2,788,731 | ||||
| September 30, 2019 | December 31, 2018 | |||||||
| TOTAL ASSETS | ||||||||
| -Legacy YOD | $ | 635,128 | $ | 26,442,810 | ||||
| -Mobile Energy Group (formerly Wecast Services) | 164,128,548 | 51,592,929 | ||||||
| -Unallocated assets | - | 16,199,373 | ||||||
| Total | $ | 164,763,676 | $ | 94,235,112 | ||||
As of September 30, 2019, the Company had cash and cash equivalents of approximately $1.7 million and the Company has incurred losses since its inception and must continue to rely on proceeds from debt and equity issuances to pay for ongoing operating expenses in order to execute its business plan.
Management has taken several actions below to ensure that the Company will continue as a going concern through November 30, 2020, including the cessation of YOD legacy segment related expenses and discretionary expenditures.
The Company’s operating businesses are in the development and ramp up phase and are not yet cash generative as they generate minimal revenues and require investment to support their business plans. The Company intends to raise both debt and equity capital to cover its short and medium term capital needs.
Although the Company may attempt to raise funds by issuing debt or equity instruments, future financing may not be available to the Company on terms acceptable to the Company or at all or such resources may not be received in a timely manner. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may be required to scale back or to discontinue certain operations, scale back or discontinue the development of new business lines, reduce headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. If the Company is in fact unable to continue as a going concern, the shareholders may lose their entire investment in the Company.
Note 20.Fair Value Measurement
The following table presentssummarizes information about ourthe Company’s financial instruments measured at fair value on a recurring basis, grouped into levelLevel 1 to 3 based on the degree to which the input to fair value is observable:observable (in thousands):
| September 30, 2019 | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| Contingent Consideration Liability1 | - | - | 2,327,919 | 2,327,919 | ||||||||||||
| | | | | | | | | | | | |
| | March 31, 2021 | ||||||||||
|
| Level I |
| Level II |
| Level III |
| Total | ||||
DBOT - Contingent consideration1 | | $ | — | | $ | — | | $ | 648 | | $ | 648 |
Tree Technology - Contingent consideration2 | |
| — | |
| — | |
| 8,805 | |
| 8,805 |
Wave - Contingent consideration3 | |
| — | |
| — | |
| 7,658 | |
| 7,658 |
Note
1This represents the liability incurred in connection with the acquisition of DBOT shares during Q3the three months ended September 30, 2019 and as disclosedremeasured as of April 17, 2020. The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in Note 5(f).
the future. The fair value of theDBOT contingent consideration liability at September 30, 2019as of March 31, 2020 was valued using the Black-Scholes Merton method. The Company issued 10.9 million shares during the three months ended months ended March 31, 2020 and partially satisfied this liability. NaN shares have been issued in the three months ended March 31, 2021.
2This represents the liability incurred in connection with the acquisition of Tree Technology shares during the three months ended December 31, 2019 and as subsequently remeasured as of March 31, 2021. The fair value of the
45
Tree Technology contingent consideration was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors.
3This represents the liability incurred in connection with the acquisition of WAVE. The liability represents the combination of the hold back shares and the earnout. The hold back shares are the remaining shares to be issued as of March 31, 2021 contingent on the receipt of certain customer consents as disclosed in Note 6. The fair value of this contingent consideration was valued using a scenario-based method that indicated based on the probabilities that 100% of the consents will be received in the second quarter of 2021. The earnout liability is dependent on WAVE achieving certain revenue and gross profit margin criteria in 2021, 2022 and cumulatively 2021 and 2022. The fair value of zero has been determined using a scenario-based method indicated that none of the criteria are likely to be achieved.
The following table presentssummarizes the significant inputs and assumptions used in the model:
The significant unobservable inputs used in the fair value measurementreconciliation of the Company’s contingent consideration liability includes the risk-free interest rate, expected volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
Reconciliation of levelLevel 3 fair value measurements:measurements (in thousands):
| Contingent Consideration Liability | ||||
| January 1, 2019 | $ | - | ||
| Addition | (2,217,034 | ) | ||
| Remeasurement (loss)/gain recognized in the income statement | (110,885 | ) | ||
| September 30, 2019 | $ | (2,327,919 | ) | |
| | | |
|
| Contingent | |
| | Consideration | |
January 1, 2021 | | $ | 8,960 |
Addition | |
| 7,657 |
Settlement | |
| — |
Remeasurement loss/(gain) recognized in the statement of operations | |
| 494 |
March 31, 2021 | | $ | 17,111 |
Note 21. Subsequent Events |
Senior Secured Convertible Debentures - ID Ventura 7
Stock Purchase Agreement with FNL Technologies, Inc.
On October 29, 2019, the CompanyApril 20, 2021, Ideanomics entered into an Additional Issuance Agreement (the “Purchase Agreement”)a stock purchase agreement with FNL Technologies, Inc., with ID Venturas 7, LLC. (“ID Venturas”) an exempted company incorporatedthe owner and existing under the lawsoperator of the Delaware,social media platform Hoo.be (“FNL,”) pursuant to which ID Venturas invested $400,000Ideanomics made an investment into FNL which included the investment of $2.9 million cash into FNL, the up to $2,500,000issuance of additional investment rights granted to ID Venturas in the September SPA (as defined below) and received (i) a promissory note (the “Convertible Note”) which is senior secured and convertible at $1.00 per share105,932 shares of CompanyIdeanomics common stock, subjectand the sale of 100% of Grapevine Logic, Inc., a subsidiary of Ideanomics, to anti-dilution adjustments and (ii) a warrant (the “Warrant”) exercisable for 150% of the number ofFNL. Ideanomics received 0.6 million shares of common stock which the Note is convertible into. The Convertible Note is convertible intoof FNL at a subscription price of $8.09 per share of common stock, par value $0.001 per shareand Ideanomics also converted a $250,000 Simple Agreement for Future Equity into 30,903 shares of common stock. Ideanomics will have approximately 20% ownership of FNL. FNL will appoint Alfred Poor, Ideanomics’ Chief Executive Officer, to be a member of its board of directors.
Stock Purchase Agreement with U.S. Hybrid Corporation
On May 12, 2021, Ideanomics entered into an agreement and plan of merger (the “Common Stock”“Agreement”), at a conversion to acquire 100% of privately held U.S. Hybrid Corporation (“U.S. Hybrid”) for an aggregate purchase price of $1.00,$50.0 million in a combination of $30.0 million of cash and $20.0 million worth of Ideanomics stock as consideration, subject to anti-dilution adjustments. customary purchase price adjustments set forth in the Agreement. U.S. Hybrid designs, manufactures, and markets integrated power conversion systems for battery electric, fuel cell, and hybrid vehicles, as well as systems for renewable energy generation and storage.
The Convertible Note matures on March 27, 2021,Agreement contains customary representations, warranties, covenants, termination rights and accrues at a 10% interest rate.
In connection with the above transaction, the Company also entered into a registration rights agreement with ID Venturas (the “Registration Rights Agreement”) which grants ID Venturas demand registration rights.
As disclosed in Note 12, the Company entered into Securities Purchase Agreements, dated February 22, 2019 (“The Purchase Agreement”) and dated September 27, 2019 (“Convertible Note Agreement”) with ID Venturas pursuant to which ID Venturas purchased 10% Senior Secured Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) and were granted additional investments rights to purchase up to an additional $2,500,000 of Debentures and Warrants (“Additional Investment Rights”). On October 29, 2019 Ideanomics, Inc. (the “Company”) entered into a letter agreement (the “Agreement”) with ID Venturas pursuant to which the Company agreed to reduce the conversion priceindemnities of the Debenturesparties. Non-fundamental representations and warranties survive for 18 months following the exercise priceclosing date and fundamental representations and warranties survive either indefinitely or for the statute of the Warrants to $1.00, subject to adjustment thereunder.limitations. The Agreement also reduced the conversion price of Debentures and the exercise pricecontains mutual indemnification obligations of the Warrants issuable pursuant to the Additional Investment Rights.
GTB Impairment review
On October 29, 2019, our digital currency, GTB tokens (see Note 1), had a one-time unexpected significant decline in quoted price from $17 to $1.84.parties thereto. The Company’s management is currently evaluating the risks and potential impacts of this incident and plans to perform its annual impairment test as of December 31, 2019. The Company is not able to make a meaningful estimateindemnification obligations of the amount or rangeparties are capped at $25.0 million for non-fundamental representations and warranties. The indemnification obligations of potential impairment resulting from the subsequent declineparties for breaches of non-fundamental representations and warranties are subject to a $100,000 deductible, except in quoted price.the case of fraud. The Agreement contains customary covenants.
The Agreement is subject to customary closing conditions, including, among other things, that certain employees of U.S. Hybrid enter into non-competition and solicitation agreements, including one employee who has agreed to a 5 year period of non-competition and non-solicitation. Ideanomics will have agreed to fund $25.0 million in growth capital to U.S. Hybrid over the course of the two years following closing. Under the terms of the Agreement, the stock consideration, $20.0 million
46
of the purchase price, shall be placed in an indemnity escrow to satisfy future indemnification obligations of the parties (if any).
Ideanomics has agreed to a performance and retention plan for the benefit of certain U.S. Hybrid’s employees which could result in up to $15.0 million paid to such employees if certain performance targets are achieved over a three year period.
Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q10-Q/A contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may"“may”, "will"“will”, "expect"“expect”, "anticipate"“anticipate”, "estimate"“estimate”, "believe"“believe”, "continue"“continue”, or other similar words. You should read statements that contain these words carefully because they discuss ourthe Company’s future expectations, contain projections of ourthe Company’s future results of operations or financial condition or state other "forward-looking"“forward-looking” information. We believeThe Company believes that it is important to communicate ourits future expectations to ourits investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for ourthe Company’s products, and the product-development and marketing efforts of ourits competitors. Examples of these events are more fully described in the Company’s 2018 Annual Report2020 Form 10-K under Part I. Item 1A. Risk Factors.
Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, Current Reports on Form 8-K and all amendments to those reports.
47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis (“MD&A”)is presented in four sections as below and should be read in conjunction with ourthe condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report.Quarterly Report on Form 10-Q/A. In addition to historical information, the following discussion contains certain forward-looking information. See “Cautionary Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.
The MD&A is organized in the following sections:
● | Overview |
Results of Operations |
Liquidity and Capital Resources | |
| |
| ● | Outlook |
OVERVIEW
Overview
Ideanomics, Inc. (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004.
Through March 31, 2021, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. Ideanomics Mobility is driving EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the 3 key pillars of EV: Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)
Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
Restatement of Previously Issued Consolidated Financial Statements
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported Condensed Consolidated Financial Statements as of and for the period ended March 31, 2021. For additional information and a detailed discussion of the Restatement, see Note 2, “Restatement of Previously Issued Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report on Form 10-Q/A.
Significant Transactions in the Three Months Ended March 31, 2021
Since December 31, 2020, the Company has completed a number of transactions that have expanded the scope of the Company’s EV and fintech activities, and has entered into a contract regarding the sale of Fintech Village.
WAVE
On January 15, 2021, the Company acquired 100% of privately held Wireless Advanced Vehicle Electrification, Inc. (“WAVE.”)
Founded in 2011, and headquartered in Salt Lake City, Utah, WAVE is a Nevada corporationleading provider of inductive (wireless) charging solutions for medium and heavy-duty EVs. Embedded in roadways and depot facilities, the WAVE system automatically charges vehicles during scheduled stops. The hands-free WAVE system eliminates battery range limitations and enables fleets to achieve driving ranges that primarily operatesmatch that of internal combustion engines.
Deployed since 2012, WAVE has demonstrated the capability to develop and integrate high-power charging systems into heavy-duty EVs from leading commercial EV manufacturers. With commercially available wireless charging systems up to
48
250kW and higher power systems in development, WAVE provides custom fleet solutions for mass transit, logistics, airport and campus shuttles, drayage fleets, and off-road vehicles at ports and industrial sites.
Wireless charging systems offer several compelling benefits over plug-in-based charging systems, including reduced maintenance, improved health and safety, and expedited energy connection and are important to the deployment of autonomous driving vehicles. Furthermore, wireless in-route charging enables greater route lengths or smaller batteries while also maintaining battery life, thereby reducing costs for fleet operators. WAVE customers include what is currently the largest EV bus system in the United StatesU.S., the Antelope Valley Transit Authority, and Asia. Theits partnerships include Kenworth, Gillig, BYD, Complete Coach Works and the Department of Energy.
Energica Motor Company, is comprisedS.P.A. (“Energica”)
On March 3, 2021 the Company purchased 20% of two operating segments (i) our Legacy YOD businessEnergica, the world’s leading manufacturer of high-performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup. Energica has combined zero emission EV technology with primary operationsthe pedigree of high-performance mobility synonymous with Italy’s Motor Valley to create a range of exceptional products for the high-performance motorcycle market. To support its products, it has developed proprietary EV battery and DC fast-charging in-house that has applications and synergies with Ideanomics’ broader interests in the PRCglobal EV sector.
Silk EV Cayman LP (“Silk”)
On January 28, 2021, the Company invested $15.0 million in Silk EV via a promissory note. Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (“Silk-FAW”) to produce fully electric, luxury vehicles for the Chinese and Global auto markets. Silk-FAW has exclusive rights to develop Hongqi-S brand high-end electric sports cars. The Hongqi brand is the most well known domestic luxury auto brand in China. Silk-FAW vehicles are being designed in Italy’s Motor Valley and is attracting talent from the luxury and high performance auto market. Partnering with Silk provides access to Silk-FAW’s Innovation Centers providing us insight into technological advancements and all best-in-breed technology evaluated at those centers to support the development of high-performance sportscars (battery tech, power management systems, high performance motors.)
Timios Holdings Corp.
On January 8, 2021 the Company acquired 100% of privately-held Timios Holdings Corp. (“Timios.”) Timios, a US nationwide title and escrow services provider, which has been winding down operations overexpanding in recent years through offering innovative and freedom-of-choice-friendly solutions for real estate transactions. The products include residential and commercial title insurance, closing and settlement services, as well as specialized offerings for the last 12 monthsmortgage process industry.
Ideanomics expects that Timios will become one of the cornerstones of Ideanomics Capital. Timios combines difficult to obtain local and (ii) our Mobile Energy Group (MEG) (formally knownstate licenses, a knowledgeable and experienced team, and a scalable platform to deliver best-in-class services through both centralized processing and localized branch networks. Ideanomics will assist Timios in scaling its business in various ways, including referring client acquisitions and product innovation.
Founded in 2008 by real estate industry veteran Trevor Stoffer, Timios’ vision is to bring transparency to real estate transactions. The company offers title and settlement, appraisal management, and real-estate-owned (“REO”) title and closing services in 44 states and currently serves more than 280 national and regional clients.
Technology Metals Market Limited (“TM2”)
TM2 is a London based digital commodities issuance and trading platform for technology metals. It connects institutional investors, proprietary traders and retail investors with metals suppliers – miners, refiners, recyclers and mints. The platform focuses specifically on new metals that currently don’t have an active trading marketplace, such as our Wecast Service) business,rhodium, lithium, cobalt, rhenium, etc. The Company’s ownership interest in TM2 provides valuable data and insight into the global technology metals market, which is transitioningcritical to focusthe future of the Cleantech and EV industries. TM2 connects both pillars of Cleantech and Fintech. The types of metals and materials traded on the commercial fleet marketTM2 platform are critical to Cleantech (for EV battery production, energy
49
storage systems, solar cells, etc.,) while the Fintech platform is innovative in representing these commodities which do not exist on traditional exchanges.
On January 28, 2021, the Company entered into a simple agreement for electric vehicles in additionfuture equity with TM2 pursuant to which Ideanomics invested $2.1 million. This investment is a follow-on investment further the Company’s existing fintech advisory business. Our MEG business operates asprior investment of $1.2 million in stock-based consideration in December 2019.
Fintech Village
On January 28, 2021, the Company’s Board of Directors accepted an end-to-end solutions provideroffer of $2.75 million for Fintech Village, and subsequently signed a sale contract on March 15, 2021. The Company believes that Fintech Village met the procurement, financing, charging and energy management needscriteria for fleet operators of commercial Electric Vehicles (EV). MEG operates through a series of joint ventures withheld for sale classification on January 28, 2021. As the leading companies in the commercial EV space, principally in China, and earns fees for every transaction completed based on the spread for group buying of vehicles and fees derived from the arrangement of financing and energy management such as commercial purchasing of pre-paid electricity credits. MEG focuses on commercial EV rather than passenger EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – whichsale is expected to take between ten to fifteen years. We focus on four distinct commercial vehicles typesbe completed within one year, the land with supporting income streams: 1) Closed-area heavy commercial, in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3) Buses and Coaches; 4) Taxis. The purchase and financinga carrying amount of vehicles provides for one-time fees$2.5 million and the chargingasset retirement cost of $4.5 million are recorded as “Held for sale assets (Fintech Village”) in the current asset section of the condensed consolidated balance sheet. The Company has estimated the costs to sell Fintech Village to be $0.2 million and has recorded these costs in “Loss on disposal of subsidiaries, net.”
Recent Developments
U.S. Hybrid
On May 12, 2021, the Company entered into an agreement to acquire U.S. Hybrid Corporation (“US Hybrid.”) Founded in 1999, and headquartered in Torrance, California, U.S. Hybrid has been providing innovative solutions including components, drive trains, and fuel cells to medium and heavy-duty commercial fleet operators. U.S. Hybrid designs, manufactures, and markets integrated power conversion systems for battery electric, fuel cell, and hybrid vehicles, as well as systems for renewable energy generation and storage. The company has been leading the clean-tech revolution by offering integrated power conversion components and integrated motor drives, motors and controllers, distributed energy management provides for recurring revenue streams.systems, and DC-DC boost converters - equipment that is vital to the growth of the broader EV industry. In July 2019 the company invested in Glory Connection Snd. Bhd, (Glory) a vehicle manufacturer based in Malaysia. Glory holds the only license granted so faraddition to its relationships with leading original equipment manufacturers, U.S. Hybrid has delivered projects for the manufactureprivate and public sectors, including the defense industry and governmental customers.
U.S. Hybrid has reliably demonstrated proven powertrain technology, along with DC-DC converters which possess high efficiency ratings and fast dynamic response capabilities. U.S. Hybrid enjoys long-term commercial relationships in various industries including Commercial, Defense and Aerospace, and Transit/Municipal for its battery electric vehicle, fuel cell energy, and hybrid platforms.
The acquisition of electricU.S. Hybrid brings to Ideanomics the application of U.S.-built technology, for use in its own vehicles, and significantly extends the company’s capabilities in Malaysia and is in the process of setting up its manufacturing and assembly capabilities.
Wezero-emission transportation. U.S. Hybrid will continue to develop our FinTech services which principally consist of our ownership ofservice its existing customer base, and Ideanomics will assist them in scaling their business operations within the Delaware Board of Trade (DBOT) ATS, Intelligenta for marketing AI solutions to the Financial Services industryIdeanomics Mobility business division. U.S. Hybrid operates from locations in California, Connecticut, and FinTech Village, a 58 acre development site in West Hartford, Connecticut.Massachusetts.
Principal Factors Affecting Ourthe Company’s Financial Performance
OurThe business is expected to be impacted by both macroeconomic and Ideanomics-specific factors. The following factors have been part of the transformation of the Company which affected the results of ourits operations for the three monthsin 2021 and nine months ended September 30, 2019:
2020:
| In connection with this transformation, |
50
| The Company’s ability to remain competitive. |
● | The fluctuation in earnings from the
|
Effects of COVID 19
Novel Coronavirus 2019 (“COVID-19”) is an infectious disease caused by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of May 7, 2021, over 156.4 million cases had been reported across the globe, resulting in 3.3 million deaths.
The spread of COVID 19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020, the U. S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels for worldwide immunization against COVID-19 remains challenging.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
The Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Information about segmentsSegment Presentation
Mobile Energy Group (formerly Wecast Services) Segment
WithinThe Company’s chief operating decision maker has been identified as the Mobile Energy Group (formerly Wecast Services)chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Through March 31, 2021, the Company operates in one segment wewith two business units, Ideanomics Mobility and Ideanomics Capital.
51
With two acquisitions closing in the three months ending March 31, 2021, the Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may, in the future, have multiple reportable segments. At a minimum these are engagedthought to be Ideanomics Mobility, which would encompass the entities with businesses centered in providing an end-to-end solution for the purchase, financing, chargingelectric vehicle (“EV”) market, and energy management for fleets of commercial Electric Vehicles (EV). We operate throughIdeanomics Capital, which would encompass business centered in the finance/real estate market, and a series of joint venturescorporate entity, with the leading companies incombination/consolidation of all three comprising the commercial EV space, principally in China, and earn a fee for every transaction completed using the marketplace. MEG focuses on commercial EV rather than passenger EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – which is expected to take between ten to fifteen years. We focus on four distinct commercial vehicles types with supporting income streams: 1) Closed-area heavy commercial, in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3) Buses and Coaches; 4) Taxis. The purchase and financing of vehicles provide a one time fee and the charging and energy management provide recurring revenue streams. In July 2019 the company invested in Glory Connection Snd. Bhd, (Glory) a vehicle manufacturer based in Malaysia. Glory holds the only license granted so far for the manufacture of electric vehicles in Malaysia and the is in the process of setting up its manufacturing capability.
We continue to develop our FinTech services which principally consist of our ownershipconsolidated operations of the Delaware Board of Trade (DBOT) ATS, Intelligenta for marketing AI solutions to the Financial Services industry and FinTech Village, a 58 acre development site in West Hartford, Connecticut.
Legacy YOD Segment
Since 2017, we run our legacy YOD segment with limited resources. As of September 30, 2019, we have ceased our operation of YOD Segment.
Company.
Our Unconsolidated Equity Investments
For theThe investments where we may exercisethe Company exercises significant influence, but not control, they are classified as long-term equity investments and accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for ourits share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we dothe Company does not guarantee the investee’s obligations or commitis committed to provide additional funding. Please referRefer to Note 910 of the notes to unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q10-Q/A for further information.
52
Taxation
United States
Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, Inc., DBOT, and Red Rock Global Capital Ltd. are United States companies subject to the provisionsTable of the Internal Revenue Code. Taxes that otherwise would have been due on the income of Ideanomics, Inc. were completely offset by net operating loss carryovers from prior years. Deferred tax assets related to those net operating loss carryovers had previously been entirely offset by valuation allowances. In July 2019, the Company completed the disposal of its interest in Red Rock Global Capital Ltd. A $513,935 income tax benefit was recorded, $152,876 resulting from losses of Grapevine Logic, Inc. offsetting deferred tax liabilities that were recognized on the acquisition of Grapevine Logic, Inc. and a $361,059 reduction of the valuation allowance on Ideanomics, Inc. deferred tax assets in excess of those reversed to offset Ideanomics, Inc.’s income. The reduction in valuation allowance resulted from Ideanomics, Inc.’s acquisition of additional ownership interests in Grapevine Logic, Inc. which caused Grapevine Logic, Inc. to be included in a consolidated tax return with Ideanomics, Inc. beginning June 30, 2019. This meant that $361,059 of Ideanomics, Inc.’s deferred tax assets could be utilized to offset Grapevine Logic Inc.’s remaining deferred tax liabilities. No provision for income taxes has been provided for M.Y. Products, LLC, DBOT or Red Rock Global Capital Ltd. as neither of the companies had taxable profit since inception.Contents
The Tax Cut and Jobs Act (TCJA) of 2018 includes provision for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries. TCJA also enacted the Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to related foreign companies, subject to certain requirements.
There are substantial uncertainties in the interpretation of BEAT and GILTI and while certain formal guidance has been issued by the U.S. tax authorities, there are still aspects of the TCJA that remain unclear and additional clarification is expected in 2019. Future guidance may result in changes to the interpretations and assumptions the company made and actions it may have to take, which may impact amounts recorded with respect to international provisions of the TCJA.
Based on current year financial results, the company has determined that there is no GILTI nor BEAT tax liability.
In addition, the TCJA now entitles US companies that own 10% or more of a foreign corporation a 100% dividends-received deduction for the foreign-source portion of dividends paid by such foreign corporation. Also, net operating losses (NOLs) arising after December 31, 2018 are deductible only to the extent of 80% of the taxpayer’s taxable income, and may be carried forward indefinitely but generally not allowed to be carried back.
Cayman Islands and the British Virgin Islands
Under current laws of the Cayman Islands and the British Virgin Islands, the company is not subject to tax on its income or capital gains. In addition, dividend payments are not subject to withholding tax in the Cayman Islands or British Virgin Islands.
Hong Kong
The company’s subsidiaries incorporated in Hong Kong are subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as NOL carryovers offset current taxable income.
The People’s Republic of China
Under the PRC’s Enterprise Income Tax Law (“EIT”), the company’s Chinese subsidiaries and VIEs are subject to an EIT of 25.0%.
The company’s future effective income tax rate depends on various factors, such as tax legislation, geographic composition of its pre-tax income and non-tax deductible expenses incurred. The company’s management regularly monitors these legislative developments to determine if there are changes in the statutory income tax rate.
Consolidated Results of Operations
Comparison of Three Months Ended September 30, 2019March 31, 2021 and 20182020 (USD in thousands):
| | | | | | | | | | | |
| | Three Months Ended | | | | | | ||||
| | March 31, | | March 31, | | Amount | | % | |||
| | 2021 | | 2020 | | Change | | Change | |||
|
| (As restated) |
| | |
| | |
| | |
Revenue | | $ | 29,939 | | $ | 378 | | $ | 29,561 |
| n/m |
Cost of revenue | |
| 19,097 | |
| 334 | |
| 18,763 |
| n/m |
Gross profit | |
| 10,842 | |
| 44 | |
| 10,798 |
| n/m |
| | | | | | | | | | | |
Operating expenses: | |
|
| |
|
| |
|
|
|
|
Selling, general and administrative expenses | |
| 11,851 | |
| 5,827 | |
| 6,024 |
| n/m |
Research and development expense | |
| 10 | |
| — | |
| 10 |
|
|
Professional fees | |
| 5,168 | |
| 1,757 | |
| 3,411 |
| n/m |
Impairment losses | |
| — | |
| 887 | |
| (887) |
| n/m |
Change in fair value of contingent consideration, net | |
| 494 | |
| 532 | |
| (38) |
| (7.1) |
Litigation settlement | |
| 5,000 | |
| — | |
| 5,000 |
| n/m |
Depreciation and amortization | |
| 1,128 | |
| 476 | |
| 652 |
| n/m |
Total operating expenses | |
| 23,651 | |
| 9,479 | |
| 14,172 |
| n/m |
| | | | | | | | | | | |
Loss from operations | |
| (12,809) | |
| (9,435) | |
| (3,374) |
| 35.8 |
| | | | | | | | | | | |
Interest and other expense: | |
|
| |
|
| |
|
|
|
|
Interest expense, net | |
| (417) | |
| (3,156) | |
| 2,739 |
| (86.8) |
Loss on disposal of subsidiaries, net | |
| (212) | |
| — | |
| (212) |
| n/m |
Other expense | |
| (156) | |
| (26) | |
| 130 |
| n/m |
Loss before income taxes and non-controlling interest | |
| (13,594) | |
| (12,617) | |
| (977) |
| 7.7 |
Income tax benefit | |
| 7,256 | |
| — | |
| 7,256 |
| n/m |
Equity in loss of equity method investees | |
| (237) | |
| (3) | |
| (234) |
| n/m |
| | | | | | | | | | | |
Net loss | |
| (6,575) | |
| (12,620) | |
| 6,045 |
| (47.9) |
Net loss attributable to non-controlling interest | |
| 163 | |
| 272 | |
| (109) |
| (39.7) |
| | | | | | | | | | | |
Net loss attributable to IDEX common shareholders | | $ | (6,412) | | $ | (12,348) | | $ | 5,936 |
| (48.1) |
| | | | | | | | | | | |
Earnings (loss) per share | |
|
| |
|
| |
|
|
|
|
Basic | | $ | (0.02) | | $ | (0.08) | |
|
|
|
|
Diluted | | $ | (0.02) | | $ | (0.08) | |
|
|
|
|
| | | | | | | | | | | |
| | Three Months Ended | | | | | | ||||
| | March 31, | | March 31, | | Amount | | % | |||
|
| 2021 | | 2020 | | Change | | Change | |||
Revenues (USD in thousands) | | (As restated) | | | | | | | | | |
Electric vehicles | | $ | 3,019 | | $ | 55 | | $ | 2,964 |
| n/m |
Charging and batteries | |
| 1,882 | |
| — | |
| 1,882 |
| n/m |
Title and escrow services | |
| 24,841 | |
| — | |
| 24,841 |
| n/m |
Digital advertising services | |
| 197 | |
| 323 | |
| (126) |
| (39) |
Total | | $ | 29,939 | | $ | 378 | | $ | 29,561 |
| n/m |
n/m = Not Meaningful
| Three Months Ended | ||||||||||||||||
| September 30, | September 30, | Amount | ||||||||||||||
| 2019 | 2018 | Change | % Change | |||||||||||||
| Revenue | $ | 3,103,690 | $ | 43,707,937 | (40,604,247 | ) | (93 | ) | ||||||||
| Cost of revenue | 243,360 | 42,844,876 | (42,601,516 | ) | (99 | ) | ||||||||||
| Gross profit | 2,860,330 | 863,061 | 1,997,269 | 231 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 7,769,503 | 4,333,259 | 3,436,244 | 79 | ||||||||||||
| Research and development expense | - | 667,416 | (667,416 | ) | (100 | ) | ||||||||||
| Professional fees | 1,388,842 | 1,927,431 | (538,589 | ) | (28 | ) | ||||||||||
| Impairment of property and equipment | 2,298,887 | - | 2,298,887 | 100 | ||||||||||||
| Depreciation and amortization | 806,481 | 291,512 | 514,969 | 177 | ||||||||||||
| Total operating expenses | 12,263,713 | 7,219,618 | 5,044,095 | 70 | ||||||||||||
| Loss from operations | (9,403,383 | ) | (6,356,557 | ) | (3,046,826 | ) | 48 | |||||||||
| Interest and other income (expense): | ||||||||||||||||
| Interest expense, net | (639,395 | ) | (145,610 | ) | (493,785 | ) | 339 | |||||||||
| Equity in loss of equity method investees | (40,369 | ) | (13,882 | ) | (26,487 | ) | 191 | |||||||||
| Gain on disposal of subsidiaries | 1,057,363 | - | 1,057,363 | 100 | ||||||||||||
| Loss on remeasurement of DBOT investment | (3,178,702 | ) | - | (3,178,702 | ) | 100 | ||||||||||
| Others | (99,997 | ) | (925,771 | ) | 825,774 | (89 | ) | |||||||||
| Income (Loss) before income taxes and non-controlling interest | (12,304,483 | ) | (7,441,820 | ) | (4,862,663 | ) | 65 | |||||||||
| Income tax benefit | - | - | ||||||||||||||
| Net income (loss) | (12,304,483 | ) | (7,441,820 | ) | (4,862,663 | ) | 65 | |||||||||
| Net (income) loss attributable to non-controlling interest | (1,407,384 | ) | 254,973 | (1,662,357 | ) | (652 | ) | |||||||||
| Net income (loss) attributable to IDEX common shareholders | $ | (13,711,867 | ) | $ | (7,186,847 | ) | (6,525,020 | ) | 91 | |||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | $ | (0.11 | ) | $ | (0.10 | ) | ||||||||||
| Diluted | $ | (0.11 | ) | $ | (0.10 | ) | ||||||||||
53
RevenuesTable of Contents
| Three Months Ended | ||||||||||||||||
| September 30, 2019 | September 30, 2018 | Amount Change | % Change | |||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | - | $ | - | - | |||||||||
| Consumer electronics | - | 43,432,556 | (43,432,556 | ) | (100 | ) | ||||||||||
| Digital asset management services | - | - | - | - | ||||||||||||
| Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | 100 | ||||||||||||
| Other | 249,512 | 275,381 | (25,869 | ) | (9 | ) | ||||||||||
| Total | $ | 3,103,690 | $ | 43,707,937 | $ | (40,604,247 | ) | (93 | ) | |||||||
Revenue for the three months ended September 30, 2019March 31, 2021 was $3.1$29.9 million as compared to $43.7$0.4 million for the same period in 2018, a decrease2020, an increase of approximately $40.6 million, or 93%.$29.6 million. The decreaseincrease was mainly due to a changethe Company’s acquisition of Timios, which generated revenue of $24.8 million from the acquisition closing date through March 31, 2021. No revenue was generated related to our business focus from logistics management to digital business consultingtitle and escrow services and electric vehicle businesses. Our business strategy and the primary goal for entering the crude oil and electronic trading businesses was to learn about the needs of buyers and sellers in these industries that rely heavily on the shipment of goods. Our activities in the crude oil trading and electronic trading business have been successful in various aspects in 2018, and for strategic reasons we have now phased out of our crude oil trading business and electronics trading business so that we can work towards enabling the application of our Fintech Ecosystem for other useful cases that we have identified.
We did not generate any revenue from YOD Legacy business in 2018 and for the three months ended September 30, 2019 since our new fintechMarch 31, 2020.
In the first quarter of 2020, the Company gradually ramped up its business related to EVs and recognized $0.1 million revenue from the sales of EVs. The EV revenues for the quarter were recorded on an Agency (Net) basis because the Company acted as an agent rather than principal in these transactions.
In the first quarter of 2021, the Company recognized $24.8 million revenue from the sales of title and escrow services, business strategy limits$3.0 million revenue from the supportsales of EVs, and $1.9 million revenue from sales of charging and batteries. The EV revenues for the Legacy YOD business.quarter were recorded on a Principal (Gross) basis because the Company acted as principal in these transactions.
Cost of revenues (USD in thousands)
| | | | | | | | | | | |
| | Three Months Ended | | | | | | ||||
| | March 31, | | March 31, | | Amount | | % | |||
| | 2021 | | 2020 | | Change | | Change | |||
|
| (As restated) |
| |
| |
| | |||
Electric vehicles | | $ | 3,019 | | $ | 2 | | $ | 3,017 |
| n/m |
Charging and batteries | |
| 1,540 | |
| — | |
| 1,540 |
| n/m |
Title and escrow services | |
| 14,362 | |
| — | |
| 14,362 |
| n/m |
Digital advertising services and other | |
| 176 | |
| 332 | |
| (156) |
| (47) |
Total | | $ | 19,097 | | $ | 334 | | $ | 18,763 |
| n/m |
| Three Months Ended | ||||||||||||||||
| September 30, 2019 | September 30, 2018 | Amount Change | % Change | |||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | - | $ | - | - | |||||||||
| Consumer electronics | - | 42,658,775 | (42,658,775 | ) | (100 | ) | ||||||||||
| Digital asset management services | - | - | - | - | ||||||||||||
| Electric Vehicles (“EV”) | - | - | - | - | ||||||||||||
| Other | 243,360 | 186,101 | 57,259 | 31 | ||||||||||||
| Total | $ | 243,360 | $ | 42,844,876 | $ | (42,601,516 | ) | (99 | ) | |||||||
Cost of revenues was approximately $0.2$19.1 million for the three months ended September 30, 2019,March 31, 2021, as compared to $42.8$0.3 million for the three months ended September 30, 2019, a decreaseMarch 31, 2020. The increase was mainly due to the Company’s acquisition of approximately $42.6 million, or 99%. From a comparability perspective, theTimios, which had recorded cost of revenue during 2018 is not necessarily indicativerevenues of $14.4 million related to Title and escrow service from the digital business consultingacquisition closing date through March 31, 2021. No cost related to title and escrow services and electric vehicle businesses in 2019. The cost of revenue during 2018 was primarily associated withfor the logistics management business (oil trading and electronics trading), which traditionally has a very high cost of revenue and low gross margin, while the cost of revenue during the third quarter of 2019 is primarily associated with subsidiaries including Grapevine and DBOT. three months ended March 31, 2020.
Gross profit
| Three Months Ended | ||||||||||||||||
| For the Period ended | September 30, 2019 | September 30, 2018 | Amount Change | % Change | ||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | - | $ | - | - | |||||||||
| Consumer electronics | - | 773,781 | (773,781 | ) | (100 | ) | ||||||||||
| Digital asset management services | - | - | - | - | ||||||||||||
| Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | 100 | ||||||||||||
| Other | 6,152 | 89,280 | (83,128 | ) | (93 | ) | ||||||||||
| Total | $ | 2,860,330 | $ | 863,061 | $ | 1,997,269 | 231 | |||||||||
Gross profit ratio(USD in thousands)
| | | | | | | | | | | |
| | Three Months Ended | | | | | | ||||
| | March 31, | | March 31, | | Amount | | % | |||
|
| 2021 | | 2020 |
| Change |
| Change | |||
Electric vehicles | | $ | — | | $ | 53 | | $ | (53) |
| n/m |
Charging and batteries | |
| 342 | |
| — | |
| 342 |
| n/m |
Title and escrow services | |
| 10,479 | |
| — | |
| 10,479 |
| n/m |
Digital advertising services and other | |
| 21 | |
| (9) | |
| 30 |
| n/m |
Total | | $ | 10,842 | | $ | 44 | | $ | 10,798 |
| n/m |
| Three Months Ended | |||||||||
| September 30, 2019 | September 30, 2018 | ||||||||
| - Mobile Energy Group (formerly Wecast Services) | |||||||||
| Crude oil | 0 | % | 0 | % | |||||
| Consumer electronics | 0 | % | 2 | % | |||||
| Digital asset management services | 0 | % | 0 | % | |||||
| Electric Vehicles (“EV”) | 100 | % | 0 | % | |||||
| Other | 2 | % | 32 | % | |||||
| Total | 92 | % | 2 | % | |||||
Our grossGross profit for the three months ended September 30, 2019March 31, 2021 was approximately $2.9$10.8 million, as compared to $0.9 milliongross profit in the amount of $44,000 during the same period in 2018, representing an2020. The increase was mainly due to the Company’s acquisition of 231%. Timios, which generated profit of $10.5 million related to Title and escrow service from the acquisition closing date through March 31, 2021. No gross profit related to title and escrow services for the three months ended March 31, 2020.
54
Gross profit ratio
| | | | | |
| | Three Months Ended |
| ||
| | March 31, | March 31, | | |
|
| 2021 | 2020 | | |
Electric vehicles |
| — | % | 96.4 | % |
Charging and batteries |
| 18.2 |
| — | |
Title and escrow services |
| 42.2 |
| — | |
Digital advertising services and other |
| 10.7 |
| (2.8) | |
Total |
| 36.2 | % | 11.6 | % |
The gross profit ratio for the three months ended September 30, 2019March 31, 2021 was 92%36%, as comparedwhile in 2020, it was 12%. The increase was mainly due to 2% during the same period in 2018.
Selling, generalhigh gross margin from the sales of title and administrative expenses
escrow services for the three months ended March 31, 2021.
Selling, general and administrative expenses
Selling, general and administrative expense for the three months ended September 30, 2019March 31, 2021 was $7.8$11.9 million as compared to $4.3$5.8 million for the same period in 2018,2020, an increase of approximately $3.5 million or 79%. Majority of the$6.1 million. The increase was principally due to:
Research and development expense
Research and development expense decreased to zero for the three months ended September 30, 2019 from $0.7 million in the same period in 2018. Majority of the expense in 2018 was related to the early stage technology development.
Professional fees
Timios, which was acquired on January 8, 2021 and WAVE which was acquired on January 15, 2021 and increases in compensation costs within existing businesses reflecting increased head count as these operations are expanded.
Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to business transition and expansion. Our professional
Professional fees for the three months ended September 30, 2019 was $1.4March 31, 2021 were $5.2 million as compared to $1.9$1.8 million for the same period in 2018, a decrease2020, an increase of approximately $0.5$3.4 million. The decreaseincrease was related to a decreasean increase in legal valuation, auditfees, consulting services and taxinvestors relations related expense. The increase in legal fees was related to advice on general corporate matters, responding to regulatory enquiries, advice on merger and acquisitions, and advice in relation to the class action lawsuits. Consulting fees increased as well as fees associateda result of a shared services agreement with continuingSSSIG and general advice related to build out our technology ecosystem and establishing strategic partnerships and M&A activity as partthe expansion of this technology ecosystem.
Impairment of property and equipment
the Company’s operations in the current quarter including investors relations services.
Impairment losses
The Company recorded impairment losses of property$0.9 million related to DBOT right of use assets because the Company ceased to use the office and equipment increased $2.3vacated the space on March 31, 2020.
Change in fair value of contingent consideration, net
The change in fair value of contingent consideration, net of $0.5 million for the three months ended September 30, 2019 as comparedMarch 31, 2021 represents the remeasurement of the contingent consideration payable related to the same periodacquisition of Tree Technologies.
The change in 2018. The increase was duein fair value of contingent consideration, net of $0.5 million for the three months ended March 31, 2020 represents the remeasurement of the contingent consideration payable to the impairment chargeformer DBOT shareholders.
Litigation Settlements
The Company recorded in connection with four$5.0 million litigation settlement as a result of the five existing buildingsagreement reached by both parties on Fintech Village which are expected to be demolished.the mediation in April 2021.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2019March 31, 2021 was $0.8$1.1 million as compared to $0.3$0.5 million for the same period in 2018,2020, an increase of approximately $0.5$0.6 million. The increase was mainly due to the increase in amortization expense from intangible assetsrecorded by Timios and WAVE, which were acquired during 2019.in the first quarter of 2021.
55
Interest expense, net
Our interestInterest expense increased $0.5decreased $2.8 million to $0.6$0.4 million for the three months ended September 30, 2019,March 31, 2021, from $0.1$3.2 million during the same period of 2018.2020. The increaseinterest expense in the prior quarter related to convertible debt that was either converted or repaid in 2020 with a resulting decrease in interest expense. (in thousands)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | | March 31, | ||
|
| 2021 | | 2020 | ||
Interest, net | | $ | 417 | | $ | 443 |
Amortization of discount | |
| — | |
| 2,713 |
Total | | $ | 417 | | $ | 3,156 |
Loss on disposal of subsidiaries, net
Loss on disposal of subsidiaries, net represents the estimated costs to sell Fintech Village.
Income tax benefit
During the three months ended March 31, 2021, the income tax benefit of $7.2 million is mainly due to a reduction in the Company’s valuation allowance of $7.4 million that resulted from the acquisitions of Timios and WAVE, partially offset by the $0.2 million state income taxes mainly from Timios that has taxable income reported on certain separate state tax returns and consequently has related state income tax expense. The Company had established a 100% valuation allowance against its net deferred tax assets due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
During the three months ended March 31, 2020, income tax expense was primarilyis nil because of net operating loss and deferred tax assets related to the accretionnet operating loss carryovers utilized had been offset by a valuation allowance. Company had established a 100% valuation allowance against its net deferred tax assets due to its history of interest expensepre-tax losses and amortization of beneficiary conversion features associated with the convertible note issued in February 2019.likelihood that the deferred tax assets will not be realized.
Equity in loss of equity method investees
LossEquity in loss of equity method investees increased $0.03of $0.2 million related to recording TM2 and Solectrac’s net loss for the three months ended March 31, 2021.
Net loss attributable to non-controlling interest
Net loss attributable to non-controlling interests was $0.2 million for the three months ended September 30, 2019 comparing to the same period in 2018 was primarily due to the net loss incurred in Glory (see Note 9 to the Consolidated Financial Statements).
Gain on disposal of subsidiaries
Gain on disposal of subsidiaries increased $1.1 million for the three months ended September 30, 2019 comparing to the same period in 2018 was due to the disposal of Redrock and the dilution of the Company’s equity interest in Amer from 55% to 10% (see Note 5 to the Consolidated Financial Statements).
Loss on remeasurement of DBOT investment
Loss on remeasurement of DBOT investment increased $3.2 million for the three months ended September 30, 2019 comparing to the same period in 2018 was due to the acquisition of controlling equity interest in DBOT which resulted in the remeasurement of the Company’s previously held equity interest in DBOT at the acquisition-date fair value.
Net (income) loss attributable to non-controlling interest
Net income attributable to non-controlling interests was approximately $1.4 million for the three months ended September 30, 2019, asMarch 31, 2021 compared to a net loss of $0.3 million during the same period in 2018. The change is primarily due to the $1.4 million net income attributable to the noncontrolling interest of the Mobile Energy Group (“MEG”) in relation to the taxis commission revenue recognized during the quarter.
Consolidated Results of Operations
Comparison of Nine Months Ended September 30, 2019 and 2018
| Nine Months Ended | ||||||||||||||||
| September 30, 2019 | September 30, 2018 | Amount Change | % Change | |||||||||||||
| Revenue | $ | 44,503,562 | $ | 362,628,296 | (318,124,734 | ) | (88 | ) | ||||||||
| Cost of revenue | 1,217,184 | 359,839,565 | (358,622,381 | ) | (100 | ) | ||||||||||
| Gross profit | 43,286,378 | 2,788,731 | 40,497,647 | 1,452 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 18,442,280 | 16,861,425 | 1,580,855 | 9 | ||||||||||||
| Research and development expense | - | 1,393,025 | (1,393,025 | ) | (100 | ) | ||||||||||
| Professional fees | 3,918,461 | 3,280,729 | 637,732 | 19 | ||||||||||||
| Impairment of property and equipment | 2,298,887 | - | 2,298,887 | 100 | ||||||||||||
| Depreciation and amortization | 1,420,480 | 314,737 | 1,105,743 | 351 | ||||||||||||
| Total operating expenses | 26,080,108 | 21,849,916 | 4,230,192 | 19 | ||||||||||||
| Income (Loss) from operations | 17,206,270 | (19,061,185 | ) | 36,267,455 | (190 | ) | ||||||||||
| Interest and other income (expense): | ||||||||||||||||
| Interest expense, net | (1,955,476 | ) | (201,782 | ) | (1,753,694 | ) | 869 | |||||||||
| Equity in loss of equity method investees | (606,390 | ) | (44,316 | ) | (562,074 | ) | 1268 | |||||||||
| Gain on disposal of subsidiaries | 1,057,363 | - | 1,057,363 | 100 | ||||||||||||
| Loss on remeasurement of DBOT investment | (3,178,702 | ) | - | (3,178,702 | ) | 100 | ||||||||||
| Others | (155,946 | ) | (558,271 | ) | 402,325 | (72 | ) | |||||||||
| Income (Loss) before income taxes and non-controlling interest | 12,367,119 | (19,865,554 | ) | 32,232,673 | (162 | ) | ||||||||||
| Income tax benefit | 513,935 | - | 513,935 | 100 | ||||||||||||
| Net income (loss) | 12,881,054 | (19,865,554 | ) | 32,746,608 | (165 | ) | ||||||||||
| Net (income) loss attributable to non-controlling interest | (1,374,193 | ) | 637,314 | (2,011,507 | ) | (316 | ) | |||||||||
| Net income (loss) attributable to IDEX common shareholders | $ | 11,506,861 | $ | (19,228,240 | ) | 30,735,101 | (160 | ) | ||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | $ | 0.10 | $ | (0.27 | ) | |||||||||||
| Diluted | $ | 0.10 | $ | (0.27 | ) | |||||||||||
Revenues
| Nine Months Ended | ||||||||||||||||
September 30, 2019 | September 30, 2018 | Amount Change | % Change | |||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | 260,034,401 | $ | (260,034,401 | ) | (100 | ) | |||||||
| Consumer electronics | - | 102,081,176 | (102,081,176 | ) | (100 | ) | ||||||||||
| Digital asset management services | 40,700,000 | - | 40,700,000 | 100 | ||||||||||||
| Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | 100 | ||||||||||||
| Other | 949,384 | 512,719 | 436,665 | 85 | ||||||||||||
| Total | $ | 44,503,562 | $ | 362,628,296 | $ | (318,124,734 | ) | (88 | ) | |||||||
Revenue for the nine months ended September 30, 2019 was $44.5 million as compared to $362.6 million for the same period in 2018, a decrease of approximately $318.1 million, or 88%. The decrease was mainly due to a change to our business focus from logistics management to digital business consulting services and electric vehicle businesses. Our business strategy and the primary goal for entering the crude oil and electronic trading businesses was to learn about the needs of buyers and sellers in these industries that rely heavily on the shipment of goods. Our activities in the crude oil trading and electronic trading business have been successful in various aspects in 2018, and for strategic reasons we have now phased out of our crude oil trading business and electronics trading business so that we can work towards enabling the application of our Fintech Ecosystem for other useful cases that we have identified.
Please see Note 3 to the unaudited consolidated financial statements included in this report.
We did not generate any revenue from YOD Legacy business in 2018 and for the nine months ended September 30, 2019 since our new fintech services business strategy limits the support of the Legacy YOD business.
Cost of revenues
| Nine Months Ended | ||||||||||||||||
| September 30, 2019 | September 30, 2018 | Amount Change | % Change | |||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | 260,006,382 | $ | (260,006,382 | ) | (100 | ) | |||||||
| Consumer electronics | - | 99,568,729 | (99,568,729 | ) | (100 | ) | ||||||||||
| Digital asset management services | 466,894 | - | 466,894 | 100 | ||||||||||||
| Electric Vehicles (“EV”) | - | - | - | - | ||||||||||||
| Other | 750,290 | 264,454 | 485,836 | 184 | ||||||||||||
| Total | $ | 1,217,184 | $ | 359,839,565 | $ | (358,622,381 | ) | (100 | ) | |||||||
Cost of revenues was approximately $1.2 million for the nine months ended September 30, 2019, as compared to $359.8 million for the same period in 2018, a decrease of approximately $358.6 million, or 100%. From a comparability perspective, the cost of revenue during 2018 is not necessarily indicative of the new FinTech business in 2019. The cost of revenue during 2018 was primarily associated with the logistics management business (oil trading and electronics trading), which traditionally has a very high cost of revenue and low gross margin, while the cost of revenue during the first 9 months of 2019 primarily include the personnel cost associated with our digital asset management services and creator payments from the Grapevine business. Majority of the cost associated with the development of the master plan services have already been incurred in 2018. In 2018, due to the uncertainty associated with the future economic benefits when such costs were incurred, the Company expensed those costs during 2018.
Gross profit
| Nine Months Ended | ||||||||||||||||
| For the Period ended | September 30, 2019 | September 30, 2018 | Amount Change | % Change | ||||||||||||
| - Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
| Crude oil | $ | - | $ | 28,019 | $ | (28,019 | ) | (100 | ) | |||||||
| Consumer electronics | - | 2,512,447 | (2,512,447 | ) | (100 | ) | ||||||||||
| Digital asset management services | 40,233,106 | - | 40,233,106 | 100 | ||||||||||||
| Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | 100 | ||||||||||||
| Other | 199,094 | 248,265 | (49,171 | ) | (20 | ) | ||||||||||
| Total | $ | 43,286,378 | $ | 2,788,731 | $ | 40,497,647 | 1,452 | |||||||||
Gross profit ratio
| Nine Months Ended | |||||||||
| September 30, 2019 | September 30, 2018 | ||||||||
| - Mobile Energy Group (formerly Wecast Services) | |||||||||
| Crude oil | 0 | % | 0 | % | |||||
| Consumer electronics | 0 | % | 2 | % | |||||
| Digital asset management services | 99 | % | 0 | % | |||||
| Electric Vehicles ("EV") | 100 | % | 0 | % | |||||
| Other | 21 | % | 48 | % | |||||
| Total | 97 | % | 1 | % | |||||
Our gross profit for the nine months ended September 30, 2019 was approximately $43.3 million, as compared to $2.8 million during the same period in 2018. The gross profit ratio for the nine months ended September 30, 2019 was 97%, while it was 1% during the same period in 2018. The increase was mainly due to: 1) the Company recorded service revenue from digital asset management services in 2019 and 2) the low cost of revenue with our digital asset management services, which resulted in higher gross profit margin in 2019 compared to the low gross profit margin of the logistics management business in 2018.
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended September 30, 2019 was $18.4 million, as compared to $16.9 million for the same period in 2018, an increase of approximately $1.6 million or 9%. Majority of the increase was due to:
Research and development expense
Research and development expense decreased to zero for the nine months ended September 30, 2019 from $1.4 million in the same period in 2018. Majority2020. The decrease of the expense in 2018 was related to the early stage technology development.
Professional fees
Professional fees for the nine months ended September 30, 2019 was $3.9 million as compared to $3.3 million for the same period in 2018, an increase of approximately $0.6 million. The increase was related to an increase in legal, valuation, audit and tax as well as fees associated with continuing to build out our technology ecosystem and establishing strategic partnerships and M&A activity as part of this technology ecosystem.
Impairment of property and equipment
Impairment of property and equipment increased $2.3 million for the nine months ended September 30, 2019 as compared to the same period in 2018. The increase was due to the impairment charge recorded in connection with four of the five existing buildings on Fintech Village which are expected to be demolished.
Depreciation and amortization
Depreciation and amortization for the nine months ended September 30, 2019 was $1.4 million as compared to $0.3 million for the same period in 2018, an increase of approximately $1.1 million. The increase wasloss is mainly due to the increase in amortization expense from intangible assets acquired during 2019.
Interest expense, net
Our interest expense increased $1.8 million to $2.0 million for the nine months ended September 30, 2019, from $0.2 million during the same period of 2018. The increase in interest expense was primarily because of the accretion of interest expense and amortization of beneficiary conversion features associated with convertible notes issued in June 2018 and February 2019.
Equitydecrease in loss of equity method investees
Loss of equity method investees increased $0.6 million forour investment with iUnicorn, partially offset by the nine months ended September 30, 2019 comparing to the same period of 2018 was due to net loss incurredslight increase in DBOT for the first half of the year (see Note 9 to the Consolidated Financial Statements).
Gain on disposal of subsidiaries
Gain on disposal of subsidiaries increased $1.1 million for the nine months ended September 30, 2019 comparing to the same period in 2018 was due to the disposal of Redrock and the dilution of the Company’s equity interest in Amer from 55% to 10% (see Note 5 to the Consolidated Financial Statements).
Loss on remeasurement of DBOT investment
Loss on remeasurement of DBOT investment increased $3.2 million for the nine months ended September 30, 2019 comparing to the same period in 2018 was due to the acquisition of controlling equity interest in DBOT which resulted in the remeasurement of the Company’s previously held equity interest in DBOT at the acquisition-date fair value.
Income tax expenses
During the nine months ended September 30, 2019, the Company recorded an income tax benefit of $513,935, $152,876 resulting from losses of Grapevine Logic, Inc. offsetting deferred tax liabilities that were recognized on the acquisition of Grapevine Logic, Inc. and a $361,059 reduction of the valuation allowance on Ideanomics, Inc. deferred tax assets in excess of those reversed to offset Ideanomics, Inc.’s income. The reduction in valuation allowance resulted from Ideanomics, Inc.’s acquisition of additional ownership interests in Grapevine Logic, Inc. which caused Grapevine Logic, Inc. to be included in a consolidated tax return with Ideanomics, Inc. beginning June 30, 2019. This meant that $361,059 of Ideanomics, Inc.’s deferred tax assets could be utilized to offset Grapevine Logic Inc.’s remaining deferred tax liabilities.
Net (income) loss attributable to non-controlling interest
Net income attributable to non-controlling interests was approximately $1.4 million for the nine months ended September 30, 2019, as compared to a net loss of $0.6 million during the same period in 2018. The change is primarily due to (1) the $1.4 million net income attributable to the noncontrolling interest of the Mobile Energy Group (“MEG”) in relation to the taxis commission revenue recognized during the third quarter and (2) the decrease in net loss from Grapevine and Amer.
Tree Technologies.
Liquidity and Capital Resources
As of September 30, 2019,March 31, 2021, we had cash of approximately $1.7$355.9 million. Approximately $1.6$3.9 million was held in our Hong Kong, US and Singapore entities and $0.1 million wasaccounts outside of the United States, primarily in the PRC.
Due to the strict regulations governing the transfer of funds held in ourthe PRC entities.to other jurisdictions, the Company does not consider funds held in its PRC entities to be available to fund operations and investment outside of the PRC and consequently does not include them when evaluating the liquidity needs of its businesses operating outside of the PRC.
Timios holds various regulatory licenses related to its business as a title insurance agency and is required to hold a minimum cash balance of $2.0 million. As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.3 million as of March 31, 2021, which was necessary for DBOT to meet its minimum capital requirements. The Company consolidates a 51.0% owned investment in an entity which is based in Singapore. This entity had cash of $0.5 million as of March 31,
56
2021. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures.
The following table provides a summary of our net cash flows from operating, investing and financing activities (unaudited).(in thousands):
| Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
| Net cash used in operating activities | $ | (8,712,029 | ) | $ | (17,641,902 | ) | ||
| Net cash used in investing activities | (1,737,881 | ) | (5,043,300 | ) | ||||
| Net cash provided by financing activities | 9,067,292 | 31,186,771 | ||||||
| Effect of exchange rate changes on cash | (37,030 | ) | (48,638 | ) | ||||
| Net decrease in cash | (1,419,648 | ) | 8,452,931 | |||||
| Total cash at beginning of period | 3,106,244 | 7,577,317 | ||||||
| Cash at end of period | $ | 1,686,596 | $ | 16,030,248 | ||||
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | | March 31, | ||
|
| 2021 | | 2020 | ||
Net cash generated (used) in operating activities | | $ | 2,571 | | $ | (3,858) |
Net cash used in investing activities | |
| (86,129) | |
| (15) |
Net cash provided by financing activities | |
| 273,659 | |
| 7,148 |
Effect of exchange rate changes on cash | |
| (9) | |
| 6 |
Net increase in cash and cash equivalents | |
| 190,092 | |
| 3,281 |
Cash and cash equivalents at beginning of period | |
| 165,764 | |
| 2,633 |
Cash and cash equivalents at end of period | | $ | 355,856 | | $ | 5,914 |
Operating Activities
Cash usedgenerated in operating activities decreased by $8.9was $2.6 million for the ninethree months ended September 30, 2019March 31, 2021 as compared to the same periodcash used in 2018, primarily due to (1) an increase in operating results from net lossoperations of $19.9 million for the nine months ended September 30, 2018 to net income of $12.9$3.9 million in the same period in 2019,2020. This change of $6.5 million was primarily due to: (1) a reduction in net loss to $6.6 million in the current period as compared to a net loss of $12.6 million in the first quarter of 2020, (2) total non-cash adjustments increase (decrease) to net income (loss)loss was $(25.5)$(1.9) million and $3.8$7.3 million for the ninethree months ended September 30, 2019March 31, 2021 and 2018, respectively,2020, respectively; and (3) total changes in operating assets and liabilities resulted in an increase of $3.9$11.1 million and of $(1.5)$1.5 million in cash used inprovided by (used in) operations activities for the ninethree months ended September 30, 2019March 31, 2021 and 2018, respectively.2020, respectively
Investing Activities
Cash used in investing activities decreased by $3.3was $86.1 million, primarily due to the $2.8 million cash consideration paidexpenditures incurred for the acquisition of GrapevineTimios and WAVE, the investment in 2018.Energica and the acquisition of the convertible note with Silk EV.
Financing Activities
WeThe Company received $4.8$273.7 million from financing activities in the current quarter versus $7.1 million in the same quarter in the prior year. The issuance of convertible notes and $2.5generated $220.0 million in proceeds in a private placement from the issuance of restricted shares for the nine months ended September 30, 2019,current quarter as compared to certain investors, including officers, directors and other affiliates. While$2.0 million in the same period in 2018, we received $31.2 million. In addition, the borrowings from related parties increased by $1.8of 2020. The exercise of warrants and issuance of common stock generated $53.7 million for the nine month ended September 30, 2019 fromas compared to $1.0 million in the same period in 2018.
Currently, our primary source of liquidity is cash on hand and we have relied on debt and equity financings to fund our operations to date. We believe that our cash balance and our expected cash flow, including additional debt & equity issuances will be sufficient to meet all of our financial obligations for the twelve months from the date of this report.
2020. In the future, we will need additional capitalquarter ended March 31, 2020 the Company received $7.1 million from a non-controlling shareholders contribution and made a repayment of $3.0 million to fund our operations and growth initiatives, which we expecta related party.
The Company expects to continue to raise through a combination ofboth equity offerings,and debt financings, related party or third-party funding.
The Company’s operating strategy isfinance to enter into joint ventures (JVs) with partners who bring special capabilities in a particular market sector, Because we operate through joint ventures we may be restricted by the operating agreement governing a particular JV from accessing any cash balances in the JV for use in other Company activities outside of the JV.
We have historically incurred significant losses which could raise substantial doubt about our ability to continue as a going concern. The unaudited consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s independent registered public accounting firm’s report of the financial statements for year ended December 31, 2018, contained an explanatory paragraph regardingsupport the Company’s ability to continue as a going concern.
Effects of Inflation
Inflationinvestment plans and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the foreseeable future. Our management will closely monitor the price change and make efforts to maintain effective cost control in operations.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in joint venturesinvestments accounted for under the equity method of accounting. The Company isdoes not the primary beneficiary ofcontrol these joint venturesinvestments and therefore isdoes not required to consolidate these entities (see Note 9 to the Consolidated Financial Statements).them.
We doThe Company does not have other off balanceoff-balance sheet arrangements that have or are reasonably likely to have a current or future effect on ourthe Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in ourits securities.
57
Seasonality
Contractual ObligationsThe Company expects that orders and Commitments
Assales in its Ideanomics Mobility business unit will be influenced by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the date of this report, other than changes related to adoptionyear when companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the new lease accounting standardbudget cycle commences. The Company’s operating businesses are in the early stage of their development and consequently do not have sufficient trading histories to project seasonal buying patterns with any degree of confidence.
Orders and sales in our Ideanomics Capital business unit will principally be influenced by changes in interest rates and the resulting impact on in the U.S. housing market particularly as described in Note 2it relates to purchases of homes and the unaudited consolidated financial statements, there were no material changesrefinancing of existing mortgages which are central to our contractual obligations and commitments outside the ordinary course of business since April 1, 2019 as reported in our 2018 Form 10-K.
Timios business.
OUTLOOK
The Company believes that the fleet market for commercial Electronic Vehicles (EV) provides a significant revenue and profit opportunity. It is our intentioninvestment made to develop this market initiallybuild out its sales capacity in China and a related capability in sourcing and supply chain and related logistics in China will help drive growth in China using the ASEAN countriesCompany’s S2F2C business model and enable the Company to source high quality components and completed vehicles at competitive prices for its Medici, Treeletrik, WAVE and Solectrac businesses outside of China. The global focus on climate change and the related regulatory changes to encourage the adoption of EVs is very favorable for the Company’s business, particularly the charging and battery businesses, which are critical to the widespread adoption of EVs. Providing customers with potentialeasy access to financing options for their purchases of vehicles, batteries and charging infrastructure is an important enabler for the deployment of EV and related technologies and the Company will continue to work to develop funding sources in the future to expand into other regions.
conjunction with manufactures and established lenders.
The most immediate revenue opportunity isCompany’s Tree Technologies subsidiary secured a large order to supply up to 200,000 units of its 100% electric motorbikes to Indonesia through PSE, its exclusive distributor, during a 3 year term. As part of supplying this order the Company anticipates entering into arrangements to assemble these motorbikes in Indonesia and setting up a battery swap business.
Fintech continues to provide opportunities which could generate high rates of return through the Taxi sector where the company has orders for 11,000 taxisdeployment of which we anticipate delivering 5,000 in the fourth quarter 2019 and the remaining 6,000technology to disrupt existing business models. The Company’s acquisition of Timios in the first quarter of 20202021 marks the first entrance into the real estate title agency and closing market. Management believes that through deployment of advanced technology and complimentary acquisitions it can increase Timios’ value. The regulatory environment for the adoption of digital securities is improving with a potential for another 82,000 taxis toregulators and central bankers in the world’s most developed economies acknowledging that digital securities should be deliveredpart of the financial ecosystem. This change favors companies like Ideanomics that have assets, such as DBOT, that are fundamental building blocks of any move towards digital securities.
The Company anticipates making continued investments in 2020. both the Ideanomics Mobility and Ideanomics Capital business units.
Environmental Matters
The Company is well advanced in its plans to develop finance and buy-back programs for the batteries used in closed-area heavy vehicles, last mile delivery light commercial vehicles and buses and coaches. We anticipate having these financing and buy-back programs in place by the end of the first quarter 2020 and anticipate the first revenues from these activities in the second quarter of 2020.
The company acquired a non-controlling interest in Glory Connection Sdn. Bhd. (Glory), a Malaysian entity, in July 2019. Glory holds the only license granted so far for the manufacture of electric vehicles in Malaysia and is in the process of setting up its manufacturing and assembly capabilities.
We converted our DBOT business to a new trading infrastructure that went live in November. We have commenced a marketing program to grow revenues by increasing the number of financial institutions trading on the DBOT platform.
Remediation work continues on the Company’s 58 acre campus located in West Hartford, Connecticut, this is the intended site of our FinTech Village. We anticipate that the remediation work will be completed in the second half of 2020.
Grapevine our business focused on connecting nano-influencers with established brands continues to develop its platform. In November 2019 we launched Grapevine Village, an ecommerce platform driven by social media content. We continue to look for ways to grow our market share in the influencer and social media space.
We have recorded no revenues from Digital Asset Management services in the current quarter and we do not anticipate recording any revenues in the fourth quarter of 2019.
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations. Starting from year 2018, we had $8 million accrued for Asset Retirement Obligations which
New Accounting Pronouncements
Information regarding new accounting pronouncements is related to our legal contractual obligationincluded in connection with the acquisition of Fintech Village.
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operation are based upon our unaudited consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Note 2 to the Condensed Consolidated Financial Statements in the Company’s Annualof this Quarterly Report on Form 10-K for the year ended December 31, 2018 describes the significant accounting policies and methods used in the preparation10Q/A.
58
See the discussion in this section for information regarding the Company's accounting policy with respect to digital currency.
Digital Currency
Digital Currency consists of GTB received in connection with the services agreement and asset purchase agreement with GTD. Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital currency under current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.
Indefinite-lived intangible assets are recorded at cost and are not subject to amortization, but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If, at the time of an impairment test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized. The fair value of our digital currency, GTB, was a Level 2 measurement based upon the consideration agreed by GTD and the Company with a discount considering volatility, risk and limitations at contract inception.
New Accounting Pronouncements
Refer to Note 2 to the Consolidated Financial Statements for a description of accounting standards adopted related to leases. We do not expect any other recently issued accounting pronouncements will have a material effect on our financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We areThe Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and areis not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officerchief executive officer and Chief Financial Officer,chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officerchief executive officer and Chief Financial Officer,chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019.March 31, 2021. Based on that evaluation, in our Chief Executive OfficerOriginal Form 10-Q, our chief executive officer and Chief Financial Officerchief financial officer concluded that as of March 31, 2021, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.
Our management has reevaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2021. During the preparation of the condensed consolidation financial statements as of and for the period ended September 30, 2021, the Company identified material misstatements in its Original Form 10-Q. Our chief executive officer and chief financial officer concluded that as of March 31, 2021, our disclosure controls and procedures were not effective because of material weaknesses in the Company’s accounting and financial reporting for complex transactions.
Management has determined that the Company has the following material weaknesses in its internal control over financial reporting:
| ● | The design and implementation of internal controls over the review of management’s inputs into valuation models and associated valuation outputs from third party valuation specialists. |
| ● | The design and implementation of internal controls over the revenue recognition process, specifically the failure to properly evaluate whether the Company was to be considered the principal or the agent in contracts with customers. |
| ● | There is a lack of sufficient personnel in accounting and financial reporting functions with sufficient experience and expertise with respect to the application of U.S. GAAP and SEC disclosure requirements. |
| ● | Operating effectiveness of internal controls to identify and evaluate the accounting implications of non-routine transactions. |
These material weaknesses, individually or in the aggregate, could result in misstatements of accounts or disclosures that would each result in a material misstatement of the interim or annual Consolidated Financial Statements that would not be prevented or detected.
Notwithstanding the conclusion by our management that our disclosure controls and procedures as of March 31, 2021 were not effective, and notwithstanding the endmaterial weaknesses in our internal control over financial reporting, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q/A fairly present in all material respects our financial position, results of operations and cash flows as of and for the period covereddates presented, and for the periods ended on such dates, in conformity with US GAAP.
Our evaluation excluded Timios and WAVE which were acquired in January 2021. As of and for the three months ended March 31, 2021 Timios represented 11.6% of total assets and 83.0% of revenue and WAVE represented 12.1% of total
59
assets and 6.1% of revenue, respectively. In accordance with guidance issued by this report.
the SEC, we expect to exclude the acquisitions from our assessment of internal controls over financial reporting during the first year following the acquisition.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the ninethree months ended September 30, 2019,March 31, 2021, which have materially affected or would likely materially affect our internal control over financial reporting. The Company continues to invest resources in order to upgrade internal controls.
60
PART II - OTHER INFORMATION
For a description of ourthe Company’s legal proceedings, see Note 18, ContingenciesCommitments and CommitmentsContingencies, to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.10-Q/A.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item“Item 1A. Risk Factors"Factors” in our 2018 Annual Reportthe 2020 Form 10-K which could materially affect ourthe Company’s business, financial condition or future results. The risks described in our Annual Report onthe 2020 Form 10-K isare not the only risks facing ourthe Company. Additional risks and uncertainties not currently known to usmanagement or that wemanagement currently deemdeems to be immaterial also may materially and adversely affect ourthe Company’s business, financial condition or future results.
We are subjectRisks Related to risks related to holding cryptocurrenciesthe Restatement of our Prior Period Condensed Consolidated Financial Statements and accepting cryptocurrencies as a form of payment.
Material Weaknesses in our Internal Control
We have formed strategic partnershipsrestated our condensed consolidated financial statements for several prior periods, which has affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, and our reputation with third partiesour customers, which may result in stockholder litigation and entered into service agreements that provided us with cryptocurrenciesmay reduce customer confidence in our ability to complete new opportunities.
This Quarterly Report on Form 10-Q/A includes restated condensed consolidated financial statements as compensationof and for our services. Cryptocurrencies are not considered legal tender or backed by any government and have experienced price volatility, technological glitches and various law enforcement and regulatory interventions.the period ended March 31, 2021. The use of cryptocurrency such as GTB has been prohibited or effectively prohibited in some countries. If we fail to comply with prohibitions applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences.
As partrestatement of our strategycondensed consolidated financial statements primarily reflects the correction of forming strategic alliancescertain errors, which resulted from an incorrect application of US GAAP, as described in more detail elsewhere in this Quarterly Report on Form 10-Q/A. Such restatement may have the effect of eroding investor confidence in the Company and our financial reporting and accounting practices and processes, and may negatively impact the trading price of our common stock, may result in stockholder litigation, may make it more difficult for us to raise capital on acceptable terms, if at all, and may negatively impact our reputation with our customers and cause customers to place new orders with other companiescompanies.
We have identified material weaknesses in our internal control over financial reporting, which, did and could continue to, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.
We have concluded that our internal control over financial reporting was not effective as of March 31, 2021 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of March 31, 2021 due to material weaknesses in our internal control over financial reporting, all as described in Part I, Item 4, “Controls and Procedures” of this Quarterly Report on Form 10-Q/A. Although we have initiated remediation measures to address the identified weaknesses, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the blockchainfuture. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future.
We intend to continue our remediation activities and FinTech services industry, we may receive cryptocurrency or tokens as compensation for services. For instance, as part ofto continue to improve our digital asset management services agreement with GTD,overall control environment and our compensation was paid in GTB. The prices of cryptocurrency such as GTB are typically highly volatileoperational and subject to exchange rate risks,financial systems and infrastructure, as well as the risk that regulatory or other developments may adversely affect their value.to continue to train, retain and manage our personnel who are essential to effective internal control. In doing so, we will continue to incur expenses and expend management’s time on compliance-related issues. However, our cryptocurrency will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than notwe cannot ensure that the asset is impaired. Assteps that we have taken or will take will successfully remediate the errors. If we are unable to successfully complete our remediation efforts or favorably assess the effectiveness of our internal control over financial reporting, our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and our stock price could be adversely affected.
Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected and corrected on a result, fluctuationstimely basis, or at all. If we are unable to provide reliable and timely financial reports in the market value of cryptocurrency couldfuture, our business and reputation may be further harmed. Restated financial statements and failures in internal control may also cause us to record an impairment chargefail to meet reporting obligations, negatively affect investor and customer confidence
61
in our management and the accuracy of our financial statements and disclosures, result in events of default under our banking agreements, or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the value of our cryptocurrency, which would directly impact our balance sheet and statements of operations.
In particular, our GTB may experience periods of extreme volatility due to (i) GTB having a very limited trading history, (ii) a lack of adoption of GTB by cryptocurrency holders, including a lack of adoption of cryptocurrencies generally due to the expense of mining cryptocurrencies in the current cryptocurrency price environment and (iii) GTB trading on one cryptocurrency exchange which has limited operating histories. Speculators and investors who seek to profit from trading and holding GTB currently account for a significant portion of GTB demand. Such speculation regarding the potential future appreciation in the value of GTB may artificially inflate their price. Fluctuations in the value of our GTB or any other cryptocurrencies that we hold may also lead to fluctuations in the value of our common stock.stock, subject us to regulatory investigations and penalties or additional stockholder litigation, and have a material adverse impact on our business and financial condition.
Risks Related to Our Information Technology Systems and Cyber-Security
Defects or disruptions in our technology or services could diminish demand for our products and services and subject us to liability.
Because our technology, products and services are complex and use or incorporate a variety of computer hardware, software and databases, both developed in-house and acquired from third-party vendors, our technology, products and services may have errors or defects. Errors and defects could result in unanticipated downtime or failure and could cause financial loss and harm to our reputation and our business. We have from time to time found defects and errors in our technology, products and service and defects and errors in our technology, products or services may be detected in the future. In addition, becauseour customers may use our technology, products and services in unanticipated ways that may cause a disruption for other customers. As we acquire companies, we may encounter difficulty in incorporating the acquired technologies, products and services, and maintaining the quality standards that are consistent with our technology, products and services. Since our customers use our technology, products and services for important aspects of convertingtheir businesses and for financial transactions, any errors, defects, or disruptions in such technology, products and services or other performance problems with our holdingstechnology, products and services could subject our customers to fiat currency would likely takefinancial loss and hurt our reputation.
Our platform functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our software code may only be discovered after the code has been deployed. Any errors, bugs or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an extendedacceptable period of time.time or difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results.
We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We have previously experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity constraints. If our application is unavailable when customers attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Malicious cyber-attacks and other adverse events affecting our operational systems or infrastructure, or those of third parties, could disrupt our businesses, result in the exchange where GTB trades was to cease operationsdisclosure of confidential information, damage our reputation and cause losses or no longer quote GTB, there would be no trading platform for GTBregulatory penalties.
Developing and it would likely be impossible to convert GTBmaintaining our operational systems and infrastructure are challenging, particularly as a result of us and our clients entering into fiat currency.
In addition, there is substantial uncertainty regarding the futurenew businesses, jurisdictions and regulatory regimes, rapidly evolving legal and regulatory requirements relatingand technological shifts. Our financial, accounting, data processing or other operating and compliance systems and facilities may fail to cryptocurrencyoperate properly or become disabled as a result of events that are wholly or partially beyond our control, including malicious cyber-attack or other adverse events, which may adversely affect our ability to process these transactions utilizing cryptocurrency. For instance,or provide services or products.
In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take protective measures, such as software programs, firewalls and similar technology, to maintain the confidentiality, integrity and availability of our and our customers’ information, and endeavor to modify these protective measures as circumstances warrant, the nature of cyber threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction
62
of data (including confidential customer information), account takeovers, unavailability or disruption of service, computer viruses, acts of vandalism, or other malicious code, ransomware, hacking, phishing and other cyber-attacks and other adverse events that could have an adverse security impact. Despite the defensive measures we have taken, these threats may come from external forces, such as governments, nation-state actors, organized crime, hackers, and other third parties, including outsource or infrastructure-support providers and application developers, or may originate internally from within us. Given the high volume of transactions, certain errors may be repeated or compounded before they are discovered and rectified.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including vendors, customers, counterparties, exchanges, clearing agents, clearinghouses or other financial intermediaries. Such parties could also be the source of a cyber-attack on or breach of our operational systems, network, data or infrastructure.
There have been an increasing number of ransomware, hacking, phishing and other cyber-attacks in recent years in various industries, including ours, and cyber-security risk management has been the near future curtailsubject of increasing focus by our regulators. Like other companies, we have on occasion experienced, and may continue to experience, threats to our systems, including viruses, phishing and other cyber-attacks. The number and complexity of these threats continue to increase over time. The techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. If one or outlawmore cyber-attacks occur, it could potentially jeopardize the acquisition, useconfidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or redemption of cryptocurrencies. Ownership of, holdingotherwise cause interruptions or tradingmalfunctions in cryptocurrencies may then be considered illegal and subject to sanction. These uncertainties,our, as well as future accounting and tax developments,our customers’ or other requirementsthird parties’ operations, which could result in reputational damage, financial losses, customer dissatisfaction and/or regulatory penalties, which may not in all cases by covered by insurance. If an actual, threatened or perceived cyber-attack or breach of our security occurs, our clients could lose confidence in our platforms and solutions, security measures and reliability, which would materially harm our ability to retain existing clients and gain new clients. As a result of any such attack or breach, we may be required to expend significant resources to repair system, network or infrastructure damage and to protect against the threat of future cyber-attacks or security breaches. We could also face litigation or other claims from impacted individuals as well as substantial regulatory sanctions or fines.
The extent of a particular cyber- attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, we may not necessarily know the full extent of the harm caused by the cyber-attack, and any resulting damage may continue to spread. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyber-attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyber-attack.
Our regulators in recent years have increased their examination and enforcement focus on all matters of our businesses, especially matters relating to cryptocurrency,cyber-security threats, including the assessment of firms’ vulnerability to cyber-attacks. In particular, regulatory concerns have been raised about firms establishing effective cyber-security governance and risk management policies, practices and procedures that enable the identification of risks, testing and monitoring of the effectiveness of such procedures and adaptation to address any weaknesses; protecting firm networks and information; data loss prevention, identifying and addressing risk associated with remote access to client information and fund transfer requests; identifying and addressing risks associated with customers business partners, counterparties, vendors, and other third parties, including exchanges and clearing organizations; preventing and detecting unauthorized access or activities; adopting effective mitigation and business continuity plans to timely and effectively address the impact of cyber-security breaches; and establishing protocols for reporting cyber-security incidents. As we enter new jurisdictions or different product area verticals, we may be subject to new areas of risk or to cyber-attacks in areas in which we have less familiarity and tools. A technological breakdown could also interfere with our ability to comply with financial reporting requirements. The SEC has issued guidance stating that, as a public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber-attacks or other information security breaches in disclosures required to be made under the federal securities laws. While any insurance that we may have that covers a specific cyber-security incident may help to prevent our realizing a significant loss from the incident, it would not protect us from the effects of adverse regulatory actions that may result from the incident or a finding that we had inadequate cyber-security controls, including the reputational harm that could result from such regulatory actions.
63
Additionally, data privacy is subject to frequently changing rules and regulations in countries where we do business. For example, the European Union adopted a new regulation that became effective in May 2018, the General Data Protection Regulation (“GDPR,”) which requires entities both in the European Economic Area and outside to comply with new regulations regarding the handling of personal data. We are also subject to certain U.S. federal and state laws governing the protection of personal data. These laws and regulations are increasing in complexity and number. In addition to the increased cost of compliance, our failure to successfully implement or comply with appropriate processes to adhere to the GDPR and other laws and regulations relating to personal data could result in substantial financial penalties for non-compliance, expose us to litigation risk and harm our reputation.
Risks Related to the Real Estates Services Industry
If adverse changes in the levels of real estate activity occur, the revenues of our Timios subsidiaries may decline.
Title insurance, settlement services, and appraisal revenue is closely related to the level of real estate activity, which includes, among other things, sales, mortgage financing and mortgage refinancing. The levels of real estate activity are primarily affected by the average price of real estate sales, the availability of funds to finance purchases and mortgage interest rates. Both the volume and the average price of residential real estate transactions have increased substantially in many parts of the country over the past year. Due to the unprecedented nature of activity, these trends are unlikely to continue at the same level in the long term.
We have found that residential real estate activity generally decreases in the following situations:
| ● | Mortgage interest rates are high or increasing; |
| ● | Mortgage funding supply is limited; and |
| ● | The United States economy is weak, including high unemployment levels. |
If there is a decline in the level of real estate activity or the average price of real estate sales may adversely affect our title insurance, settlement services, and appraisal management revenues. In 2020, the mortgage interest rate reached record lows increasing mortgage refinancing to the highest levels in history. In 2021, the mortgage interest rate has increased, which may negatively impact the amount of mortgage refinancing activity in comparison to 2020. Sales and mortgage financing remain elevated and the interest rate remains low in respect to historical averages. This activity may be adversely impacted if the economy does not continue to perform well, mortgage rates increase greatly, or lending institutions experience losses that prohibit their ability to lend. Our revenues in future periods will continue to be subject to these and other factors which are beyond our control and, as a result, are likely to fluctuate.
If financial institutions at which we hold escrow funds fail, it could have a material adverse impact on our company.
We hold customers’ assets in escrow at various financial institutions, pending completion of real estate transactions. These assets are maintained in segregated bank accounts. Failure of one or more of these financial institutions may lead us to become liable for the funds owed to third parties and there is no guarantee that we would recover all of the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise.
If we experience changes in the rate or severity of title insurance claims, it may adversely impact our ability to conduct business.
By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. We are an underwritten title company, and if our claims exceed the threshold established by the title companies that underwrite the insurance we offer, it may be cause to have our appointments revoked and negatively impact our ability to conduct business.
64
Because our Timios subsidiary is dependent upon California for a substantial portion of our title insurance premiums, our business may be adversely affected by regulatory conditions in California.
California is the largest source of revenue for the title insurance industry and, in 2020, California-based premiums accounted for a substantial portion of the premiums earned by our Timios subsidiary. A significant part of our revenues and profitability are therefore subject to our operations in California and to the prevailing regulatory conditions in California. Adverse regulatory developments in California, which could include reductions in the maximum rates permitted to be charged, cost of employment regulations, inadequate rate increases or more fundamental changes in the design or implementation of the California title insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition.
The title insurance business is highly competitive.
Competition in the title insurance and appraisal management industry is intense, particularly with respect to price, service and expertise. Business comes primarily by referral from real estate agents, lenders, developers and other settlement providers. The sources of business lead to a great deal of competition among title agents and appraisal management companies. There are numerous national companies and smaller companies at the regional and local levels. The smaller companies are an ever-present competitive risk in the regional and local markets where their business connections can give them a competitive edge. Although we are not aware of any current initiatives to reduce regulatory barriers to entering our industry, any such reduction could result in new competitors, including financial institutions, entering the title insurance business. From time to time, new entrants enter the marketplace with alternative products to traditional title insurance, although many of these alternative products have been disallowed by title insurance regulators. These alternative products, if permitted by regulators, could adversely affect our revenues and earnings. Competition among the major title insurance companies and any new entrants could lower our premium and fee revenues.
Industry regulatory changes and scrutiny could adversely affect our ability to compete for or retain business or increase our cost of doing business.
The title insurance industry has recently been, and continues to be, under regulatory scrutiny in a number of states with respect to pricing practices, and alleged Real Estate Settlement Procedures Act violations and unlawful rebating practices. The regulatory environment could lead to industry-wide reductions in premium rates and escrow fees, the inability to get rate increases when necessary, as well as to changes that could adversely affect the Company’s ability to compete for or retain business or raise the costs of additional regulatory compliance. Further, if regulatory decrees delaying foreclosures are extended, it will continue to impact our ability to recognize revenue and profitability from our default title and settlement services department.
We may notpursue opportunities that involve business, regulatory, legal or other complexities.
We may pursue unusually complex opportunities. This can often take the form of substantial business, regulatory or legal complexity. Our tolerance for complexity presents risks, as such contracts can be ablemore difficult, expensive and time-consuming to convert our holdingsexecute; it can be more difficult to manage or realize value from the assets managed in such activity; and such activity sometimes entail a higher level of cryptocurrencies into fiat
To dateregulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could harm the Asia EDX exchange has not permitted us to convert any partresults of our holdings of GTBoperations.
Our business depends upon our ability to fiat. We are in regular contactkeep pace with the exchange regarding the abilitylatest technological changes, and our failure to convert somedo so could make us less competitive in our industry.
The market for our products and services is characterized by rapid change and technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. Products using new technologies or all ofemerging industry standards could make our holdingsproducts and services less attractive. Failure to fiat, we have been informed that the exchange plansrespond in a timely and cost-effective way to introduce a capability to allow convertibility into fiat. It is possible that the Asia EDX Exchange may never allow GTB held at the exchange to be converted into fiat.
The cryptocurrency exchange on which our GTB trade has limited operating histories and, in most cases, is largely unregulated and, therefore, may be more exposed to fraud and failure than established, regulated exchanges for traditional securities and other products. To the extent that such exchange involved in fraud or experience security failures or other operational issues, itthese technological developments may result in negative impactserious harm to our financial results, or the loss or destruction of, our GTB.
The cryptocurrency exchange on which the GTB trade has limitedbusiness and operating histories and, in most cases, are largely unregulated. Furthermore, the cryptocurrency exchange does not provide the public with significant information regarding their ownership structure, management team, corporate practices or regulatory compliance.results. As a result, the marketplace may lose confidenceour success will depend, in or may experience problems relating to such exchange. Cryptocurrency exchanges may impose daily, weekly, monthly or customer-specific transaction or distribution limits, or they may suspend withdrawals entirely, rendering the exchange of GTB for other digital assets or for fiat currency difficult or impossible.
Over the past few years, a number of cryptocurrency exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. The AsiaEDX, which is the principal exchange for the GTB, launched in 2018 and is less likely to have the infrastructure and capitalization that make larger cryptocurrency exchanges more stable. As a result, the AsiaEDX may be at risk for cybersecurity attacks or may suffer from a greater exposure to technical failure.
A lack of stability in the AsiaEDX or the other exchanges upon which GTB trade and their closure or temporary shutdown due to fraud, business failure, hackers or malware, or government-mandated regulation could result in us losing all or a portion of our GTB or may reduce confidence in the GTB and result in greater volatility in their pricing. If the GTB are delisted from the AsiaEDX or any other cryptocurrency exchange, or if any of the cryptocurrency exchanges that list GTB shut down or cease to continue operations, there may cease to be a liquid market for GTB. These potential consequences could also have a material adverse impactpart, on our financial results. Moreover, the exchanges that list GTB operate outside of the United States. Accordingly, in the event of fraud, we may have difficulty successfully pursuing claims against these exchanges in the courts of the countries in which they are organized.
Currently, there are no regulated trading markets for our GTB or the other digital currencies that we hold, and therefore our ability to sell such tokensdevelop and market product and service offerings that respond in a timely manner to the technological advances available to our customers, evolving industry standards and changing preferences.
65
Rapid technological changes in our industry require timely and cost-effective responses. Our earnings may be limited.adversely affected if we are unable to effectively use technology to increase productivity.
AsTechnological advances occur rapidly in the title insurance industry as industry standards evolve and title insurers introduce new products and services. We believe that our future success depends on our ability to anticipate technological changes and to offer products and services that meet evolving standards on a timely and cost-effective basis. Successful implementation and customer acceptance of the date of this report, the online trading platforms on which the tokens we hold trade, including, with respectour technology-based services will be crucial to our GTB, the AsiaEDX, currently does not qualify as registered exchanges within the meaning of federal securities laws or regulated alternative trading systems. To the extent the tokens trading on these platforms meet the definition of a security under federal securities laws, the platform is generally required to register with the SEC as a national securities exchange or be exempt from such registration requirements. The failure of these platforms to register as national securities exchanges or properly comply with registration exemptions could result in the SEC bringing an enforcement action seeking to prohibit, suspend or limit their operations. In such event, the tokens we hold may be tradable on a very limited range of venues, or not at all, and there may be periods where trading activity in tokens that we hold is minimal or non-existent. These potential consequences could have a material adverse impact on the trading price of the tokens that we hold and could render the exchange of our tokens for other digital assets or fiat currency difficult or impossible.
GTB and other cryptocurrencies that we hold may be subject to loss, theft or restriction on access.
future profitability. There is a risk that somethe introduction of new products and services, or advances in technology, could reduce the usefulness of our products and render them obsolete.
Risks Related to the Wireless Charging System Industry
The success of our business depends in large part on our ability to protect our proprietary information and technology and enforce our intellectual property rights against third parties.
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of our cryptocurrencies could be lost or stolen. Accesswhich provide only limited protection. We cannot assure you that any patents will issue with respect to our coins could alsocurrently pending patent applications, in a manner that gives us the protection that we seek, if at all, or that any future patents issued to us will not be restricted by cybercrime. Wechallenged, invalidated or circumvented. Our currently hold all of our GTB in cold storage. Cold storage refers toissued patents and any cryptocurrency walletpatents that is not connected to the internet. Cold storage is generally more secure but is not ideal for quick or regular transactions. We expect to continue to hold the majority of our cryptocurrencies in cold storage to reduce the risk of malfeasance, but this risk cannot be eliminated.
Hackers or malicious actors may launch attacks to steal, compromise or secure cryptocurrencies, such as by attacking the cryptocurrency network source code, exchange servers, third party platforms, cold and hot storage locations or software, or by other means. We are in control and possession of one of the more substantial holdings of GTB, and we mayissue in the future hold substantial positionswith respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in other cryptocurrencies. Asactions against alleged infringers. Also, we increasecannot assure you that any future service mark registrations will be issued with respect to pending or future applications or that any registered service marks will be enforceable or provide adequate protection of our proprietary rights.
We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed.
Further, effective patent, trademark, service mark, copyright and trade secret protection may not be available in size, we may becomeevery country in which our services are available over the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in EV-related industries are uncertain and still evolving.
Changes to existing federal, state or international laws or regulations applicable to us could cause an erosion of our current competitive strengths.
Our business is subject to a more appealing targetvariety of hackers, malware, cyber-attacksfederal, state and international laws and regulations, including those with respect government incentives promoting fuel efficiency and alternate forms of energy, electric vehicles and others. These laws and regulations, and the interpretation or application of these laws and regulations, could change. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, fiscal tightening or other security threats. Anyreasons may result in diminished revenues from government sources and diminished demand for our products. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these events may adversely affect our operations and, consequently, our investments and profitability. The lossapplicable laws or destruction of a private key requiredregulations, we could be subject to access our digital wallets may be irreversible and we may be denied access for all time to our cryptocurrency holdings or the holdings of others. Our loss of access to our private keys or our experience of a data loss relating to our digital walletssignificant liabilities which could adversely affect our investmentsbusiness.
There are many federal, state and assets.
Cryptocurrencies are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet’s public key or address is reflected in the network’s public blockchain. We will publish the public key relating to digital wallets in use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private keys relating to such digital wallets. To the extent such private keys are lost, destroyed or otherwise compromised, we will be unable to access our cryptocurrency coins and such private keysinternational laws that may not be capable of being restored by any network. Any loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse effect onaffect our business, prospectsincluding measures to regulate EVs and charging systems. If we fail to comply with these applicable laws or operations and the value of any GTB or other cryptocurrenciesregulations, we hold for our own account.
Because there has been limited precedent set for financial accounting of cryptocurrencies and other digital assets, the determination that we have made for how to account for our GTB and any other digital assets we may acquire maycould be subject to change.
Because there has been limited precedent set for the accounting classification and measurement of cryptocurrency and other digital tokens and related revenue recognition, it is unclear how companies may in the future be required to account for digital asset transactions and assets and related revenue recognition. We are currently accounting for our GTB as indefinite-lived intangible assets in accordance with Accounting Standard Codification No. 350: Intangibles-Goodwill and Other. Indefinite-lived intangible assets are recorded at cost and are not subject to amortization, but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. However, a change in regulatory or financial accounting standards could result in the necessity to change our accounting methods and restate our financial statements. Such a restatementsignificant liabilities which could adversely affect the accounting for our GTB business.
There are a number of significant matters under review and discussion with respect to government regulations which may affect business and/or other cryptocurrencies that we may acquireharm our customers, and may more generally negatively impactthereby adversely affect our business, prospects, financial condition and results of operation. operations.
66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the fiscal quarter ended September 30, 2019,March 31, 2021, other than those that were previously reported in ourthe Company’s Current Reports on Form 8-K.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the fiscal quarter ended September 30, 2019.March 31, 2021.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
67
68
*Filed herewithherewith.
**Furnished herewith.
69
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 14, 2020.
November 22, 2021.
IDEANOMICS, INC.
By: | /s/Conor McCarthy | | |
| | ||
Conor McCarthy | | ||
Chief Financial Officer | | ||
(Principal Financial and Accounting Officer) | | ||
70