NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ideanomics, Inc. (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. Through September 30, 2021, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. For the nine months ended September 30, 2021, the Company completed four acquisitions. We are in the in the process of obtaining required shareholder approval to acquire 100% of VIA Motors International, Inc., ("VIA Motors.") The total aggregate consideration payable in connection with this transaction is equal to $630.0 million, consisting of an upfront payment at the closing of the transaction of $450.0 million and an earnout payment of up to $180.0 million. On September 15, 2021the Company announced it has entered into an agreement to launch a voluntary conditional tender offer in concert with the Founders of Energica for shares of Energica Motor Company S.p.A. (Energica), pursuant to which Ideanomics plans to increase its investment from 20.0% in Energica to approximately 70.0%. The Energica Founders shall continue to own 29% of Energica. The Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may have multiple reportable segments in the future. These will be Ideanomics Mobility, which will encompass the entities with businesses centered in the electric vehicle (“EV”) market, and Ideanomics Capital, which will encompass business centered in the finance/real estate market, Other, and a corporate entity, with the combination/consolidation of all comprising the consolidated operations of the Company. The chief operating decision maker will review financial results at the segment level, and the Company has appointed one segment manager and is in the process of identifying and appointing an additional segment manager and revising its internal reporting, budgeting and forecasting process so as to be aligned with the anticipated corporate structure.
Ideanomics Mobility will drive EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the three key pillars of EV: Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)
Ideanomics Capital will be the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
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, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021 (“2020 Form 10-K.”)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, management evaluates the Company’s estimates, including those related to the bad debt allowance, variable consideration, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and
property and equipment, asset retirement obligations, income taxes, and contingent consideration and other 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 of Ideanomics’ significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Ideanomics’ consolidated financial statements included in the Company’s 2020 Form 10-K. During the nine months ended September 30, 2021, the Company acquired four businesses, Timios Holdings Corp. (“Timios,”) Wireless Advanced Vehicle Electrification, LLC. (“WAVE,”) US Hybrid ("U S Hybrid,") and Solectrac, Inc. ("Solectrac,") which resulted in the adoption of the following accounting policies with respect to those businesses.
Timios
Title Revenue
Premiums from title insurance policies written by independent agencies are recognized net of commission costs when the policies are reported to Timios 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 Timios, 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, Timios 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.
Title Plant
Title plant consists of costs incurred to construct the title plant and to obtain, organize and summarize historical information for Glenn County title searches. These costs were capitalized until such time as the plant was deemed operational to conduct title searches and issue title insurance policies. Management has determined that the title plant has been properly maintained, has an indeterminable life, and in accordance with Accounting Standards Codification (“ASC”) Topic 950, Financial Services – Title Plant, has not been amortized. The costs to maintain the current status of the title plant are recorded as a current period expense.
Software Development Costs
Software developed or obtained for internal use in accordance with ASC 350-40, Internal-Use Software, is capitalized during the application development stage. In accordance with authoritative guidance, the Company begins to capitalize costs to develop software when preliminary development efforts are successfully completed, management has authorized and 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 nine months ended September 30, 2021, the Company capitalized software development costs of $0.5 million.
Escrow and Trust Deposits
In providing escrow services, Timios holds funds for others in a fiduciary capacity, pending completion of real estate transactions. A separate, self-balancing set of accounting records is maintained by Timios to record escrow transactions. Escrow trust funds held for others are not Timios’s and, therefore, are excluded from the accompanying condensed consolidated balance sheet, however, Timios remains contingently liable for the disposition of these deposits. Escrow trust balances at September 30, 2021 were $32.3 million. 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. Timios follows the practice of non-recognition of costs borne by the financial institution where escrow funds are deposited.
WAVE, U S Hybrid, and Solectrac (collectively, the acquired EV entities)
Inventory
Inventories, which include the costs of material, labor and overhead, are stated at the lower of cost or net realizable value, with cost generally computed on a first-in, first-out (“FIFO”) basis. Estimated losses from obsolete and slow-moving inventories are recorded to reduce inventory values to their estimated net realizable value and are charged to costs of revenue. At the point of loss recognition, a new cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in a recovery in carrying value.
The composition of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Raw materials
|
$
|
750
|
|
Work in progress
|
|
459
|
|
Finished goods
|
|
2,610
|
|
Total
|
$
|
3,819
|
The majority of the inventory is held in US Hybrid and Solectrac entities and represents finished assemblies and sub assemblies to be used in delivering electric powertrain components and electric tractors to customers, respectively.
Revenue
For product sales, the acquired EV entities consider practical and contractual limitations in determining whether there is an alternative use for the product. For example, long-term design and build contracts are typically highly customized to a customer’s specifications. For contracts with no alternative use and an enforceable right to payment for work performed to date, including a reasonable profit if the contract were terminated at the customer’s convenience for reason other than nonperformance, the acquired EV entities recognize revenue over time. All other product sales are recognized at a point in time.
For contracts recognized over time, the acquired EV entities have historically used the cost-to-total cost method to recognize the revenue over the life of the contract.
For contracts recognized at a point in time, the acquired EV entities recognize revenue when control passes to the customer, which is generally based on shipping terms that address when title and risk and rewards pass to the customer. However, the acquired EV entities also consider certain customer acceptance provisions as certain contracts with customers include installation, testing, certification or other acceptance provisions. In instances where contractual terms include a provision for customer acceptance, the acquired EV entities consider whether they have previously demonstrated that the product meets objective criteria specified by either the seller or customer in assessing whether control has passed to the customer.
For service contracts, the acquired EV entities recognize revenue as the services are rendered if the customer is benefiting from the service as it is performed, or otherwise upon completion of the service. Separately priced extended warranties are recognized as a separate performance obligation over the warranty period.
The transaction price in the acquired EV entities' contracts consists of fixed consideration and the impact of variable consideration including returns, rebates and allowances, and penalties. Variable consideration is generally estimated using a probability-weighted approach based on historical experience, known trends, and current factors including market conditions and status of negotiations.
For design and build contracts, the acquired entities may at times collect progress payments from the customer throughout the term of the contract, resulting in contract assets or liabilities depending on the timing of the payments. Contract assets consist of unbilled amounts when revenue recognized exceeds customer billings. Contract liabilities consist of advance payments and billings in excess of revenue recognized.
Design and engineering costs for highly complex products to be sold under a long-term production-type contract are deferred and amortized in a manner consistent with revenue recognition of the related contract or anticipated contract. Other design and development costs are deferred only if there is a contractual guarantee for reimbursement. Costs to obtain a contract (e.g., commissions) for contracts greater than one year are deferred and amortized in a manner consistent with revenue recognition of the related contract.
Product Warranties
The acquired EV entities' standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. Accruals for estimated expenses related to product warranties are made at the time revenue is recognized and are recorded as a component of costs of revenue. The acquired EV entities estimate the liability for warranty claims based on standard warranties, the historical frequency of claims and the cost to replace or repair products under warranty. Factors that influence the warranty liability include the number of units sold, the length of warranty term, historical and anticipated rates of warranty claims and the cost per claim. The warranty liability as of September 30, 2021 is $0.6 million and is included in “Other long-term liabilities” within the condensed consolidated balance sheet. The warranty liability has not changed substantially subsequent to WAVE's acquisition.
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, 2021, over 246.7 million cases had been reported across the globe, resulting in 5.0 million deaths.
The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020 and continuing, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels of immunization against COVID-19 remains challenging at the local, regional and global level.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
The Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations, and supply chain shortages of various materials may have a negative effect on our EV sales or production capacity in the longer-term. The Company's Treeletrik business, which focuses on the sale of motorbikes in the ASEAN region, is experiencing disruption in its operations as a result the continued lockdowns in the region, which have adversely impacted its ability to fulfill committed orders.
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Restatement of Previously Reported Condensed Consolidated Financial Statements
As previously disclosed on Form 8-K filed on November 16, 2021 and 8-K/A filed on November 22, 2021, the Company determi1ned that the Company’s previously issued financial statements for the periods ended March 31, 2021 and June 30, 2021 should no longer be relied upon due to errors in such condensed consolidated financial statements related to revenue reported by Timios that provides title and agency services. The preparation of the Company’s condensed consolidated financial statements identified additional transactions and accounting practices not in accordance with U.S. GAAP.
The following errors were identified as part of the restatement:
A.The Company determined that it did not present Timios title and agency services revenue and the related cost of revenue in accordance with US GAAP on the condensed consolidated statement of operations, as premiums from title insurance policies written by independent agencies were presented on a gross basis and did not properly present revenue and cost of revenue net of commission costs.
B.The Company discovered that it did not properly account for its investment in Technology Metals Market Limited (“TM2”) in accordance with the equity method of accounting. In addition, the Company determined that it incorrectly presented equity income (loss) on its equity method investments as a component of interest and other income (expense) on the condensed consolidated statements of operations rather than as a separate financial statement caption below income taxes.
C.The Company discovered certain errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its acquisitions.
D.The Company determined that the errors in determining the estimated fair value of net assets acquired in its acquisitions resulted in an additional reduction to the Company’s deferred tax liabilities.
E.The Company determined that it did not properly recognize income tax expense (benefit) for certain acquired entities subsequent to their respective acquisitions during the periods ended March 31, 2021 and six June 30, 2021.
Note 2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 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 adopted ASU 2019-12 effective January 1, 2021. The effect of the adoption of ASU 2019-12 was not material.
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 U.S. 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 additional 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 adopted ASU 2020-06 effective January 1, 2021. As the Company had no outstanding convertible instruments as of that date, the adoption of ASU 2020-06 had no effect.
Accounting Pronouncements Not Yet Adopted
In June 2016, the 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 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 our investment portfolio and the economic conditions at the time of adoption.
In May 2021, the FASB issued ASU No. 2021-04 (“ASU 2021-04”) “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40)” which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, and provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 also provides guidance on the recognition of the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. The Company will adopt ASU 2021-04 on January 1, 2022. Management is currently evaluating the effect of the adoption of ASU 2021-04 on the consolidated financial statements. The effect will largely depend on the terms of written call options or financings issued or modified in the future.
In October 2021, the FASB issued ASU No. 2021-08 ("ASU No. 2021-08") "Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements and the effects will be based upon the contract assets and liabilities acquired in the future.
Note 3. Fuzhou Note Receivable
In May 2020, Energy Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited (“Zhengtong”) in the amount of 3.0 million RMB ($0.4 million). The note receivable was not collateralized. Zhengtong agreed to repay 3.3 million RMB ($0.5 million) within three months of the disbursement date. The Company had recorded a reserve of $0.5 million against this note receivable in the three months ended December 31, 2020, and subsequently commenced legal action in order to recover the amounts due. In September 2021, Zhengtong, Beijing Seven Stars Global Culture Development Inc.(“BSSGCD”), an affiliate of Bruno Wu, and the Company reached an assignment agreement pursuant to which BSSGCD accepted from Zhengtong all the rights and claims arising from this note receivable. The Company received the payment in full of 3.3 million RMB ($0.5 million) from BSSGCD subsequently and recorded this recovery in Selling, general and administrative expenses.
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):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
2021
|
|
September 30,
2020
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Geographic Markets
|
|
|
|
|
|
|
|
|
Malaysia
|
$
|
18
|
|
|
$
|
33
|
|
|
$
|
65
|
|
|
$
|
42
|
|
|
USA
|
17,984
|
|
|
480
|
|
|
69,873
|
|
|
908
|
|
|
PRC
|
9,045
|
|
|
10,107
|
|
|
17,894
|
|
|
14,740
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
|
Product or Service
|
|
|
|
|
|
|
|
|
Electric vehicles
|
$
|
9,236
|
|
|
$
|
8,872
|
|
|
$
|
18,322
|
|
|
$
|
9,622
|
|
|
Charging, batteries and powertrains
|
2,292
|
|
|
—
|
|
|
6,850
|
|
|
—
|
|
|
Title and escrow services
|
15,519
|
|
|
—
|
|
|
62,429
|
|
|
—
|
|
|
Combustion engine vehicles
|
—
|
|
|
1,268
|
|
|
—
|
|
|
5,160
|
|
|
Digital advertising services and other
|
—
|
|
|
480
|
|
|
231
|
|
|
908
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
25,526
|
|
|
$
|
10,620
|
|
|
$
|
84,546
|
|
|
$
|
15,690
|
|
|
Services provided over time
|
1,521
|
|
|
—
|
|
|
3,286
|
|
|
—
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
In the three and nine months ended September 30, 2021, the Company recognized revenue of $0.6 million and $0.6 million recorded in deferred revenue as of the beginning of the period.
Note 5. Available-for-Sale Securities
The Company accounts for its available-for-sale securities at their fair value, with changes in fair value, if any, recorded in other comprehensive income.
The following table provides certain information related to available-for-sale debt securities (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
Cost
|
|
Interest
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILK EV Note (a)
|
$
|
15,000
|
|
$
|
607
|
|
$
|
4
|
|
$
|
(20)
|
|
$
|
15,591
|
|
CyVolve Note (b)
|
|
200
|
|
|
1
|
|
|
—
|
|
|
|
—
|
|
|
|
201
|
|
Via Motor Note (c)
|
|
42,500
|
|
|
149
|
|
|
—
|
|
|
|
—
|
|
|
|
42,649
|
|
Total available-for-sale securities
|
$
|
57,700
|
|
$
|
757
|
|
$
|
4
|
|
$
|
(20)
|
|
|
$
|
58,441
|
(a)On January 28, 2021, the Company invested $15.0 million in Silk EV via a convertible promissory note. Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (“Silk-FAW”) to produce fully electric, luxury vehicles for the Chinese and global auto markets.
The terms of the convertible promissory note are as follows:
•The principal amount is $15.0 million;
•The interest rate is 6%;
•The maturity date is January 28, 2022;
•Upon a qualified equity financing, as defined, the outstanding principal and accrued interest shall convert into equity securities sold in the qualified equity financing at a conversion price equal to the cash price for the equity securities times 0.80;
•The events of default are as follows:
◦SILK EV fails to pay timely the principal and accrued interest due under this note;
◦SILK EV files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against SIK EV under bankruptcy or similar statute.
The Company accounts for the Silk EV note as an available-for-sale security at its fair value, with changes in fair value, if any, recorded in other comprehensive income. The Company recorded in other comprehensive income an increase of the note's fair value of $4,000 in the three months ended September 30, 2021. The Company recorded in other comprehensive income a reduction of the note's fair value of $16,275 in the nine months ended September 30, 2021.
(b)On July 30, 2021 the Company invested $0.1 million in CyVolve, Inc. (“CyVolve,”) via a secured promissory note and on September 24, 2021, the Company invested another $0.1 million in CyVolve, via a secured promissory note. Cyvolve is a next-generation provider of data security, to ensure constant encryption and Artificial Intelligence-driven pervasive control of an organization’s data across platforms.
The terms of the secured promissory notes are as follows:
•The principal amount is $0.1 million each;
•The interest rate is 8%;
•The maturity dates are January 30, 2022;
•The events of default are as follows:
◦CyVolve fails to pay timely the principal and accrued interest due under this note;
◦CyVolve files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against CyVolve under bankruptcy or similar statute.
The Company accounts for the CyVolve notes as an available-for-sale security at its fair value, with changes in fair value, if any, recorded in other comprehensive income.
(c)On August 30, 2021, the Company invested $42.5 million in VIA Motors, via a convertible promissory note. VIA Motors is a leading electric commercial vehicle company with proven advanced electric drive technology, delivering sustainable mobility solutions for a more livable world. VIA Motors designs, manufactures and markets electric commercial vehicles, with superior life-cycle economics, for use across a broad cross-section of the global fleet customer base.
The terms of the convertible promissory note are as follows:
•The principal amount is $42.5 million;
•The interest rate is 4%;
•The maturity date is the earlier of the closing date of the acquisition or August 30, 2022;
•The events of default are as follows:
◦VIA Motors fails to pay timely the principal and accrued interest due under this note;
◦VIA Motors files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against VIA Motors under bankruptcy or similar statute.
Note 6. Acquisitions and Divestitures
The Company may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders.
The Company had not acquired any companies nor disposed of any subsidiaries in the year ended December 31, 2020, with the exception of the disposition of its remaining 10.0% interest in Amer Global Technology Limited (“Amer.”) 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.
2021 Acquisitions
The Company has completed the below acquisitions in the nine months ended September 30, 2021. The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as business combinations. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date. Management considers the valuations final for Timios and WAVE. The open areas for Solectrac relate to the finalization of net working capital adjustments with the sellers; and the open areas for US hybrid relate to the finalization of net working capital adjustments with the sellers and the impact of final income tax returns that may impact the deferred tax assets and liabilities, respectively.
The acquisitions below are collectively defined as the 2021 Acquisitions.
Timios Holdings Corp.
On January 8, 2021 the Company completed the acquisition of privately held Timios and its affiliates pursuant to the stock purchase agreement (the “Timios Agreement”) entered into on November 11, 2020. Pursuant to the Timios Agreement, the Company acquired 100% of the outstanding capital stock of Timios for a purchase price of $40.0 million, net of cash acquired of $6.5 million. The full purchase price was paid in cash. Pursuant to the Timios Agreement, $5.1 million of the cash consideration was paid into escrow pending a one year indemnification review. Timios provides title and escrow services for real estate transactions. Revenue of $15.5 million and $62.4 million and net loss of $(16.4) million and $(10.6) million for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
On July 26, 2021, Timios experienced a systems outage that was caused by a cybersecurity incident, which caused disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. This resulted in an adverse impact on Timios’ revenues in that one significant customer was lost and other customers have reduced their volume. The Company determined that an indicator of potential impairment existed and decided to perform an interim quantitative tangible and intangible asset and goodwill impairment tests for its Timios reporting unit.
Based on the results of this interim quantitative impairment test, the fair value of the Timios reporting unit was below the carrying value of its net assets. Refer to Note 9 for further information related to the impairment and the amounts recorded as of September 30, 2021. The tables below that relate to Timios have not been adjusted to reflect any impairments and continue to represent the fair value of the assets acquired and liabilities assumed as of the acquisition date.
Wireless Advanced Vehicle Electrification, Inc.
On January 15, 2021 the Company completed the acquisition of privately held WAVE pursuant to an agreement and plan of merger (the “WAVE Agreement”) entered into on January 4, 2021. WAVE is a provider of wireless charging solutions for medium and heavy-duty electric vehicles.
Pursuant to the WAVE Agreement, the Company acquired 100% of the outstanding capital stock of WAVE for an aggregate purchase price of $55.0 million in a combination of $15.0 million of cash plus a total of 12.6 million unregistered shares of the Company’s common stock, valued at $40.0 million at the date of closing. Pursuant to the Wave Agreement, $5.0 million of the cash consideration was paid into escrow pending a one year indemnification review. The WAVE Agreement provided that 3.6 million shares of the Company’s common stock be held back at closing, to be released upon the receipt of certain customer
consents not obtained prior to closing. As of September 30, 2021, 0.5 million of the Company’s common stock remains unissued pending receipt of a final consent. Since receipt of this consent is probable, the Company has included the total common shares to be issued as contingent consideration as of the acquisition date of $7.7 million. Pursuant to the original agreement, if any such consent is not obtained within six months following the closing date, the portion of the common stock allocated to such consent in the WAVE Agreement would not be issued to the sellers. The Company intends to extend the time frame for this contractual provision as the receipt of the consents is outside the control of the former WAVE shareholders.
In addition to the purchase price to be paid at closing, the WAVE Agreement contains three earnouts that could result in additional payments of up to $30.0 million to the sellers based upon: (1) revenue and gross profit margin metrics in calendar year 2021; (2) revenue and gross profit margin metrics in calendar year 2022; and (3) revenue and gross profit margin metrics for 2021 and 2022 collectively. The Company considers this earnout to be contingent consideration that as of the acquisition date is unlikely to occur and has therefore attributed zero value for purposes of the preliminary purchase price allocation. The Company will continue to monitor the fair value of this contingent considerations with any changes being recorded in the consolidated statement of operations if and when a change occurs.
Ideanomics has also agreed to a performance and retention plan for the benefit of certain WAVE’s employees which could result in up to $10.0 million paid to such employees if certain gross revenue targets and certain gross profit margins are achieved for calendar years 2021 and 2022. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. The Company has not accrued any of this retention plan as the revenue and gross profit margin criteria are not probable of being met.
Revenue of $1.0 million and $5.2 million and net loss of $(1.2) million and $(3.2) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
US Hybrid
On June 10, 2021, the Company completed the acquisition of privately held US Hybrid Corporation ("US Hybrid") pursuant to an agreement and plan of merger (the “USH Agreement”) entered into on May 12, 2021. US Hybrid specializes in the design and manufacturing of zero-emission electric powertrain components including traction motors, controllers, auxiliary drives, energy storage and fuel cell engines for electric, hybrid, and fuel cell medium and heavy-duty municipality vehicles, commercial trucks, buses, and specialty vehicles throughout the world.
Pursuant to the USH Agreement, the Company acquired 100% of the outstanding capital stock of US Hybrid Corporation for an aggregate purchase price of $50.0 million in a combination of $30.0 million in cash and 6.6 million in unregistered shares of the Company's common stock, valued at $20.9 million at the date of closing. Pursuant to the USH Agreement, $1.0 million of cash consideration was paid into escrow pending a true up of net working capital within 90 days of the closing date. Additionally, the 6.6 million shares were paid into an indemnity escrow to satisfy future indemnification obligations of the selling shareholders, if any.
The Company has also agreed to a performance and retention plan for the benefit of certain US Hybrid employees which could result in up to $16.7 million paid to such employees if certain gross revenue targets, gross profit margins and certain operational targets are achieved for calendar years 2021, 2022 and 2023. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. As of September 30, 2021 the Company has not accrued any of this retention plan as the various criteria are not probable of being met.
Revenue of $1.3 million and $1.6 million and net loss of $(0.7) million and $(1.0) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
Solectrac
On June 11, 2021, the Company completed the acquisition of privately held Solectrac, Inc ("Solectrac") pursuant to an agreement and plan of merger (the “Solectrac Agreement”) entered into on June 11, 2021. Solectrac developed 100% battery-powered, all-electric 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. Solectrac’s mission is to offer farmers independence from the pollution, infrastructure, and price volatility associated with fossil fuels.
Pursuant to the Solectrac Agreement, the Company acquired the remaining 78.6% of the outstanding capital stock of Solectrac for an aggregate purchase price of $17.7 million in net cash. The Company had previously acquired 21.4% of Solectrac in 2020. The Company now owns 100% of Solectrac. Pursuant to the Solectrac Agreement, $2.0 million of cash consideration was paid
into an indemnity escrow to satisfy future indemnification obligations of the selling shareholders, if any. In conjunction with the acquisition of Solectrac, the Company remeasured the 21.4% previously accounted for as an equity method investment. This remeasurement resulted in a gain of $2.9 million recorded in the prior quarter condensed consolidated statement of operations.
In addition to the purchase price to be paid at closing, the Solectrac Agreement contains three earnouts that could result in additional payments of up to $6.0 million to the sellers based upon: (1) revenue and gross profit margin metrics in calendar year 2021; (2) revenue and gross profit margin metrics in calendar year 2022; and (3) revenue and gross profit margin metrics in calendar year 2023. The Company considers this earnout to be contingent consideration that as of the acquisition date is probable to occur in certain years and has attributed $1.6 million as additional consideration for purposes of the preliminary purchase price allocation. The Company will continue to monitor the fair value of this contingent consideration with any changes being recorded in the consolidated statement of operations if and when a change occurs.
The Company has also agreed to a performance and retention plan for the benefit of certain Solectrac employees which could result in up to $3.0 million paid to such employees if certain gross revenue targets, gross profit margins and certain operational targets are achieved for calendar years 2021, 2022 and 2023. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. As of September 30, 2021 the Company has not accrued any of this retention plan as the various criteria are not yet probable of occurring.
Revenue of $0.2 million and $0.4 million and net loss of $(0.7) million and $(0.7) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
Acquisition Method Accounting Estimates
The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
The table below reflects the Company’s provisional estimates of the acquisition date fair values of the assets acquired and liabilities assumed for the 2021 Acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solectrac
|
|
US Hybrid
|
|
Timios
|
|
WAVE
|
|
Purchase Price
|
|
|
|
|
|
|
|
|
Cash paid at closing, including working capital estimates
|
$
|
17,745
|
|
|
$
|
30,139
|
|
|
$
|
46,576
|
|
|
$
|
15,000
|
|
|
Fair value of previously held interest
|
5,287
|
|
|
—
|
|
|
|
|
|
|
Fair value of common stock
|
—
|
|
|
20,877
|
|
|
—
|
|
|
32,377
|
|
|
Fair value of contingent consideration
|
1,639
|
|
|
—
|
|
|
—
|
|
|
7,657
|
|
|
Total purchase consideration
|
$
|
24,671
|
|
|
$
|
51,016
|
|
|
$
|
46,576
|
|
|
$
|
55,034
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
|
|
|
|
|
|
|
Current assets
|
3,011
|
|
|
4,547
|
|
|
7,292
|
|
|
2,130
|
|
|
Property, plant and equipment
|
30
|
|
|
5
|
|
|
429
|
|
|
—
|
|
|
Other assets
|
45
|
|
|
51
|
|
|
48
|
|
|
—
|
|
|
Intangible assets – tradename
|
4,570
|
|
|
1,740
|
|
|
7,780
|
|
|
12,630
|
|
|
Intangible assets – lender relationships
|
—
|
|
|
—
|
|
|
14,790
|
|
|
—
|
|
|
Intangible assets - technology
|
2,450
|
|
|
5,110
|
|
|
|
|
|
|
Intangible assets – patents
|
—
|
|
|
—
|
|
|
—
|
|
|
13,000
|
|
|
Intangible assets - non-compete
|
—
|
|
|
520
|
|
|
—
|
|
|
—
|
|
|
Intangible assets – licenses
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
Indefinite lived title plant
|
—
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
Goodwill
|
16,787
|
|
|
41,446
|
|
|
24,252
|
|
|
34,142
|
|
|
Total assets acquired
|
26,893
|
|
|
53,419
|
|
|
56,091
|
|
|
61,902
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
(509)
|
|
|
(1,601)
|
|
|
(4,306)
|
|
|
(3,778)
|
|
|
Deferred tax liability
|
(1,713)
|
|
|
(802)
|
|
|
(5,209)
|
|
|
(3,090)
|
|
|
Total liabilities assumed
|
(2,222)
|
|
|
(2,403)
|
|
|
(9,515)
|
|
|
(6,868)
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
$
|
24,671
|
|
|
$
|
51,016
|
|
|
$
|
46,576
|
|
|
$
|
55,034
|
|
|
|
|
|
|
|
|
|
|
The useful lives of the intangible assets acquired is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solectrac
|
|
US Hybrid
|
|
Timios
|
|
WAVE
|
|
Intangible assets – tradename
|
6
|
|
7
|
|
15
|
|
15
|
|
Intangible assets – lender relationships
|
—
|
|
|
—
|
|
|
7
|
|
—
|
|
|
Intangible assets – technology
|
10
|
|
13
|
|
—
|
|
|
—
|
|
|
Intangible assets – patents
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Intangible assets - non-compete
|
—
|
|
|
5
|
|
—
|
|
|
—
|
|
|
Intangible assets – licenses
|
—
|
|
|
—
|
|
|
15
|
|
—
|
|
|
Weighted average useful life
|
7.4
|
|
11.0
|
|
10
|
|
14.5
|
Amortization expense related to intangible assets created as a result of the 2021 Acquisitions of $1.7 million and $4.0 million has been recorded for the three and nine months ended September 30, 2021. Estimated amortization expense related to these intangible assets for each of the years subsequent to September 30, 2021 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
2021 remaining
|
$
|
1,518
|
|
|
2022
|
6,222
|
|
|
2023
|
6,222
|
|
|
2024
|
6,222
|
|
|
2025
|
6,222
|
|
|
2026 and beyond
|
33,400
|
|
|
Total
|
$
|
59,806
|
|
Cumulative Goodwill, excluding any impairments, in the amount of $116.6 million was recorded as a result of the 2021 Acquisitions. The goodwill from the 2021 Acquisitions represent future economic benefits that we expect to achieve as a result of the acquisitions, Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is not expected to be deductible for tax purposes for any of the 2021 Acquisitions. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequent if certain indicators of impairment are present.
Transaction Costs
Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. Transaction costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions. The Company incurred transaction costs of $0.6 million and $2.2 million during the three and nine months ended September 30, 2021 related to the 2021 Acquisitions. In addition, the Company incurred transaction costs of $3.3 million during the three and nine months ended September 30, 2021, associated with the proposed VIA Motors acquisition. Transaction costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows.
Pro forma Financial Information
The unaudited pro forma results presented below include the effects of the Company’s acquisitions as if the acquisitions had occurred on January 1, 2020. The pro forma adjustments are based on historically reported transactions by the acquired companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions occurred on January 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
(Amounts in thousands, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
27,047
|
|
|
$
|
32,418
|
|
|
$
|
91,369
|
|
|
$
|
75,747
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to IDEX common shareholders
|
|
(50,854)
|
|
|
(6,132)
|
|
|
(66,325)
|
|
|
(42,398)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.11)
|
|
|
$
|
(0.02)
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
477,214,431
|
|
|
256,752,912
|
|
|
440,151,607
|
|
|
211,193,769
|
|
Dispositions
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL Technologies, Inc., (“FNL”) the owner and operator of the social media platform Hoo.be, pursuant to which Ideanomics made an investment into FNL, including cash,
Ideanomics common stock, and 100% of the common stock outstanding of Grapevine Logic, Inc. (“Grapevine,”) a wholly-owned subsidiary of the Company focused on influencer marketing. Subsequent to this transaction, the Company owned 29.0% of the outstanding common stock of FNL.
The Company recognized a disposal loss of $1.2 million as a result of the deconsolidation of Grapevine, and such loss was recorded in “Loss on disposal of subsidiaries, net” in the condensed consolidated statements of operations. Through its ownership in FNL, the Company has retained a 29.0% interest in Grapevine. The disposal loss of $1.2 million includes the adjustment recorded to adjust the retained interest of 29.0% in Grapevine to its fair value on the date of disposal.
Refer to Note 10 for additional information concerning the investment in FNL.
Note 7. Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Accounts receivable
|
$
|
6,053
|
|
|
$
|
8,619
|
|
|
Less: allowance for doubtful accounts
|
(1,559)
|
|
|
(1,219)
|
|
|
Accounts receivable, net
|
$
|
4,494
|
|
|
$
|
7,400
|
|
The gross balance includes the taxi commission revenue receivables of $1.2 million and $1.2 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co, as of September 30, 2021 and December 31, 2020, respectively.
The following table summarizes the movement of the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Balance at the beginning of the period
|
$
|
(1,219)
|
|
|
$
|
—
|
|
|
Increase in the allowance for doubtful accounts
|
(340)
|
|
|
(1,219)
|
|
|
Balance at the end of the period
|
$
|
(1,559)
|
|
|
$
|
(1,219)
|
|
The Company reserved its accounts receivable of $0.3 million from a third-party in the nine months ended September 30, 2021. In the year ended December 31, 2020, the Company fully reserved its accounts receivable of $1.2 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co.
Note 8. Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Furniture and office equipment
|
$
|
1,163
|
|
|
$
|
315
|
|
|
Vehicle
|
393
|
|
|
229
|
|
|
Leasehold improvements
|
547
|
|
|
246
|
|
|
Machinery and equipment
|
277
|
|
|
—
|
|
|
Total property and equipment
|
2,380
|
|
|
790
|
|
|
Less: accumulated depreciation
|
(753)
|
|
|
(460)
|
|
|
Property and equipment, net
|
$
|
1,627
|
|
|
$
|
330
|
|
|
|
|
|
|
|
Fintech Village
|
|
|
|
|
Land
|
$
|
—
|
|
|
$
|
2,750
|
|
|
Assets retirement obligations - environmental remediation
|
—
|
|
|
4,500
|
|
|
Fintech Village
|
$
|
—
|
|
|
$
|
7,250
|
|
The Company recorded depreciation expense of $126,323 and $25,170, which is included in its operating expense, for the three months ended September 30, 2021 and 2020, respectively and $335,785 and $90,962 for the nine months ended September 30, 2021 and 2020, 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”)
On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a sale contract on March 15, 2021. The Company believes that Fintech Village met the criteria for held for sale classification on January 28, 2021. As the sale is expected to be completed within one year, the land with a carrying amount of $2.6 million and the asset retirement cost of $4.5 million are recorded as “Held for sale assets (Fintech Village”) in the current asset section of the condensed consolidated balance sheet. The Company has estimated the costs to sell Fintech Village to be $0.2 million and has recorded these costs in “Loss on disposal of subsidiaries, net.”
The Company recorded asset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The asset retirement obligations are classified as held for sale as they will be derecognized upon the sale.
The following table summarizes the activity in the asset retirement obligation for the nine months ended September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2021
|
|
Liabilities
Incurred
|
|
Remediation
Performed
|
|
Accretion
Expense
|
|
Revisions
|
|
September 30,
2021
|
|
|
|
Asset retirement obligation
|
$
|
4,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,653
|
|
Note 9.
A reporting unit is the level at which goodwill is tested for impairment, and is defined as an operating segment or one level below an operating segment, if certain criteria are met. Under its current corporate structure, the Company has one operating segment and seven reporting units.
Goodwill
The following table summarizes changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
|
|
|
Balance as of January 1, 2020
|
$
|
23,344
|
|
|
Measurement period adjustments
|
(12,848)
|
|
|
Effect of change in foreign currency exchange rates
|
(8)
|
|
|
Impairment loss
|
(9,323)
|
|
|
Balance as of December 31, 2020
|
1,165
|
|
|
Impairment*
|
(5,610)
|
|
|
Restatement adjustments**
|
16,171
|
|
|
Acquisitions
|
100,455
|
|
|
Effect of change in foreign currency exchange rates
|
(19)
|
|
|
Disposal of Grapevine***
|
(704)
|
|
|
Balance as of September 30, 2021
|
$
|
111,458
|
|
*On July 26, 2021, Timios experienced a systems outage that was caused by a cybersecurity incident, which caused disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. This resulted in an adverse impact on Timios’ revenues in that one significant customer was lost and other customers have reduced their volume. The Company determined that an indicator of potential impairment existed and decided to perform an interim quantitative tangible and intangible asset and goodwill impairment tests for its Timios reporting unit.
Based on the results of this interim quantitative impairment test, the fair value of the Timios reporting unit was below the carrying value of its net assets. The decline in the fair value of the Timios reporting unit resulted from the cybersecurity event described above, which lowered the projected revenue and profitability levels of the reporting unit. The fair value of the Timios
reporting unit was based on the income approach. Under the income approach, the Company estimated the fair value of the reporting unit based on the present value of estimated future cash flows which are level 3 unobservable inputs in the fair value hierarchy. The Company prepared cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration the historical performance and the current macroeconomic industry and market conditions. The Company based the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the Timios’ ability to execute on the projected cash flows. The fair value of Timios’ reporting unit is based on management’s best estimates, and should actual results differ from those estimates, future impairment charges may be required in future periods.
The quantitative analysis indicated that the carrying amount of the Timios reporting unit exceeded its fair value by $19.5 million. As a result, the Company recorded a goodwill impairment charge of $5.6 million, and impairment charges related to the Timios tradename and lender relationships of $0.7 million and $13.2 million, respectively, in the three months ended September 30, 2021.
**As reported in Note 1 the Company restated its condensed consolidated financial statements, including errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its 2021 acquisitions. The cumulative impact of these errors resulted in less fair value being attributed to identifiable intangible assets and additional value attributed to goodwill. Refer to the Amended Form 10-Q's as of and for the three months ended March 31, 2021 and as of and for the three and six months ended June 30, 2021 that have been filed with the SEC on November 22, 2021.
***During the three months ended June 30, 2021, the Company completed the sale of Grapevine. Refer to Note 6 for additional information.
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
Weighted
Average
Remaining
Useful Life
(in years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
|
|
Amortizing Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Influencer network (a,g)
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,137
|
|
|
$
|
(462)
|
|
|
$
|
675
|
|
|
|
|
Customer contract (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
(389)
|
|
|
111
|
|
|
|
|
Continuing membership agreement (b)
|
17.8
|
|
1,179
|
|
|
(642)
|
|
|
537
|
|
|
1,179
|
|
|
(619)
|
|
|
560
|
|
|
|
|
Trade name (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
(17)
|
|
|
93
|
|
|
|
|
Technology platform (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
|
(97)
|
|
|
193
|
|
|
|
|
Land use rights (c)
|
97.3
|
|
27,024
|
|
|
(341)
|
|
|
26,683
|
|
|
28,162
|
|
|
(142)
|
|
|
28,020
|
|
|
|
|
Timios licenses (d)
|
14.3
|
|
1,000
|
|
|
(49)
|
|
|
951
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios tradename (d)
|
14.3
|
|
7,108
|
|
|
(378)
|
|
|
6,730
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios lender relationships (d)
|
6.3
|
|
1,539
|
|
|
(1,539)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios software (e)
|
2.8
|
|
452
|
|
|
(38)
|
|
|
414
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
WAVE patents (f)
|
13.3
|
|
13,000
|
|
|
(656)
|
|
|
12,344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
WAVE tradename (f)
|
14.3
|
|
12,630
|
|
|
(595)
|
|
|
12,035
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Software - Solectrac (h)
|
1.8
|
|
38
|
|
|
(5)
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Solectrac - Brand (h)
|
9.7
|
|
4,570
|
|
|
(138)
|
|
|
4,432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Solectrac - Technology (h)
|
9.7
|
|
2,450
|
|
|
(74)
|
|
|
2,376
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Brand (i)
|
6.7
|
|
1,740
|
|
|
(75)
|
|
|
1,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Non-compete (i)
|
4.7
|
|
520
|
|
|
—
|
|
|
520
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Technology (i)
|
12.7
|
|
5,110
|
|
|
(119)
|
|
|
4,991
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Software (j)
|
4.8
|
|
11
|
|
|
(1)
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Total
|
|
|
78,371
|
|
|
(4,650)
|
|
|
73,721
|
|
|
31,378
|
|
|
(1,726)
|
|
|
29,652
|
|
|
|
|
Indefinite lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timios Title plant (d)
|
|
|
500
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Website name
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
|
|
Patent
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|
|
|
Total
|
|
|
$
|
78,896
|
|
|
$
|
(4,650)
|
|
|
$
|
74,246
|
|
|
$
|
31,431
|
|
|
$
|
(1,726)
|
|
|
$
|
29,705
|
|
|
|
(a)During the third quarter of 2018, the Company completed the acquisition of 65.7% share of Grapevine. In connection with the business analysis of Grapevine, the Company determined that the attrition rate of the influencer network had accelerated, and performed an impairment analysis, and recorded an impairment loss of $0.8 million during the year ended December 31, 2020. As a result of this analysis of the influencer network, the Company determined that the remaining useful life of the influencer network should be reduced to two years, effective January 1, 2021 and also determined that remaining useful life of the technology should be reduced to one year, effective January 1, 2021.
(b)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. As part of the determination of the fair value of DBOT’s intangible assets during the year ended December 31, 2020, the Company utilized the cost method to determine the fair value of the continuing membership agreement, and determined the fair value was $0.6 million, and recorded an impairment loss of $7.1 million during the year ended December 31 2020.
(c)During the 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. Tree Technologies holds the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia.
(d)During the three months ended March 31. 2021, the Company completed the acquisition of 100.0% interest in Timios. Refer to Note 6 for additional information related to the acquisition.
(e)Relates to software development costs capitalized during the nine months ended September 30, 2021 at Timios. The asset was placed into service in July 2021.
(f)During three months ended March 31. 2021, the Company completed the acquisition of 100.0% interest in WAVE. Refer to Note 6 for additional information related to the acquisition.
(g)During the three months ended June 30, 2021, the Company completed a stock purchase agreement with FNL Technologies, Inc., the owner and operator of the social media platform Hoo.be, pursuant to which Ideanomics made an investment into FNL, including cash, Ideanomics common stock, and 100% of the common stock outstanding of Grapevine, a wholly-owned subsidiary of the Company focused on influencer marketing.
(h)During three months ended June 30, 2021, the Company completed the acquisition of privately held Solectrac. Solectrac develops 100% battery-powered, all-electric tractors for agriculture and utility operations. Refer to Note 6 for additional information related to the acquisition.
(i)During three months ended June 30, 2021, the Company completed the acquisition of privately held US Hybrid Corporation. US Hybrid specializes in the design and manufacturing of zero-emission electric powertrain components. Refer to Note 6 for additional information related to the acquisition.
(j)Relates to software costs capitalized during the nine months ended September 30, 2021.
Amortization expense relating to intangible assets was $1.6 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $4.1 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively.
The following table summarizes the expected amortization expense for the following years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Amortization to be
recognized
|
|
2021 (excluding the nine months ended September 30, 2021)
|
|
$
|
1,625
|
|
|
2022
|
|
6,396
|
|
|
2023
|
|
6,396
|
|
|
2024
|
|
6,305
|
|
|
2025
|
|
6,230
|
|
|
2026 and thereafter
|
|
46,769
|
|
|
Total
|
|
$
|
73,721
|
|
Note 10. Long-term Investments
The following table summarizes the Company’s long-term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Non-marketable equity investments
|
$
|
10,522
|
|
|
$
|
4,787
|
|
|
Equity method investments
|
25,027
|
|
|
3,783
|
|
|
Total
|
$
|
35,549
|
|
|
$
|
8,570
|
|
Non-marketable equity investment
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 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, the Company determined that there was a $1.5 million impairment loss recorded in the three and nine months ended September 30, 2021. 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.
On August 2, 2021, the Company announced a strategic investment in Prettl Electronics Automotive ("PEA"), a business unit within the Prettl Group, a large German industrial company that manufactures and distributes components and systems for the automotive, energy, and electronics industries. The terms include a strategic investment of €7.5 million for 11,175 preferred shares. Ideanomics will receive exclusive sales and distribution rights for PEA charging infrastructure products and solutions in North America and CEO Alf Poor will join PEA's Board of Directors. The Company received legal ownership as of October 19, 2021, after payment of €7.5 million ($8.5 million).
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
January 1, 2021
|
|
Addition
|
|
Income (loss)
on investment
|
|
|
|
|
Reclassification to equity method investee
|
|
Reclassification to subsidiaries
|
|
Dilution loss due to investee share issuance
|
|
September 30, 2021
|
|
Solectrac
|
(a)
|
$
|
2,556
|
|
|
$
|
—
|
|
|
$
|
(153)
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(2,372)
|
|
|
$
|
(31)
|
|
|
$
|
—
|
|
|
Energica
|
(b)
|
—
|
|
|
13,555
|
|
|
(735)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,820
|
|
|
FNL Technologies
|
(c)
|
—
|
|
|
3,505
|
|
|
(236)
|
|
|
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
3,519
|
|
|
MDI Fund
|
(d)
|
—
|
|
|
628
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
628
|
|
|
TM2
|
(e)
|
1,227
|
|
|
7,226
|
|
|
(393)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,060
|
|
|
Total
|
|
$
|
3,783
|
|
|
$
|
24,914
|
|
|
$
|
(1,517)
|
|
|
|
|
|
$
|
250
|
|
|
$
|
(2,372)
|
|
|
$
|
(31)
|
|
|
$
|
25,027
|
|
The Company has received no dividends from equi