UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
☐ 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)
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Nevada |
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20-1778374 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
1441 Broadway, 5th Floor, Suite 5116
New York, NY 10018
(Address of principal executive offices)
212-206-1216
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Trading Symbol(s) |
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Name of each exchange on which registered: |
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Common stock, $0.001 par value per share |
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IDEX |
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The Nasdaq Stock Market |
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 ☒ 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 ☒ 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.
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Large accelerated filer ☐ |
Accelerated filer |
☒ |
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Non-accelerated filer ☐ |
Smaller reporting company |
☒ |
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Emerging growth company ☐ |
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 238,971,366 shares as of November 5, 2020.
QUARTERLY REPORT ON FORM 10-Q
OF IDEANOMICS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
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4 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
44 |
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58 |
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58 |
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59 |
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59 |
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59 |
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59 |
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59 |
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59 |
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59 |
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60 |
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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 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:
| ● | “DBOT” refers to the Delaware Board of Trade Holdings, Inc which is holding company for the Company’s FINRA Registered Broker Dealer. The Company owns 99% of the share capital Delaware Board of Trade Holdings, Inc.; |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “EV” refers to electric vehicles, particularly battery operated electric vehicles; |
| ● | “FINRA” refers to the Financial Industry Regulatory Authority; |
| ● | “HK SAR” refers to the Hong Kong Special Administrative Region of the People’s Republic of China; |
| ● | “Intelligenta” refers to the BDCG investment which was rebranded as Intelligenta. As part of the rebranding, Intelligenta’s strategy will now include AI solutions to enhance corporation services, index services and products, and capital market services and products; |
| ● | “Legacy YOD” business refers to the premium content and integrated value-added service solutions for the delivery of VOD (defined below) and paid video programing to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers, and operators, as well as direct customers; |
| ● | “MEG” refers to Mobile Energy Global the subsidiary that holds all of the Company’s electric vehicles investments; |
| ● | “Renminbi” and “RMB” refer to the legal currency of the PRC; |
| ● | “SEC” refers to the United States Securities and Exchange Commission; |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; |
| ● | “SSF” refers to Tianjin Sevenstarflix Network Technology Limited, a PRC company controlled by YOD Hong Kong through contractual arrangements; |
| ● | “Sinotop Beijing” refers to Beijing Sino Top Scope Technology Co., Ltd., a PRC company controlled by YOD Hong Kong through contractual arrangements; |
| ● | “U.S. dollars,” “dollars,” “USD,” “US$,” and “$” refer to the legal currency of the United States; |
| ● | “U.S. Tax Reform” refers to the Tax Cuts and Jobs Act, enacted by the United States of America on December 22, 2017; |
| ● | “VIEs” refers to our variable interest entities Sinotop Beijing, and SSF; |
| ● | “VOD” refers to video on demand, which includes near video on demand (“NVOD”), subscription video on demand (“SVOD”), and transactional video on demand (“TVOD”); |
| ● | “Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company that is 51% owned by the Company; |
| ● | “Wide Angle” refers to Wide Angle Group Limited, a Hong Kong company that is 55% owned by the Company; |
| ● | “YOD Hong Kong” refers to YOU On Demand (Asia) Limited, formerly Sinotop Group Limited, a Hong Kong company, which is wholly- owned by CB Cayman; |
| ● | “YOD WFOE” refers to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company and a “wholly foreign-owned enterprise,” which is wholly-owned by YOD Hong Kong; |
| ● | “SSSIG” refers to Sun Seven Stars Investment Group Limited, a British Virgin Islands corporation, an affiliate of Dr. Wu; and |
| ● | SEDA refers to the Standby Equity Distribution Agreement between the Company and YA II PN Ltd. |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
IDEANOMICS, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Page |
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5 |
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6 |
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Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) |
7 |
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8 |
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10 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
11 |
IDEANOMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD in thousands)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD in thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2020 |
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September 30, 2019 |
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September 30, 2020 |
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September 30, 2019 |
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Revenue from third-parties |
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$ |
10,618 |
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$ |
250 |
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$ |
15,681 |
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$ |
950 |
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Revenue from related parties |
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2 |
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2,854 |
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9 |
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43,554 |
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Total revenue |
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10,620 |
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3,104 |
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15,690 |
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44,504 |
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Cost of revenue from third-parties |
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9,906 |
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244 |
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14,674 |
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|
751 |
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Cost of revenue from related parties |
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— |
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— |
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2 |
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467 |
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Gross profit |
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714 |
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2,860 |
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|
1,014 |
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43,286 |
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Operating expenses: |
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Selling, general and administrative expenses |
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7,636 |
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7,770 |
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20,188 |
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18,443 |
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Research and development |
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1,318 |
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— |
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1,318 |
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— |
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Professional fees |
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3,968 |
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1,389 |
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8,096 |
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3,918 |
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Impairment loss |
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3,275 |
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2,299 |
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10,363 |
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2,299 |
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Change in fair value of contingent consideration, net |
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(4,179) |
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— |
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(2,900) |
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— |
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Depreciation and amortization |
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695 |
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|
806 |
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1,651 |
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1,420 |
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Total operating expenses |
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12,713 |
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12,264 |
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38,716 |
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26,080 |
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Income (loss) from operations |
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(11,999) |
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(9,404) |
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(37,702) |
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17,206 |
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Interest and other income (expense): |
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Interest expense, net |
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(2,014) |
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(639) |
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(14,061) |
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(1,955) |
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Equity in income (loss) of equity method investees |
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7 |
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(40) |
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(8) |
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(606) |
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Gain on disposal of subsidiaries |
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— |
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1,057 |
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— |
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1,057 |
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Loss on remeasurement of DBOT investment |
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— |
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(3,179) |
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— |
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(3,179) |
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Conversion expense |
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— |
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— |
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(2,266) |
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— |
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Other income (expense) |
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5,283 |
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(100) |
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6,272 |
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(156) |
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Income (loss) before income taxes and non-controlling interest |
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(8,723) |
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(12,305) |
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(47,765) |
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12,367 |
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Income tax benefit |
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— |
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— |
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— |
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514 |
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Net income (loss) |
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(8,723) |
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(12,305) |
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(47,765) |
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12,881 |
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Deemed dividend related to warrant repricing |
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— |
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— |
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(184) |
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— |
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Net loss (income) attributable to non-controlling interest |
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437 |
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(1,408) |
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737 |
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(1,374) |
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Net income (loss) attributable to IDEX common shareholders |
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$ |
(8,286) |
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$ |
(13,713) |
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$ |
(47,212) |
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$ |
11,507 |
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Earnings (loss) per share |
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Basic |
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$ |
(0.03) |
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$ |
(0.11) |
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$ |
(0.25) |
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$ |
0.10 |
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Diluted |
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(0.03) |
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(0.11) |
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(0.25) |
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0.10 |
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Weighted average shares outstanding: |
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Basic |
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237,535,999 |
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127,609,748 |
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191,976,856 |
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113,964,933 |
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Diluted |
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237,535,999 |
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127,609,748 |
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191,976,856 |
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118,319,893 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (USD in thousands)
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Three Months Ended |
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Nine Months Ended |
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|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
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||||
|
Net income (loss) |
|
$ |
(8,723) |
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$ |
(12,305) |
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$ |
(47,765) |
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$ |
12,881 |
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|
Other comprehensive income (loss), net of nil tax |
|
|
|
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|
|
|
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|
|
|
|
|
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Foreign currency translation adjustments |
|
|
1,356 |
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|
24 |
|
|
1,639 |
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|
103 |
|
|
Comprehensive income (loss) |
|
|
(7,367) |
|
|
(12,281) |
|
|
(46,126) |
|
|
12,984 |
|
|
Deemed dividend related to warrant repricing |
|
|
— |
|
|
— |
|
|
(184) |
|
|
— |
|
|
Comprehensive income (loss) attributable to non-controlling interest |
|
|
122 |
|
|
(1,470) |
|
|
(51) |
|
|
(1,420) |
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|
Comprehensive income (loss) attributable to IDEX common shareholders |
|
$ |
(7,245) |
|
$ |
(13,751) |
|
$ |
(46,361) |
|
$ |
11,564 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited) (USD in thousands)
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Nine Months Ended September 30, 2019 |
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Retained |
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Accumulated |
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Additional |
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Earnings/ |
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Other |
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Ideanomics |
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Non- |
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Common |
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Par |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shareholders' |
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controlling |
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Total |
|||||||
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Stock |
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Value |
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Capital |
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(Deficit) |
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Loss |
|
equity |
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Interest |
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Equity |
|||||||
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Balance, January 1, 2019 |
|
102,766,006 |
|
$ |
103 |
|
$ |
195,780 |
|
$ |
(149,975) |
|
$ |
(1,665) |
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$ |
44,243 |
|
$ |
(1,031) |
|
$ |
43,212 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
224 |
|
|
— |
|
|
— |
|
|
224 |
|
|
— |
|
|
224 |
|
Common stock issuance for restricted shares |
|
129,840 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Common stock issuance for assets (SolidOpinion, Inc) |
|
4,500,000 |
|
|
5 |
|
|
7,150 |
|
|
— |
|
|
— |
|
|
7,155 |
|
|
— |
|
|
7,155 |
|
Common stock issuance for convertible debt |
|
1,166,113 |
|
|
1 |
|
|
2,049 |
|
|
— |
|
|
— |
|
|
2,050 |
|
|
— |
|
|
2,050 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
19,927 |
|
|
— |
|
|
19,927 |
|
|
(18) |
|
|
19,909 |
|
Foreign currency translation adjustments, net of nil tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
172 |
|
|
172 |
|
|
(25) |
|
|
147 |
|
Balance, March 31, 2019 |
|
108,561,959 |
|
|
109 |
|
|
205,203 |
|
|
(130,048) |
|
|
(1,493) |
|
|
73,771 |
|
|
(1,074) |
|
|
72,697 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
3,703 |
|
|
— |
|
|
— |
|
|
3,703 |
|
|
— |
|
|
3,703 |
|
Common stock issuance for assets (Fintalk) |
|
2,860,963 |
|
|
3 |
|
|
5,347 |
|
|
— |
|
|
— |
|
|
5,350 |
|
|
— |
|
|
5,350 |
|
Common stock issuance for acquisition of non-controlling interest Grapevine1 |
|
590,671 |
|
|
1 |
|
|
491 |
|
|
— |
|
|
— |
|
|
492 |
|
|
(492) |
|
|
— |
|
Investment from SSSIG |
|
575,431 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
5,292 |
|
|
— |
|
|
5,292 |
|
|
(15) |
|
|
5,277 |
|
Foreign currency translation adjustments, net of nil tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(76) |
|
|
(76) |
|
|
8 |
|
|
(68) |
|
Balance, June 30, 2019 |
|
112,589,024 |
|
|
113 |
|
|
214,744 |
|
|
(124,756) |
|
|
(1,569) |
|
|
88,532 |
|
|
(1,573) |
|
|
86,959 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
2,547 |
|
|
— |
|
|
— |
|
|
2,547 |
|
|
— |
|
|
2,547 |
|
Common stock issuance for acquisition of BlackHorse Ventures2 |
|
815,217 |
|
|
1 |
|
|
1,499 |
|
|
— |
|
|
— |
|
|
1,500 |
|
|
— |
|
|
1,500 |
|
Common stock issuance for acquisition of Glory Connection |
|
12,190,000 |
|
|
12 |
|
|
24,368 |
|
|
— |
|
|
— |
|
|
24,380 |
|
|
— |
|
|
24,380 |
|
Common stock issuance for acquisition of DBOT |
|
5,851,830 |
|
|
6 |
|
|
9,708 |
|
|
— |
|
|
— |
|
|
9,714 |
|
|
105 |
|
|
9,819 |
|
Common stock issuance for releasing Grapevine as collateral |
|
250,000 |
|
|
— |
|
|
372 |
|
|
— |
|
|
— |
|
|
372 |
|
|
— |
|
|
372 |
|
Common stock issuance for releasing Grapevine as collateral Convertible note |
|
1,000,000 |
|
|
1 |
|
|
2,499 |
|
|
— |
|
|
— |
|
|
2,500 |
|
|
— |
|
|
2,500 |
|
Deconsolidation of Amer |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
446 |
|
|
446 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
(13,712) |
|
|
— |
|
|
(13,712) |
|
|
1,407 |
|
|
(12,305) |
|
Foreign currency translation adjustments, net of nil tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
11 |
|
|
11 |
|
|
13 |
|
|
24 |
|
Balance, September 30, 2019 |
|
132,696,071 |
|
$ |
133 |
|
$ |
255,737 |
|
$ |
(138,468) |
|
$ |
(1,558) |
|
$ |
115,844 |
|
$ |
398 |
|
$ |
116,242 |
Notes:
1 In 2018, the Company entered into a subscription agreement and amended agreements with SSSIG to purchase $1.1 million of Common Stock at the then market price. The Company has received $1.1 million in total in 2018 and issued 575,431 shares of common stock in June 2019.
2 On 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.
8
* Excludes accretion of dividend for redeemable non-controlling interest
** Excludes deemed dividend related to warrant repricing
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
|
September 30, 2020 |
|
September 30, 2019 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(47,765) |
|
$ |
12,881 |
|
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
8,848 |
|
|
6,474 |
|
Depreciation and amortization |
|
|
1,651 |
|
|
1,420 |
|
Allowance for doubtful accounts |
|
|
585 |
|
|
— |
|
Non-cash interest expense |
|
|
14,143 |
|
|
2,266 |
|
Equity in losses of equity method investees |
|
|
8 |
|
|
606 |
|
Digital tokens received as payment for services |
|
|
— |
|
|
(40,700) |
|
Gain on disposal of subsidiaries |
|
|
— |
|
|
(1,057) |
|
Loss on remeasurement of DBOT investment |
|
|
— |
|
|
3,179 |
|
Conversion expense |
|
|
2,266 |
|
|
— |
|
Impairment loss |
|
|
4,143 |
|
|
2,299 |
|
Impairment of operating lease assets |
|
|
6,220 |
|
|
— |
|
Settlement of ROU operating lease liabilities |
|
|
(5,706) |
|
|
— |
|
Change in fair value of contingent consideration, net |
|
|
(2,900) |
|
|
— |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,496) |
|
|
(2,814) |
|
Prepaid expenses and other assets |
|
|
(689) |
|
|
2,447 |
|
Accounts payable |
|
|
1,358 |
|
|
1,024 |
|
Deferred revenue |
|
|
701 |
|
|
150 |
|
Amount due to related parties |
|
|
1,542 |
|
|
(104) |
|
Accrued expenses, salary and other current liabilities |
|
|
(3,827) |
|
|
3,217 |
|
Net cash used in operating activities |
|
|
(21,918) |
|
|
(8,712) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(45) |
|
|
(1,809) |
|
Proceeds from note receivable repayment |
|
|
1,469 |
|
|
— |
|
Proceeds from disposal of subsidiaries |
|
|
— |
|
|
694 |
|
Acquisition of subsidiaries, net of cash acquired |
|
|
— |
|
|
247 |
|
Payments for long-term investments |
|
|
— |
|
|
(870) |
|
Notes receivable |
|
|
(1,910) |
|
|
— |
|
Net cash used in investing activities |
|
|
(486) |
|
|
(1,738) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes |
|
|
2,000 |
|
|
4,802 |
|
Proceeds from exercise of warrants and issuance of common stocks |
|
|
39,128 |
|
|
2,500 |
|
Proceeds from noncontrolling interest shareholder |
|
|
7,148 |
|
|
— |
|
Borrowings from Small Business Association Paycheck Protection Program |
|
|
460 |
|
|
— |
|
Proceeds from/(Repayment of) amounts due to related parties |
|
|
(2,999) |
|
|
1,765 |
|
Net cash provided by financing activities |
|
|
45,737 |
|
|
9,067 |
|
Effect of exchange rate changes on cash |
|
|
1,639 |
|
|
(37) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
24,972 |
|
|
(1,420) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
2,633 |
|
|
3,106 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
27,605 |
|
$ |
1,686 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid for income tax |
|
$ |
— |
|
$ |
— |
|
Cash paid for interest |
|
|
311 |
|
|
— |
|
Issuance of shares for acquisition of DBOT |
|
|
8,074 |
|
|
— |
|
Issuance of shares for convertible notes conversion |
|
|
20,069 |
|
|
— |
|
Tree Technologies measurement period adjustment on goodwill, non-controlling interest and intangible assets |
|
|
12,848 |
|
|
— |
|
Disposal of assets in exchange for GTB tokens |
|
|
— |
|
|
20,219 |
|
Issuance of shares for acquisition of intangible assets |
|
|
— |
|
|
10,005 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
IDEANOMICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ideanomics, Inc. (“Ideanomics” or the “Company”) (Nasdaq: IDEX) is a Nevada corporation that primarily operates in Asia and the United States through its subsidiaries and variable interest entities ("VIEs"). Unless the context otherwise requires, the use of the terms "we," "us," "our," and the "Company" in these notes to condensed consolidated financial statements refers to Ideanomics, Inc., its consolidated subsidiaries and VIEs.
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. Therefore, the Company operates in one segment with two business units, the Mobile Energy Group ("MEG"), and Ideanomics Capital. As the chief executive officer previously reviewed two operating segments separately for this purpose, the Company has changed its presentation accordingly, from two reportable segments to one reportable segment.
The segment reporting changes were retrospectively applied to all periods presented.
MEG’s mission is to use electronic vehicles (“EVs”) and EV battery sales and financing to attract commercial fleet operators that will generate large scale demand for energy, energy storage systems, and energy management contracts. MEG operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs of fleet operators of commercial EVs.
Ideanomics Capital is involved with areas of capital markets such as financial products advisory and creation, with specific focus on the application of blockchain and artificial intelligence in Fintech.
The Company also seeks to identify industries and business processes where blockchain and artificial intelligence (“AI”) technologies can be profitably deployed to disrupt established industries and business processes.
Basis of 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 in consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.
The 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’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, 2019 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2020 (“2019 Form 10-K.”)
Use of Estimates
The preparation of 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.
11
On an ongoing basis, management evaluates the Company's estimates, including those related to the bad debt allowance, variable consideration, 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. The 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 2019 Form 10-K. During the nine months ended September 30, 2020, there were no significant changes made to Ideanomics’ significant accounting policies.
Reclassifications
The Company has renamed captions in its condensed consolidated balance sheet, condensed consolidated statement of operations, and its condensed consolidated statement of cash flows. There were no changes to the composition of these accounts, and therefore no change to the condensed consolidated financial accounts aside from the renaming of the captions.
|
Statement |
|
|
Previous caption |
|
|
Current caption |
|
Condensed consolidated balance sheet |
|
|
Acquisition earn-out liability |
|
|
Contingent consideration |
|
Condensed consolidated statement of operations |
|
|
Acquisition earn-out/true up expense, net |
|
|
Change in fair value of contingent consideration, net |
|
Condensed consolidated statement of cash flows |
|
|
Acquisition earn-out expense |
|
|
Change in fair value of contingent consideration, net |
Liquidity Improvements
In the nine months ended September 30, 2020, the Company improved its liquidity position by raising a total of $48.2 million: $39.1 million through the issuance of common stock and exercise of warrants, $7.1 million from noncontrolling interest shareholders, and $2.0 million through the issuance of senior secured convertible notes. The Company converted senior secured convertible notes of $9.4 million plus accrued interest of $0.3 million to common stock. Additionally, the Company converted $4.6 million of convertible notes payable and accrued interest to related parties and an additional $1.5 million due to related parties to common stock. As a result of these actions, the Company reduced its the principal amount of its indebtedness by $13.9 million, and as of September 30, 2020, had cash and cash equivalents of $27.6 million, $19.0 million of which is held in U. S. financial institutions.
Based upon its business projections and its cash and cash equivalents balance as of September 30, 2020, the Company believes it has the ability to continue as a going concern.
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 ongoing COVID-19 pandemic. As of October 31, 2020, over 44.7 million cases had been reported across the globe, resulting in 1.2 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 has shut down significant parts of the local, regional, national, and international economies with the exception of government designated essential services.
12
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 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.
Public health experts have expressed concern that the influenza season in the northern hemisphere will coincide with a spread of COVID-19 cases, adding further stress to the affected populations, businesses, governments, and economies. The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, and the prospects for a vaccine as well as its global implementation.
The Company assesses the recoverability of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year, or more frequently if circumstances warrant. The Company assesses the recoverability of other long-lived assets as circumstances warrant, and in the nine months ended September 30, 2020 did not consider any long-lived assets to be impaired other than certain right of use and fixed assets, including assets comprising a portion of Fintech Village. Many of the Company’s operations are in the development or early stage, have not had significant revenues to date, and 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.
Resulting Delay in Documentation
In the three months ended March 31, 2020, the Company commenced the process of formulating and implementing a share-based compensation plan whereby key employees and certain consultants of its MEG business unit and wholly-owned subsidiary would benefit.
As one component of this process, the Company had initially transferred 10,000 common shares of MEG, representing 20.0% of the overall outstanding common shares, to Merry Heart Technology Limited ("MHTL"),who was intended to act as a trustee over these shares, for a nominal amount. It was the Company’s intent that this arrangement would be structured in a manner similar to other trusts used to effect share-based compensation plans, and would qualify as a VIE and consequently be consolidated.
However, the disruption caused by the COVID-19 virus, particularly in China, where many of the Company’s personnel and business advisors are located, initially delayed the Company’s efforts to implement this share-based compensation plan.
The Company has determined not to proceed with the MEG share-based compensation plan described above, and the parties have declared the transfer of the MEG shares, which was not believed to be substantive, to be null and void and they have reverted to the Company.
No share-based awards had been granted to employees or consultants pursuant to this arrangement as originally contemplated.
Note 2. New Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13 (“ASU 2016-13”) "Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial 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
13
rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In 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, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of the investment portfolio and the economic conditions at the time of adoption.
In December 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”) “Income Taxes (Topic 740) 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 will adopt ASU 2019-12 effective January 1, 2021. Management does not expect the adoption of ASU 2019-12 to have a material effect on the consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06 (“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 GAAP. Convertible instruments that continue to 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 the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to 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 Company will adopt ASU 2020-06 effective January 1, 2024. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
Note 3. Notes Receivable
(a)Zhu Note Receivable
In May 2020, a subsidiary of the Company, Qingdao Chenyang Ainengju New Energy Sales and Service Company Limited ("Energy Sales") provided a note receivable to Mr. Jianya Zhu ("Mr. Zhu") in the amount of 10.0 million RMB ($1.4 million). Mr. Zhu, through his wholly-owned entity Prime Capital Enterprise Pte. Ltd., provided collateral in the form of its 50.0% ownership of Seven Stars Founder Space Industrial Pte. Ltd ("Founder Space.") Founder Space is also 50.0% owned by a related party, Seven Stars Innovative Industries Group Limited, an affiliate of Dr. Bruno Wu (“Dr. Wu”), the Chairman of the Company. Mr. Zhu agreed to repay 10.5 million RMB ($1.5 million) one month from the disbursement date. In September 2020, a third-party satisfied the note receivable and accrued interest in the amount of 10.5 million RMB ($1.5 million) on behalf of Mr. Zhu, and the Company terminated the note and collateral agreement.
(b)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 not collateralized. Zhengtong agreed to repay 3.3 million RMB ($0.5 million) within three months of the disbursement date. As of this date,
14
this note receivable has not been satisfied; however, the Company believes the note receivable to be collectible based upon discussions that have been held.
Note 4. Revenue
The following table summarizes the Company's revenues disaggregated by revenue source, geography (based on the Company's business locations), and timing of revenue recognition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
|
||||
|
Geographic Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
$ |
33 |
|
$ |
— |
|
$ |
42 |
|
$ |
— |
|
|
USA |
|
|
480 |
|
|
250 |
|
|
908 |
|
|
41,650 |
|
|
China |
|
|
10,107 |
|
|
2,854 |
|
|
14,740 |
|
|
2,854 |
|
|
Total |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
15,690 |
|
$ |
44,504 |
|
|
Product or Service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital asset management services |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
40,700 |
|
|
Digital advertising services and other |
|
|
480 |
|
|
250 |
|
|
908 |
|
|
950 |
|
|
Electric vehicles* |
|
|
8,872 |
|
|
2,854 |
|
|
9,622 |
|
|
2,854 |
|
|
Combustion engine vehicles* |
|
|
1,268 |
|
|
— |
|
|
5,160 |
|
|
— |
|
|
Total |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
15,690 |
|
$ |
44,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
15,690 |
|
$ |
3,804 |
|
|
Services provided over time |
|
|
— |
|
|
— |
|
|
— |
|
|
40,700 |
|
|
Total |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
15,690 |
|
$ |
44,504 |
|
* The revenues for the three and the nine months ended September 30, 2020 were recorded on either a Principal or Agency basis, depending on the terms of the underlying transaction, including the ability to control the product and the level of inventory risk taken.The combustion engine vehicles for the three and the nine months ended September 30, 2020 were recorded on a Principal basis because the Company has inventory risk in the transaction.
In the three months ended September 30, 2020 the balance of deferred revenue increased primarily due to two factors: 1) the Company sold vehicles with a service warranty, and allocated a portion of the transaction price to this performance obligation and will recognize this revenue over the service period, and 2) the Company was engaged to perform advertising services pursuant to one significant contract, and such services were partially fulfilled in the three months ended September 30, 2020 and the remainder will be fulfilled in the future.
In the three months ended September 30, 2020 the Company sold vehicles whose contractual terms contained a provision which gave rise to variable consideration. The Company has estimated the variable consideration, and will continue to revise this estimate in the future. The liability associated with this estimate is recorded as “Other long-term liabilities.”
Note 5. VIE Structure and Arrangements
Prior to December 31, 2019, the Company consolidated certain VIEs located in the People’s Republic of China (“PRC”) in which it held variable interests and was the primary beneficiary through contractual agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected their economic performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations of these VIEs are included in the consolidated financial statements for the year ended December 31, 2019. A shareholder in one of the VIEs is the spouse of Dr. Wu.
The contractual agreements, which collectively granted the Company the power to direct the VIEs activities that most significantly affected their economic performance, as well to cause the Company to have the obligation to absorb or right
15
to receive the majority of their losses or benefits, were terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019.
Refer to Note 10 for information on an additional VIE.
Note 6. Acquisitions and Divestitures
2020 Acquisitions and Divestitures
The Company has not acquired any companies nor disposed of any subsidiaries in the nine months ended September 30, 2020, with the exception of the disposition of its remaining 10.0% interest in Amer Global Technology Limited ("Amer") as disclosed in Note 6(e).
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.
2019 Acquisitions
On December 26, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. The acquisition price was comprised of (1) $0.9 million in cash, (2) 9.5 million shares of Ideanomics common stock, and (3) contingent consideration of up to $32.0 million over three years, to be paid in cash or Ideanomics common shares at the election of the Company. The contingent consideration was initially based upon revenue targets over three 12 month periods beginning in the three months ended December 31, 2019; due to financing delays and resulting production delays, these three 12 month periods will commence on July 1, 2020. In the three and nine months ended September 30, 2020, the Company recorded remeasurement gains of $4.2 million and $4.4 million in "Change in fair value of contingent consideration, net" in the condensed consolidated statements of operations. As of September 30, 2020, the recorded balance of this liability was $10.9 million.
The fair value of the Ideanomics stock was based upon the closing price of $0.82 on December 26, 2019, and the fair value of the contingent consideration was estimated to be $15.5 million, and revised to $15.3 million upon finalization of the purchase, and was recorded as a liability on the date of acquisition. The Company estimated the fair value of the contingent consideration using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors. This fair value measurement is based on significant Level 3 inputs. The resulting probability-weighted cash flows were discounted using the Company's estimated weighted average cost of capital of 15.0%.
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. The Company intends to develop this land and lease it to Tree Manufacturing for the manufacture of EVs. Tree Technologies holds an exclusive right to market and distribute the EVs manufactured by Tree Manufacturing. The goodwill arising from the acquisition consists largely of the synergies expected from the fulfillment of these contracts. None of the goodwill recognized is expected to be deductible for tax purposes.
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 Tree Technologies recognized. The Company has completed the fair value
16
analysis of the assets acquired, liabilities assumed, the noncontrolling interest, and the contingent consideration, and therefore the adjustments are incorporated in the table below (in thousands).
|
|
|
|
|
|
Land use rights |
|
$ |
27,140 |
|
Accounts payable |
|
|
(743) |
|
Noncontrolling interest |
|
|
(15,452) |
|
Goodwill |
|
|
468 |
|
Marketing and distribution agreement |
|
|
12,590 |
|
|
|
$ |
24,003 |
The completion of the fair value analysis resulted in measurement period adjustments of $12.8 million, primarily to the amount initially assigned to the noncontrolling interest, and reduced the amount of goodwill recorded.
The accounts payable above of $0.7 million primarily represents the transfer tax payable for the land use rights for the 250 acres of vacant land, which the Company paid in the three months ended September 30, 2020.
Tree Technologies had not commenced operations as of the acquisition date, therefore pro forma results as if the acquisition had occurred as of January 1, 2019, and related information, are not presented.
(b) Acquisition of Grapevine Logic, Inc. ("Grapevine”)
On September 4, 2018, the Company completed the acquisition of 65.7% share of Grapevine for $2.4 million in cash. Fomalhaut Limited (“Fomalhaut,”) a British Virgin Islands company and an affiliate of Dr. Wu, was the non-controlling equity holder of 34.4% 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 aggregate sale price for the Fomalhaut Interest was the fair market value of the Fomalhaut Interest as of the close of business on the date preceding the date upon which the right to sell the Fomalhaut Interest to the Company is exercised by Fomalhaut. If the option was to be exercised, the sale price for the Fomalhaut Interest was 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.
In May 2019, the Company entered into two amendments to the Option Agreement. The aggregate exercise price for the Option was amended to the greater of: (1) 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 (2) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price was to be paid in the form of common stock of the Company.
In June 2019, the Company issued 0.6 million shares in exchange for a 34.3% ownership in Grapevine as a result of the exercise of the Option. At the completion of this transaction the Company owned 100.0% of Grapevine. At the date of the transaction, the carrying amount of the non-controlling interest in Grapevine was $0.5 million. The difference between the value of the consideration exchanged of $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, Consolidation (“ASC 810.”)
(c) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire 6.9 million shares in DBOT in exchange for 4.4 million 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 2.2 million shares in DBOT in exchange for 1.4 million shares of the Company’s common stock at $2.11 per share. The two transactions, which increased the Company’s ownership in DBOT to 99.0% as of that date, were completed in July 2019. The securities purchase agreements required the Company to issue contingent consideration in the form of additional shares of the Company’s common stock in the event the stock price of the common stock falls below $2.11 at the close of trading on the date immediately preceding the lock-up date, which was 9 months from the closing date. The Company accounted for the contingent consideration as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. The Company recorded this liability at fair
17
value of $2.2 million on the date of acquisition. As of December 31, 2019, the Company remeasured this liability to $7.3 million and the remeasurement loss of $5.1 million was recorded in “Change in fair value of contingent consideration, net” in the consolidated statements of operations. In the three and nine months ended September 30, 2020, the Company recorded remeasurement losses of $0 and $1.5 million, respectively, in “Change in fair value of contingent acquisition, net” in the condensed consolidated statements of operations, and partially satisfied the liability with the issuance of 13.1 million shares of common stock. As of September 30, 2020, the recorded balance of this liability was $0.8 million. The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future.
Immediately prior to the consummation of the transaction, the Company’s investment in DBOT consisted of 37.0% of the common shares outstanding, which had a fair value of $3.1 million, and the Company recorded a loss of $3.2 million to record the investment in DBOT to its fair value. This loss was recorded in “Loss on remeasurement of DBOT investment” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019. The fair value of the investment in DBOT immediately prior to the consummation of the transaction was determined in conjunction with the overall fair value determination of the DBOT assets acquired and liabilities assumed.
DBOT operates three companies: (1) DBOT ATS LLC, an SEC recognized Alternative Trading System (“ATS”); (2) DBOT Issuer Services LLC, focused on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers; and (3) DBOT Technology Services LLC, focused on the provision of market data and marketplace connectivity. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and DBOT, as the Company executes its business plan of selling digital tokens and digital assets and other commodities on an approved ATS.
The consolidated statements of operation for the year ended December 31, 2019 include the results of DBOT from July 2019 to December 31, 2019. For the time period from July 2019 through December 31, 2019, DBOT contributed $15,838 and $1.9 million to the Company’s revenue and net loss, respectively.
The following table summarizes supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2019 (in thousands):
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, 2019. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
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 (in thousands):
The excess of the consideration over the fair value of the net assets acquired has been recorded as goodwill, of which none is expected to be deductible for tax purposes. For all intangible assets acquired, continuing membership agreements have useful life of 20 years and the customer list has useful life of 3 years.
18
2019 Divestitures
(d) 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 consideration of $0.7 million. The Company decided to sell Red Rock primarily because it had incurred operating losses and its business was no longer needed based on the Company’s business plan. The transaction was completed in July 2019 and the Company recorded a disposal gain of $0.6 million recorded in “Gain on disposal of subsidiaries” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019.
(e) Amer Global Technology Limited
On June 30, 2019, the Company entered into an agreement with BCC Technology Company Limited (“BCC”) and Tekang Holdings Technology Co., Ltd (“Tekang ”) pursuant to which Tekang will inject certain assets in the robotics and electronic internet industry and Internet of Things business consisting of manufacturing data, supply chain management and financing, and lease financing of industrial robotics into Amer in exchange for 71.8% 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 71.8% ownership interest to BCC instead of Tekang, (3) issuing 5,500 new shares in Amer or 10.0% ownership interest to MHTL, and (4) the Company is responsible for 20.0% of any potential tax obligation associated with Amer, if Amer fails to be publicly listed in 36 months from the closing date of this transaction. The Company concluded that it’s not probable that this contingent liability would be incurred. As a result of this transaction, the Company’s ownership interest in Amer was diluted from 55.0% to 10.0%. The transaction was completed on August 31, 2019.
The Company recognized a disposal gain of $0.5 million as a result of the deconsolidating Amer, and such gain was recorded in “Gain on disposal of subsidiaries” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019. $0.1 million of the gain is attributable to the 10.0% ownership interest retained in Amer. In addition, on the date Amer was deconsolidated, the Company recorded a bad debt expense of $0.6 million relating to a receivable due from Amer to a subsidiary of the Company, which was recorded in “Selling, general and administrative expense” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019.
Pro forma results of operations for the three and nine months ended September 30, 2019 have not been presented because they are not material to the consolidated results of operations. Amer had no revenue and minimal operating expenses in the year ended December 31, 2019.
In the three months ended September 30, 2020, the Company sold its remaining 10.0% interest in Amer to Fintalk Media Inc., a related party, for a nominal amount. As the Company had no basis in its remaining interest in Amer, the gain recognized on the sale was de minimis. In light of this disposition, the Company is negotiating the responsibility for the contingent tax obligation disclosed above.
Note 7. Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Accounts receivable, gross |
|
$ |
4,900 |
|
$ |
2,405 |
|
Less: allowance for doubtful accounts |
|
|
(585) |
|
|
— |
|
Accounts receivable, net |
|
$ |
4,315 |
|
$ |
2,405 |
The balance includes the taxi commission revenue receivables of $1.2 million and $2.3 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co, as of September 30, 2020 and December 31, 2019, respectively.
19
In the three months ended September 30, 2020, the Company increased its allowance for doubtful accounts by $0.6 million for the account receivable mentioned above. There were no changes in the allowance for doubtful accounts for the three and nine months ended September 30, 2019.
Note 8. Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Furniture and office equipment |
|
$ |
309 |
|
$ |
441 |
|
Vehicle |
|
|
121 |
|
|
62 |
|
Leasehold improvements |
|
|
176 |
|
|
243 |
|
Total property and equipment |
|
|
606 |
|
|
746 |
|
Less: accumulated depreciation |
|
|
(441) |
|
|
(368) |
|
Property and equipment, net |
|
|
165 |
|
|
378 |
|
Fintech Village |
|
|
|
|
|
|
|
Land |
|
|
3,043 |
|
|
3,043 |
|
Building |
|
|
— |
|
|
309 |
|
Assets retirement obligations - environmental remediation |
|
|
6,294 |
|
|
6,496 |
|
Capitalized direct development cost |
|
|
— |
|
|
2,713 |
|
Construction in progress (Fintech Village) |
|
|
9,337 |
|
|
12,561 |
|
Property and Equipment, net |
|
$ |
9,502 |
|
$ |
12,939 |
The Company recorded depreciation expense of $25,170 and $65,862, which is included in its operating expenses, for the three months ended September 30, 2020 and 2019, respectively, and $90,962 and $102,991 for the nine months ended September 30, 2020 and 2019, respectively.
In the three months ended June 30, 2020 the Company ceased to use the premises for its New York City headquarters at 55 Broadway, and vacated the premises. As a result, the Company recorded an impairment loss of $0.2 million related to leasehold improvements and other fixed assets at that location.
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
The Company recorded asset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The following table summarizes the activity in the asset retirement obligation for the nine months ended September 30, 2020 (in thousands):
The Company capitalized direct costs incurred on Fintech Village and the capitalized cost is recorded as part of Construction in progress. Capitalized costs were $0 million and $2.7 million as of September 30, 2020 and December 31, 2019, respectively, and are primarily related to legal and architect costs.
In the three months ended September 30, 2020, in relation to Fintech Village the Company recorded an impairment loss of $2.7 million for the capitalized architect costs, and recorded an impairment loss of $0.3 million for the remaining building and $0.2 million for the related asset retirement cost associated with the remaining building.
The Company has identified Fintech Village as a non-core asset and is evaluating its strategies for divesting of this asset.
20
Note 9. Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
|
Balance as of January 1, 2019 |
|
$ |
705 |
|
Acquisitions |
|
|
22,639 |
|
Balance as of December 31, 2019 |
|
|
23,344 |
|
Measurement period adjustments* |
|
|
(12,848) |
|
Effect of change in foreign currency exchange rates |
|
|
(24) |
|
Balance as of September 30, 2020 |
|
$ |
10,472 |
*During the three months ended December 31, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. The Company adjusted goodwill balance in connection with the completion of acquisition accounting. Refer to Note 6(a) for additional information.
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
||||||||||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Remaining |
|
Carrying |
|
Accumulated |
|
Impairment |
|
Net |
|
Carrying |
|
Accumulated |
|
Impairment |
|
Net |
|||||||||
|
|
|
Useful Life |
|
Amount |
|
Amortization |
|
Loss |
|
Balance |
|
Amount |
|
Amortization |
|
Loss |
|
Balance |
|||||||||
|
Amortizing Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and licenses |
|
|
— |
|
$ |
94 |
|
$ |
(94) |
|
$ |
— |
|
$ |
— |
|
$ |
97 |
|
$ |
(97) |
|
$ |
— |
|
$ |
— |
|
Solid Opinion IP (a) |
|
|
3.4 |
|
|
4,655 |
|
|
(1,474) |
|
|
— |
|
|
3,181 |
|
|
4,655 |
|
|
(776) |
|
|
— |
|
|
3,879 |
|
Fintalk intangible assets (b) |
|
|
— |
|
|
635 |
|
|
(635) |
|
|
— |
|
|
— |
|
|
635 |
|
|
(635) |
|
|
— |
|
|
— |
|
Influencer network (c) |
|
|
7.9 |
|
|
1,980 |
|
|
(413) |
|
|
— |
|
|
1,567 |
|
|
1,980 |
|
|
(264) |
|
|
— |
|
|
1,716 |
|
Customer contract (c) |
|
|
0.9 |
|
|
500 |
|
|
(347) |
|
|
— |
|
|
153 |
|
|
500 |
|
|
(222) |
|
|
— |
|
|
278 |
|
Continuing membership agreement (d) |
|
|
18.8 |
|
|
8,255 |
|
|
(516) |
|
|
— |
|
|
7,739 |
|
|
8,255 |
|
|
(206) |
|
|
— |
|
|
8,049 |
|
Customer list |
|
|
1.8 |
|
|
59 |
|
|
(25) |
|
|
— |
|
|
34 |
|
|
59 |
|
|
(10) |
|
|
— |
|
|
49 |
|
Trade name (c) |
|
|
12.9 |
|
|
110 |
|
|
(15) |
|
|
— |
|
|
95 |
|
|
110 |
|
|
(10) |
|
|
— |
|
|
100 |
|
Technology platform (c) |
|
|
4.9 |
|
|
290 |
|
|
(86) |
|
|
— |
|
|
204 |
|
|
290 |
|
|
(55) |
|
|
— |
|
|
235 |
|
Land use rights (e) |
|
|
98.3 |
|
|
27,211 |
|
|
(69) |
|
|
— |
|
|
27,142 |
|
|
27,079 |
|
|
— |
|
|
— |
|
|
27,079 |
|
Marketing and distribution agreement (e) |
|
|
19.8 |
|
|
12,385 |
|
|
(155) |
|
|
— |
|
|
12,230 |
|
|
11,333 |
|
|
— |
|
|
— |
|
|
11,333 |
|
Total |
|
|
|
|
|
56,174 |
|
|
(3,829) |
|
|
— |
|
|
52,345 |
|
|
54,993 |
|
|
(2,275) |
|
|
— |
|
|
52,718 |
|
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Website name |
|
|
|
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
|
Patent |
|
|
|
|
|
28 |
|
|
— |
|
|
— |
|
|
28 |
|
|
28 |
|
|
— |
|
|
— |
|
|
28 |
|
Total |
|
|
|
|
$ |
56,227 |
|
$ |
(3,829) |
|
$ |
— |
|
$ |
52,398 |
|
$ |
55,046 |
|
$ |
(2,275) |
|
$ |
— |
|
$ |
52,771 |
| (a) | During the three months ended March 31, 2019, the Company completed the acquisition of certain assets from SolidOpinion in exchange for 4.5 million shares of the Company’s common stock with a fair value of $7.2 million. The assets acquired included cash of $2.5 million and intellectual property (“IP”) which is complementary to the IP of Grapevine. The parties agreed that 0.5 million of such shares of common stock (“Escrow Shares”) would be held in escrow until February 19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the agreement. SolidOpinion had the rights to vote and receive the dividends paid with respect to the Escrow Shares. The Escrow Shares were scheduled to be released on February 19, 2020, and were released in April 2020. |
| (b) | 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 included the rights, titles, and interest in a secure mobile financial information, social, and messaging platform that had been designed for streamlining financial-based communication for professional and retail users. The initial purchase price for the Fintalk Assets was $7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair |
21
| market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded this amount in prepaid expenses as of December 31, 2018 because the transaction had not closed. The purchase price was later amended to $6.4 million, payable with $1.0 million in cash and shares of the Company’s common stock with a value of $5.4 million. The Company issued 2.9 million common shares in June 2019 and completed the transaction. In the three months ended December 31, 2019, management determined these assets had no future use and recorded an impairment loss of $5.7 million. |
| (c) | During the three months ended September 30, 2018, the Company completed the acquisition of 65.7% share of Grapevine. Refer to Note 6(b). |
| (d) | During the three months ended September 30, 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. Refer to Note 6(c). |
| (e) | During the three months ended December 31, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. In connection with the completion of acquisition accounting, the Company revised the estimated useful life of the marketing and distribution agreement from 5 to 20 years. As amortization of this agreement had not commenced, the revision of the estimated useful life had no effect on the condensed consolidated financial statements. Refer to Note 6(a) for additional information. |
Amortization expense relating to intangible assets was $0.7 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively, and $1.6 million and $1.3 million for the nine months ended September 30, 2020 and 2019, respectively.
The following table summarizes the expected amortization expense for the following years (in thousands):
Note 10. Long-term Investments
The following table summarizes the Company's long-term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Non-marketable equity investments |
|
$ |
6,005 |
|
$ |
5,967 |
|
Equity method investments |
|
|
16,646 |
|
|
16,654 |
|
Total |
|
$ |
22,651 |
|
$ |
22,621 |
Non-marketable equity investments
Non-marketable equity investments are investments in privately held companies without readily determinable fair values 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
22
earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount. Based on management's analysis of certain investment's performance, no impairment losses were recorded in the three and nine months ended September 30, 2020 and 2019.
In the nine months ended September 30, 2019, the Company sold one non-marketable equity investment with a carrying amount of $3.2 million for GTB and recognized no gain or loss on the sale. Refer to Note 14(b) for additional information.
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting (in thousands):
All the investments above are privately held companies; therefore, quoted market prices are not available. The Company has received no dividends from equity method investees in the three and nine months ended September 30, 2020 and 2019.
(a) BBD Digital Capital Group Ltd. (“BDCG”)
In 2018, the Company signed an investment agreement, with two unrelated parties, to establish BDCG, subsequently renamed Intelligenta, located in the United States for providing block chain services for financial or energy industries by utilizing artificial intelligence and big data technology in the United States. On April 24, 2018, the Company acquired 20.0% equity ownership in BDCG from one noncontrolling party for total consideration of $9.8 million which consisted of $2.0 million in cash and $7.8 million paid in the form of the Company’s capital stock (valued at $2.60 per share and equal to 3.0 million shares of the Company’s common stock), increasing the Company’s ownership to 60.0%. The remaining 40.0% of BDCG are held by Seasail Ventures Limited (“Seasail.”) The accounting treatment of the investment is based on the equity method due to variable substantive participating rights (in accordance with ASC 810) granted to Seasail. Intelligenta is currently in the process of developing its operations, although it has been impacted by international trade tentions. Intelligenta has yet to record revenue or earnings or losses, and therefore its statement of operations and balance sheet data are not material.
As of September 30, 2020, the excess of the Company's investment over its proportionate share of Intelligenta's net assets was $9.8 million. The difference represents goodwill and is not being amortized.
(b) Glory Connection Sdn. Bhd (“Glory”)
On July 18, 2019, the Company entered into an acquisition agreement to purchase a 34.0% interest in Glory, a Malaysian company, from its shareholder Beijing Financial Holding Limited, a Hong Kong registered company, for the consideration of 12.2 million restricted common shares of the Company, initially representing $24.4 million at $2.00 per share, the contract price, and subsequently revised to $20.0 million at $1.64 per share, the closing price on the date of acquisition. As part of this transaction, the Company was also granted an option to purchase a 40.0% 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 the Company. Bigfair currently holds a 51.0% ownership stake in Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the option is exercised, the Company would have 20.4% indirect ownership in Glory in addition to the 34.0% direct ownership it already has.
Upon the initial investment, the Company performed a valuation analysis and allocated $23.0 million and $1.4 million of the consideration transferred to the equity method investment and the call option, respectively, which was subsequently revised to $20.0 million and $0, respectively. Glory is currently in the process of developing its products and its business, and is dependent upon the business of Tree Manufacturing.
23
As initially contemplated, Glory, through its subsidiary Tree Manufacturing, would hold a domestic EV manufacturing license in Malaysia, a marketing and distribution agreement for EVs in the ASEAN region, as well as 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, which was to be the site of the manufacturing operations.
In December 2019, the Company acquired a 51.0% ownership interest in Tree Technologies. Tree Technologies had previously been granted the land use rights to the 250 acres of vacant land mentioned above, which was previously anticipated to be owned by Glory. As Glory would no longer receive the land use rights to the 250 acres of vacant land, the Company evaluated its investment in Glory for impairment, and recorded an impairment loss of $13.1 million in “Impairment of and equity in loss of equity method investees” in the consolidated statements of operations in the year ended December 31, 2019.
Tree Technologies has also entered into a product supply arrangement and a product distribution arrangement with a subsidiary of Glory. The Company performed an assessment of these arrangements, and determined that Glory is a VIE, but that the Company is not the primary beneficiary. As of September 30, 2020, the Company accounts for Glory as an equity method investment.
The Company has advanced $0.4 million to Glory in order to fund its operations, although it had no obligation to do so. The Company’s maximum exposure to Glory is $7.3 million, the sum of its investment and advances.
As of September 30, 2020, the excess of the Company’s investment over its proportionate share of Glory’s net assets was $7.1 million. The difference primarily represents an amortizing intangible asset.
The following table summarizes the income statement information of Glory for the three and nine months ended September 30, 2020 (in thousands):
Note 11. Leases
On May 1, 2020, the Company took possession of premises in Qingdao, China in furtherance of a larger public/private initiative to promote EV business in the region and reduce the reliance on traditional combustion engines. The premises are indirectly and partially owned by local governmental entities, and were provided to the Company at no charge. The Company, pursuant to the underlying lease, has use of the premises until November 30, 2034.
The Company has determined the fair value of the lease and recorded the lease in accordance with ASC 842, Leases(“ASC 842,”) ASC 845 Nonmonetary Transactions(“ASC 845,”) and ASC 958, Not-for-Profit Entities (“ASC 958.”) In connection with this lease agreement, the Company recorded operating right of use assets of $7.2 million, and an operating lease liability of $7.2 million. The fair value of the annual lease payments is $0.7 million.
As of September 30, 2020, the Company's operating lease right of use assets and operating lease liabilities are $7.4 million and $7.3 million, respectively. The weighted-average remaining lease term is 13.8 years and the weighted-average discount rate is 4.4%.
24
As of December 31, 2019, the Company's operating right of use assets and operating lease liabilities were $6.9 million and $7.3 million, respectively. As of September 30, 2019, the weighted-average remaining lease term was 6.6 years and the weighted-average discount rate was 7.5%.
The following table summarizes the components of lease expense (in thousands):
The following table summarizes supplemental information related to leases (in thousands):
The following table summarizes the maturity of operating lease liabilities (in thousands):
In the three months ended March 31, 2020 the Company ceased to use the premises underlying one lease and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $0.9 million. 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. The Company recorded a gain of $0.8 million in “Other income (expense)” for the settlement of the operating lease liability in the three months ended June 30, 2020.
In the three months ended June 30, 2020 the Company ceased to use its New York City headquarters at 55 Broadway, which are subject to two leases, and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $5.3 million. The Company had an operating use liability of $5.8 million with respect to these leases, excluding $0.6 million in accounts payable. In the three months ended September 30, 2020, the Company completed negotiations with the landlord to settle the remaining amounts due of $6.4 million for a cash payment of $1.5 million. The Company recorded a gain of $4.9 million in “Other income (expense)” for the settlement of the operating lease liability in the three months ended September 30, 2020.
25
Note 12. Promissory Notes
The following table summarizes the outstanding promissory notes as of September 30, 2020 and December 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
||||||||
|
|
|
|
|
2020 |
|
2019 |
|
||||||||
|
|
|
Interest Rate |
|
Principal Amount |
|
Carrying Amount* |
|
Principal Amount |
|
Carrying Amount* |
|
||||
|
Convertible Note-Mr. McMahon (Note 14 (a)) |
|
4.0 |
% |
$ |
— |
|
|
— |
|
$ |
3,000 |
|
$ |
3,260 |
|
|
Convertible Note -SSSIG (Note 14 (a)) |
|
4.0 |
% |
|
— |
|
|
— |
|
|
1,252 |
|
|
1,301 |
|
|
Convertible Note-SSSIG (Note 14 (a)) |
|
4.0 |
% |
|
— |
|
|
— |
|
|
250 |
|
|
250 |
|
|
Convertible Note-Advantech (a) |
|
8.0 |
% |
|
12,000 |
|
|
9,033 |
|
|
12,000 |
|
|
3,193 |
|
|
Senior Secured Convertible Note (b) |
|
10.0 |
% |
|
— |
|
|
— |
|
|
850 |
|
|
348 |
|
|
Senior Secured Convertible Note (c) |
|
10.0 |
% |
|
— |
|
|
— |
|
|
3,580 |
|
|
1,896 |
|
|
Senior Secured Convertible Note (d) |
|
4.0 |
% |
|
— |
|
|
— |
|
|
3,000 |
|
|
1,405 |
|
|
Promissory Note (e) |
|
6.0 |
% |
|
3,000 |
|
|
3,153 |
|
|
3,000 |
|
|
3,000 |
|
|
Vendor Notes Payable (f) |
|
0.25%-4% |
|
|
135 |
|
|
135 |
|
|
— |
|
|
— |
|
|
Small Business Association Paycheck Protection Program (g) |
|
1 |
% |
|
460 |
|
|
462 |
|
|
— |
|
|
— |
|
|
Total |
|
|
|
$ |
15,595 |
|
|
12,783 |
|
$ |
26,932 |
|
|
14,653 |
|
|
Less: Current portion |
|
|
|
|
|
|
|
12,783 |
|
|
|
|
|
8,013 |
|
|
Long-term Note, less current portion |
|
|
|
|
|
|
$ |
— |
|
|
|
|
$ |
6,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Carrying amount includes the accrued interest.
The following table summarizes future maturities of the debt and contractual obligations (excluding the debt from the Small Business Association Paycheck Protection Program), as well as projected interest expense as of September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Interest |
|
Interest |
|||
|
|
|
Repayment |
|
Payment |
|
Expense |
|||
|
2020 |
|
$ |
3,030 |
|
$ |
180 |
|
$ |
1,997 |
|
2021 |
|
|
12,105 |
|
|
2,875 |
|
|
3,878 |
|
Total |
|
$ |
15,135 |
|
$ |
3,055 |
|
$ |
5,875 |
As of September 30, 2020 and December 31, 2019, the Company was in compliance with all ratios and covenants.
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 $12.0 million (the “Advantech Note.”) The Advantech Note bears interest at a rate of 8.0% and matures on June 28, 2021, and is convertible into the shares of the Company’s common stock at a stated conversion price, subject to adjustment if subsequent equity shares have a lower conversion price (“down round provision.”) The stated conversion price was initially $1.82 per share, which was subsequently reset to $1.00 in October 2019, $0.5869 on April 22, 2020, then further reduced to $0.36 on May 20, 2020 due to the down round provision.
The Company received aggregate gross proceeds of $12.0 million, net of $34,133 for the issuance expenses paid by Advantech.
The initial difference between the conversion price and the fair value of the common stock on the commitment date resulted in a beneficial conversion feature (“BCF”) recorded of $1.4 million and increased by $10.6 million due to the down round provision adjustment in October 2019.
No additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
For the three months ended September 30, 2020 and 2019, total interest expense recognized was $2.0 million and $0.4 million, respectively, and was $5.8 million and $1.1 million for the nine months ended September 30, 2020 and 2019,
26
respectively. The agreement also requires the Company to comply with certain covenants, including restrictions on the use of the proceeds and other conditions of the convertible note offering.
On February 22, 2019, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $2.1 million of senior secured convertible note (“February IDV Note.”) The February IDV Note bore interest at a rate of 10.0% per year payable either in cash or in kind at the option of the Company on a quarterly basis and was scheduled to mature on August 22, 2020. In addition, IDV was entitled to the following: (1) the convertible note was senior secured; (2) convertible at an adjusted price per share of Company common stock at the option of IDV, subject to adjustments if subsequent equity shares had a lower conversion price (original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020), (3) 1.2 million shares of common stock of the Company; and (4) a warrant exercisable for 1.6 million shares of common stock which the February IDV Note was convertible into at an adjusted exercise price (original $1.84 , $1.00 after October 30, 2019 and $0.5869 after April 22, 2020) per share and initially expired in 7 years, which was extended from 5 years on December 19, 2019.
The Company received aggregate gross proceeds of $2.0 million, net of $50,000 for the issuance expenses paid by IDV. Total funds received were allocated to the February IDV Note, common shares and warrants based on their relative fair values in accordance with ASC 470, Debt (“ASC 470.”) The fair value of the February IDV Note and common shares was based on the closing price of the Company’s common stock 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 fair value of the warrants was recorded as additional paid-in capital and a corresponding discount on the carrying amount of the February IDV Note. The Company recognized a BCF of $0.6 million as an increase in additional paid-in capital and corresponding discount on the carrying amount of the February IDV Note, which was the fair value of the common shares at the commitment date for the February IDV Note, less the effective conversion price.
Interest on the February IDV Note was payable quarterly starting from April 1, 2019. The February IDV Note was redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the February IDV Note plus additional warrants and accrued and unpaid interest to the date of redemption.
The Company was also subject to penalty fee at 8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion shares upon conversion.
The security purchase agreement contained customary representations, warranties, and covenants. The February IDV Note was collateralized by the Company’s equity interest in Grapevine and the Company had the right to request the removal of the guarantee and collateral by the issuance of additional 250,000 shares of common stock.
Modification/Extinguishment
On September 27, 2019, the Company issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral. The issuance of the common shares in exchange for the removal of collateral was treated as a modification of the February IDV Note pursuant to the guidance of ASC 470. The Company concluded that the February IDV Note qualified for debt extinguishment as the 10.0% cash flow test was met. As a result, the carrying amount of $0.8 million of the February IDV Note was written off and the amended note was recorded at its fair value of $1.7 million. The Company recognized a non-cash loss on extinguishment of debt in the amount of $1.2 million and the intrinsic value of reacquisition of BCF is zero as of September 27, 2019.
Down Round Price Adjustment on October 30, 2019
As a result of the additional financing on October 30, 2019, the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the February IDV Note and the exercise price of the warrants from $1.84 to $1.00. The Company recognized $1.4 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the February IDV Note and $0.2 million of deemed
27
dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 112.0%, and an interest rate of 2.48%.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the February IDV Note and the exercise price of the warrants was reduced from $1.00 to $0.5869. The Company recognized $0.3 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the February IDV Note and $59,372 of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 7 years, expected dividend rate of 0%, volatility of 122.4%, and an interest rate of 1.84%.
Conversion
As of December 31, 2019, $1.2 million of the February IDV Note, plus accrued and unpaid interest, were converted into 1.2 million shares of common stock of the Company.
During the nine months ended September 30, 2020, the remaining $0.85 million of the February IDV note, plus accrued and unpaid interest, were converted into 1.4 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and was $0.9 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.
On September 27, 2019, the Company executed a security purchase agreement with IDV (“IDV September Agreement”), whereby the Company issued $2.5 million of senior secured convertible note in September (“September IDV Note”) and issued an additional $1.1 million of secured convertible notes subsequently based on additional investment rights in the IDV September Agreement. The September IDV Notes bore interest at a rate of 10.0% per year payable either in cash or in kind at the option of the Company on a quarterly basis and was scheduled to mature on March 27, 2021. In addition, IDV was entitled to the following: (1) the convertible note was senior secured; (2) convertible at an adjusted price per share of Company common stock at the option of IDV, subject to adjustments if subsequent equity shares had a lower conversion price (original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020), (3) 1.5 million shares of common stock of the Company, and (4) a warrant exercisable for 4.7 million shares of common stock at an adjusted exercise price (original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020) per share and will expire in 7 years, which was extended from 5 years.
The Company received net proceeds of $3.5 million (aggregate gross proceeds of $3.6 million, net of $65,000 for the issuance expenses paid to IDV). Total gross proceeds were allocated to the September IDV Note, common shares and warrants based on their relative fair values in accordance with ASC 470. The fair value of the September IDV Note and common shares was based on the closing price of the common stock 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 122.44% and an average interest rate of 1.66%. The fair value of the warrants was recorded as additional paid-in capital and corresponding discount on the carrying amount of the September IDV Note. The Company recognized a BCF as a discount on September IDV Note at its intrinsic value, which was the fair value of the common shares at the commitment date, less the effective conversion price. The Company recognized $1.3 million of BCF in total as an increase in additional paid-in capital and corresponding discount on the carrying amount of the September IDV Note.
28
The September IDV Note was redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the September IDV 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 September IDV Note was collateralized by the Company’s equity interest in DBOT.
The Company was also subject to penalty fee at 8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion shares upon conversion.
Down Round Price Adjustment on October 30, 2019
On October 29, 2019 the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the debentures and the exercise price of the warrants from $1.84 to $1.00 due to the lower conversion price and exercise price agreed in the additional issuance in October, 2019. The Company recognized $0.2 million of remeasured BCF as an increase in additional paid-in capital and corresponding discount on the carrying amount of the September IDV Note and $0.1 million of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants.
Additional Issuance for No Additional Consideration - Consent of IDV for Subsequent Financing with YA II PN
On December 19, 2019, the Company executed an additional issuance agreement with IDV, pursuant to which the Company obtained a consent from IDV for subsequent financing with YA II PN in exchange for: (1) 2.0 million shares of the Company’s common stock; (2) the warrant to purchase 1.0 million shares of the Company’s common stock at an exercise price of $1.00 with a 7 year term in the form of prior warrants issued to IDV; and (3) a 2 year extension of the exercise period for all outstanding warrants held by IDV.
The additional issuance above and the exercise period extension in exchange for the consent was treated as a modification of the September IDV Note pursuant to the guidance of ASC 470. The Company concluded that the September IDV Note qualified for debt extinguishment as the 10.0% cash flow test was met. As a result, the carrying amount of $0.4 million of the September IDV Note was written off and the amended note was recorded at its fair value of $2.2 million along with a BCF at intrinsic value of $0.5 million. The Company measured and recognized the intrinsic value of the BCF at its reacquisition price $0.5 million on December 19, 2019 and recognized a non-cash loss on extinguishment of debt in the amount of $2.7 million in accordance with ASC 470. In addition, the Company recognized a deemed dividend of $0.5 million for the extension of exercise period for all applicable warrants issued to IDV.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the September IDV Note and the exercise price of the warrants was reduced from $1.00 to $0.5869. The Company recognized $0.3 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the amended Note and $0.1 million of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 7 years, expected dividend rate of 0%, volatility of 122.4%, and an interest rate of 1.84%.
Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with IDV pursuant to which the Company agreed to reduce the conversion price of $1.0 million principal amount of debenture to the lowest price per share sold in the financing but not less than $0.36. No additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
29
Conversion
During the nine months ended September 30, 2020, $3.6 million of the amended note, plus accrued and unpaid interest, were converted into 7.3 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $2.1 million for the three and nine months ended September 30, 2020, respectively.
(d) $5.0 Million Senior Secured Convertible Debenture due in December 2020 - YA II PN
On December 19, 2019, the Company completed the initial closing with respect to a securities purchase agreement with YA II PN, Ltd, a company incorporated under the laws of the Cayman Islands (“YA II PN”), where YA II PN agreed to purchase from the Company up to $5.0 million (with 4.0% discount) in units consisting of secured convertible debentures (the “YA II PN Note”), which was convertible into shares of the Company’s common stock at lower of: (1) $1.50 per share, or (2) 90.0% of the lowest 10 day volume weighted average price (“VWAP”) with a floor price at $1.00, subject to adjustments if subsequent equity shares had a lower conversion price, and shares of the Company’s common stock. The purchase and sale of the units occurred in three closings:
| 1. | First Closing: $2.0 million of YA II PN Note and 1.4 million shares of common stock closed on December 19, 2019; |
| 2. | Second Closing $1.0 million of YA II PN Note and 0.7 million shares of common stock closed on December 31, 2019 upon filing the registration statement; and |
| 3. | Third Closing: $2.0 million of YA II PN Note and 1.4 million shares of common stock closed on February 13, 2020 when such registration statement was declared effective by the SEC. |
The YA II PN Note was scheduled to mature in December 2020 and accrued interest at an 4.0% interest rate. YA II PN also received: (1) a warrant (the “Warrant I”) exercisable for 1.7 million shares of common stock at $1.50 with an expiration date 60 months from the date of the agreement, and (2) a warrant (the “Warrant II”) exercisable for 1.0 million shares of common stock at $1.00 with an expiration date of 12 months from the date of the agreement.
The Company received aggregate gross proceeds of $2.9 million (net of $0.1 million discount) as of December 31, 2019 and received $2.0 million in February 2020. Total funds received were allocated to the YA II PN Note, common shares and warrants based on their relative fair values in accordance with ASC 470. The fair value of the YA II PN Note and common shares was based on the closing price of the common stock on December 19, 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 (1 year for Warrant II), expected dividend rate of 0%, volatility of 122.44% and an interest rate of 1.66% (1.54% for Warrant II). The fair value of the warrants was recorded as additional paid-in capital and a corresponding discount on the carrying amount of the YA II PN Note. There was no BCF because its intrinsic value is zero since the stock price of the common shares at the commitment date for the YA II PN Note is greater than the effective conversion price.
The YA II PN Note was redeemable at the option of the Company in whole or in part at an initial redemption price of the principal amount of the YA II PN Note plus a redemption premium equal to 15.0% of the amount being redeemed and accrued and unpaid interest to the date of redemption. The security purchase agreement contains customary representations, warranties, and covenants.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the YA II PN Note was reduced from $1.00 to $0.5869. The Company recognized $2.7 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the amended Note.
30
Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with YA II PN pursuant to which the Company agreed to reduce the conversion price of $1.0 million principal amount of debenture to the lowest price per share sold in the financing but not less than $0.36. No additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
Conversion
During the nine months ended September 30, 2020, $5.0 million of the YA II PN Note, plus accrued and unpaid interest, were converted into 9.7 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $5.0 million for the three and nine months ended September 30, 2020, respectively.
(e) $3.0 Million Promissory Note due in November 2020 – New Castle County
On November 25, 2015, DBOT, the subsidiary which the Company acquired in 2019, entered into a promissory note with New Castle County, a political subdivision of the State of Delaware in the aggregate principal amount of $3.0 million (the “New Castle County Notes”). The New Castle County Notes bear interest at a rate of 6.0%, and mature on November 25, 2020. Total interest expense recognized was $45,000 and $135,000 for the three and nine months ended September 30, 2020, respectively, and $45,000 for the three and nine months ended September 30, 2019. The agreement also requires the Company to comply with certain covenants, including restrictions on new indebtedness offering and liens.
(f)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 the amount of $60,000, bearing interest at 0.25% per annum, and payable in two installments of $30,000. The first installment is due on December 31, 2020 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.
(g) Small Business Association Paycheck Protection Program
On April 10, 2020, the Company borrowed $0.3 million at an 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 $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 following costs incurred in the eight weeks following the disbursement of the loan: (1) payroll costs, (2) interest on a covered mortgage obligation, (3) payment on a covered rent obligation, and (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 Small Business Association Paycheck Protection Program. The loan is payable in 18 installments of approximately $7,000 commencing on December 1, 2020, with a final payment due on May 1, 2022. The Company may apply for forgiveness of this loan in an amount equal to the sum of the following costs incurred in the eight weeks following the disbursement of the loan: (1) payroll costs, (2) interest on a covered mortgage obligation, (3) payment on a covered rent obligation, and (4) any covered utility payment.
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Note 13. Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
The Board of Directors has authorized 50.0 million shares of convertible preferred stock, $0.001 par value, issuable in series. The Series A preferred stock shall be entitled to one vote per common stock on an as-converted basis and is only entitled to receive dividends when and if declared by the Board.
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 RMB 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 payable in three 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 an institutional investor, and after three years may redeem its investment for the face amount plus 6.0% interest less dividends paid. The redemption feature is neither mandatory nor certain. Due to the redemption feature, the Company has classified the investment outside of permanent equity.
The following table summarizes activity for the redeemable non-controlling interest for the nine months ended September 30, 2020 (in thousands):
Standby Equity Distribution Agreement (“SEDA”)
The Company entered into a SEDA with YA II PN on April 3, 2020 and amended the SEDA to reduce the aggregate amount of facility from $50.0 million to $45.0 million on June 9, 2020. The SEDA establishes what is sometimes termed an equity line of credit or an equity draw-down facility. The Company has the right to issue and sell to YA II PN up to $45.0 million of the Company’s common stock over 36 months following the date of the agreement entered on April 3, 2020 in installments, the maximum amount of each of which is limited to $1.0 million. For each share of common stock purchased under the SEDA, YA II PN will pay 90% of the lowest VWAP of the Company’s shares during the five trading days following the Company’s advance notice to YA II PN. In general, the VWAP represents the sum of the value of all the sales of the Company’s common stock for a given day (the total shares sold in each trade times the sales price per share of the common stock for that trade), divided by the total number of shares sold on that day.
YA II PN’s obligation under the SEDA is subject to certain conditions, including the Company maintaining the effectiveness of a registration statement for the securities sold under the SEDA. In addition, the Company may not request advances if the common shares to be issued would result in YA II PN owning more than 4.99% of the Company’s outstanding common stock, with any such request being automatically modified to reduce the advance amount.
The SEDA contains customary representations, warranties and agreements of the Company and YA II PN, indemnification rights and other obligations of the parties. YA II PN has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s shares of common stock.
In connection with the SEDA, the Company issued 1.0 million shares of the Company’s common stock as a commitment fee (the “Commitment Shares”) to a subsidiary of the YA II PN on April 3, 2020. The Company recognized such
32
Commitment Shares as deferred offering costs and additional paid-in capital for a total of $0.9 million and fully charged against the gross proceeds received from SEDA in the three months ended June 30, 2020 because SEDA was terminated.
During the three months ended June 30, 2020 under the SEDA, the Company issued 34.5 million shares of common stock for a total of $32.5 million.
Common Stock
The Board of Directors has authorized 1,500 million shares of common stock, $0.001 par value.
2020 Equity Transactions
Refer to Note 12 for information related to issuance of common stock resulting from the conversion of convertible notes, Note 14 for information related to the issuance of common stock resulting from the conversion of convertible notes with related parties, Note 15 for information related to the issuance to common stock for warrant exercise, and Note 6(c) for the information related to the issuance of common stock for DBOT contingent consideration.
2019 Equity Transactions
Refer to Note 9 for information related to the issuance of common stock for assets and Note 12 for information related to the issuance of common stock in connection with convertible notes, and Note 6 for information related to the issuance of common stock for acquisitions.
On March 5, 2019, the Company entered into an agreement to acquire a company based in Malaysia, and placed 25.5 million common shares into an escrow account. The agreement was terminated in July 2019 and the common shares removed from escrow.
Note 14. Related Party Transactions
$3.0 Million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, the Company’s Vice Chairman, made a loan to the Company in the amount of $3.0 million. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3.0 million (the “Note”) at a 4.0% interest rate computed on the basis of a 365-day year. The Company had previously entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.50), convertible stocks (changed from of Series E Preferred Stock to Common Stock). The last amendment was made on May 9, 2020, and extended the maturity date to December 31, 2022.
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. On June 5, 2020, the Note was converted into 5.1 million shares of common stock. The Company paid the accumulated interest $0.3 million in cash right before the conversion. For the three months ended September 30, 2020 and 2019, the Company recorded interest expense of $0 and $30,000 related to the Note, and $50,959 and $90,000 for the nine months ended September 30, 2020 and 2019,respectively.
$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 $2.5 million. The convertible promissory note bore interest at a rate of 4.0%, was scheduled to mature on February 8, 2020, and was convertible into shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG. The Company received $1.3 million from SSSIG.
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.
33
For the three months ended September 30, 2020 and 2019, the Company recorded interest expense of $0 and $13,000, respectively, related to the Note, and $21,546 and $36,000 for the nine months ended September 30, 2020 and 2019, respectively.
$1.0 Million Convertible Promissory Note with SSSIG
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $1.0 million. The convertible promissory note bore interest at a rate of 4.0%, matures on November 25, 2021, and was convertible into shares of the Company's common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. The Company received $0.25 million from SSSIG. 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 convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 0.4 million shares of common stock. For the three months and nine months ended September 30, 2020, the Company recorded interest expense of $0 and $4,301, respectively.
Disposal of Assets in exchange of GTBDollar Coins (“GTB”)
In March 2019, the Company completed the sale of the following assets (with total carrying amount of $20.4 million) to GTD, a minority shareholder based in Singapore, in exchange for 1.3 million GTB. The Company considered the arrangement as a nonmonetary transaction and the fair values of GTB were not reasonably determinable due to the reasons described below. Therefore, GTB received were recorded at the carrying amount of the assets exchanged and the Company did not recognize any gain or loss based on ASC 845, Nonmonetary Transactions ("ASC 845.")
| ● | License content (net carrying amount $17.0 million) |
| ● | 13.0% ownership interest in Nanjing Shengyi Network Technology Co., Ltd (“Topsgame”) (carrying amount of $3.2 million which was included in long-term investment as a non-marketable equity investment) |
| ● | Animation copy right (net carrying amount $0.2 million which was included in intangible assets.) |
Digital asset management services
The Company recognized 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, Revenue from Contracts with Customers, at contract inception, the Company considered the following factors to estimate the value of GTB (noncash consideration): 1) it only traded in one exchange, which had been in operation less than one year; 2) its historical volatility was high; and 3) the Company's intention at the time to hold the majority of GTB, as part of its digital asset management services; and 4) associated risks related to holding GTB. Therefore, the value of 7.1 million GTB using Level 2 measurement was $40.7 million with a 76.0% discount to the fixed contract price agreed upon by both parties when signing the contract. The Company considered similar assets exchanges in Singapore and considered the volatility of the quoted prices and determined a discount of 76.0%. The estimated value of GTB was calculated using the Black-Scholes valuation model using the following assumptions: expected terms 3.0 years; volatility 155.0%; dividend yield: zero and risk-free interest rate 2.25%. As of December 31, 2019, all performance obligations associated with the development of the master plan for GTD's assets had been satisfied. Accordingly, the Company recognized revenue of $40.7 million in the year ended December 31, 2019.
Impairment loss
On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through December 31, 2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the three months ended December 31, 2019 and recorded an impairment loss of $61.1 million.
34
On February 20, 2019, the Company accepted the resignation of its former Chief Executive Officer, former Chief Investment Officer and former Chief Strategy Officer and agreed to pay $0.8 million in total for salary, severance and expenses. The Company paid $0.6 million in the three months ended March 31, 2019 and recorded $0.2 million in “Other current liabilities” on its consolidated balance sheet as of December 31, 2019. The $0.8 million severance expenses were recorded in “Selling, general and administrative expenses" in the condensed consolidated statements of operations.
In the nine months ended September 30, 2020, the Company’s net borrowings from Dr. Wu and his affiliates decreased by $3.5 million mainly due to repayments and conversion of certain amounts to common stock. The Company recorded these borrowings in “Amount due to related parties” in its condensed consolidated balance sheet as of September 30, 2020. These borrowings bear no interest.
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.
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 with the consideration of $4.9 million, which will be paid in six installments. Shenma needs to complete the share transfer registration prior to May 31, 2020, otherwise the Company can request Shenma to return the investment payment. The Company has recorded the first installment $0.5 million on the “Other Non-Current Assets” since the share transfer registration is not completed yet.
The borrowings from Beijing Financial Holding Limited were zero in the condensed consolidated balance sheet as of September 30, 2020, and $0.7 million in “Other current liabilities” in the consolidated balance sheet as of December 31, 2019. Effective January 1, 2020, Beijing Financial Holding limited is considered a related party because MHTL was intended to act as a trustee over 10,000 common shares of MEG to effect a share-based compensation plan and has the same owner as Beijing Financial Holding Limited. The Company has determined not to proceed with the MEG share-based plan. Refer to Note 1 for additional information.
In the three months ended June 30, 2020, the borrowing of $0.4 million from Beijing Financial Holding Limited was transferred to Dr. Wu, and it was subsequently converted to shares at a conversion price of $0.59 per common share on June 5, 2020.
Refer to Note 3 for this note collateralized by equity in a company partially-owned by a related party.
(h) Disposal of the ownership in Amer
Refer to Note 6(e) for the disposal of 10.0% ownership in Amer to a related party.
(i) 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 "Selling, general and administrative
35
expenses" for the three and nine months ended September 30 2020, and $0.3 million in in "Amount due to related parties" as of September 30 2020.
(j) Amounts due from and due to Glory
The Company has made payments on behalf of Glory for some of its operational expenses. The balance of $0.2 million due from Glory as result of these payments is recorded in "Amount due from related parties" as of September 30 2020. Glory has made partial payment of $0.5 million on behalf of the Company to acquire the land use rights and the Company recorded it in "Amount due to related parties."
(k) Research and development contract with a related party
The Company has entered a research and development contract with an entity with the total amount of $2.8 million for EV design and technology development. The Company has paid $1.3 million in the three months ended September 30 2020 and recorded this amount in "Research and development expense." One of the shareholders of this entity holds a senior position in several of Dr. Wu’s affiliated entities.
(l) Borrowing from DBOT
During the three months ended June 30, 2019, the Company obtained several borrowings, $550,000 in total, from DBOT, and recorded these borrowings in amount due to related parties on the condensed consolidated balance sheet as of June 30, 2019. These borrowings bear no interest. The Company has repaid $300,000 in July 2019.
(m) Acquisition of Fintalk Assets
Refer to Note 9 for additional information regarding this 2019 asset acquisition.
(n) Red Rock Global Capital LTD (“Red Rock”)
Refer to Note 6(d) for additional information regarding this 2019 divestiture.
(o) Acquisition of Grapevine Logic. (“Grapevine”)
Refer to Note 6(b) for additional information regarding this 2019 acquisition.
(p) Amer Global Technology Limited (“Amer”)
Refer to Note 6(e) for additional information regarding this 2019 divestiture.
Note 15. Share-Based Compensation
As of September 30, 2020, the Company had 26.3 million options, 29,586 restricted shares and 1.7 million warrants outstanding.
The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option awards to employees 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, the 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. The maximum aggregate number of shares of common stock that may be issued under the 2010 Plan increased from 4.0 million shares to 31.5 million shares. On October 22, 2020, the Company’s shareholders approved the amendment and restatement of the 2010 Plan. The maximum aggregate number of shares of common stock that may be issued under the 2010 Plan increased
36
from 31.5 million shares to 56.8 million shares. As of September 30, 2020, options available for issuance are 0.5 million shares.
For the three months ended September 30, 2020 and 2019, total share-based compensation expense was $3.3 million and $2.5 million, respectively, and $8.8 million and $6.5 million for the nine months ended September 30, 2020 and 2019, respectively.
|
(a) |
Stock Options |
The following table summarizes stock option activity for the nine months ended September 30, 2020:
As of September 30, 2020, $7.3 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of 1.2 years. The total fair value of shares vested in the nine months ended September 30, 2020 and 2019 was $8.8 million and $6.0 million, respectively. No cash was received from options exercised.
|
(b) |
Warrants |
In connection with certain of the Company’s financings and service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The warrants issued to Warner Brother expired without exercise on January 31, 2019. The Company issued warrants to IDV and YA II PN, Ltd. in connection with senior secured convertible notes. The weighted average exercise price for all warrants was $1.65 and the weighted average remaining life was 4.3 years. Refer to Note 12 for additional information on promissory notes.
* YA II PN exercised 1.0 million and 1.7 million warrants on March 31, 2020 and June 22, 2020 and the Company received $1.0 million and $2.5 million proceeds, respectively.
** ID Venturas exercised 5.3 million warrants in June 2020. The Company received $3.1 million proceeds.
37
Note 16. Earnings (Loss) Per Common Share
The following table summarizes the Company’s earnings (loss) per share (USD in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
||||
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
|
Net earnings (loss) attributable to common stockholders |
|
$ |
(8,286) |
|
$ |
(13,713) |
|
$ |
(47,212) |
|
$ |
11,507 |
|
Interest expense attributable to convertible promissory note |
|
|
— |
|
|
— |
|
|
— |
|
|
125 |
|
Net earnings (loss) assuming dilution |
|
$ |
(8,286) |
|
$ |
(13,713) |
|
$ |
(47,212) |
|
$ |
11,632 |
|
Basic weighted average common shares outstanding |
|
|
237,535,999 |
|
|
127,609,748 |
|
|
191,976,856 |
|
|
113,964,933 |
|
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 |
|
|
237,535,999 |
|
|
127,609,748 |
|
|
191,976,856 |
|
|
118,319,893 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.03) |
|
$ |
(0.11) |
|
$ |
(0.25) |
|
$ |
0.10 |
|
Diluted |
|
$ |
(0.03) |
|
$ |
(0.11) |
|
$ |
(0.25) |
|
$ |
0.10 |
Basic earnings (loss) per common share attributable to the Company’s shareholders is calculated by dividing the net earnings (loss) attributable to the 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) attributable to the Company’s shareholders, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is 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 the Company’s losses and thus these shares were not included in the computation of diluted loss per share because the effect was antidilutive. (in thousands):
Note 17. Income Taxes
During the three and nine months ended September 30, 2020 income tax expense is nil because of net operating loss and deferred tax assets 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 due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
During the nine months ended September 30, 2019, the Company recorded an income tax benefit of $0.5 million, $0.2 million resulting from losses of Grapevine which offset deferred tax liabilities that were recognized on its acquisition and
38
a $0.4 million reduction of the valuation allowance on Ideanomics’ deferred tax assets in excess of those reversed to offset Ideanomics’ income. The reduction in valuation allowance resulted from Ideanomics’ acquisition of additional ownership interests in Grapevine which caused Grapevine to be included in a consolidated tax return with Ideanomics beginning June 30, 2019. This meant that $0.4 million of Ideanomics’ deferred tax assets could be utilized to offset Grapevine’s remaining deferred tax liabilities. This resulted in an effective tax rate of (4.43%). The effective tax rate for the nine months ended September 30, 2019 differs from the U.S. statutory tax rate primarily due to the effect of taxes on foreign earnings, non-deductible expenses and the reduction in the beginning of the year deferred tax valuation allowance.
There was no identified unrecognized tax benefit as of September 30, 2020 and December 31, 2019.
Note 18. Commitments and Contingencies
Lawsuits and Legal Proceedings
From time to time, the 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 the business.
Vendor Settlement
In the three months ended September 30, 2020, Ideanomics preliminarily settled a payable of $1.7 million with one vendor for $1.3 million. The settlement is conditioned upon factors which do not expire until three months from the date of the settlement; therefore, should these factors expire without coming to fruition, the Company will recognize the contingent gain in the three months ended December 31, 2020.
Shareholder Class Action
On July 19, 2019, a purported class action, now captioned Rudani 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 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 allege 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.
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 litigations.
39
On March 20, 2020, the Company received a formal demand letter to the Board of Directors ascertain allegations similar to those alleged in the Rudani Complaint and demanding that the Board pursue causes of action on behalf of the Company against certain of the Company’s former and current directors and officers. In response to this stockholder demand letter, the Board established a demand review committee to review the demand and make a recommendation to the Board of Directors regarding a response to the demand. The demand review committee has not yet completed its review.
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 litigations.
While the Company believes that the above litigations are without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations.
SEC Investigation
The Company is subject to an investigation by the SEC. The information requests from the SEC are focused primarily in relation to the Company’s overseas operations, including historical transactions and revenues associated with those operations. The Company is fully cooperating with the SEC’s requests, and cannot predict the outcome of this investigation.
Note 19. Concentration, Credit and Other Risks
|
(a) |
PRC Regulations |
The EV industry is relatively new in China, and the PRC government has not adopted a clear regulatory framework to regulate the industry. Therefore, there is some degree of uncertainty regarding the regulatory requirements of the PRC government in the EV industry. If the PRC government enacts new laws and regulations, or adopts new interpretations or policies with respect to the current laws and regulations, that require licenses or permits for the operation of the Company’s existing or future businesses, the Company cannot ensure that it has all the permits or licenses required for its EV business or that the Company will be able to obtain or maintain permits or licenses in a timely manner.
|
(b) |
Concentration of Credit Risks |
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and accounts receivable. As of September 30, 2020 and December 31, 2019, the Company’s cash was held by financial institutions (located in the PRC, Hong Kong, the United States, Malaysia and Singapore) that management believes have acceptable credit. Accounts receivable are typically 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.
|
(c) |
Foreign Currency Risks |
A majority of the Company's operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities is 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
40
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”). 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 and which includes $0.2 million which was received in advance of a future investment.
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.
Note 20. Fair Value Measurement
The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the input to fair value is observable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|||||||||
|
|
|
Level I |
|
Level II |
|
Level III |
|
Total |
||||
|
Contingent consideration1 |
|
$ |
— |
|
$ |
— |
|
$ |
777 |
|
$ |
777 |
|
Contingent consideration2 |
|
|
— |
|
|
— |
|
|
10,913 |
|
|
10,913 |
Note
1 This represents the liability incurred in connection with the acquisition of DBOT shares during the three months ended September 30, 2019 and as remeasured as of April 17, 2020 as disclosed in Note 6(c). The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future. The Company issued 1.6 million shares in the three months ended September 30, 2020 and partially satisfied this liability.
2 This 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 September 30, 2020 as disclosed in Note 6(a).
The fair value of the DBOT contingent consideration as of December 31, 2019 and March 31, 2020 was valued using the Black-Scholes Merton model.
The following table summarizes the significant inputs and assumptions used in the Black-Scholes Merton model:
Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The fair value of the Tree Technology contingent consideration as of September 30, 2020 and December 31, 2019 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.
41
The following table summarizes the significant inputs and assumptions used in the scenario-based method:
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
Weighted-average cost of capital |
|
15.0 |
% |
|
|
|
|
|
Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):
Note 21. Subsequent Events
Acquisition of Solectract, Inc. (“Solectract”) common shares
On October 22, 2020, the Company acquired 1.4 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 $1.3 million.
Solectrac develops, assembles and distributes 100% battery-powered electric tractors-an alternative to diesel tractors-for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the world to power their tractors by using the sun, wind, and other clean renewable sources of energy.
With this investment in Solectrac, Ideanomics expands its global footprint in the EV industry, specifically in the category of specialty commercial vehicles. This investment marks its first in an existing US-based original equipment manufacturer, and Ideanomics will assume a seat on Solectrac's Board of Directors.
42
Cautionary Note Regarding Forward Looking Statements
This Form 10-Q contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss the Company’s future expectations, contain projections of the Company’s future results of operations or financial condition or state other "forward-looking" information. The Company believes that it is important to communicate its future expectations to its 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 the Company’s products, and the product-development and marketing efforts of its competitors. Examples of these events are more fully described in the Company’s 2019 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 Securities and Exchange Commission ("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.
43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis is presented in four sections as below and should be read in conjunction with the condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report on Form 10-Q. 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.
| ● | Overview |
| ● | Results of Operations |
| ● | Liquidity and Capital Resources |
| ● | Outlook |
OVERVIEW
Ideanomics, Inc. (“Ideanomics” or the “Company”) (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004. From 2010 through 2017, the Company’s primary business activities were providing premium content video on demand (“VOD”) services, with primary operations in the People’s Republic of China (“PRC,”) through its subsidiaries and variable interest entities (“VIEs”) under the brand name You-on-Demand (“YOD”). The Company closed the YOD business during 2019.
Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company built a network of businesses, operating principally in the trading of petroleum products and electronic components that the Company believed had significant potential to recognize benefits from blockchain and artificial intelligence (“AI”) technologies including, for example, enhancing operations, addressing cost inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement. During 2018 the Company ceased operations in the petroleum products and electronic components trading businesses and disposed of the businesses during 2019. Fintech continues to be a priority for us as we look to invest in and develop businesses that can improve the financial services industry, particularly as it relates to deploying blockchain and AI technologies. As the Company looked to deploy fintech solutions in late 2018 and into 2019, management found an opportunity in the Chinese Electric Vehicle (“EV”) industry to facilitate large scale conversion of fleet vehicles from internal combustion engines to EV. This led the Company to establish its Mobile Energy Global (“MEG”) business unit.
Principal Factors Affecting the Company’s Financial Performance
The 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 its operations in 2020 and 2019:
| ● | The Company’s ability to transform the business and to meet internal or external expectations of future performance. In connection with this transformation, the Company is in the process of considerable changes, which include assembling a new management team in the United States and overseas, reconfiguring its business structure, continuing to further enhance the controls, procedures, and oversight during this transformation, and expanding the Company’s mission and business lines for continued growth. It is uncertain whether these efforts will prove beneficial or whether the Company will be able to develop the necessary business models, infrastructure and systems to support the businesses. To succeed, among other things, the Company will need to have or hire the right talent to execute the business strategy. Market acceptance of new product and service offerings will be dependent in part on management’s ability to include functionality and usability that address customer requirements, and optimally price the products and services to meet customer demand and cover costs. |
44
| ● | The Company’s ability to remain competitive. The Company will continue to face intense competition: these new technologies are constantly evolving, and the Company’s competitors may introduce new platforms and solutions that are superior. In addition, the Company’s competitors may be able to adapt more quickly to new technologies or may be able to devote greater resources to the development, marketing and sale of their products than the Company can. The Company may never establish and maintain a competitive position in the hybrid financing and logistics management businesses. |
| ● | The fluctuation in earnings from the deployment of the Mobile Energy Group Services business unit through acquisitions, strategic equity investments, the formation of joint ventures and investments, and in-licenses of technology. The Company’s results of operations may fluctuate from period to period based on the entry into new transactions to expand the business. In addition, while management intends to contribute cash and other assets to the Company’s joint ventures and investments, the Company does not intend for its holding company to conduct significant research and development activities. The Company intends research and development activities to be conducted by its technology partners and licensors. These fluctuations in growth or costs and in the joint ventures, investments, and partnerships may contribute to significant fluctuations in the results of the Company’s operations. |
Business Update and Liquidity Improvements
In the third quarter the Company recorded revenues of $10.6 million, of which $10.1 million were generated by the Company’s MEG business unit; this represents the largest revenues earned by MEG since the Company commenced business.
In the nine months ended September 30, 2020, the Company improved its liquidity position by raising a total of $48.2 million: $39.1 million through the issuance of common stock and exercise of warrants, $7.1 million from noncontrolling interest shareholders, and $2.0 million through the issuance of senior secured convertible notes. The Company converted senior secured convertible notes of $9.4 million plus accrued interest of $0.3 million to common stock. Additionally, the Company converted $4.6 million of convertible notes payable and accrued interest to related parties and an additional $1.5 million due to related parties to common stock. As a result of these actions, the Company reduced its principal amount of its indebtedness by $13.9 million, and as of September 30, 2020, had cash and cash equivalents of $27.6 million, $19.0 million of which is held in U. S. financial institutions.
Based upon its business projections and its cash and cash equivalents balance as of September 30, 2020, the Company believes it has the ability to continue as a going concern.
On May 1, 2020, the Company’s MEG business unit commenced operations in a 40,000 square meter facility in the city of Qingdao. The facilities are provided free of charge to Ideanomics through November 30, 2034 by the government with the objective of establishing a regional hub for the sale EVs. An additional 60,000 square meters are available for future expansion. MEG is in the process of building its sales force to facilitate the sale of new and used EVs, both to fleets and individuals.
In July 2020 the Company’s Tree Technologies subsidiary completed the acquisition of a long term lease of 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. The Company intends to develop this land and lease it to Tree Manufacturing for the manufacture of EVs
In April 2020 management re-evaluated the opportunities in the Over-the-counter (“OTC”) equity market and determined that the Delaware Board of Trade (“DBOT”) business as structured was unlikely to achieve profitability in the short to medium term without significant additional investment. The OTC equities business was closed in April, however the firm remains a FINRA registered Broker Dealer and the Company continues to develop its plan to use DBOT for sale of digital securities and brokering of commodity products subject to obtaining the required regulatory approvals.
45
The Company continues to review its cost base and as part of this process has reevaluated its real estate needs. The Company has vacated the office space previously used by DBOT in Wilmington, Delaware, and recorded an impairment charge of $0.9 million in the three months ended March 31, 2020, and a gain on the settlement of the lease liability of $0.8 million in the three months ended June 30, 2020. In the three months ended June 30, 2020, the Company determined that, with its New York workforce under a stay-at-home and work-from-home mandate, the square footage provided in the leases for its New York headquarters was excessive. The Company has vacated its New York office space, and recorded an impairment charge of $5.3 million. The Company had an operating lease liability of $5.8 million with respect to these leases, excluding $0.6 million in accounts payable. In the three months ended September 30, 2020, the Company completed negotiations with the landlord to settle the remaining amounts due of $6.4 million for a cash payment of $1.5 million. The Company recorded a gain of $4.9 million in the three months ended September 30, 2020. In October, 2020 the Company signed leases for the use of office and meeting space in midtown Manhattan.
The third quarter the Company sold its loss making EKAR ETF for a de minimis amount, this sale eliminated approximately $0.4 million of annual operating expense.
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 October 31, 2020, over 44.7 million cases had been reported across the globe, resulting in 1.2 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 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 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 Company’s operations, including certain key personnel and business advisors and partners, are largely based in China, a country which was subject to a wide-ranging government shutdown as a result of the spread of COVID-19 in January 2020. Consequently, the country was effectively shuttered in the first quarter of 2020, resulting in China introducing a series of significant economic stimulus packages upon the easing of shutdown measures. The economic stimulus was designed to rebuild China’s economic infrastructure, which rebounded in the second quarter of 2020, and which is expected to continue in the near- to medium term.
The Company had experienced delays in the preparation and execution of certain key documents due to stay-at-home and work-from home measures which limited the Company’s abilities in these areas. As disclosed in Note 1 to the Condensed Consolidated Financial Statements, the Company had commenced the process of formulating and implementing a share-based compensation plan whereby key employees and certain consultants of its MEG business unit and wholly-owned subsidiary would benefit, but travel and other limitations prevented the Company from executing the formation and operation of the stock-based compensation plan.
Subsequently, the Company has determined not to proceed with the MEG share-based compensation plan described above, and the parties have declared the transfer of the MEG shares, which was not believed to be substantive, to be null and void and the shares have reverted to the Company.
No share-based awards had been granted to employees or consultants pursuant to this arrangement as initially contemplated.
46
As a result of the overall economic condition in China in the first quarter of 2020, minimal sales of EV’s occurred during that time frame. During the second quarter, China relaxed its stay-at-home and work-at-home orders, and the Company was able to open its Qingdao Sales Center on May 1, 2020, which was subsequently rebranded the MEG center. Ideanomics’ recorded total sales in China of $10.6 million in the third quarter. The Company’s expectation is that its sales would increase as China’s economy continues to improve, although the Company is a recent entrant in the EV market in China and can provide no assurances on future sales.
The Company expects to continue to raise both equity and debt finance to support the Company’s investment plans and operations, and has been active with investors and is in ongoing discussions with both active and potential investors through the first nine months of 2020, and this activity continues. In the three months ended June 30, 2020, the Company raised $39.1 million through the issuance of common stock and exercise of warrants . The Company does not anticipate that the COVID-19 pandemic will adversely affect its ability to raise funds in the near-term, although no assurances can be provided on this matter.
The Company assesses the recoverability of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year, or more frequently if circumstances warrant. The Company assesses the recoverability of other long-lived assets as circumstances warrant, and in the nine months ended September 30, 2020 did not consider any long-lived assets to be impaired, other than certain right of use and fixed assets, including assets comprising a portion of Fintech Village. Many of the Company’s operations are in the development or early stage, have not had significant revenues to date, and 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.
Public health experts have expressed concern that the influenza season in the northern hemisphere will coincide with a spread of COVID-19 cases, adding further stress to the affected populations, businesses, governments, and economies. The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, and the prospects for a vaccine as well as its global implementation. The impact on the Company cannot be predicted at this time, although the impact would be more adverse if any resurgence of COVID-19 were to be concentrated in Asia as compared to other parts of the world.
Information about segments
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. Therefore, the Company operates in one segment with two business units: MEG and Ideanomics Capital. As the chief executive officer previously reviewed two operating segments separately for this purpose, the Company has changed its presentation accordingly, from two reportable segments to one reportable segment.
The segment reporting changes were retrospectively applied to all periods presented.
The Company’s Unconsolidated Equity Investments
The investments where the Company exercises significant influence, but not control, 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 its share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that the Company does not guarantee the investee’s obligations or is committed to provide additional funding. Refer to Note 10 of the notes to unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
47
Taxation
United States
Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC and Red Rock Global Capital Ltd. are United States companies subject to the provisions of the Internal Revenue Code. No provision for income taxes has been provided as none of the companies had taxable profit since inception. At the acquisition of Grapevine Logic, Inc. in 2018, deferred tax liabilities were recorded relating to intangible assets recorded for financial reporting purposes but not recognized for income tax purposes. The intangible assets consequently could not provide deductible amortization expense for income tax purposes. The deferred tax liabilities were recorded on the acquisition to the extent that they could not be offset by usable net operating loss carryforwards acquired in the acquisition. These deferred tax liabilities were reduced, providing an income tax benefit, to the extent that the intangible assets were reduced by amortization expense and additional net operating loss carry forwards were created to offset the liabilities. These benefits amounted to $0.1 million for the three months ended June 30, 2019. Ideanomics, Inc. increased its ownership in Grapevine Logic, Inc. such that beginning with the third quarter of 2019, the result of which was that Grapevine Logic, Inc. activities would be included in the consolidated tax return of Ideanomics, Inc. As a result, the valuation allowance provided against Ideanomics, Inc.’s deferred tax assets were reduced by $0.4 million, the amount of Grapevine Logic, Inc.’s remaining deferred tax liabilities as that portion of Ideanomics Inc.’s net operating loss carryovers could now be utilized to offset these liabilities. As a result, there was no income tax or benefit for Grapevine for the three months ended September 30, 2020 and consequently U.S. income tax expense or benefit for the Company as a whole.
The Tax Cut and Jobs Act (“TCJA”) of 2017 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.
Based on the results of operations for the nine months ended September 30, 2020, the Company has determined that there is no GILTI nor BEAT tax liability.
In addition, the TCJA now entitles U.S. companies that own 10.0% or more of a foreign corporation a 100.0% dividends-received deduction for the foreign-source portion of dividends paid by such foreign corporation. Also, net operating losses (“NOLs”) arising after December 31, 2017 are deductible only to the extent of 80.0% 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 progressive Profits Tax rate up to 16.5%. $0.1 million tax expense was recorded in 2019 relating to the income on one Hong Kong subsidiary relating to a gain recorded on the sale of VIE related assets. All other Hong Kong subsidiaries had losses for 2019 and the resulting deferred tax assets relating to the loss carryovers were fully offset by a valuation allowance.
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%.
48
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.
During the nine months ended September 30, 2020, one of the Company’s PRC subsidiaries incurred a taxable income in the amount of $2.6 million by providing the service to another one of the Company’s PRC subsidiaries. The tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance in prior periods. The valuations allowance was reversed as a result of this subsidiary taxable income in the amount of $0.7 million creating a deferred tax benefit offsetting the income tax expense that would otherwise have been incurred. Other PRC entities had losses that created additional operating loss carryovers, where the related deferred tax assets were offset by a valuation allowance.
Consolidated Results of Operations
Comparison of Three and Nine Months Ended September 30, 2020 and 2019 (USD in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
Amount |
|
% |
|
|
September 30, |
|
September 30, |
|
Amount |
|
% |
|
|
||||||
|
|
|
2020 |
|
2019 |
|
Change |
|
Change |
|
|
2020 |
|
2019 |
|
Change |
|
Change |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
7,516 |
|
n/m |
|
|
$ |
15,690 |
|
$ |
44,504 |
|
$ |
(28,814) |
|
(65) |
% |
|
|
Cost of revenue |
|
|
9,906 |
|
|
244 |
|
|
9,662 |
|
n/m |
|
|
|
14,676 |
|
|
1,218 |
|
|
13,458 |
|
n/m |
|
|
|
Gross profit |
|
|
714 |
|
|
2,860 |
|
|
(2,146) |
|
(75) |
% |
|
|
1,014 |
|
|
43,286 |
|
|
(42,272) |
|
(98) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
7,636 |
|
|
7,770 |
|
|
(134) |
|
(2) |
|
|
|
20,188 |
|
|
18,443 |
|
|
1,745 |
|
9 |
|
|
|
Research and development expenses |
|
|
1,318 |
|
|
— |
|
|
1,318 |
|
n/m |
|
|
|
1,318 |
|
|
— |
|
|
1,318 |
|
n/m |
|
|
|
Professional fees |
|
|
3,968 |
|
|
1,389 |
|
|
2,579 |
|
n/m |
|
|
|
8,096 |
|
|
3,918 |
|
|
4,178 |
|
n/m |
|
|
|
Impairment loss |
|
|
3,275 |
|
|
2,299 |
|
|
976 |
|
42 |
|
|
|
10,363 |
|
|
2,299 |
|
|
8,064 |
|
n/m |
|
|
|
Change in fair value of contingent consideration, net |
|
|
(4,179) |
|
|
— |
|
|
(4,179) |
|
n/m |
|
|
|
(2,900) |
|
|
- |
|
|
(2,900) |
|
n/m |
|
|
|
Depreciation and amortization |
|
|
695 |
|
|
806 |
|
|
(111) |
|
(14) |
|
|
|
1,651 |
|
|
1,420 |
|
|
231 |
|
16 |
|
|
|
Total operating expenses |
|
|
12,713 |
|
|
12,264 |
|
|
449 |
|
4 |
|
|
|
38,716 |
|
|
26,080 |
|
|
12,636 |
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations |
|
|
(11,999) |
|
|
(9,404) |
|
|
(2,595) |
|
28 |
|
|
|
(37,702) |
|
|
17,206 |
|
|
(54,908) |
|
n/m |
|
|
|
Interest and other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(2,014) |
|
|
(639) |
|
|
(1,375) |
|
n/m |
|
|
|
(14,061) |
|
|
(1,955) |
|
|
(12,106) |
|
n/m |
|
|
|
Equity in income (loss) of equity method investees |
|
|
7 |
|
|
(40) |
|
|
47 |
|
n/m |
|
|
|
(8) |
|
|
(606) |
|
|
598 |
|
(99) |
|
|
|
Gain on disposal of subsidiaries |
|
|
— |
|
|
1,057 |
|
|
(1,057) |
|
n/m |
|
|
|
— |
|
|
1,057 |
|
|
(1,057) |
|
n/m |
|
|
|
Loss on remeasure of DBOT investment |
|
|
— |
|
|
(3,179) |
|
|
3,179 |
|
n/m |
|
|
|
— |
|
|
(3,179) |
|
|
3,179 |
|
n/m |
|
|
|
Conversion expense |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
(2,266) |
|
|
- |
|
|
(2,266) |
|
n/m |
|
|
|
Other income (expense) |
|
|
5,283 |
|
|
(100) |
|
|
5,383 |
|
n/m |
|
|
|
6,272 |
|
|
(156) |
|
|
6,428 |
|
n/m |
|
|
|
Income (Loss) before income taxes and non-controlling interest |
|
|
(8,723) |
|
|
(12,305) |
|
|
3,582 |
|
(29) |
|
|
|
(47,765) |
|
|
12,367 |
|
|
(60,132) |
|
n/m |
|
|
|
Income tax benefit |
|
|
— |
|
|
— |
|
|
— |
|
n/m |
|
|
|
— |
|
|
514 |
|
|
(514) |
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(8,723) |
|
|
(12,305) |
|
|
3,582 |
|
(29) |
|
|
|
(47,765) |
|
|
12,881 |
|
|
(60,646) |
|
n/m |
|
|
|
Deemed dividend related to warrant repricing |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
(184) |
|
|
— |
|
|
(184) |
|
n/m |
|
|
|
Net (income) loss attributable to non-controlling interest |
|
|
437 |
|
|
(1,408) |
|
|
1,845 |
|
n/m |
|
|
|
737 |
|
|
(1,374) |
|
|
2,111 |
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IDEX common shareholders |
|
$ |
(8,286) |
|
$ |
(13,713) |
|
$ |
5,427 |
|
(40) |
% |
|
$ |
(47,212) |
|
$ |
11,507 |
|
$ |
(58,719) |
|
n/m |
|
|
Revenues (USD in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
Amount |
|
% |
|
September 30, |
|
September 30, |
|
Amount |
|
% |
|
||||||
|
|
|
2020 |
|
2019 |
|
Change |
|
Change |
|
2020 |
|
2019 |
|
Change |
|
Change |
|
||||||
|
Electric Vehicles |
|
$ |
8,872 |
|
$ |
2,854 |
|
$ |
6,018 |
|
n/m |
|
$ |
9,622 |
|
$ |
2,854 |
|
$ |
6,768 |
|
n/m |
|
|
Combustion engine vehicles |
|
|
1,268 |
|
|
— |
|
|
1,268 |
|
n/m |
|
|
5,160 |
|
|
— |
|
|
5,160 |
|
n/m |
|
|
Digital asset management services |
|
|
— |
|
|
— |
|
|
— |
|
n/m |
|
|
— |
|
|
40,700 |
|
|
(40,700) |
|
n/m |
|
|
Other |
|
|
480 |
|
|
250 |
|
|
230 |
|
92 |
% |
|
908 |
|
|
950 |
|
|
(42) |
|
n/m |
|
|
Total |
|
$ |
10,620 |
|
$ |
3,104 |
|
$ |
7,516 |
|
n/m |
|
$ |
15,690 |
|
$ |
44,504 |
|
$ |
(28,814) |
|
(65) |
% |
n/m = Not Meaningful
49
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Revenue for the three months ended September 30, 2020 was $10.6 million as compared to $3.1 million for the same period in 2019, an increase of $7.5 million. The increase was principally due to the increase in revenue from the sales of vehicles.
In the third quarter of 2020, the Company continued to develop its EV business and recognized $10.6 million revenue from the sales of vehicles, which included revenue of $1.3 million from the sale of traditional combustion engine vehicles. In the third quarter of 2020 the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a Principal capacity revenues were recorded on a Gross basis and for those contracts where it acted in an Agent capacity the revenues were recorded on a Net basis.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Revenue for the nine months ended September 30, 2020 was $15.7 million as compared to $44.5 million for the same period in 2019, a decrease of $28.8 million The decrease was due to the lack of revenues from digital asset management services in the nine months ended September 30, 2020.
In March 2019, the Company entered into an agreement with GTD, one of the Company’s minority shareholders and strategic investors, whereby the Company provided digital asset management services to GTD. The revenue was recognized based on the progress of completion of services. The Company recognized revenue of $40.7 million in the nine months ended September 30, 2019. The Company recognized no revenue from the provision of digital asset management services in the nine months ended September 30, 2020 and does not anticipate earning revenue from provision of digital asset management services in the foreseeable future.
In the nine months ended September 30, 2020, the Company continued to develop its EVs business and recognized $14.8 million revenue from the sales of vehicles, which included revenue of $5.2 million from the sale of traditional combustion vehicles. In the nine months ended September 30, 2020 the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a Principal capacity revenues were recorded on a Gross basis and for those contracts where it acted in an Agent capacity the revenues were recorded on a Net basis.
Cost of revenues (USD in thousands)
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Cost of revenues was $9.9 million for the three months ended September 30, 2020, as compared to $0.2 million for the three months ended September 30, 2019 an increase of $9.7 million. The increase in the cost of revenues was principally due to increased revenues from the sales of vehicles.
In the third quarter of 2020, the Company continued to develop its EV business and recognized $9.5 million in cost of revenues from the sales of vehicles.
50
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Cost of revenues was $14.7 million for the nine months ended September 30, 2020, as compared to $1.2 million for the nine months ended September 30, 2019 an increase of $13.5 million. The increase in the cost of revenues was due to the change in the mix of revenues. Revenues recognized in the nine months ended September 30, 2020 arose from the sale of vehicles which have a significantly lower margin than the digital asset management services revenues recognized in the corresponding period of the prior year.
The majority of the cost associated with digital asset management services had 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 (USD in thousands)
Gross profit ratio
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Gross profit for the three months ended September 30, 2020 was $0.7 million, as compared to gross profit in the amount of $2.9 million during the same period in 2019. The gross profit ratio for the three months ended September 30, 2020 was 7%, while in 2019, it was 92%. The decrease was mainly due to digital asset management service revenue recognized in 2019 having higher gross margins than the gross margin in vehicles.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Gross profit for the nine months ended September 30, 2020 was $1.0 million, as compared to $43.3 million during the same period in 2019. The gross profit ratio for the nine months ended September 30, 2020 was 6%, while in 2019, it was 97%. The decrease was mainly due to the digital asset management service revenue recognized in 2019 having a higher gross margin than the gross margin on vehicles.
51
Selling, general and administrative expenses
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Selling, general and administrative expense for the three months ended September 30, 2020 was $7.6 million as compared to $7.8 million for the same period in 2019, a decrease of $0.1 million or 2.6%. The decrease was mainly due to
| ● | A decrease of $1.6 million in general operations expense (including reduced travel and entertainment expense due to Covid-19), partially offset by |
| ● | An increase of $0.7 million in share-based compensation expense due to the new option grants; and |
| ● | An increase of $0.9 million in salary and employee benefit expense due to the increase in number of sales staff employed in the the MEG business and increased headcount in the New York head office. |
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Selling, general and administrative expenses for the nine months ended September 30, 2020 was $20.2 million as compared to $18.4 million for the same period in 2019, an increase of $1.7 million or 9%. The majority of the increase was due to
| ● | An increase of $2.6 million in share-based compensation expense due to the new option grants; |
| ● | An increase of $1.5 million in salary and employee benefit expense due to the increase in number of sales staff employed in the MEG business and increased headcount in the New York head office; and |
| ● | A decrease of $2.3 million in general operations expense (including less travel and entertainment expense due to Covid-19), |
Professional fees
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to business transition and expansion. Professional fees for the three months ended September 30, 2020 were $4.0 million as compared to $1.4 million for the same period in 2019, an increase of $2.6 million. The increase was related to an increase in investor relations expense of $1.0 million, legal fees of $0.9 million including $0.5 million incurred responding to the Class Action lawsuits and related matters, consulting expenses of $0.7 million including $0.4 million related to a shared services agreement with SSSIG, a related party.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Professional fees for the nine months ended September 30, 2020 were $8.1 million as compared to $3.9 million for the same period in 2019, an increase of $4.2 million. The increase was related to an increase in investor relation expense of $1.4 million, legal fees of $1.4 million including $0.9 million incurred responding to the Class Action lawsuit, $0.5 million related to regulatory matters and $0.6 million related to general corporate advice reflecting the companies increased level of activity.
Research and Development Expense
Research and development expense for the three and nine months ended September 30, 2020 represents the fee paid for the EV technical development and design.
52
Impairment loss
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
In the third quarter of 2020, the Company recorded an impairment loss of $3.2 million related to Fintech Village assets after performing an impairment analysis. In the third quarter of 2019, $2.3 million of the impairment loss was related to four of the five existing buildings in Fintech Village which were expected to be demolished.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
For the nine months ended September 30, 2020, the Company recorded an impairment loss of $3.2 million related to Fintech Village assets because the Company decided not to continue the development of Fintech Village, an impairment loss of $1.0 million related to the DBOT right of use assets and $5.9 million related to the New York headquarters’ right of use assets, leasehold improvement and fixed assets because the Company decided to cease use the office and vacated the space subsequently. The Company also recorded an impairment loss of $0.3 million related to another current asset. In the third quarter of 2019, $2.3 million of the impairment loss related to four of the five existing buildings in Fintech Village which were expected to be demolished.
Change in fair value of contingent consideration, net
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
The change in fair value of contingent consideration, net of $4.2 million represents the remeasurement of the contingent consideration payable to Tree Technology shareholders.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
The change in fair value of contingent consideration, net of $2.9 million represents the remeasurement loss of $1.5 million of the contingent consideration payable to the former DBOT shareholder and remeasurement gain of $4.4 million of the contingent consideration payable to the Tree Technology shareholders.
Depreciation and amortization
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Depreciation and amortization for the three months ended September 30, 2020 was $0.7 million as compared to $0.8 million for the same period in 2019, a decrease of $0.1 million. The decrease was due to the decrease of amortization expense $0.3 million from the intangible assets that were impaired at 2019 year end, partially offset by the increase in amortization expense $0.2 million from intangible assets acquired in the fourth quarter of year 2019.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Depreciation and amortization for the nine months ended September 30, 2020 was $1.7 million as compared to $1.4 million for the same period in 2019, an increase of $0.2 million. The increase was mainly due to the increase in amortization expense $0.4 million from intangible assets acquired in the second half year of year 2019, partially offset by the decrease of amortization expense $0.2 million from the intangible assets impaired at 2019 year end.
53
Interest expense, net
The following table summarizes the breakdown of the interest expense (USD in thousands):
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Interest expense increased $1.4 million to $2.0 million for the three months ended September 30, 2020, from $0.6 million during the same period of 2019. The interest expense increase during 2020 was primarily due to the increased amortization of beneficial conversion features resulting from the down round financing provision adjustment in October 2019.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Interest expense increased $12.1 million to $14.0 million for the nine months ended September 30, 2020, from $2.0 million during the same period of 2019. The interest expense increase during 2020 was primarily due to the remaining unamortized beneficial conversion features recognized as interest expense immediately upon conversion of convertible notes to common stock, and the increased amortization of beneficial conversion features resulting from the down round provision adjustment in October 2019.
Equity in income (loss) of equity method investees
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Equity in income (loss) of equity method investees decreased $47,463 for the three months ended September 30, 2020 in comparison to the same period of 2019 as one of the entities had a slight foreign exchange gain.
54
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Equity in income (loss) of equity method investees decreased $0.6 million for the nine months ended September 30, 2020 in comparison to the same period of 2019 as DBOT was an equity method investment until July 2019, at which date the Company increased its ownership and consolidated DBOT.
Conversion expense
Conversion expense for the three and nine months ended September 30, 2020 represents the expense recognized as a result of the reduction of conversion price to induce the conversion of the convertible notes from the related parties.
Other income (expense)
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Other income (expense) increased $5.4 million for the three months ended September 30, 2020 in comparison to the same period of 2019 mainly because the Company has reached agreement with landlord to terminate its New York City headquarters lease at 55 Broadway and recorded a gain of $4.9 million, and sublease income $0.2 million
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Other income (expense) increased $6.4 million for the nine months ended September 30, 2020 in comparison to the same period of 2019 mainly because of a gain of $4.9 million from the lease settlement of its New York City headquarters at 55 Broadway with landlord, a gain of $0.8 million from the DBOT lease settlement with landlord and sublease income $0.3 million.
Income tax expense
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
During the three months ended September 30, 2020 income tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100.0% 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.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
During the nine months ended September 30, 2020 income tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100.0% 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 nine months ended September 30, 2019, the Company recorded an income tax benefit of $0.5 million, $0.2 million resulting from losses of Grapevine Logic, Inc. offsetting deferred tax liabilities that were recognized on the acquisition of Grapevine and a $0.4 million reduction of the valuation allowance on Ideanomics’ deferred tax assets in excess of those reversed to offset Ideanomics’ income as discussed above.
Net loss attributable to non-controlling interest
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
Net loss attributable to non-controlling interests was $0.4 million for the three months ended September 30, 2020 compared to net income of $1.4 million in 2019. The loss for the three months ended September 30 2020 is primarily due to net loss from our investments in entities formed and acquired in late 2019. The income for the three months ended September 30
55
2019 is primarily due to the taxis commission revenue recognized in an entity we have 51% ownership during the third quarter of 2019.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
Net loss attributable to non-controlling interests was $0.7 million for the nine months ended September 30, 2020 compared to net income of $1.4 million in 2019. The loss for the nine months ended September 30 2020 is primarily due to net loss from our investments in entities formed and acquired in late 2019. for the three months ended September 30 2020 is primarily due to the taxis commission revenue recognized in an entity we have 51% ownership during the third quarter of 2019.
Liquidity and Capital Resources
As of September 30, 2020, the Company had cash of $27.6 million. On that date, $20.4 million was held in the Company’s Hong Kong, U.S. Malaysia, and Singapore entities and $7.2 million which includes $0.2 million which was received in advance of a future investment, was held in the Company’s PRC entities. The Company does not consider cash balances held in the PRC to be available for use outside of the PRC. The Company’s operations outside of the PRC will continue to be dependent upon access to debt and equity funding raised outside of the PRC. There is no guarantee that debt and equity funds will be available to the Company when they are required.
A majority of the Company’s operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities 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 law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“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.
As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.2 million as of September 30, 2020, 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 venture had cash of $0.6 million as of September 30, 2020. 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 net cash flows from operating, investing, and financing activities (in thousands):
Operating Activities
Cash used in operating activities increased by $13.2 million for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to: (1) an decrease in operating results from net income of $12.9 million in the third quarter of 2019 to a net loss of $47.8 million, (2) total non-cash adjustments increase (decrease) to net income (loss) was $29.3 million and $(25.5) million for the nine months ended September 30, 2020 and 2019, respectively; and
56
(3) total changes in operating assets and liabilities resulted in an (decrease)increase of $(3.4) million and of $3.9 million in cash used in operating activities for the nine months ended September 30, 2020 and 2019, respectively.
Investing Activities
Cash used in investing activities was $0.5 million for the nine months ended September 30, 2020, which is primarily due to the Company entering into two notes receivable of $1.9 million and receipt one of the note repayments of $1.5 million for the nine months ended September 30, 2020. Cash used in investing activities was $1.7 million for the nine months ended September 30, 2019, which is primarily due to the payment of $1.8 million for Fintech Village, $0.9 million of long term investment payment, partially offset by the proceeds of $0.7 million from the disposal of the subsidiary.
Financing Activities
The Company received $39.1 million from the exercise of warrants and the issuance of common stock, $7.1 million from noncontrolling shareholders contribution, and $2.0 million from the issuance of convertible notes, and made repayment of $3.0 million to related parties for the nine months ended September 30, 2020. While in the same period in 2019, the Company received $4.8 million from the issuance of convertible notes, $2.5 million in proceeds in a private placement from the issuance of restricted shares and increased $1.8 million borrowings from the related party for the nine months ended September 30, 2019, to certain investors, including officers, directors and other affiliates.
The Company expects to continue to raise both equity and debt finance, if possible, to support the Company’s investment plans and operations.
Effects of Inflation
Inflation and changing prices may have an effect on the business and management expects that inflation or changing prices could materially and adversely affect the business in the foreseeable future. Company management will closely monitor the price changes 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 does not have other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the 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 its securities.
Contractual Obligations and Commitments
The tabular presentation of contractual obligations is not required for Smaller Reporting Companies.
Seasonality
The Company’s MEG division operates in the market for fleet sales of commercial EVs and the Company expects that orders and sales will be influenced by the amount and timing of budgeted expenditure by its customers, changes in government subsidy programs promoting the conversion to EV and government regulations relating to vehicle emission standards. Typically, the Company would expect to see higher sales at the start of the year 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 budget cycle commences. The Company’s MEG business unit is building out its network and has not generated sufficient orders to allow it to establish with any degree of certainty an expected pattern of seasonality. Additionally, as the PRC is the Company’s principal source of revenues we anticipate that revernues in the first and fourth quarters of the year will be impacted by the Chinese New Year celebrations in the first quarter of the year and the annual National Day holidays in fourth quarter of the year.
57
OUTLOOK
The Company anticipates that its MEG business unit will be the largest contributor to revenues in 2020. The rate at which the MEG business unit grows is highly correlated with the development of financing structures for fleet purchases of commercial EVs, which is not assured, and the speed at which business in the PRC and the rest of Asia returns to pre COVID-19 levels.
The Company will continue to seek ways to deploy its DBOT Alternative Trading System (“ATS”) as a platform for the issuance of digital securities and tokens, trading of commodities and origination and distribution of private placements. The Company does not anticipate that DBOT will generate material amounts of revenue in 2020 while the Company continues to develop its plan to use DBOT for sale of digital securities and brokering of commodity products subject to obtaining the required regulatory approvals.
The Company continues to look for acquisitions that will accelerate the growth of its MEG and Ideanomics Capital business units.
Environmental Matters
The Company is subject to various federal, state, and local laws and regulations governing, among other things, hazardous materials, environmental contamination, and the protection of the environment. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. The Company may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations. In 2018, the Company accrued $8.0 million for asset retirement obligations, which are related to the legal contractual obligation in connection with the acquisition of Fintech Village.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2 to the Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is 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 Officer and 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 Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
58
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2020, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of the Company’s legal proceedings, see Note 18, Commitments and Contingencies, to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in the 2019 Form 10-K which could materially affect the Company’s business, financial condition, or future results. The risks described in the 2019 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition, or future results.
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, 2020.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the fiscal quarter ended September 30, 2020.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
|
Exhibit |
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No. |
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Description |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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XBRL Instance Document |
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101.SCH |
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Taxonomy Extension Schema Document |
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101.CAL |
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Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Taxonomy Extension Presentation Linkbase Document |
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*Filed herewith
**Furnished herewith
59
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 November 9, 2020.
IDEANOMICS, INC.
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By: |
/s/ Conor McCarthy |
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Conor McCarthy |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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60
Exhibit 31.1
CERTIFICATIONS
I, Alf Poor, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of IDEANOMICS, INC.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: November 9, 2020 |
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/s/ Alf Poor |
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Alf Poor |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Conor McCarthy, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of IDEANOMICS, INC.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: November 9, 2020 |
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/s/ Conor McCarthy |
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Conor McCarthy |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Alf Poor, Chief Executive Officer of IDEANOMICS, INC. (the “Company”), DOES HEREBY CERTIFY that:
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
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2. |
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on November 9, 2020.
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/s/ Alf Poor |
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Alf Poor |
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Chief Executive Officer |
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(Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to IDEANOMICS, INC. and will be retained by IDEANOMICS, INC. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Conor McCarthy, Chief Financial Officer of IDEANOMICS, INC. (the “Company”), DOES HEREBY CERTIFY that:
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
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2. |
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on November 9, 2020.
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/s/ Conor McCarthy |
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Conor McCarthy |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to IDEANOMICS, INC. and will be retained by IDEANOMICS, INC. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.