We have audited the accompanying consolidated
financial statements of Timios Holdings Corp. (the “Company”), which comprise the consolidated balance sheet as of December
31, 2020 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year ended December 31,
2020, and the related notes to the consolidated financial statements.
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.
Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatements.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated financial position of Timios Holdings Corp. as of December
31, 2020, and the results of its operations and cash flows for the year ended December 31, 2020 in accordance with accounting principles
generally accepted in the United States of America.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
NOTE
1 – ORGANIZATION
Timios Holdings Corp. (the “Company”)
is a holding company, whose current operating companies provide title, escrow, and appraisal management services. The Company was incorporated
in the State of Delaware in October 2015 and is the surviving entity of a merger with Timios National Corporation that was completed
in November 2015 pursuant to Section 253 of the General Corporation Law of the State of Delaware. Timios National Corporation
was a consolidator of companies that was originally incorporated in the State of Delaware in August 1997.
The Company wholly owns Fiducia Real Estate Solutions, Inc.
(“FRES”), also a Delaware corporation. FRES wholly owns two companies: (1) Timios, Inc. (“TIM”), which
is engaged in title and escrow services for mortgage origination and refinance, reverse mortgages and deed-in-lieu transactions; and (2) Timios
Appraisal Management, Inc. (“TAM”), which is engaged in appraisal management services.
TIM wholly owns four companies: (1) Timios
Title, a California Corporation (“TTC”) which is engaged in title and escrow services in all fifty-eight counties in California;
(2) Timios Agency of Alabama, Inc. (“TAA”), a domestic Alabama title agency; (3) Timios Agency of Nevada, Inc.
(“TAN”), a domestic Nevada title agency; and (4) Timios Agency of Utah, Inc. (“TAU”), a domestic Utah
title agency.
On November 11, 2020, Ideanomics, Inc.
(“Ideanomics”) entered into a stock purchase agreement (the “Agreement”) with the Company pursuant to which
Ideanomics has agreed to acquire 100% of the outstanding capital stock of the Company for approximately $40.0 million (the “Transaction”)
subject to customary purchase price adjustments set forth in the Agreement including an agreement that Ideanomics will increase the consideration
by the amount of cash the Company leaves in the business which is required to be at least $5.0 million.
On January 8, 2021, Ideanomics closed
the Transaction. At Closing, Ideanomics acquired 100% of the outstanding capital stock of the Company for approximately $40.0 million
in cash consideration, plus approximately $6.5 million for cash on hand.
Note 2 – Summary
of Significant Accounting Policies
Basis of Accounting
The Company prepares its consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation
The consolidated financial statements include
the accounts of Timios Holdings Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses. Actual results could differ from those estimates.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
2 – Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
In accordance with Accounting Standards Codification
(“ASC” or the “Codification”) Accounting for Fair Value Measurements and Disclosures, the rules define
fair value, establish a framework for measuring fair value under generally accepted accounting principles and enhance disclosures about
fair value measurements.
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Valuation techniques used to measure fair value, as required by the Codification, must maximize the use of observable inputs and
minimize the use of unobservable inputs.
The Company measures certain financial assets
and liabilities at fair value on a recurring basis in the financial statements. The hierarchy ranks the quality and reliability of inputs,
or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified
and disclosed in one of the following three categories:
|
|
·
|
Level 1: Unadjusted quoted prices in active markets
for identical assets and liabilities;
|
|
|
·
|
Level
2: Inputs other than Level 1 quoted prices that are directly or indirectly observable. If the asset or liability has a specific (contractual)
term, the level 2 input must be observable for substantially the full term of the asset or liability; and
|
|
|
·
|
Level 3: Inputs to the valuation methodology
are unobservable and significant to the fair value measurement.
|
Impact of the COVID-19 Pandemic
In March 2020, a global pandemic escalated
relating to a novel strain of coronavirus (“COVID-19”), which resulted in a slowdown in the global economy and a U.S. declaration
of a national emergency. In response to the pandemic, health and governmental bodies, including the state of California where the Company
is headquartered, issued travel restrictions, quarantine orders, temporary closures of non-essential businesses and other restrictive
measures. Currently, various levels of restrictions are still in place across the U.S. to address the spread of COVID-19. Although the
title insurance industry has been deemed essential in the U.S., the pandemic and measures to contain it have caused disruptions in the
real estate market and in the Company's business operations. To the extent that the COVID-19 pandemic continues or worsens, it could adversely
impact the Company's future operational and financial performance, which may result in impairments of its assets. The Company is currently
unable to determine the effects the COVID-19 pandemic will have on the Company's future consolidated financial statements or results of
operations.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
2 – Summary of Significant Accounting Policies (Continued)
Revenue Recognition
The Company accounts for a contract when it has
approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial
substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining
whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible
for fulfilling the promise to provide the service, (ii) the Company has discretion in establishing the price for the specified good
or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is
acting as an agent in the transaction and the associated revenues are recognized on a net basis.
Revenue is recognized when, or as, control of
a promised product or service transfers to a customer, in an amount that reflects the consideration to which the Company expects to be
entitled in exchange for transferring those products or services. Revenue recognition is evaluated through the following five-step process:
1) Identification of the contract with
a customer;
2) Identification of the performance
obligations in the contract;
3) Determination of the transaction
price;
4) Allocation of the transaction price
to the performance obligations in the contract; and
5) Recognition of revenue when or as
a performance obligation is satisfied.
Title Revenue
Premiums from title insurance policies written
by independent agencies are recognized when the policies are reported to the Company and not before the effective date of the policy.
Regulation of title insurance rates varies by state. Premiums are charged to customers based on rates predetermined in coordination with
each states' respective Department of Insurance.
Closing Revenue
A closing or escrow is a transaction pursuant
to an agreement of a buyer, seller, borrower, or lender wherein an impartial third party, such as the Company, acts in a fiduciary capacity
on behalf of the parties in accordance with the terms of such agreement in order to accomplish the directions stated therein. Services
provided include, among others, acting as escrow or other fiduciary agent, obtaining releases, and conducting the actual closing or settlement.
Closing and escrow fees are recognized upon closing of the escrow, which is generally at the same time of the closing of the related real
estate transaction.
Appraisal Revenue
Revenue from appraisal services are primarily
related to establishing the ownership, legal status and valuation of the property in a real estate transaction. In these cases, the Company
does not issue a title insurance policy or perform duties of an escrow agent. Revenues from these services are recognized upon delivery
of the service to the customer.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
2 – Summary of Significant Accounting Policies (Continued)
Revenue Recognition (Continued)
Remaining Performance Obligations
The Company requests payments for its products
and services at the date performance obligations have been satisfied. The Company generally does not enter into any long-term financing
arrangements or payment plans with customers or contracts with customers that have non-cash consideration. In addition, the Company applies
the optional exemptions allowed under accounting guidance whereby the Company is not required to disclose either the transaction price
allocated to performance obligations that are unsatisfied as of the end of the period or an explanation as to when the Company expects
to recognize the related revenue. Such contracts generally include performance obligations that are contingent upon the closing
of a real estate transaction or include variable consideration based on order volumes and have remaining contract terms of less than one
year.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and
cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three
months or less.
Accounts Receivable Trade and Non-Trade
Accounts receivable are generally due within thirty
days and are recorded net of an allowance for credit losses. The Company considers accounts outstanding longer than the contractual
payment terms as past due. The Company determines the allowance by considering a number of factors, including the length of
time trade accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to the
Company and the current condition, and future expectations, of the general economy and industry as a whole. Amounts are written
off in the period in which they are deemed to be uncollectible. The Company did not have an allowance for doubtful accounts at December 31,
2020.
Accounts receivable, non-trade consists of recoverable
losses.
Notes Receivable
Notes receivable are long term financing arrangements
with borrowers and include an interest rate of 2.50% due quarterly. Notes receivable are recorded at their estimated realizable values.
Management does not believe that there is a credit risk associated with these notes at December 31, 2020; therefore, an allowance
has not been recorded.
Property and Equipment
Furniture, equipment and software are recorded
at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of three
to seven years. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the applicable lease or
the estimated useful lives of such assets. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
2 – Summary of Significant Accounting Policies (Continued)
Title Plant
Title plant owned by TTC consists of costs incurred
to construct the title plant and to obtain, organize and summarize historical information for Glenn County title searches. These costs
were capitalized until such time as the plant was deemed operational to conduct title searches and issue title insurance policies. Management
has determined that the title plant has been properly maintained, has an indeterminable life, and in accordance with ASC 950-30 has not
been amortized. The costs to maintain the current status of the title plant are recorded as a current period expense.
Impairment of Long-Lived Assets
The Company reviews the carrying values of title
plants and other long-lived assets if certain events occur that may indicate impairment. An impairment of these long-lived assets is indicated
when projected undiscounted cash flows over the estimated lives of the assets are less than carrying values. If impairment is indicated,
the recorded amounts are written down to fair values. No impairment has been recognized during the year ended December 31, 2020.
Intangible Assets
Intangible assets consist of intellectual property
and amounts attributed to software development. When events or changes in circumstances would indicate that it is more-likely-than-not
that carrying value may exceed fair value, the Company will review the recoverability of its intangible assets by comparing the unamortized
carrying value of such assets to the related undiscounted cash flows of the asset. Any impairment related to intangible assets is measured
against the asset’s fair value. Impairments would be charged to expense when such determination is made. No impairment has been
recognized during the year ended December 31, 2020.
Software Development Costs
Software developed or obtained for internal use
in accordance with ASC 350-40, Internal-Use Software (ASC 350-40), is capitalized during the application development
stage. In accordance with authoritative guidance, the Company begins to capitalize costs to develop software when preliminary development
efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will
be completed, and the software will be used as intended. Once the project has been completed, these costs are amortized to expense on
a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred
prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred. The Company classifies
software development costs associated with the development of the Company's products and services as intangible assets. For the year ended
December 31, 2020, 2020 the Company capitalized $367,530 of software development costs.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note 2 – Summary of
Significant Accounting Policies (Continued)
Goodwill
The cost in excess of fair value of identifiable
net assets of businesses acquired is recorded as goodwill. The Company evaluates the carrying value of goodwill at least annually, based
on qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that goodwill
is impaired. If, after assessing the totality of events and circumstances, the Company concludes that it is more likely than not that
goodwill is impaired, the Company will compare the fair value of the operating business to the carrying value, including goodwill. If
the carrying amounts of the operating businesses’ goodwill exceeds their implied fair value, an impairment charge is recognized
in an amount equal to the difference between the carrying amount of the goodwill, and their implied fair value. Any impairment charge
is recognized immediately in the statement of operations and is not subsequently reversed. For the purpose of impairment testing, goodwill
is evaluated at the lowest level within the Company at which goodwill is monitored for internal management purposes. As of December 31,
2020, management determined that there was no impairment to goodwill.
Escrow and Trust Deposits
In providing escrow services, TIM and TTC hold
funds for others in a fiduciary capacity, pending completion of real estate transactions. A separate, self-balancing set of accounting
records is maintained by the Company to record escrow transactions. Escrow trust funds held for others are not considered assets of the
Company and, therefore, are excluded from the accompanying consolidated balance sheet, however, the Company remains contingently liable
for the disposition of these deposits.
Escrow trust balances at December 31, 2020
were $74,448,538.
It is a common industry practice for financial
institutions where escrow funds are deposited to either reimburse or to directly provide for certain costs related to the delivery of
escrow services. The Company follows the practice of non-recognition of costs borne by the financial institution where escrow funds are
deposited.
Advertising Costs
Advertising costs are expensed as incurred and
totaled $28,750 for the year ended December 31, 2020.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note 2 – Summary of
Significant Accounting Policies (Continued)
Income Taxes
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets
and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
US GAAP requires management to evaluate tax positions
taken by the Company and recognize a tax liability (or asset) if an uncertain position has been taken that more likely than not would
not be sustained upon examination. Management has analyzed the tax positions taken by the Company, and has concluded that as of December 31,
2020, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or an asset) or disclosure
in the financial statements.
The Company files income tax returns in the U.S.
federal jurisdiction and various states as a member of a consolidated group and records its share of the consolidated federal tax liability
on a separate return basis. The Company is subject to routine audits by taxing jurisdictions; however, there is currently no audit for
any tax periods in progress. The statute of limitations for federal and state purposes is generally three and four years, respectively.
Underwriting Agreements and Title Losses
TTC and TIM issue title insurance policies which
are underwritten by First American Title Insurance Company, Westcor Land Title Insurance, and Fidelity National Title Insurance Company.
In addition, the Company issued title insurance policies which were underwritten by North American Title Insurance Company during 2016
and Stewart Title Company during 2013.The underwriting agreements provide that the Company is liable for the first $5,000 of any loss,
provided that the Company has performed the underwriting process in accordance with the respective agreements. For cancelled agreements,
payments are still made on outstanding policies. The agreements were amended to include all counties.
In the course of conducting its business, the
Company is occasionally named as defendant in claims concerning alleged errors or omissions pertaining to the issuance of title policies.
Provision for such expected title losses is made on the basis of reported claims. The provision is management’s estimate of expected
losses. While it is at least reasonably possible that the estimate will change materially in the near term, no estimate can be made of
the range of additional loss that is at least reasonably possible.
Management has elected not to reserve for title
and escrow losses at December 31, 2020 as management has not historically incurred and does not expect to incur any significant claim
losses relating to escrow and title files.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note 2 – Summary of
Significant Accounting Policies (Continued)
Underwriting Agreements and Title Losses (Continued)
Title Search
TIM and TTC have entered into month-to-month agreements
for title plant services with various vendors. Total title plant services under these agreements was approximately $1,860,000 for the
year ended December 31, 2020. Title searches conducted in Glenn County, California utilize TTC’s title plant.
Note
3 – concentration of credit risk
Funds deposited with a financial institution (depository)
that exceed $250,000 at any time represent a concentration of risk, since the FDIC’s maximum insurance limit is equal to this amount.
The potential loss exposure at December 31, 2020 for the Company’s operating and trust accounts was $22,743,114.
For the year ended December 31, 2020 one
customer comprised 15% of the Company’s consolidated revenues. At December 31, 2020 two customers made up approximately 30%,
26% and 16% of accounts receivable, respectively.
Note
4 – Property and equipment
Property and equipment consists of the following
at December 31, 2020:
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
349,279
|
|
|
Office equipment
|
|
|
1,032,950
|
|
|
Leasehold Improvements
|
|
|
338,650
|
|
|
Software
|
|
|
467,850
|
|
|
|
|
|
2,188,729
|
|
|
Less: accumulated depreciation
|
|
|
1,761,064
|
|
|
|
|
$
|
427,665
|
|
For the year ended December 31, 2020, depreciation
expense related to property, plant and equipment was $79,496.
Note
5 – NOTES RECEIVABLE
Related Parties
On April 1, 2016, the Company issued nine
secured promissory notes to certain directors, executive officers and stockholders. The unpaid principal amount of each note plus any
unpaid interest accrued was originally due and payable on April 1, 2020, four years from the date of the note. In April 2020,
the board approved an extension of the due date of the notes to June 1, 2020. Interest is due and payable at 2.5% per annum, paid
in arrears on the last day of each quarter beginning on June 30, 2016. As of June 4, 2020, all notes have been repaid in full.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
5 – NOTES RECEIVABLE (Continued)
Other
During 2018, TIM entered into a promissory note
receivable with a borrower in the amount of $32,360. The principal balance and interest earned of 1.0% per annum is due May 16, 2033.
The note is secured against real property.
In October 2019, the Company entered into
a promissory note receivable with a borrower in the amount of $15,359. The principal balance is due October 4, 2024. The note is
secured against real property.
Note
6 – intangible assets
The components of intangible assets consist of
the following at December 31, 2020:
|
Amortizable intangible assets:
|
|
Useful Life
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Intellectual property
|
|
|
3
|
|
|
|
1,446,076
|
|
|
|
1,053,600
|
|
|
|
392,476
|
|
Intellectual property includes development of
the Good Faith Estimate (“GFE”) calculator and smart phone application and is amortized over a three-year period. For the
year ended December 31, 2020 amortization expense related to these intangible assets was $178,602.
The aggregate amortization expense for each of
the next three fiscal years is:
|
Years Ending December 31,
|
|
|
|
|
2021
|
|
$
|
188,114
|
|
|
2022
|
|
|
163,873
|
|
|
2023
|
|
|
40,489
|
|
|
Total
|
|
$
|
392,476
|
|
Note
7 – Line of credit
On December 20, 2018, the Company entered
into a line of credit agreement with a bank for $1,000,000. There were no borrowings against the line at December 31, 2020. The line
bears interest at the LIBOR daily floating rate plus 2.7 percentage points. The line is reviewed annually and is due on demand. Under
terms of the line of credit, the Company is subject to covenants limiting other debts and liens entered into by the Company and the guarantors,
which include all subsidiaries of the Company. The line is secured against the assets of the Company and all guarantors. The line of credit
expired on December 31, 2020 and has not been renewed.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
8 – STOCKHOLDERS’ EQUITY
Dividends
On January 13, 2020 the board of directors
of the Company declared a dividend of $.10 per share for total dividends paid of $954,316, which was paid on January 16, 2020.
On April 15, 2020 the board of directors
of the Company declared a dividend of $.15 per share for total dividends paid of $1,431,474, which was paid on April 24, 2020.
On July 9, 2020 the board of directors of
the Company declared a dividend of $.25 per share for total dividends paid of $2,385,789, which was paid on July 21, 2020.
On October 20, 2020 the board of directors
of the Company declared a dividend of $.25 per share for total dividends paid of $2,385,789, which was paid on October 23, 2020.
On December 22, 2020 the board of directors
of the Company declared a dividend of $.40 per share for total dividends paid of $3,817,263, which was paid on December 24, 2020.
Note
9 – RELATED PARTY TRANSACTIONS
TTC leases office space in Willows and Orland,
California owned by the President of TTC (Note 12). Rent paid to the President for the year ended December 31, 2020 totaled $63,600.
Rent expense for all leased office facilities during the year ended December 31, 2020 was approximately $912,000.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
10 – income taxes
Deferred income taxes are provided for the temporary
differences between the financial basis and tax basis of the Company’s assets and liabilities. The provision for income taxes consists
of the following components:
|
Current:
|
|
|
|
|
Federal
|
|
$
|
2,429,923
|
|
|
State
|
|
|
140,691
|
|
|
|
|
|
2,570,614
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
|
|
(21,964
|
)
|
|
State
|
|
|
(16,100
|
)
|
|
|
|
|
(38,064
|
)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
2,532,550
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
822,943
|
|
|
Accrued expenses and other payables
|
|
|
294,150
|
|
|
Depreciation
|
|
|
(47,652
|
)
|
|
|
|
|
1,069,441
|
|
|
Less: valuation allowance
|
|
|
(673,582
|
)
|
|
Net deferred tax asset
|
|
$
|
395,859
|
|
Deferred tax liabilities result from the use of
accelerated methods of depreciation on property and equipment. Deferred tax assets result primarily from net operating losses and timing
differences related to compensation. At December 31, 2020, the Company has federal net operating loss carryforwards of $3,918,775
that expire beginning in the year 2021. The valuation allowance decreased compared to prior year due to the amount of net operating loss
carryforward and the amount expected to be utilized of that carryforward.
The income tax expense does not approximate the
statutory federal and state rates because of a reduction in net operating loss carryover due to Internal Revenue Code Section 382
limits.
Note
11 – EMPLOYEE BENEFIT PLANS
The Company, including all subsidiaries, participates
under a 401(k) plan sponsored by THC. THC matches at THC’s discretion employees’ contributions based on a percentage
of salary contributed by participants. For the year ended December 31, 2020, the Company made contributions of $121,390 to the plan.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
12 – Commitments and Contingencies
Contingencies
In the normal course of business, the Company
is subject to proceedings, lawsuits and other claims under laws and governmental regulations. TIM and TTC are occasionally named as a
defendant in claims concerning alleged errors or omissions pertaining to escrow and title services. Such matters are subject to uncertainties
and outcomes are not predictable. While such matters could affect the operating results for future periods, and while there can be no
assurance with respect thereto, management believes that the impact of any such matters would not be material to the Company’s consolidated
financial statements at December 31, 2020.
Compensated Absences
Employees of the Company are entitled to paid
vacation, paid sick days, and personal days off, depending on job classification, length of service, and other factors. Accrued compensated
absences totaled $449,547 and is included in accrued expenses on the accompanying consolidated balance sheet.
Operating Leases and Related Party Leases
The Company leases its office facilities under
leasing agreements that expire at dates through 2024. Future minimum lease payments under operating leases are as follows:
|
For the years ending December 31,
|
|
|
|
|
2021
|
|
$
|
520,171
|
|
|
2022
|
|
|
359,967
|
|
|
2023
|
|
|
307,734
|
|
|
2024
|
|
|
42,024
|
|
|
|
|
$
|
1,229,896
|
|
Litigation
The Company is involved in routine litigation
that arises in the ordinary course of the business. While the Company does not believe that any of these items would have a material impact
on the financial position or its results of operations, the Company is unable to predict the ultimate outcome at this time.
Note
13 – working capital and dividend restrictions
The Company’s primary assets are the securities
of its operating subsidiaries. The Company’s ability to pay outstanding debts and other obligations is dependent on the ability
of the subsidiaries to pay dividends or make other distributions or payments.
In addition, TTC, must comply with California
state laws which require it to maintain a minimum working capital balance of $10,000, which places further restrictions on the amount
of dividends that TTC can distribute to the Company. As of December 31, 2020, TTC was in compliance with the working capital minimum
requirement set by the state of California with approximately $6,101,000 of working capital.
Timios Holdings Corp.
Notes to Consolidated Financial Statements
For the Year Ended December 31,
2020
Note
14 – Subsequent events
All events subsequent to the balance sheet date
of December 31, 2020 through March 31, 2021, which is the date these consolidated financial statements were available to be
issued, have been evaluated by management. The following subsequent events were identified for disclosure:
Stock Purchase Agreement
As noted in Note 1, on November 11, 2020, Ideanomics, Inc.
(“Ideanomics”) entered into a stock purchase agreement (the “Agreement”) with the Company pursuant to which
Ideanomics has agreed to acquire 100% of the outstanding capital stock of the Company for approximately $40.0 million (the “Transaction”)
subject to customary purchase price adjustments set forth in the Agreement including an agreement that Ideanomics will increase the consideration
by the amount of cash the Company leaves in the business which is required to be at least $5.0 million.
On January 8, 2021, Ideanomics closed
the Transaction. At Closing, Ideanomics acquired 100% of the outstanding capital stock of the Company for approximately $40.0 million
in cash consideration, plus approximately $6.5 million for cash on hand.
