UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(
Commission File Number:
(Exact name of registrant as specified in its charter)
|
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: |
|
| ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Explanatory Note
On November 16, 2021, Ideanomics, Inc. (the “Company”, “we”, “our” or “us”) filed a Current Report on Form 8-K disclosing that the Company determined that our previously issued financial statements contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2021 and Quarterly Report on Form 10-Q for the period ended June 30, 2021 should no longer be relied upon due to errors in such condensed consolidated financial statements related to revenue reported by our affiliate Timios Holding Corp. (“Timios”), that provides title and agency services.
The errors were uncovered as part of the preparation of the Company’s condensed consolidated financial statements as of and for the period ended September 30, 2021. The preparation of the Company’s condensed consolidated financial statements as of and for the period ended September 30, 2021 also identified additional transactions and accounting practices not in accordance with U.S. generally accepted accounting principles (“US GAAP”).
This Amendment No. 1 to our Quarterly Report on Form 10-Q for the period ended June 30, 2021 (“Quarterly Report on Form 10-Q/A” or “Amendment No. 1) reflects the correction of the following errors identified subsequent to the filing of our Quarterly Report on Form 10-Q for the period ended June 30, 2021, which was initially filed with the Securities and Exchange Commission (the “SEC”) on August 16, 2021 (the “Original Form 10-Q”):
A. | The Company determined that it did not present Timios title and agency services revenue and the related cost of revenue in accordance with US GAAP on the condensed consolidated statement of operations, as premiums from title insurance policies written by independent agencies were presented on a gross basis and did not properly present revenue and cost of revenue net of commission costs. |
B. | The Company discovered that it did not properly account for its investment in Technology Metals Market Limited (“TM2”) in accordance with the equity method of accounting.In addition, the Company determined that it incorrectly presented equity income (loss) on its equity method investments as a component of interest and other income (expense) on the condensed consolidated statements of operations rather than as a separate financial statement caption below income taxes. |
C. | The Company discovered certain errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its acquisitions. |
D. | The Company determined that the errors in determining the estimated fair value of net assets acquired in its acquisitions resulted in an additional reduction to the Company’s deferred tax liabilities. |
E. | The Company determined that it did not properly recognize income tax expense (benefit) for certain acquired entities subsequent to their respective acquisitions during the six months ended June 30, 2021. |
For the convenience of the reader, we have included all items in this Amendment No. 1 which supersedes in its entirety the Original Form 10-Q. Prior to the filing of this Amendment No. 1, we have filed the amended Quarterly Report on Form 10-Q/A for the period ended March 31, 2021.
The following sections in the Original Form 10-Q have been revised in this Amendment No. 1 to reflect the restatement:
● | Part I, Item 1, “Financial Statements” |
● | Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" |
● | Part I, Item 4, “Controls and Procedures” |
● | Part II, Item 1A, “Risk Factors” |
● | the Chief Executive Officer and Chief Financial Officer certifications in Exhibits 31.1, 31.2, 32.1, and 32.2 |
This Amendment No. 1 does not reflect adjustments for events occurring after the filing of the Original Form 10-Q except to the extent that they are otherwise required to be included and discussed herein and did not substantively modify or update the disclosures herein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, set forth in Item 1 of this Quarterly Report on Form 10-Q/A, for details of the restatement and its impact on the condensed consolidated financial statements.
See “Item 4 — Controls and Procedures” that discloses a material weakness in the Company’s internal controls associated with the restatement, as well as management’s restated conclusion that the Company’s internal controls over financial reporting were not effective as of March 31, 2021 and June 30, 2021.
We are also filing updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Amendment No. 1.
QUARTERLY REPORT ON FORM 10-Q/A (Amendment No. 1)
OF IDEANOMICS, INC.
FOR THE PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
4 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 41 | |
57 | ||
57 | ||
59 | ||
59 | ||
64 | ||
65 | ||
65 | ||
65 | ||
66 | ||
67 |
2
Use of Terms
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” “the Company,” “IDEX,” or “Ideanomics,” are to the business of Ideanomics, Inc. (formerly known as “Seven Star Cloud Group, Inc.,” “SSC” and “Wecast Network, Inc.,”) a Nevada corporation, and its consolidated subsidiaries and variable interest entities.
In addition, unless the context otherwise requires and for the purposes of this report only:
● | “DBOT” refers to the Delaware Board of Trade Holdings, Inc. which is holding company for the Company’s FINRA Registered Broker Dealer. The Company owns 98% of the share capital Delaware Board of Trade Holdings, Inc.; |
● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
● | “EV” refers to electric vehicles, particularly battery operated electric vehicles; |
● | “FINRA” refers to the Financial Industry Regulatory Authority; |
● | “Legacy YOD” business refers to the premium content and integrated value-added service solutions for the delivery of VOD (defined below) and paid video programing to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers and operators, as well as direct customers; |
● | “MEG” refers to Mobile Energy Global, the subsidiary that holds the Company’s EV businesses in the PRC; |
● | “PRC,” “China,” and “Chinese,” refer to the People’s Republic of China; |
● | “Renminbi” and “RMB” refer to the legal currency of the PRC; |
● | “SEC” refers to the United States Securities and Exchange Commission; |
● | “Securities Act” refers to the Securities Act of 1933, as amended; |
● | "Solectrac" refers to Solectrac, Inc., which was acquired on June 11, 2021; |
● | “SSSIG” refers to Sun Seven Stars Investment Group Limited, a British Virgin Islands corporation, an affiliate of Bruno Wu (“Dr. Wu,”) the former Chairman of the Company; |
● | “Timios” refers to Timios Holdings Corp. and its affiliates which was acquired on January 8, 2021; |
● | “U.S. dollars,” “dollars,” “USD,” “US$,” and “$” refer to the legal currency of the United States; |
● | "US Hybrid" refers to US Hybrid Corporation, which was acquired on June 20, 2021; |
● | “VOD” refers to video on demand, which includes near video on demand (“NVOD,”) subscription video on demand (“SVOD,”) and transactional video on demand (“TVOD;”) and |
● | “Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company that is 51% owned by the Company; |
● | “WAVE” refers to Wireless Advanced Vehicle Electrification, Inc. which was acquired on January 15, 2021. |
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
IDEANOMICS, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
5 | ||
8 | ||
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) | 9 | |
2 | ||
2 | ||
Notes to Unaudited Condensed Consolidated Financial Statements | 3 |
4
5
| June 30, 2021 |
| December 31, 2020 | |||
(As restated) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Available-for-sale security |
| |
| — | ||
Inventory |
| |
| — | ||
Prepaid expenses |
| |
| | ||
Amount due from related parties |
| |
| | ||
Other current assets |
| |
| | ||
Held for sale assets (Fintech Village) |
| |
| — | ||
Total current assets |
| |
| | ||
Property and equipment, net |
| |
| | ||
Fintech Village |
|
| | |||
Intangible assets, net |
| |
| | ||
Goodwill |
| |
| | ||
Long-term investments |
| |
| | ||
Operating lease right of use assets |
| |
| | ||
Other non-current assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Deferred revenue |
| |
| | ||
Accrued salaries |
| |
| | ||
Amount due to related parties |
| |
| | ||
Other current liabilities |
| |
| | ||
Current portion of operating lease liabilities |
| |
| | ||
Current contingent consideration |
| |
| | ||
Promissory note-short term |
| |
| | ||
Convertible promissory note due to third parties |
| |
| — | ||
Asset retirement obligations |
| |
| — | ||
Total current liabilities |
| |
| | ||
Asset retirement obligations |
|
| | |||
Deferred tax liabilities |
| |
| — | ||
Operating lease liability-long term |
| |
| | ||
Non-current contingent consideration |
| |
| | ||
Other long-term liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 18) |
|
|
|
| ||
Convertible redeemable preferred stock and Redeemable non-controlling interest: |
|
|
|
| ||
Series A - |
| |
| | ||
Redeemable non-controlling interest |
| |
| | ||
Equity: |
|
|
|
| ||
Common stock - $ |
| |
| | ||
December 31, 2020, respectively |
|
|
|
| ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive income |
| |
| |
6
Total IDEX shareholder’s equity |
| |
| | ||
Non-controlling interest |
| |
| | ||
Total equity |
| |
| | ||
Total liabilities, convertible redeemable preferred stock, redeemable non-controlling interest and equity | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD in thousands)
| Three Months Ended |
| Six Months Ended | |||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||
(As restated) |
|
| (As restated) |
| ||||||||
Revenue from sales of products (including from a related party of $ | $ | | $ | | $ | | $ | | ||||
Revenue from sales of services |
| |
| |
| |
| | ||||
Total revenue |
| |
| |
| |
| | ||||
Cost of revenue from sales of products (including from a related party of $ |
| |
| |
| |
| | ||||
Cost of revenue from sales of services |
| |
| |
| |
| | ||||
Total cost of revenue |
| |
| |
| |
| | ||||
Gross profit |
| |
| |
| |
| | ||||
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Research and development expense |
| |
| — |
| |
| — | ||||
Professional fees |
| |
| |
| |
| | ||||
Impairment losses |
| — |
| |
| — |
| | ||||
Change in fair value of contingent consideration, net |
| ( |
| |
| ( |
| | ||||
Litigation settlement |
| — |
| — |
| |
| — | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | ||||
Interest and other income (expense): |
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Loss on disposal of subsidiaries, net |
| ( |
| — |
| ( |
| — | ||||
Conversion expense |
| — |
| ( |
| — |
| ( | ||||
Gain on remeasurement of investment |
| |
| — |
| |
| — | ||||
Other income, net |
| |
| |
| |
| | ||||
Loss before income taxes and non-controlling interest |
| ( |
| ( |
| ( |
| ( | ||||
Income tax benefit (expense) |
| |
| — |
| |
| — | ||||
Equity in loss of equity method investees | ( | ( | ( | ( | ||||||||
Net loss |
| ( |
| ( |
| ( |
| ( | ||||
Deemed dividend related to warrant repricing |
| — |
| ( |
| — |
| ( | ||||
Net loss attributable to common shareholders |
| ( |
| ( |
| ( |
| ( | ||||
Net loss attributable to non-controlling interest |
| |
| |
| |
| | ||||
Net loss attributable to IDEX common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Earnings (loss) per share |
|
|
|
|
|
|
|
| ||||
Basic | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
| ||||
Basic |
| |
| |
| |
| | ||||
Diluted |
| |
| |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (USD in thousands)
| Three Months Ended |
| Six Months Ended | |||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||
(As restated) |
|
| (As restated) |
| ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss), net of nil tax: |
|
|
|
|
|
|
|
| ||||
Changes in fair value of available-for-sale securities |
| ( |
| — |
| ( |
| — | ||||
Foreign currency translation adjustments |
| ( |
| |
| ( |
| | ||||
Comprehensive loss |
| ( |
| ( |
| ( |
| ( | ||||
Deemed dividend related to warrant repricing |
| — |
| ( |
| — |
| ( | ||||
Comprehensive loss (gain) attributable to non-controlling interest |
| |
| |
| |
| ( | ||||
Comprehensive loss attributable to IDEX common shareholders | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited) (USD in thousands)
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||
Additional | Other | Ideanomics | Non- | ||||||||||||||||||||
Common | Par | Paid-in | Accumulated | Comprehensive | Shareholders’ | controlling | Total | ||||||||||||||||
Stock |
| Value |
| Capital |
| Deficit |
| Loss |
| Equity |
| Interest* |
| Equity | |||||||||
Balance, January 1, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for professional fee |
| |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for convertible note |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for acquisition |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for warrant exercise |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Measurement period adjustment |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Non-controlling shareholder contribution |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | |||||||
Net income (loss) |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| ( | |||||||
Foreign currency translation adjustments, net of |
| — |
| — |
| — |
| — |
| ( |
| ( |
| |
| | |||||||
Balance, March 31, 2020 |
| |
| |
| |
| ( |
| ( |
| |
| |
| | |||||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for acquisition |
| |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for convertible note |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issued to settle debt |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issued under employee stock incentive plan |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Common stock issuance for professional fee |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for warrant exercise |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Measurement period adjustment |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Net income (loss)** |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| ( | |||||||
Foreign currency translation adjustments, net of |
| — |
| — |
| — |
| — |
| |
| |
| |
| | |||||||
Balance, June 30, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | |
* | Excludes accretion of dividend for redeemable non-controlling interest. |
** | Excludes deemed dividend related to warrant repricing |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
| Six months ended June 30, 2021 | ||||||||||||||||||||||
(As restated) | |||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||
Additional | Other | Ideanomics | Non- | ||||||||||||||||||||
Common | Par | Paid-in | Accumulated | Comprehensive | Shareholders’ | controlling | Total | ||||||||||||||||
Stock |
| Value |
| Capital |
| Deficit |
| Income |
| Equity |
| Interest* |
| Equity | |||||||||
Balance, January 1, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for acquisition |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for professional fee |
| |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issued under employee stock incentive plan |
| |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for at the market offering |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for convertible note |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Net loss* |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| ( | |||||||
Foreign currency translation adjustments, net of |
| — |
| — |
| — |
| — |
| ( |
| ( |
| ( |
| ( | |||||||
Balance, March 31, 2021 |
| |
| |
| |
| ( |
| |
| |
| |
| | |||||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for at the market offering |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issued under employee stock incentive plan |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for acquisition |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issued pursuant to SEDA |
| |
| |
| |
| — |
| — |
| |
| — |
| | |||||||
Common stock issuance for professional fee |
| |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Changes in available-for-sale securities fair value |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( | |||||||
Net loss* |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| ( | |||||||
Foreign currency translation adjustments, net of |
| — |
| — |
| — |
| — |
| ( |
| ( |
| ( |
| ( | |||||||
Balance, June 30, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ |
* | Excludes accretion of dividend for redeemable non-controlling interest. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD in thousands)
| Six Months Ended | |||||
June 30, 2021 | June 30, 2020 | |||||
(As restated) |
| |||||
Cash flows from operating activities: |
|
|
|
| ||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
| ||
Share-based compensation expense |
| |
| | ||
Depreciation and amortization |
| |
| | ||
Non-cash interest expense |
| |
| | ||
Allowance for doubtful accounts |
| |
| | ||
Income tax benefit |
| ( |
| | ||
Conversion expense |
| |
| | ||
Loss on disposal of subsidiaries, net |
| |
| | ||
Equity in losses of equity method investees |
| |
| | ||
Issuance of common stock for professional fees | 1,819 | — | ||||
Gain on extinguishment of liability |
| ( |
| | ||
Gain on remeasurement of investment |
| ( |
| | ||
Impairment losses |
| |
| | ||
Settlement of ROU operating lease liabilities |
| |
| ( | ||
Change in fair value of contingent consideration |
| ( |
| | ||
Change in assets and liabilities (net of amounts acquired): |
|
|
|
| ||
Accounts receivable |
| |
| | ||
Inventory |
| |
| | ||
Prepaid expenses and other assets |
| ( |
| | ||
Accounts payable |
| ( |
| ( | ||
Deferred revenue |
| ( |
| | ||
Amount due to related parties |
| |
| | ||
Accrued expenses, salary and other current liabilities |
| |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: |
|
|
|
| ||
Acquisition of property and equipment |
| ( |
| ( | ||
Disposal of subsidiaries, net of cash disposed |
| ( |
| | ||
Acquisition of subsidiaries, net of cash acquired |
| ( |
| | ||
Investments in long-term investment |
| ( |
| | ||
Notes receivable |
| |
| ( | ||
Investment in debt securities |
| ( |
| | ||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities |
|
|
|
| ||
Proceeds from issuance of convertible notes |
| |
| | ||
Proceeds from exercise of options and warrants and issuance of common stock |
| |
| | ||
Proceeds from noncontrolling interest shareholder |
| |
| | ||
Borrowings from Small Business Association Paycheck Protection Program |
| |
| | ||
Repayment of amounts due to related parties |
| |
| ( | ||
Net cash provided by financing activities |
| |
| | ||
Effect of exchange rate changes on cash |
| |
| | ||
Net increase in cash and cash equivalents |
| |
| | ||
Cash and cash equivalents at the beginning of the period |
| |
| | ||
Cash and cash equivalents at the end of the period | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
|
|
|
| ||
Cash paid for income tax | $ | | $ | | ||
Cash paid for interest | $ | | $ | | ||
Issuance of shares for acquisition of DBOT | $ | | $ | | ||
Tree Technologies measurement period adjustment | $ | | $ | | ||
Issuance of shares for acquisition | $ | | $ | | ||
Issuance of shares for convertible notes conversion | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
IDEANOMICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ideanomics, Inc. (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 June 30, 2021, the Company operates in
segment with business units, Ideanomics Mobility and Ideanomics Capital.With
acquisitions closing in the six months ended June 30, 2021, the Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may 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 is in the process of identifying and appointing segment managers and revising its budgeting and forecasting process so as to be aligned with the anticipated corporate structure.Ideanomics Mobility is driving EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the
key pillars of EV: Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
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.”)
Immaterial Revision to Prior Period
The Company determined that a legal agreement the Company entered into whereby the Company took possession of a property in Qingdao, China for no consideration was incorrectly accounted for as a lease in accordance with ASC 842, Leases. The Company determined that the error was immaterial to the condensed consolidated financial statements,
3
however, the Company has revised its condensed consolidated financial statements to properly account for this transaction. The adjustment to the condensed consolidated balance sheet as of December 31, 2020 is, as follows (in thousands):
Account |
| December 31, |
|
| December 31, | ||||
2020 | 2020 | ||||||||
(As Reported) | Adjustment | (As Revised) | |||||||
Operating lease right of use assets | $ | | $ | ( | $ | | |||
Other non-current assets |
| |
| |
| | |||
Current portion of lease liabilities |
| |
| ( |
| | |||
Other current liabilities |
| |
| |
| | |||
Operating lease liability – long-term |
| |
| ( |
| | |||
Other long-term liabilities |
| |
| |
| |
See Note 2 for adjustments for this matter as of and for the period ended June 30, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, management evaluates the Company’s estimates, including those related to the bad debt allowance, variable consideration, fair values of financial instruments, intangible assets (including digital currencies) and goodwill, useful lives of intangible assets and property and equipment, asset retirement obligations, income taxes, and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Significant Accounting Policies
For a detailed discussion 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 six months ended June 30, 2021, the Company acquired four businesses, Timios Holdings Corp. (“Timios,”) Wireless Advanced Vehicle Electrification, Inc. (“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.
4
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
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 June 30, 2021 were $
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):
| June 30, 2021 | ||
Raw materials | $ | | |
Work in progress |
| | |
Finished goods |
| | |
Total | $ | |
5
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 use the cost-to-total cost method or the units of delivery method, depending on the nature of the contract, including length of production time.
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 June 30, 2021 is $
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 July 31, 2021, over
6
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 remains challenging.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
The Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations, 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.
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
7
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.
Note 2.Restatement of Previously Reported Condensed Consolidated Financial Statements
As previously disclosed on Form 8-K filed on November 16, 2021, the Company determined 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. |
8
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 six months ended June 30, 2021. |
The following reflects the restatement adjustments recorded in connection with the Company’s restatement of its condensed consolidated financial statements:
Consolidated Balance Sheet | |||||||||||
June 30, 2021 | |||||||||||
As | |||||||||||
Previously | |||||||||||
| Reported |
| Adjustment |
| As Restated |
| Notes | ||||
Assets |
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | $ | | $ | — | $ | |
|
| |||
Accounts receivable, net |
| |
| — |
| |
|
| |||
Available for sale security |
| |
| — |
| |
|
| |||
Inventory |
| |
| — |
| |
|
| |||
Prepaid expenses |
| |
| — |
| |
|
| |||
Amount due from related parties |
| |
| — |
| |
|
| |||
Other current assets |
| |
| — |
| |
|
| |||
Current assets held for sale |
| |
| — |
| |
|
| |||
Total current assets |
| |
| — |
| |
|
| |||
Property and equipment, net |
| |
| — |
| |
|
| |||
Intangible assets, net |
| |
| ( |
| |
| C | |||
Goodwill |
| |
| |
| |
| C | |||
Long-term investments |
| |
| ( |
| |
| B | |||
Operating lease – right of use assets |
| |
| ( |
| |
| * | |||
Other noncurrent assets |
| |
|
| |
| * | ||||
Total assets | $ | | $ | ( | $ | |
|
| |||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| |||
Accounts payable | $ | | $ | — | $ | |
|
| |||
Deferred revenue |
| |
| — |
| |
|
| |||
Accrued salaries |
| |
| — |
| |
|
| |||
Due to related party |
| |
| — |
| |
|
| |||
Other current liabilities |
| |
| |
| |
| *, E | |||
Current portion of lease liabilities |
| |
| ( |
| |
| * | |||
Current contingent consideration |
| |
| — |
| |
|
| |||
Note payable |
| |
| — |
| |
|
| |||
Note payable – related party |
| — |
| — |
| — |
|
| |||
Convertible promissory note to third parties |
| |
| — |
|
|
| ||||
Asset retirement obligations |
| |
| — |
| |
|
| |||
Total current liabilities |
| |
| ( |
| |
|
| |||
Asset retirement obligations |
| — |
| — |
| — |
|
| |||
Deferred tax liabilities |
| |
| ( |
| |
| C, D, E | |||
Operating lease liability – long term |
| |
| ( |
| |
| * | |||
Non-current contingent consideration |
| |
| — |
| |
|
| |||
Other long-term liabilities |
| |
| |
| |
| * | |||
Total liabilities |
| |
| ( |
| |
|
| |||
Convertible redeemable preferred stock and Redeemable non-controlling interest: |
|
|
|
|
|
|
|
| |||
Series A Preferred stock |
| |
| — |
| |
|
| |||
Redeemable non-controlling interest |
| |
| — |
| |
|
| |||
Stockholders’ equity: |
|
|
|
|
|
|
|
| |||
Preferred stock, $ |
| — |
| — |
| — |
|
| |||
Common stock, par value |
| |
| — |
| |
|
| |||
Additional paid-in capital |
| |
| — |
| |
|
| |||
Accumulated deficit |
| ( |
| ( |
| ( |
| ||||
Accumulated other comprehensive income |
| |
| — |
| |
|
| |||
Total IDEX stockholders’ equity |
| |
| ( |
|
|
| ||||
Noncontrolling interests |
| |
| — |
| |
|
| |||
Total stockholders’ equity |
| |
| ( |
| |
|
| |||
Total liabilities and stockholders’ equity | $ | | $ | ( | $ | |
|
|
* Represents revision for immaterial error correction – see Note 1
9
Condensed Consolidated State of Operations for three months ended June 30, 2021
As | Restatement | As | |||||||||
| Reported ** |
| Adjustments |
| Restated |
| Notes | ||||
Revenue - sales of products | $ | | $ | — | $ | |
| ||||
Revenue - sales of services |
| |
| ( |
| |
| A | |||
Total Revenue |
| |
| ( |
| |
|
| |||
Cost of revenue - sales of products |
| |
| — |
| |
| ||||
Cost of revenue - sales of services |
| |
| ( |
| |
| A | |||
Total Cost of revenue |
| |
| ( |
| |
|
| |||
Gross Profit |
| |
| — |
| |
|
| |||
Operating Expenses |
|
|
|
|
|
|
|
| |||
Selling, general and administrative |
| |
| ( |
| |
| (1) | |||
Research and development |
| |
| — |
| |
|
| |||
Professional fees |
| |
| — |
| |
|
| |||
Impairment losses |
| — |
| — |
| — |
|
| |||
Change -fair value of contingent consideration |
| ( |
| — |
| ( |
|
| |||
Litigation settlement |
| _ |
| — |
| _ |
|
| |||
Depreciation and amortization |
| |
| — |
| |
|
| |||
Total operating expenses |
| |
| ( |
| |
|
| |||
Loss from operations |
| ( |
| |
| ( |
|
| |||
Interest and other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| ( |
| — |
| ( |
|
| |||
Loss on disposal of subsidiaries |
| ( |
| — |
| ( |
|
| |||
Conversion expense |
| — |
| — |
| — |
|
| |||
Gain on measurement of investments |
| |
| — |
| |
|
| |||
Other income, net |
| |
| ( |
| |
| (1) | |||
Loss before income taxes and non-controlling interest |
| ( |
| — |
| ( |
|
| |||
Income tax (expense) benefit |
| ( |
| |
| |
| C, D, E | |||
Equity in loss of equity method investees | ( | ( | ( | B | |||||||
Net loss |
| ( |
| |
| ( |
|
| |||
Deemed dividend related to warrant repricing |
| — |
| — |
| — |
| — | |||
Net loss attributable to common shareholders |
| ( |
| |
| ( |
|
| |||
Net loss attributable to non-controlling interest |
| |
| — |
| |
|
| |||
Net loss attributable to IDEX common shareholders | $ | ( | $ | | $ | ( |
|
| |||
Earnings per share, basic & fully diluted | ( | $ | — | ( |
|
| |||||
Weighted average number of common shares |
| |
| |
| |
|
|
10
Condensed Consolidated Statement of Operations for Six Months ended June 30, 2021
| As |
| Restatement |
| As |
|
| ||||
Reported ** | Adjustments | Restated | Notes | ||||||||
Revenue - sales of products | $ | | $ | — | $ | |
| ||||
Revenue - sales of services |
| |
| ( |
| |
| A | |||
Total Revenue |
| |
| ( |
| |
|
| |||
Cost of revenue - sales of products |
| |
| — |
| |
| ||||
Cost of revenue - sales of services |
| |
| ( |
| |
| A | |||
Total Cost of revenue |
| |
| ( |
| |
|
| |||
Gross Profit |
| |
| — |
| |
|
| |||
Operating Expenses |
|
|
|
|
|
|
|
| |||
Selling, general and administrative |
| |
| ( |
| |
| (1) | |||
Research and development |
| |
| — |
| |
|
| |||
Professional fees |
| |
| — |
| |
|
| |||
Impairment losses |
| — |
| — |
| — |
|
| |||
Change -fair value of contingent consideration |
| ( |
| — |
| ( |
|
| |||
Litigation settlement |
| |
| — |
| |
|
| |||
Depreciation and amortization |
| |
| — |
| |
|
| |||
Total operating expenses |
| |
| ( |
| |
|
| |||
Loss from operations |
| ( |
| |
| ( |
|
| |||
Interest and other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| ( |
| — |
| ( |
|
| |||
Loss on disposal of subsidiaries |
| ( |
| — |
| ( |
|
| |||
Conversion expense |
| — |
| — |
| — |
|
| |||
Gain on measurement of investments |
| |
| — |
| |
|
| |||
Other income, net |
| |
| ( |
| |
| (1) | |||
Loss before income taxes and non-controlling interest |
| ( |
| — |
| ( |
|
| |||
Income tax benefit |
| |
| ( |
| |
| C, .D,E, | |||
Equity in loss of equity method investees | ( | ( | ( | B | |||||||
Net loss |
| ( |
| ( |
| ( |
|
| |||
Deemed dividend related to warrant repricing |
| — |
| — |
| — |
| — | |||
Net loss attributable to common shareholders |
| ( |
| ( |
| ( |
|
| |||
Net loss attributable to non-controlling interest |
| |
| — |
| |
|
| |||
Net loss attributable to IDEX common shareholders | $ | ( | $ | ( | $ | ( |
|
| |||
Earnings per share, basic & fully diluted | ( | $ | — | ( |
|
| |||||
Weighted average number of common shares |
| |
| |
| |
|
|
** Reflects the presentation of equity in loss of equity method as a separate financial statement caption below income tax (expense) benefit.
11
(1) | Reflects immaterial error correction for the classification of other income. |
Condensed Consolidated Statement of Comprehensive Loss for the Three Months ended June 30, 2021
| As |
| Restatement |
| As |
|
| ||||
Reported | Adjustments | Restated | Notes | ||||||||
Net loss | $ | ( | $ | | $ | ( |
|
| |||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
| |||
Change in fair value of AFS securities |
| ( |
|
| ( |
|
| ||||
Foreign currency translation adjustments |
| ( |
| — |
| ( |
|
| |||
Comprehensive loss |
| ( |
| |
| ( |
|
| |||
Comprehensive loss attributable to non-controlling interest |
| |
| — |
| |
|
| |||
Comprehensive loss attributable to IDEX | $ | ( |
| | $ | ( |
|
|
Condensed Consolidated Statement of Comprehensive Loss for the Six Months Ended June 30, 2021
| As |
| Restatement |
| As |
|
| ||||
Reported | Adjustments | Restated | Notes | ||||||||
Net loss | $ | ( | $ | ( | $ | ( |
|
| |||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
| |||
Change in fair value of AFS securities |
| ( |
|
| ( |
|
| ||||
Foreign currency translation adjustments |
| ( |
| — |
| ( |
|
| |||
Comprehensive loss |
| ( |
| ( |
| ( |
|
| |||
Comprehensive loss attributable to non-controlling interest |
| |
| — |
| |
|
| |||
Comprehensive loss attributable to IDEX | $ | ( |
| ( | $ | ( |
|
|
Condensed Consolidated Statement of Equity for the Six Months Ended June 30, 2021
| Common |
| Par |
|
|
| Accumulated |
|
|
| IDEX |
|
|
| Total | ||||||||
Stock | Value | APIC | Deficit | AOCI | Equity | NCI | Equity | ||||||||||||||||
Balance - March 31, 2021 (as reported) |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Equity method investment |
|
|
|
| ( |
|
|
| ( |
|
|
| ( | ||||||||||
Income tax effects | ( | ( | ( | ||||||||||||||||||||
Balance - March 31, 2021 (as restated) |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Balance - June 30, 2021 (as reported) |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Equity method investment |
|
|
|
| ( |
|
|
| ( |
|
|
| ( | ||||||||||
Income tax effects | ( | ( | ( | ||||||||||||||||||||
Balance - June 30, 2021 (as restated) |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ |
12
Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2021
| As |
| Restatement |
| As |
|
| ||||
Reported | Adjustments | Restated | Notes | ||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
| |||
Net loss | $ | ( | $ | ( | $ | ( |
| B, C, D, E | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
| |||
Share-based compensation |
| |
| — |
| |
|
| |||
Depreciation and amortization |
| |
| — |
| |
|
| |||
Non-cash interest expense |
| |
| — |
| |
|
| |||
Allowance for doubtful accounts |
| |
| — |
| |
| ||||
Litigation settlement |
| |
| ( |
| — |
| (1) | |||
Income tax benefit |
| ( |
| ( |
| ( |
| C, D, E | |||
Loss on disposal of subsidiaries |
| |
| — |
| |
|
| |||
Equity in losses of equity method investees |
| |
| |
| |
| B | |||
Issuance of common stock for professional fees | — | | | (1) | |||||||
Gain on extinguishment of liability |
| ( |
| — |
| ( |
|
| |||
Gain on remeasurement of investment |
| ( |
| — |
| ( |
|
| |||
Impairment losses |
| — |
| — |
| — |
|
| |||
Settlement of ROU operating lease liabilities |
| — |
| — |
| — |
|
| |||
Change in fair value of contingent consideration |
| ( |
| — |
| ( |
|
| |||
Change in assets and liabilities: |
|
|
|
|
|
|
|
| |||
Accounts receivable |
| |
| — |
| |
|
| |||
Inventory |
| |
| — |
| |
|
| |||
Prepaid expenses and other assets |
| ( |
|
| ( |
|
| ||||
Accounts payable |
| ( |
|
| ( |
|
| ||||
Deferred revenue |
| ( |
|
| ( |
|
| ||||
Amount due to related parties |
| |
|
| |
|
| ||||
Accrued expenses, salary and other current liabilities |
| |
| |
| |
| (1) | |||
Net cash used in operating liabilities |
| ( |
| — |
| ( |
|
| |||
Cash flows from investing activities: |
|
|
|
|
|
|
|
| |||
Acquisition of property and equipment |
| ( |
|
| ( |
|
| ||||
Disposal of subsidiaries |
| ( |
|
| ( |
|
| ||||
Acquisition of subsidiaries |
| ( |
|
| ( |
|
| ||||
Investment in long-term investment |
| ( |
|
| ( |
|
| ||||
Notes receivable |
| — |
|
| — |
|
| ||||
Investment in debt securities |
| ( |
|
| ( |
|
| ||||
Net cash used in investing activities |
| ( |
| — |
| ( |
|
| |||
Cash flows from financing activities |
|
|
|
|
|
|
|
| |||
Proceeds from issuance of convertible notes |
| |
|
| |
|
| ||||
Proceeds from exercise of options and warrants |
| |
|
| |
|
| ||||
Proceeds from noncontrolling interest shareholder |
| — |
|
| — |
|
| ||||
Borrowings from SBA PPP |
| — |
|
| — |
|
| ||||
Repayment of amounts due to related parties |
| — |
|
| — |
|
| ||||
Net cash provided by financing activities |
| |
| — |
| |
|
| |||
Effect of exchange rate changes on cash |
| |
|
| |
|
| ||||
Net increase in cash and cash equivalents |
| |
| — |
| |
|
| |||
Cash and cash equivalents - beginning of period |
| |
| — |
| |
|
| |||
Cash and cash equivalents - end of period | $ | |
| — | $ | |
|
|
(1)Reflects immaterial error corrections for the classification of certain operating activities.
Note 3.Fuzhou Note Receivable
In May 2020, Energy Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited (“Zhengtong”) in the amount of
13
Note 4.Revenue
The following table summarizes the Company’s revenues disaggregated by revenue source, geography (based on the Company’s business locations,) and timing of revenue recognition (in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
(As restated) | (As restated) | |||||||||||
Geographic Markets |
|
|
|
|
|
|
|
| ||||
Malaysia | $ | | $ | | $ | | $ | | ||||
USA |
| |
| |
| |
| | ||||
PRC |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | | ||||
Product or Service |
|
|
|
|
|
|
|
| ||||
Electric vehicles* | $ | | $ | | $ | | $ | | ||||
Charging, batteries and powertrains |
| |
| — |
| |
| — | ||||
Title and escrow services |
| |
| — |
| |
| — | ||||
Combustion engine vehicles* |
| — |
| |
| — |
| | ||||
Digital advertising services and other |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | | ||||
Timing of Revenue Recognition |
|
|
|
|
|
|
|
| ||||
Products and services transferred at a point in time | $ | | $ | | $ | | $ | | ||||
Services provided over time |
| |
| — |
| |
| — | ||||
Total | $ | | $ | | $ | | $ | |
* | The revenues were recorded on either a Principal or Agent basis, depending on the terms of the underlying transaction, including the ability to control the product and the level of inventory risk taken. In the six months ended June 30, 2021, the revenue from the sale of electric vehicles were recorded on a Principal basis. In the six months ended June 30, 2020, the EV revenues were recorded on either a Principal or Agency basis. |
Note 5.Available-for-Sale Security
On January 28, 2021, the Company invested $
The terms of the convertible promissory note are as follows:
● | The principal amount is $ |
● | The interest rate is |
● | 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 |
● | 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 a reduction of the note’s fair value of $
14
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
2021 Acquisitions
The Company has completed the below acquisitions in the six months ended June 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. 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
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
In addition to the purchase price to be paid at closing, the WAVE Agreement contains
15
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 $
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
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 $
Revenue of $
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
In addition to the purchase price to be paid at closing, the Solectrac Agreement contains
16
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 $
The Company has also agreed to a performance and retention plan for the benefit of certain Solectrac employees which could result in up to $
Revenue of $
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.
17
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) (as restated):
| Solectrac |
| US Hybrid |
| Timios |
| WAVE | |||||
(As restated) | ||||||||||||
Purchase Price |
|
|
|
|
|
|
|
| ||||
Cash paid at closing, including working capital estimates | $ | | $ | | $ | | $ | | ||||
Fair value of previously held interest |
| |
| — |
|
|
|
| ||||
Fair value of common stock |
| — |
| |
| — |
| | ||||
Fair value of contingent consideration |
| |
| — |
| — |
| | ||||
Total purchase consideration | $ | | $ | | $ | | $ | | ||||
Purchase Price Allocation |
|
|
|
|
|
|
|
| ||||
Assets acquired |
|
|
|
|
|
|
|
| ||||
Current assets |
| |
| |
| |
| | ||||
Property, plant and equipment |
| |
| |
| |
| — | ||||
Other assets |
| |
| |
| |
| — | ||||
Intangible assets – tradename |
| |
| |
| |
| | ||||
Intangible assets – lender relationships |
| — |
| — |
| |
| — | ||||
Intangible assets - technology |
| |
| |
|
|
|
| ||||
Intangible assets – patents |
| — |
| — |
| — |
| | ||||
Intangible assets – licenses |
| — |
| — |
| |
| — | ||||
Indefinite lived title plant |
| — |
| — |
| |
| — | ||||
Goodwill |
| |
| |
| |
| | ||||
Total assets acquired |
| |
| |
| |
| | ||||
Liabilities assumed: |
|
|
|
|
|
|
|
| ||||
Current liabilities |
| ( |
| ( |
| ( |
| ( | ||||
Deferred tax liability |
| ( |
| ( |
| ( |
| ( | ||||
Total liabilities assumed |
| ( |
| ( |
| ( |
| ( | ||||
Net assets acquired | $ | | $ | | $ | | $ | |
The useful lives of the intangible assets acquired is as follows:
| Solectrac |
| US Hybrid |
| Timios |
| WAVE | |
Intangible assets – tradename |
|
|
|
| ||||
Intangible assets – lender relationships |
| — |
| — |
|
| — | |
Intangible assets – technology |
|
|
| — |
| 14 | ||
Intangible assets – non-compete |
| — |
| 5 |
| — |
| |
Intangible assets – licenses |
| — |
| — |
|
| — | |
Weighted average useful life |
|
|
|
|
Amortization expense related to intangible assets created as a result of the 2021 Acquisitions of $
2021 is as follows (amounts in thousands): |
|
| |
2021 remaining | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and beyond |
| | |
Total | $ | |
18
Cumulative Goodwill in the amount of $
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 $
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 | Six Months Ended | |||||||||||
| June 30, 2021 | June 30, 2020 |
| June 30, 2021 | June 30, 2020 | |||||||
(Amounts in thousands, except per share and share data) |
|
|
|
|
|
|
|
| ||||
Total revenue | $ | | $ | | $ | | $ | | ||||
Net loss attributable to IDEX common shareholders |
| ( |
| ( |
| ( |
| ( | ||||
Earnings (loss) per share |
|
|
|
|
|
|
|
| ||||
Basic and Diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding |
|
|
|
|
|
|
|
| ||||
Basic and Diluted |
| |
| |
| |
| |
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
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 $
The Company had previously disclosed that it considered Grapevine to be a non-core asset and was evaluating strategies for its divestiture. The operations of Grapevine were not material to the Company.
Refer to Note 10 for additional information concerning the investment in FNL.
19
Note 7.Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
Accounts receivable | $ | | $ | | ||
Less: allowance for doubtful accounts |
| ( |
| ( | ||
Accounts receivable, net | $ | | $ | |
The gross balance includes the taxi commission revenue receivables of $
The following table summarizes the movement of the allowance for doubtful accounts (in thousands):
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
Balance at the beginning of the period | $ | ( | $ | — | ||
Increase in the allowance for doubtful accounts |
| ( |
| ( | ||
Balance at the end of the period | $ | ( | $ | ( |
The Company reserved its accounts receivable of $
Note 8.Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
Furniture and office equipment | $ | | $ | | ||
Vehicle |
| |
| | ||
Leasehold improvements |
| |
| | ||
Machinery and equipment |
| |
| — | ||
Total property and equipment |
| |
| | ||
Less: accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net |
| |
| | ||
Fintech Village |
|
|
|
| ||
Land |
| — |
| | ||
Assets retirement obligations - environmental remediation |
| — |
| | ||
Construction in progress (Fintech Village) |
| — |
| | ||
Property and Equipment, net | $ | | $ | |
The Company recorded depreciation expense of $
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 $
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
On January 28, 2021, the Company’s Board of Directors accepted an offer of $
20
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 $
The Company recorded asset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The asset retirement obligations are not classified as held for sale as the purchaser will not assume these liabilities. However, as the sale of Fintech Village is expected to be completed within one year, the asset retirement obligations, which will be derecognized upon the sale, have been classified as current liabilities in the condensed consolidated balance sheet.
The following table summarizes the activity in the asset retirement obligation for the six months ended June 30, 2021 (in thousands):
| January 1, |
| Liabilities |
| Remediation |
| Accretion |
|
| June 30, | ||||||||
2021 | Incurred | Performed | Expense | Revisions | 2021 | |||||||||||||
Asset retirement obligation | $ | | $ | — | $ | — | $ | — | $ | — | $ | |
Note 9.Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill (in thousands):
(As restated) | |||
Balance as of January 1, 2020 |
| $ | |
Measurement period adjustments |
| ( | |
Effect of change in foreign currency exchange rates |
| ( | |
Impairment loss |
| ( | |
Balance as of December 31, 2020 |
| | |
Measurement period adjustments* |
| | |
Acquisitions |
| | |
Adjustment (see Note 2. Restatement of Previously Reported Condensed Consolidated Financial Statements) | | ||
Effect of change in foreign currency exchange rates |
| ( | |
Disposal of Grapevine** |
| ( | |
Balance as of June 30, 2021 | $ | |
* | During the first quarter of 2021, the Company completed the acquisition of |
** | During the second quarter of 2021, the Company completed the sale of Grapevine. Refer to Note 6 for additional information. |
21
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
| June 30, 2021 |
| December 31, 2020 | ||||||||||||||||||
(As restated) | |||||||||||||||||||||
Weighted | |||||||||||||||||||||
Average | Gross | Gross | |||||||||||||||||||
Remaining | Carrying | Accumulated | Net | Carrying | Accumulated | Net | |||||||||||||||
| Useful Life |
| Amount |
| Amortization |
| Balance |
| Amount |
| Amortization |
| Balance | ||||||||
Amortizing Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Influencer network (a,g) |
| $ | — | $ | — | $ | — | $ | | $ | ( | $ | | ||||||||
Customer contract (a,g) |
|
| — |
| — |
| — |
| |
| ( |
| | ||||||||
Continuing membership agreement (b) |
|
| |
| ( |
| |
| |
| ( |
| | ||||||||
Trade name (a,g) |
|
| — |
| — |
| — |
| |
| ( |
| | ||||||||
Technology platform (a,g) |
|
| — |
| — |
| — |
| |
| ( |
| | ||||||||
Land use rights (c) |
|
| |
| ( |
| |
| |
| ( |
| | ||||||||
Timios licenses (d) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Timios tradename (d) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Timios lender relationships (d) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Timios software in development (e) |
|
| |
| — |
| |
| — |
| — |
| — | ||||||||
WAVE patents (f) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
WAVE tradename (f) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Software - Solectrac (h) |
|
| |
| — |
| |
| — |
| — |
| — | ||||||||
USH - Brand (i) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
USH - Technology (i) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Solectrac - Brand (h) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Solectrac - Technology (h) |
|
| |
| ( |
| |
| — |
| — |
| — | ||||||||
Total |
| |
| ( |
| |
| |
| ( |
| | |||||||||
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Timios Title plant (d) |
| |
| — |
| |
| — |
| — |
| — | |||||||||
Website name |
| |
| — |
| |
| |
| — |
| | |||||||||
Patent |
| — |
| — |
| — |
| |
| — |
| | |||||||||
Total | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
(a) | During the third quarter of 2018, the Company completed the acquisition of |
(b) | During the third quarter of 2019 the Company completed the acquisition of additional shares in DBOT, which increased its ownership to |
(c) | During the fourth quarter of 2019, the Company completed the acquisition of a |
(d) | During the first quarter of 2021, the Company completed the acquisition of |
(e) | Relates to software development costs capitalized during the six months ended June 30, 2021 at Timios. The asset is yet to be placed into service; amortization of the completed asset will commence once it is ready to be placed into service. |
22
(f) | During the first quarter of 2021, the Company completed the acquisition of |
(g) | During the second quarter of 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 |
(h) | During the second quarter 2021, the Company completed the acquisition of privately held Solectrac. Solectrac develops |
(i) | During the second quarter 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. |
Amortization expense relating to intangible assets was $
The following table summarizes the expected amortization expense for the following years (in thousands):
| Amortization to be | ||
Recognized | |||
Years ending December 31, | (As restated) | ||
2021 (excluding the six months ended June 30, 2021) | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
Total | $ | |
Note 10.Long-term Investments
The following table summarizes the Company’s long-term investments (in thousands):
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
(As restated) | (As revised) | |||||
Non-marketable equity investments | $ | | $ | | ||
Equity method investments |
| |
| | ||
Total | $ | | $ | |
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,
On January 28, 2021, the Company entered into a simple agreement for future equity (the “SAFE”) with Technology Metals Market Limited (“TM2”) pursuant to which Ideanomics invested £
23
above one million pounds (
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting (in thousands):
June 30, 2021 | |||||||||||||||||||||||
(As restated) | |||||||||||||||||||||||
Reclassification to | |||||||||||||||||||||||
Income (loss) | equity method | Reclassification to | Dilution loss due to | ||||||||||||||||||||
January 1, 2021 | Addition | on investment | investee | subsidiaries | investee share issuance | June 30, 2021 | |||||||||||||||||
Solectrac |
| (a) |
| $ | |
| $ | — |
| $ | ( |
| $ | — |
| $ | ( |
| $ | ( |
| $ | — |
TM2 |
| (b) |
| |
| |
| ( |
|
|
|
|
|
|
| | |||||||
Energica |
| (c) |
| — |
| |
| ( |
| — |
| — |
| — |
| | |||||||
FNL Technologies |
| (d) |
| — |
| |
| — |
| |
| — |
| — |
| | |||||||
Total |
|
| $ | | $ | | $ | ( | $ | | $ | ( | $ | ( | $ | |
The Company has received no dividends from equity method investees in the three and six months ended June 30, 2021 and 2020.
(a)Solectrac, Inc. (“Solectrac”)
On October 22, 2020, the Company acquired
2020, Ideanomics acquired an additional
On June 11, 2021, Ideanomics entered into a stock purchase agreement and plan of merger with Solectrac and its shareholders, and acquired the remaining common shares outstanding of Solectrac for total consideration of $
Refer to Note 6 for additional information on the acquisition of Solectrac.
24
Solectrac develops, assembles and distributes
(b) Technology Metals Market Limited (“TM2”)
On December 20, 2019, the Company acquired
TM2 is a London based digital commodities issuance and trading platform for technology metals. It connects institutional investors, proprietary traders and retail investors with metals suppliers – miners, refiners, recyclers and mints. The platform focuses specifically on new metals that currently don’t have an active trading marketplace, such as rhodium, lithium, cobalt, rhenium, etc.
(c) Energica Motor Company S.P.A. (“Energica”)
On March 3, 2021, the Company entered into an investment agreement with Energica Motor Company S.P.A (“Energica.”) The Company invested €
Energica is the world’s leading manufacturer of high performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup.
Energica motorcycles are currently on sale through the official network of dealers and importers.
The Company has decided to account for Energica on a one quarter lag as Energica, which is publicly traded on the Milan stock exchange, is only required to prepare and file semi-annual and annual financial statements, and the time frame in which the filings must be complete is much more lenient than in the U.S. Energica prepares its financial statements in accordance with Article 2423 et seq of the Italian Civil Code, rather than U.S. GAAP. Energica’s financial statements will either be prepared in or reconciled to U. S. GAAP prior to the Company recording its share of Energica’s earnings or losses, and the one quarter lag will be utilized to accomplish this, as well as related disclosure matters.
As of June 30, 2021, the excess of the Company’s investment over its proportionate share of Energica’s net assets was $
Certain shareholders of Energica have rights such that they may convert their ordinary shares into ordinary shares with supervoting rights under certain
conditions. If some or all of these ordinary shares were converted into ordinary shares with supervoting rights, the Company’s ownership in Energica would be diluted, perhaps significantly.
The aggregate market value of the Energica common shares owned by the Company was $
(d) FNL
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL, pursuant to which Ideanomics made an investment into FNL, which included the investment of $
25
Ideanomics common stock issued, and the fair value of Grapevine. As a result of this transaction, Ideanomics owns
The Company has decided to account for FNL on a one quarter lag, as FNL is in the development stage and will require the additional time to prepare financial statements in accordance with U.S. GAAP.
Note 11.Leases
On May 1, 2020, the Company took possession of premises in Qingdao, China in furtherance of a larger public/private initiative to promote EV business in the region and reduce the reliance on traditional combustion engines. The premises are indirectly and
partially owned by local governmental entities, and were provided to the Company at no charge. The Company, pursuant to the underlying lease, has use of the premises until November 30, 2034. See Note 1 for the Company’s accounting for this lease.
As of June 30, 2021, the Company’s operating lease right of use assets and operating lease liabilities are $
As of December 31, 2020, the Company’s operating lease right of use assets and operating lease liabilities were $
The following table summarizes the components of lease expense (inclusive of the Qingdao property lease) (in thousands) (as restated):
Three Months Ended | Six Months Ended | |||||||||||
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | |||||
Operating lease cost | $ | | $ | | $ | | $ | | ||||
Short-term lease cost |
| |
| | | | ||||||
Sublease income |
| — |
| ( | — | ( | ||||||
Total | $ | | $ | | $ | | $ | |
The following table summarizes supplemental information related to leases (inclusive of the Qingdao property lease) (in thousands) (as restated):
Three Months Ended | Six Months Ended | |||||||||||
June 30, 2021 |
| June 30, 2020 | June 30, 2021 |
| June 30, 2020 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
| ||||
Operating cash flows from operating leases | $ | | $ | | $ | | $ | | ||||
Right of use assets obtained in exchange for new operating lease liabilities |
| | — | | |
The additional right of use assets were acquired in the Timios, WAVE, US Hybrid and Solectrac acquisitions. The facilities acquired are primarily office buildings and warehouses in U.S. locations where they conduct business.
26
The following table summarizes the maturity of operating lease liabilities (inclusive of the Qingdao property lease) (in thousands):
| Leased Property | ||
Years ending December 31 | Costs | ||
2021 (excluding the six months ended June 30, 2021) | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
Total lease payments |
| | |
Less: interest |
| ( | |
Total | $ | |
In the three months ended March 31, 2020 the Company ceased to use the premises underlying
In the three months ended June 30, 2020 the Company ceased to use the premises for its New York City headquarters at 55 Broadway, which are subject to
Note 12.Promissory Notes
The following table summarizes the outstanding promissory notes as of June 30, 2021 and December 31, 2020 (dollars in thousands):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Interest Rate | Principal Amount | Carrying Amount* | Principal Amount | Carrying Amount* | ||||||||||
Vendor Note Payable |
| % | $ | |
| $ | |
| $ | |
| $ | | |
Small Business Association Paycheck Protection Program |
| | % |
| |
| |
| |
| | |||
Promissory Note |
| | % |
| |
| |
| — |
| — | |||
Total |
| $ | |
| | $ | |
| | |||||
Less: Current portion |
| ( |
| ( | ||||||||||
Long-term Note, less current portion |
| $ | — | $ | — |
* | Carrying amount includes the accrued interest. |
As of June 30, 2021 and December 31, 2020, the Company was in compliance with all ratios and covenants with respect to the $
The Company had various debt instruments outstanding as of June 30, 2020. As of June 30, 2020, the total principal amount outstanding was $
27
In the six months ended June 30, 2020, the Company received aggregate gross proceeds of $
In the three months ended June 30, 2020, the Company recorded interest expense related to these debt instruments of $
$
On January 4, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $
During the six months ended June 30, 2021, the note, plus accrued and unpaid interest, was converted into
$
On January 15, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $
During the six months ended June 30, 2021, the note, plus accrued and unpaid interest, were converted into
$
On January 28, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $
During the six months ended June 30, 2021, the note, plus accrued and unpaid interest, were converted into
28
$
On February 8, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $
Total interest expense recognized was $
Vendor Notes Payable
On May 13, 2020, DBOT entered into a settlement agreement with a vendor whereby the existing agreement with the vendor was terminated, the vendor ceased to provide services, and all outstanding amounts were settled. In connection with this agreement, DBOT paid an initial $
In the three months ended March 31, 2020, the Company ceased to use the premises underlying
Small Business Association Paycheck Protection Program
On Apr 10, 2020, the Company borrowed $
On May 1, 2020, Grapevine borrowed $
On May 3, 2020, WAVE borrowed $
On February 24, 2021, US Hybrid borrowed $
29
Total interest expense recognized was $
Note 13.Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
The Board of Directors has authorized
Redeemable Non-controlling Interest
The Company and Qingdao Chengyang Xinyang Investment Company Limited (“Qingdao”) formed an entity named Qingdao Chengyang Mobo New Energy Vehicle Sales Service Company Limited (“New Energy.”) Qingdao entered into a capital subscription agreement for a total of RMB
The investment agreement stipulates that New Energy must pay Qingdao dividends at the rate of
The following table summarizes activity for the redeemable non-controlling interest (in thousands):
Six months ended | |||||
June 30, 2021 | June 30, 2020 | ||||
Beginning balance |
| $ | |
| |
Initial investment |
| |
| | |
Accretion of dividend |
| |
| | |
Loss attributable to non-controlling interest |
| ( |
| ( | |
Adjustment to redemption value |
| |
| | |
Ending balance | $ | |
| |
Common Stock
The Board of Directors has authorized
2021 Equity Transactions
On February 26, 2021, the Company entered into a sales agreement with Roth Capital Partners, LLC (“Roth Capital.”) in accordance with the terms of the sales agreement, the Company may offer and sell from time to time through Roth Capital the Company’s common stock having an aggregate offering price of up to $
30
On June 11, 2021, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN, Ltd., (“YA”). The Company will be able to sell up to
Refer to Note 6 for information related to the issuance to common stock for acquisitions, Note 12 for information related to issuance of common stock with convertible notes, Note 15 for information related to the issuance to common stock for option exercise.
2020 Equity Transactions
During the three months ended June 30, 2020, the Company issued
common stock related to the related party debt conversion, and
During the six months ended June 30, 2020, the Company issued
related to the related party debt conversion, and
Note 14.Related Party Transactions
(a) Convertible Notes
$
On May 10, 2012, Mr. McMahon, the Company’s Vice Chairman, made a loan to the Company in the amount of $
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $
$
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $
31
recorded interest expense of $
The Company received $
$
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $
The Company received $
(b) Severance payments
Pursuant to previous severance agreements with certain executives, the Company paid $
(c) Transaction with Dr. Wu. and his affiliates
On June 5, 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings at a conversion price of $
As of June 30, 2021 and December 31, 2020, the Company has receivables of $
As of June 30, 2021 and December 31, 2020, the Company has payables of $
Service agreement with SSSIG
The Company entered a service agreement with SSSIG for the period from July 1, 2020 through June 30, 2021 for $
June 30, 2021. The agreement was terminated in May 2021 and both parties agree that the service agreement has been completely performed and no payment is outstanding, and the termination shall not be regarded as a breach by either party. As a result, the Company recorded unpaid $
32
New service agreement with SSSIG
The Company entered a new consulting service agreement with SSSIG on April 20, 2021 for the period from April 1, 2021 through June 30, 2021 for $
(d) Amounts due from and due to Glory
Glory has made partial payment of $
(e) Long Term Investment to Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co. (“Shenma”) to acquire its
(f) FNL payable
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL, pursuant to which Ideanomics made an investment into FNL, the unpaid consideration $
(f) Borrowing from Beijing Financial Holdings Limited
In the second quarter of 2020, the borrowing of $
(g) Zhu Note Receivable
In May 2020, a subsidiary of the Company, Qingdao Chenyang Ainengju New Energy Sales and Service Company Limited ("Energy Sales") provided a note receivable to Mr. Jianya Zhu ("Mr. Zhu") in the amount of
Note 15.Share-Based Compensation
As of June 30, 2021, the Company had
The Company awards common stock and stock options to employees, consultants, and directors as compensation for their services, and accounts for its stock option awards to employees, consultants, and directors pursuant to the provisions of ASC 718, Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton
33
valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, the Company’s Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which options or other similar securities may be granted. On October 22, 2020, the Company’s shareholders approved the amendment and restatement of the 2010 Plan. The maximum aggregate number of shares of common stock that may be issued under the 2010 Plan increased from
For the three months ended June 30, 2021 and 2020, total share-based payments expense was $
(a) Stock Options
The following table summarizes stock option activity for the six months ended June 30, 2021:
|
|
|
|
| Weighted |
|
| |||
Weighted | Average | |||||||||
Average | Remaining | Aggregate | ||||||||
Options | Exercise | Contractual | Intrinsic | |||||||
Outstanding | Price | Life (Years) | Value | |||||||
Outstanding at January 1, 2021 |
| | $ | |
| — | $ | | ||
Granted |
| |
| |
| — |
| — | ||
Exercised |
| ( |
| |
| — |
| | ||
Expired |
| ( |
| |
| — |
| — | ||
Forfeited |
| ( |
| |
| — |
| — | ||
Outstanding at June 30, 2021 |
| |
| |
|
| | |||
Vested as of June 30, 2021 |
| |
| |
|
| | |||
Expected to vest as of June 30, 2021 |
| |
| |
|
| |
As of June 30, 2021, $
The following table summarizes the assumptions used to estimate the fair values of the share options granted in the six months ended June 30, 2021 and 2020.
| Six Months Ended |
| |||
June 30, 2021 | June 30, 2020 |
| |||
Expected term (in years) |
|
| |||
Expected volatility |
| % | % | ||
Expected dividend yield |
| — | % | — | % |
Risk free interest rate |
| % | | % |
34
(b) Warrants
In connection with certain of the Company’s service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The weighted average exercise price was $
| June 30, 2021 |
| December 31, 2020 |
|
|
| |||
Number of | Number of | ||||||||
Warrants | Warrants | ||||||||
Outstanding and | Outstanding and | Exercise | Expiration | ||||||
Warrants Outstanding | Exercisable | Exercisable | Price | Date | |||||
Service providers |
| |
| | $ | | July 1, 2022 | ||
Service providers |
| |
| |
| | February 28, 2022 - October 1, 2022 | ||
Service provider |
| |
| — |
| | January 1, 2023 | ||
Service provider |
| |
| — |
| | January 1, 2023 | ||
Total |
| |
| |
|
|
|
(c) Restricted Shares
As of June 30, 2021, there was $
Note 16.Earnings (Loss) Per Common Share
The following table summarizes the Company’s earnings (loss) per share for the three and six months ended June 30, 2021 and 2020 (USD in thousands, except per share amounts):
| Three Months Ended |
| Six Months Ended | |||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
(As restated) | (As restated) | |||||||||||
Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Basic weighted average common shares outstanding |
| |
| |
| |
| | ||||
Effect of dilutive securities |
|
|
|
|
|
|
|
| ||||
Convertible preferred shares- Series A |
| |
| |
| |
| | ||||
Convertible promissory notes |
| |
| |
| |
| | ||||
Diluted potential common shares |
| |
| |
| |
| | ||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
| ||||
Basic | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Diluted | $ | ( | $ | ( | $ | ( | $ | ( |
Basic earnings (loss) per common share attributable to the Company’s shareholders is calculated by dividing the net loss attributable to the Company’s shareholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive.
35
The following table includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have a contractual obligation to share in the Company’s losses and thus these shares were not included in the computation of diluted loss per share because the effect was antidilutive (in thousands):
| June 30, |
| December 31, | |
2021 | 2020 | |||
Warrants |
| |
| |
Options and RSUs |
| |
| |
Series A Preferred Stock |
| |
| |
DBOT contingent shares |
| |
| |
Convertible promissory note and interest |
| |
| |
Total |
| |
| |
Note 17.Income Taxes
During the three months ended June 30, 2021 there was an income tax benefit of $
Timios, US Hybrid and Soletrac have taxable income or loss reported on certain separate state tax returns and consequently have related state income tax expense or benefit. In the case of US Hybrid and Soletrac, which have losses, there are state income tax benefits consisting of those losses being used to reduce the state deferred tax liabilities recognized in the acquisitions. In the case of Timios, state income tax expense results from income. The net state income tax expense for Timios, US Hybrid and Solectrac was $
During the three and six months ended June 30, 2020 income tax expense is
There were
Note 18.Commitments and Contingencies
Lawsuits and Legal Proceedings
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the business.
36
Shareholder Class Actions and Derivative Litigation
On July 19, 2019, a purported class action, now captioned Rudani v. Ideanomics, et al. Inc., was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers and directors. The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018. As part of a mediation, the parties reached a settlement in principle, which is subject to finalizing a settlement agreement and approval of the Court, for $
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics et al. Inc., was filed in the United State District Court for the Southern District of New York against the Company and certain current officers and directors of the Company. Additionally, on July 7, 2020, a purported securities class action captioned Kim v. Ideanomics, et al, was filed in the
Southern District of New York against the Company and certain current officers and directors of the Company. Both cases alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in June 2020 regarding its MEG division. On November 4, 2020, the Lundy and Kim actions were consolidated and is now titled “In re Ideanomics, Inc. Securities Litigation.” In December 2020, the Court appointed Rene Aghajanian as lead plaintiff and an amended complaint was filed in February 2021, alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division. The defendants filed a motion to dismiss on May 6, 2021. While the Company believes that this action is without merit, there can be no assurance that the Company will prevail. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, alleging violations and allegations similar to the Toorani and Elleisy litigation. The Company and certain of the defendants, including the Company, have reached a settlement in principle in which the Company has agreed to certain corporate governance and internal procedure reforms and is not expected to have a material financial impact on
the Company. The settlement in principle is subject to finalization and approval of the Court.
SEC Investigation
As previously reported, the Company is subject to an investigation by the SEC and continues to respond to various information and requests from the SEC.
The Company is fully cooperating with the SEC’s requests and cannot predict the outcome of this investigation.
Note 19.Concentration of Credit and Foreign Currency Risks
(a) Concentration of Credit Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable. As of June 30, 2021, the Company’s cash was held by financial institutions (located in the PRC, Hong Kong, Malaysia, the U.S. and Singapore) that management believes have acceptable credit.
37
Accounts receivable are typically unsecured. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.
(b) Foreign Currency Risks
A portion of the Company’s operating transactions are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC.”) Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.
Note 20.Contingent Consideration
The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the input to fair value is observable (in thousands):
| June 30, 2021 | |||||||||||
Level I | Level II | Level III | Total | |||||||||
DBOT - Contingent consideration1 | $ | — | $ | — | $ | | $ | | ||||
Tree Technology - Contingent consideration2 |
| — |
| — |
| |
| | ||||
Wave - Contingent consideration3 |
| — |
| — |
| |
| | ||||
Solectrac - Contingent consideration4 |
| — |
| — |
| |
| |
Note
1 | This represents the liability incurred in connection with the acquisition of DBOT shares during the third quarter of 2019 and as remeasured as of April 17, 2020. The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future. The fair value of DBOT contingent consideration as of June 30, 2021 was valued using the Black-Scholes Merton method. The Company issued |
2 | This represents the liability incurred in connection with the acquisition of Tree Technology shares during the fourth quarter of 2019 and as subsequently remeasured as of June 30, 2021. The fair value of the Tree Technology contingent consideration was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors. |
3 | This represents the liability incurred in connection with the acquisition of WAVE. The liability represents the combination of the contingent shares and the earnout. The contingent shares are the remaining shares to be issued contingent on the receipt of certain customer consents as disclosed in Note 6. The fair value of this contingent consideration was valued using a scenario-based method that indicated based on the probabilities that |
4 | This represents the liability incurred in connection with the acquisition of Solectrac. The liability represents the fair value of the three earnouts that were entered into at closing. The fair value of $ |
38
The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):
| Contingent | ||
Consideration | |||
January 1, 2021 | $ | | |
Addition |
| | |
Settlement |
| — | |
Remeasurement loss/(gain) recognized in the statement of operations |
| ( | |
June 30, 2021 | $ | |
Note 21.Subsequent Events
Convertible Debenture
On August 2, 2021, the Company repaid the $
Minority Depository Institution Keepers Fund
On July 26, 2021, the Company entered into a subscription agreement to invest $
Prettl Electronics Automotive
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 €
Cybersecurity Incident
The Company’s real estate services subsidiary, Timios, experienced a systems outage that was caused by a cybersecurity incident. Timios has engaged leading forensic information technology firms and legal counsel to assist its investigation into the incident and is working around the clock to get its system back up as quickly as possible. Although Timios is actively managing this cybersecurity incident, it has caused and may continue to cause a delay or disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. The Company is in the early stages of assessing the financial impact of the incident. Based on the information currently known, the Company is unable to predict at this time whether revenues will be materially impacted by this attack.
Equity Offering
On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Agreement”) with Cantor Fitzgerald & Co. (the “Agent”). In accordance with the terms of the Agreement, the Company may offer and sell from time to time through or to the Agent, as sales agent or principal, the Company’s common stock having an aggregate offering price of up to $
39
Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q/A contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as “may”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “continue”, or other similar words. You should read statements that contain these words carefully because they discuss the Company’s future expectations, contain projections of the Company’s future results of operations or financial condition or state other “forward-looking” information. The Company believes that it is important to communicate its future expectations to its investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for the Company’s products, and the product-development and marketing efforts of its competitors. Examples of these events are more fully described in the Company’s 2020 Form 10-K under Part I. Item 1A. Risk Factors.
Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, Current Reports on Form 8-K and all amendments to those reports.
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis is presented in four sections as below and should be read in conjunction with the condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q/A. In addition to historical information, the following discussion contains certain forward-looking information. See “Cautionary Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.
● | Overview |
● | Results of Operations |
● | Liquidity and Capital Resources |
● | Outlook |
OVERVIEW
Ideanomics, Inc. (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004.
Through June 30, 2021, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. Ideanomics Mobility is driving EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the three key pillars of electric vehicles ("EV"): Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)
Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
Restatement of Previously Issued Consolidated Financial Statements
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2021. For additional information and a detailed discussion of the Restatement, see Note 2, “Restatement of Previously Issued Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report on Form 10-Q/A.
Significant Transactions in the Six Months Ended June 30, 2021
Since December 31, 2020 the Company has completed a number of transactions that have expanded the scope of the Company’s EV and fintech activities, and has entered into a contract regarding the sale of Fintech Village and has completed the disposal of Grapevine Logic, Inc.
WAVE
On January 15, 2021, the Company acquired 100% of privately held Wireless Advanced Vehicle Electrification, Inc. (“WAVE.”)
Founded in 2011, and headquartered in Salt Lake City, Utah, WAVE is a leading provider of inductive (wireless) charging solutions for medium and heavy-duty EVs. Embedded in roadways and depot facilities, the WAVE system automatically charges vehicles during scheduled stops. The hands-free WAVE system eliminates battery range limitations and enables fleets to achieve driving ranges that match that of internal combustion engines.
Deployed since 2012, WAVE has demonstrated the capability to develop and integrate high-power charging systems into heavy-duty EVs from leading commercial EV manufacturers. With commercially available wireless charging systems up to
41
250kW and higher power systems in development, WAVE provides custom fleet solutions for mass transit, logistics, airport and campus shuttles, drayage fleets, and off-road vehicles at ports and industrial sites.
Wireless charging systems offer several compelling benefits over plug-in-based charging systems, including reduced maintenance, improved health and safety, and expedited energy connection and are important to the deployment of autonomous driving vehicles. Furthermore, wireless in-route charging enables greater route lengths or smaller batteries while also maintaining battery life, thereby reducing costs for fleet operators. WAVE customers include what is currently the largest EV bus system in the U.S., the Antelope Valley Transit Authority, and its partnerships include Kenworth, Gillig, BYD, Complete Coach Works and the Department of Energy.
Energica Motor Company, S.P.A. (“Energica”)
On March 3, 2021, the Company purchased 20% of Energica, the world’s leading manufacturer of high-performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup. Energica has combined zero emission EV technology with the pedigree of high-performance mobility synonymous with Italy’s Motor Valley to create a range of exceptional products for the high-performance motorcycle market. To support its products, it has developed proprietary EV battery and DC fast-charging in-house that has applications and synergies with Ideanomics’ broader interests in the global EV sector.
Silk EV Cayman LP (“Silk”)
On January 28, 2021, the Company invested $15.0 million in Silk EV via a promissory note. Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (“Silk-FAW”) to produce fully electric, luxury vehicles for the Chinese and Global auto markets. Silk-FAW has exclusive rights to develop Hongqi-S brand high-end electric sports cars. The Hongqi brand is the most well known domestic luxury auto brand in China. Silk-FAW vehicles are being designed in Italy’s Motor Valley and is attracting talent from the luxury and high performance auto market. Partnering with Silk provides access to Silk-FAW’s Innovation Centers providing us insight into technological advancements and all best-in-breed technology evaluated at those centers to support the development of high-performance sportscars (battery tech, power management systems, high performance motors.)
Timios Holdings Corp.
On January 8, 2021, the Company acquired 100% of privately-held Timios Holdings Corp. (“Timios.”) Timios, a U.S. nationwide title and escrow services provider, which has been expanding in recent years through offering innovative and freedom-of-choice-friendly solutions for real estate transactions. The products include residential and commercial title insurance, closing and settlement services, as well as specialized offerings for the mortgage process industry.
Ideanomics expects that Timios will become one of the cornerstones of Ideanomics Capital. Timios combines difficult to obtain local and state licenses, a knowledgeable and experienced team, and a scalable platform to deliver best-in-class services through both centralized processing and localized branch networks. Ideanomics will assist Timios in scaling its business in various ways, including referring client acquisitions and product innovation.
Founded in 2008 by real estate industry veteran Trevor Stoffer, Timios’ vision is to bring transparency to real estate transactions. The company offers title and settlement, appraisal management, and real-estate-owned (“REO”) title and closing services in 44 states and currently serves more than 280 national and regional clients.
Technology Metals Market Limited (“TM2”)
TM2 is a London based digital commodities issuance and trading platform for technology metals. It connects institutional investors, proprietary traders and retail investors with metals suppliers – miners, refiners, recyclers and mints. The platform focuses specifically on new metals that currently don’t have an active trading marketplace, such as rhodium, lithium, cobalt, rhenium, etc. The Company’s ownership interest in TM2 provides valuable data and insight into the global technology metals market, which is critical to the future of the Cleantech and EV industries. TM2 connects both pillars of Cleantech and Fintech. The types of metals and materials traded on the TM2 platform are critical to Cleantech (for EV battery production, energy storage systems, solar cells, etc.,) while the Fintech platform is innovative in representing these commodities which do not exist on traditional exchanges.
42
On January 28, 2021, the Company entered into a simple agreement for future equity with TM2 pursuant to which Ideanomics invested $2.1 million. This investment is a follow-on investment further the Company’s prior investment of $1.2 million in stock-based consideration in December 2019.
Fintech Village
On January 28, 2021, the Company’s Board of Directors accepted an 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.”
US Hybrid
On June 10, 2021, the Company completed the acquisition of US Hybrid Corporation (“US Hybrid.”) Founded in 1999, and headquartered in Torrance, California, US Hybrid has been providing innovative solutions including components, drive trains, and fuel cells to medium and heavy-duty commercial fleet operators. US Hybrid designs, manufactures, and markets integrated power conversion systems for battery electric, fuel cell, and hybrid vehicles, as well as systems for renewable energy generation and storage. The company has been leading the clean-tech revolution by offering integrated power conversion components and integrated motor drives, motors and controllers, distributed energy management systems, and DC-DC boost converters - equipment that is vital to the growth of the broader EV industry. In addition to its relationships with leading original equipment manufacturers, US Hybrid has delivered projects for the private and public sectors, including the defense industry and governmental customers.
US Hybrid has reliably demonstrated proven powertrain technology, along with DC-DC converters which possess high efficiency ratings and fast dynamic response capabilities. US Hybrid enjoys long-term commercial relationships in various industries including Commercial, Defense and Aerospace, and Transit/Municipal for its battery electric vehicle, fuel cell energy, and hybrid platforms.
The acquisition of US Hybrid brings to Ideanomics the application of U.S.-built technology, for use in its own vehicles, and significantly extends the company’s capabilities in zero-emission transportation. US Hybrid will continue to service its existing customer base, and Ideanomics will assist them in scaling their business operations within the Ideanomics Mobility business division. US Hybrid operates from locations in California, Connecticut, and Massachusetts.
Solectrac, Inc.
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 percent 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.
Grapevine Logic, Inc.
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
43
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.
The Company had previously disclosed that it considered Grapevine to be a non-core asset and was evaluating strategies for its divestiture. The operations of Grapevine were not material to the Company.
Recent Developments
Convertible Debenture
On August 2, 2021, the Company repaid the $80.0 million convertible debenture with YA II PN, along with accrued but unpaid interest of $1.6 million.
Minority Depository Institution Keepers Fund
On July 26, 2021, the Company entered into a subscription agreement to invest $25.0 million in the Minority Depository Institution Keepers Fund (the “MDI Fund”) over a period of three years. The MDI Fund sponsored by the National Bankers’ Association, an organization of minority-owned banks that aim to increase inclusivity in the financial services industry. The MDI Fund will provide capital resources primarily in low and moderate income areas to grow a more skilled workforce, increase employment opportunities, and support businesses’ growth among minority and underserved communities. The initial investment of $0.6 million was made on July 26, 2021.
Prettl Electronics Automotive
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 ($8.9 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
Cybersecurity Incident
The Company’s real estate services subsidiary, Timios, experienced a systems outage that was caused by a cybersecurity incident. Timios has engaged leading forensic information technology firms and legal counsel to assist its investigation into the incident and is working around the clock to get its system back up as quickly as possible. Although Timios is actively managing this cybersecurity incident, it has caused and may continue to cause a delay or disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. The Company is in the early stages of assessing the financial impact of the incident. Based on the information currently known, the Company is unable to predict at this time whether revenues will be materially impacted by this attack.
Equity Offering
On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Agreement”) with Cantor Fitzgerald & Co. (the “Agent”). In accordance with the terms of the Agreement, the Company may offer and sell from time to time through or to the Agent, as sales agent or principal, the Company’s common stock having an aggregate offering price of up to $350.0 million (the “Placement Shares.”) The Placement Shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333- 252230) and the related base prospectus included in the registration statement, as supplemented by the prospectus supplement dated August 12, 2021.
Principal Factors Affecting the Company’s Financial Performance
The business is expected to be impacted by both macroeconomic and Ideanomics-specific factors. The following factors have been part of the transformation of the Company which affected the results of its operations in 2021 and 2020:
● | The Company’s ability to transform the business and to meet internal or external expectations of future performance. In connection with this transformation, the Company is in the process of considerable changes, which include assembling a new management team in the United States and overseas, reconfiguring its business |
44
structure, continuing to further enhance the controls, procedures, and oversight during this transformation, and expanding the Company’s mission and business lines for continued growth. It is uncertain whether these efforts will prove beneficial or whether the Company will be able to develop the necessary business models, infrastructure and systems to support the businesses. To succeed, among other things, the Company will need to have or hire the right talent to execute the business strategy. Market acceptance of new product and service offerings will be dependent in part on management’s ability to include functionality and usability that address customer requirements, and optimally price the products and services to meet customer demand and cover costs. |
● | The Company’s ability to remain competitive. The Company will continue to face intense competition: these new technologies are constantly evolving, and the Company’s competitors may introduce new platforms and solutions that are superior. In addition, the Company’s competitors may be able to adapt more quickly to new technologies or may be able to devote greater resources to the development, marketing and sale of their products than the Company can. The Company may never establish and maintain a competitive position in the hybrid financing and logistics management businesses. |
● | The fluctuation in earnings from the deployment of the Company’s services through acquisitions, strategic equity investments, the formation of joint ventures, and through licenses of technology. The Company’s results of operations may fluctuate from period to period based on the entry into new transactions to expand the business. In addition, while management intends to contribute cash and other assets to the Company’s various investments, the Company does not intend for its holding company to conduct significant research and development activities. The Company intends research and development activities to be conducted by its technology partners and licensors. These fluctuations in growth or costs and in the Company’s various investments may contribute to significant fluctuations in the results of the Company’s operations. |
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 July 31, 2021, over 197.6 million cases had been reported across the globe, resulting in 4.2 million deaths.
The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, 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 remains challenging.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
The Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations, 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.
45
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Information about Segment Presentation
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 June 30, 2021, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital.
With four acquisitions closing in the six months ended June 30, 2021, the Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may 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 three comprising the consolidated operations of the Company. The chief operating decision maker will review financial results at the segment level, and the Company is in the process of identifying and appointing segment managers and revising its budgeting and forecasting process so as to be aligned with the anticipated corporate structure.
Ideanomics Mobility is driving 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 is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
Our Unconsolidated Equity Investments
The investments where the Company exercises significant influence, but not control, are classified as long-term equity investments and accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for its share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that the Company does not guarantee the investee’s obligations or is committed to provide additional funding. Refer to Note 10 of the notes to unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q/A for further information.
46
Consolidated Results of Operations
Comparison of Three Months Ended June 30, 2021 and 2020 (USD in thousands):
Three Months Ended | |||||||||||
Amount | % | ||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | ||||
(As restated) | |||||||||||
Revenue | $ | 30,846 | $ | 4,692 | $ | 26,154 |
| n/m | |||
Cost of revenue |
| 21,545 |
| 4,437 |
| 17,108 |
| n/m | |||
Gross profit |
| 9,301 |
| 255 |
| 9,046 |
| n/m | |||
Operating expenses: |
|
|
|
|
|
|
|
| |||
Selling, general and administrative expenses |
| 12,922 |
| 6,725 |
| 6,197 |
| 92.1 | |||
Research and development expense |
| 235 |
| — |
| 235 |
| n/m | |||
Professional fees |
| 7,439 |
| 2,372 |
| 5,067 |
| n/m | |||
Impairment losses |
| — |
| 6,200 |
| (6,200) |
| n/m | |||
Change in fair value of contingent consideration, net |
| (2,402) |
| 746 |
| (3,148) |
| n/m | |||
Depreciation and amortization |
| 1,635 |
| 481 |
| 1,154 |
| n/m | |||
Total operating expenses |
| 19,829 |
| 16,524 |
| 3,305 |
| 20.0 | |||
Loss from operations |
| (10,528) |
| (16,269) |
| 5,741 |
| (35.3) | |||
Interest and other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| (563) |
| (8,890) |
| 8,327 |
| (93.7) | |||
Loss on disposal of subsidiaries, net |
| (1,234) |
| — |
| (1,234) |
| n/m | |||
Conversion expense |
| — |
| (2,266) |
| 2,266 |
| n/m | |||
Gain on remeasurement of investment |
| 2,915 |
| — |
| 2,915 |
| n/m | |||
Other income, net |
| 836 |
| 1,015 |
| (179) |
| (17.6) | |||
Loss before income taxes and non-controlling interest |
| (8,574) |
| (26,410) |
| 17,836 |
| (67.5) | |||
Income tax benefit |
| 1,570 |
| — |
| (428) |
| n/m | |||
Equity in loss of equity method investees |
| (461) |
| (12) |
| (449) |
| n/m | |||
Net loss |
| (7,465) |
| (26,422) |
| 16,959 |
| (64.2) | |||
Deemed dividend related to warrant repricing |
| — |
| (184) |
| 184 |
| n/m | |||
Net loss attributable to common shareholders |
| (7,465) |
| (26,606) |
| 17,143 |
| (64.4) | |||
Net loss attributable to non-controlling interest |
| 203 |
| 28 |
| 175 |
| n/m | |||
Net loss attributable to IDEX common shareholders | $ | (7,262) | $ | (26,578) | $ | 17,318 |
| (65.2) |
n/m = Not Meaningful - represents percentage changes, in terms of absolute value over 100%.
47
Six months ended June 30, 2021 and 2020 (USD in thousands):
Six Months Ended | |||||||||||
Amount | % | ||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | ||||
(As restated) | |||||||||||
Revenue | $ | 60,785 | $ | 5,070 | $ | 55,715 |
| n/m | |||
Cost of revenue |
| 40,642 |
| 4,771 |
| 35,871 |
| n/m | |||
Gross profit |
| 20,143 |
| 299 |
| 19,844 |
| n/m | |||
Operating expenses: |
|
|
|
|
|
|
|
| |||
Selling, general and administrative expenses |
| 24,773 |
| 12,552 |
| 12,221 |
| 97.4 | |||
Research and development expense |
| 245 |
| — |
| 245 |
| n/m | |||
Professional fees |
| 12,607 |
| 4,128 |
| 8,479 |
| n/m | |||
Impairment losses |
| — |
| 7,088 |
| (7,088) |
| n/m | |||
Change in fair value of contingent consideration, net |
| (1,907) |
| 1,279 |
| (3,186) |
| n/m | |||
Litigation settlement |
| 5,000 |
| — |
| 5,000 |
| n/m | |||
Depreciation and amortization |
| 2,763 |
| 957 |
| 1,806 |
| n/m | |||
Total operating expenses |
| 43,481 |
| 26,004 |
| 17,477 |
| 67.2 | |||
Loss from operations |
| (23,338) |
| (25,705) |
| 2,367 |
| (9.2) | |||
Interest and other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| (980) |
| (12,047) |
| 11,067 |
| (91.9) | |||
Loss on disposal of subsidiaries, net |
| (1,446) |
| — |
| (1,446) |
| n/m | |||
Conversion expense |
| — |
| (2,266) |
| 2,266 |
| n/m | |||
Gain on remeasurement of investment |
| 2,915 |
| — |
| 2,915 |
| n/m | |||
Other income, net |
| 680 |
| 989 |
| (309) |
| (31.2) | |||
Loss before income taxes and non-controlling interest |
| (22,169) |
| (39,029) |
| 16,860 |
| (43.2) | |||
Income tax benefit |
| 8,825 |
| — |
| 12,185 |
| n/m | |||
Equity in loss of equity method investees |
| (698) |
| (15) |
| (683) |
| n/m | |||
Net loss |
| (14,042) |
| (39,044) |
| 28,362 |
| (72.6) | |||
Deemed dividend related to warrant repricing |
| — |
| (184) |
| 184 |
| n/m | |||
Net loss attributable to common shareholders |
| (14,4042) |
| (39,228) |
| 28,546 |
| (72.8) | |||
Net loss attributable to non-controlling interest |
| 367 |
| 300 |
| 67 |
| 22.3 | |||
Net loss attributable to IDEX common shareholders | $ | (13,675) | $ | (38,928) | $ | 28,613 |
| (73.5) |
Revenues (USD in thousands)
Three Months Ended | |||||||||||
Amount | % | ||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | ||||
(As restated) | |||||||||||
Electric vehicles | $ | 6,067 | $ | 695 | $ | 5,372 |
| n/m | |||
Charging, batteries and powertrains |
| 2,676 |
| — |
| 2,676 |
| n/m | |||
Title and escrow services |
| 22,069 |
| — |
| 22,069 |
| n/m | |||
Combustion engine vehicles |
| — |
| 3,892 |
| (3,892) |
| n/m | |||
Digital advertising services and others |
| 34 |
| 105 |
| (71) |
| (67.6) | |||
Total | $ | 30,846 | $ | 4,692 | $ | 26,154 |
| n/m |
48
n/m = Not Meaningful - represents percentage changes, in terms of absolute value over 100%.
Six Months Ended | |||||||||||
Amount | % | ||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | ||||
(As restated) | |||||||||||
Electric vehicles | $ | 9,086 | $ | 750 | $ | 8,336 |
| n/m | |||
Charging, batteries and powertrains |
| 4,558 |
| — |
| 4,558 |
| n/m | |||
Title and escrow services |
| 46,910 |
| — |
| 46,910 |
| n/m | |||
Combustion engine vehicles |
| — |
| 3,892 |
| (3,892) |
| n/m | |||
Digital advertising services and others |
| 231 |
| 428 |
| (197) |
| (46.0) | |||
Total | $ | 60,785 | $ | 5,070 | $ | 55,715 |
| n/m |
n/m = Not Meaningful - represents percentage changes, in terms of absolute value over 100%.
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Revenue for the three months ended June 30, 2021 was $30.8 million as compared to $4.7 million for the same period in 2020, an increase of $25.9 million.
The increase was mainly due to the Company’s acquisition of Timios, which generated revenue of $22.1 million for the three months ended June 30, 2021.
No revenue was generated related to title and escrow services for the three months ended June 30, 2020.
In the second quarter of 2021, the Company recognized $22.1 million revenue from the sales of title and escrow services, $6.1 million revenue from the sales of EVs, and $2.7 million revenue from sales of charging, batteries and powertrains. The EV revenues for the quarter were recorded on a Principal (Gross) basis because the Company acted as principal in these transactions.
In the second quarter of 2020, the Company continued to develop its EV business and recognized $4.6 million revenue from the sales of vehicles, which
included revenue of $3.9 million from the sale of traditional combustion vehicles. In the second quarter of 2020, the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a Principal capacity, revenues were recorded on a Gross basis and for those contracts where it acted in an Agent capacity the revenues were recorded on a Net basis.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Revenue for the six months ended June 30, 2021 was $60.8 million as compared to $5.1 million for the same period in 2020, an increase of $55.7 million. The increase was mainly due to the Company’s acquisition of Timios, which generated revenue of $46.9 million from the acquisition closing date through June 30, 2021. No revenue was generated related to title and escrow services for the six months ended June 30, 2020.
In the six months ended June 30, 2020, the Company continued to develop its EV business and recognized $4.6 million revenue from the sales of vehicles,
which included revenue of $3.9 million from the sale of traditional combustion vehicles. In the six months ended June 30, 2020 the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a Principal capacity revenues were recorded on a Gross basis and for those contracts where it acted in an Agent capacity the revenues were recorded on a Net basis.
49
Cost of revenues (USD in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||||
Amount | % | Amount | % | |||||||||||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change |
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | |||||||
(As restated) | (As restated) | |||||||||||||||||||||
Electric vehicles | $ | 5,530 | $ | 452 | $ | 5,078 |
| n/m | $ | 8,549 | $ | 454 | $ | 8,095 |
| n/m | ||||||
Charging, batteries and powertrains |
| 2,109 |
| — |
| 2,109 |
| n/m |
| 3,649 |
| — |
| 3,649 |
| n/m | ||||||
Title and escrow services |
| 13,890 |
| — |
| 13,890 |
| n/m |
| 28,252 |
| — |
| 28,252 |
| n/m | ||||||
Combustion engine vehicles |
| — |
| 3,871 |
| (3,871) |
| n/m |
| — |
| 3,871 |
| (3,871) |
| nm | ||||||
Digital advertising services and others |
| 16 |
| 114 |
| (98) |
| (86) |
| 192 |
| 446 |
| (254) |
| (57) | ||||||
Total | $ | 21,545 | $ | 4,437 | $ | 17,108 |
| n/m | $ | 40,642 | $ | 4,771 | $ | 35,871 |
| n/m |
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Cost of revenues was $21.5 million for the three months ended June 30, 2021, as compared to $4.4 million for the three months ended June 30, 2020. The increase was mainly due to the Company’s acquisition of Timios, which had recorded cost of revenues of $13.9 million related to title and escrow service for the three months ended June 30, 2021. No cost related to title and escrow services were incurred for the three months ended June 30, 2020.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Cost of revenues was $40.6 million for the six months ended June 30, 2021, as compared to $4.8 million for the six months ended June 30, 2020. The increase was mainly due to the Company’s acquisition of Timios, which had recorded cost of revenues of 28.3 million related to title and escrow service from the acquisition closing date through June 30, 2021. No cost related to title and were incurred escrow services for the six months ended June 30, 2020.
Gross profit (USD in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||||
Amount | % | Amount | % | |||||||||||||||||||
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change |
| June 30, 2021 |
| June 30, 2020 |
| Change |
| Change | |||||||
Electric vehicles | $ | 537 | $ | 243 | $ | 294 |
| n/m | $ | 537 | $ | 296 | $ | 241 |
| 81.4 | ||||||
Charging, batteries and powertrains |
| 567 |
| — |
| 567 |
| n/m |
| 909 |
| — |
| 909 |
| n/m | ||||||
Title and escrow services |
| 8,179 |
| — |
| 8,179 |
| n/m |
| 18,658 |
| — |
| 18,658 |
| n/m | ||||||
Combustion engine vehicles |
| — |
| 21 |
| (21) |
| n/m |
| — |
| 21 |
| (21) |
| n/m | ||||||
Digital advertising services and others |
| 18 |
| (9) |
| 27 |
| n/m |
| 39 |
| (18) |
| 57 |
| n/m | ||||||
Total | $ | 9,301 | $ | 255 | $ | 9,046 |
| n/m | $ | 20,143 | $ | 299 | $ | 19,844 |
| n/m |
50
Gross profit ratio
Three Months Ended | Six Months Ended |
| |||||||
June 30, | June 30, | June 30, | June 30, |
| |||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |
Electric vehicles |
| 8.9 | % | 35.0 | % | 5.9 | % | 39.5 | % |
Charging, batteries and powertrains |
| 21.2 | % | — | % | 19.9 | % | — | % |
Title and escrow services |
| 37.1 | % | — | % | 39.8 | % | — | % |
Combustion engine vehicles |
| — | % | 0.5 | % | — | % | 0.5 | % |
Digital advertising services and others |
| 52.9 | % | (8.6) | % | 16.9 | % | (4.2) | % |
Total |
| 30.2 | % | 5.4 | % | 33.1 | % | 5.9 | % |
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Gross profit for the three months ended June 30, 2021 was $9.3 million, as compared to gross profit in the amount of $0.3 million during the same period in 2020. The increase was mainly due to the Company’s acquisition of Timios, which generated gross profit of $8.2 million related to title and escrow service for the three months ended June 30, 2021. There was no gross profit related to title and escrow services for the three months ended June 30, 2020.
The gross profit ratio for the three months ended June 30, 2021 was 30.2%, while in 2020, it was 5.4%. The increase was mainly due to the high gross margin from the sales of title and escrow services for the three months ended June 30, 2021.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Gross profit for the six months ended June 30, 2021 was $20.1 million, as compared to gross profit in the amount of $0.3 million during the same period in 2020. The gross profit ratio for the six months ended June 30, 2021 was 33.1%, while in 2020, it was 5.9%. The increase was mainly due to the high gross margin from sales of title and escrow services for the six months ended June 30, 2020.
Selling, general and administrative expenses
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Selling, general and administrative expenses for the three months ended June 30, 2021 were $12.9 million as compared to $6.7 million for the same period in 2020, an increase of $6.2 million. The increase was principally due to the inclusion of selling, general and administrative expenses related to Timios, which was acquired on January 8, 2021 and WAVE which was acquired on January 15, 2021 and increases in compensation costs within existing businesses reflecting increased head count as these operations are expanded.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Selling, general and administrative expenses for the six months ended June 30, 2021 were $25.1 million as compared to $12.6 million for the same period in 2020, an increase of $12.5 million, or almost 100%. The increase was principally due to the inclusion of selling, general and administrative expenses related to Timios which was acquired on January 8, 2021 and WAVE which was acquired on January 15, 2021 and increases in compensation within existing businesses reflecting increased head count as these operations expanded.
Research and development expense
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Research and development expense was $0.2 million in the three and six months ended June 30, 2021, primarily incurred in connection with EV motorbikes in Malaysia.
There were no research and development expenses recorded in the three and six months ended June 30, 2020, and the amount was de minimis in the three months ended March 31, 2021.
51
Professional fees
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Professional fees for the three months ended June 30, 2021 were $7.4 million as compared to $2.4 million for the same period in 2020, an increase of $5.0 million. The increase was related to an increase in legal fees, consulting services, fees related to acquisition and maintenance of patents and investors relations related expense. The increase in legal fees was principally due to advice on mergers and acquisitions, responding to regulatory inquiries, class action lawsuits and general corporate advice. Consulting fees increased as a result of a shared services agreement with SSSIG and general advice related to the expansion of the Company’s operations in the current quarter including investors relations services.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Professional fees for the six months ended June 30, 2021 were $12.6 million as compared to $4.1 million for the same period in 2020, an increase of $8.5 million. The increase in legal fees was related to advice on mergers and acquisitions, general corporate advice responding to regulatory inquiries, and advice in relation to the fund raising activities. Consulting fees increased as a result of a shared services agreement with SSSIG, increased spending on investor relations services, consulting activities associated with acquisitions including integration services and business services expense related to the expansion of the Company’s operations in China.
Impairment losses
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
In the three months ended June 30, 2020, the Company recorded impairment losses of $5.9 million as the Company decided to cease the use of the New York headquarters’ office space, and impaired the right of use assets, leasehold improvements and fixed assets. The Company also recorded an impairment loss of $0.3 million related to another current asset.
The Company recorded no impairment losses in the three months ended June 30, 2021.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
The Company recorded an impairment loss of $0.9 million related to the DBOT right of use assets and $5.9 million related to the New York headquarters’ right of use assets, leasehold improvement and fixed assets because the Company decided to cease use the office and vacated the space subsequently. The Company also recorded an impairment loss of $0.3 million related to another current asset.
The Company recorded no impairment losses in the six months ended June 30, 2021.
Change in fair value of contingent consideration, net
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
The change in fair value of contingent consideration, net of $(2.4) million for the three months ended June 30, 2021 represents the remeasurement of the contingent consideration payable to Tree Technology shareholders.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
The change in fair value of contingent consideration, net of $(1.9) million represents the remeasurement of the contingent consideration payable to the Tree Technology shareholders.
52
Litigation settlement
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
The Company recorded a $5.0 million litigation settlement as a result of the agreement reached by both parties on the mediation in April, 2021. There were no such litigation settlements in the six months ended June 30, 2020.
Depreciation and amortization
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Depreciation and amortization for the three months ended June 30, 2021 was $1.6 million as compared to $0.5 million for the same period in 2020, an increase of $1.1 million. The increase was mainly due to the increase in amortization expense recorded by Timios and WAVE, which were acquired in the first quarter of 2021.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Depreciation and amortization for the six months ended June 30, 2021 was $2.8 million as compared to $1.0 million for the same period in 2020, an increase of $1.8 million. The increase was mainly due to the increase in amortization expense recorded by Timios and WAVE, which were acquired in the first quarter of 2021.
Interest expense, net
The following table summarizes the breakdown of the interest expense (in thousands):
Three Months Ended | Six Months Ended | |||||||||||
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | |||||
Interest, net | $ | 563 | $ | 325 | $ | 980 | $ | 598 | ||||
Amortization of discount |
| — |
| 8,565 |
| — |
| 11,449 | ||||
Total | $ | 563 | $ | 8,890 | $ | 980 | $ | 12,047 |
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Interest expense decreased $8.3 million to $0.6 million for the three months ended June 30, 2021, from $8.9 million during the same period of 2020. The interest expense during 2020 was primarily related to the beneficial conversion feature of convertible debt that were either converted or repaid in 2020 with a resulting decrease in interest expense.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Interest expense decreased $11.0 million to $1.0 million for the six months ended June 30, 2021, from $12.0 million during the same period of 2020. The interest expense during 2020 was primarily related to the beneficial conversion feature of convertible debt that were either converted or repaid in 2020 with a resulting decrease in interest expense.
Loss on disposal of subsidiaries, net
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Loss on disposal of subsidiaries, net represents the loss incurred on the sale of Grapevine and the estimated costs to sell Fintech Village.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Loss on disposal of subsidiaries, net represents the loss incurred on the sale of Grapevine and the estimated costs to sell Fintech Village.
53
Conversion expense
Conversion expense of $2.3 million for the three and six months ended June 30, 2020 represents the expense recognized as a result of the reduction of conversion price to induce the conversion of the convertible notes from related parties.
There were no such conversions in the three and six months ended June 30, 2021.
Gain on remeasurement of investment
Gain on remeasurement of investment of $2.9 million in the three and six months ended June 30, 2021 resulted from remeasuring the Company’s investment in Solectrac to its fair value of the date the Company obtained the remainder of the Solectrac shares outstanding and commenced consolidating Solectrac.
There were no such remeasurements in the three and six months ended June 30, 2020.
Other income (expense), net
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Other income (expense), net for the three months ended June 30, 2021 and 2020 does not change significantly, It mainly represents the income resulting from settlement of the liabilities due to various vendors and the lease income
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Other income (expense), net for the six months ended June 30, 2021 and 2020 does not change significantly. It mainly represents the income resulting from settlement of the liabilities due to various vendor and the lease income
Income tax (expense) benefit
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
During the three months ended June 30, 2021, the income tax benefit of $1.6 million is mainly due to $1.7 million of one time benefits related to acquisitions and net state income tax expense of $0.1 million for recently acquired entities in 2021.
During the three months ended June 30, 2020, the income tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. Company had established a 100% valuation allowance against its net deferred tax assets due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
During the six months ended June 30, 2021, the income tax benefit of $8.8 million is mainly due to $9.1 million of one-time benefits relating to acquisitions and net state income expense $0.3 million for recently acquired entities.
During the six months ended June 30, 2020, income tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100.0% valuation allowance against its net deferred tax assets due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
Equity in loss of equity method investees
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Equity in loss of equity method investees increased $0.4 million to $0.5 million for the three months ended June 30, 2021 from $12,000 during the same period of 2020. The increase is due to the equity in the losses of TM2, Solectrac, and Energica.
54
Six months ended June 30, 2021 as compared to the six months ended June 30, 2020
Equity in loss of equity method investees increased $0.7 million to $0.7 million for the six months ended June 30, 2021 from $15,000 during the same period of 2020. The increase is due to the equity in the losses of Tm2, Solectrac, and Energica.
Deemed dividend related to warrant repricing
Deemed dividend related to warrant repricing of $0.2 million for the three and six months ended June 30, 2020 resulted from the reduction of the exercise prices of warrants issued in connection with convertible promissory notes.
There were no such repricings in the three and six months ended June 30, 2021.
Net loss attributable to non-controlling interest
Three months ended June 30, 2021 as compared to the three months ended June 30, 2020
Net loss attributable to non-controlling interests was $0.2 million for the three months ended June 30, 2021 compared to a net loss of $28,199 in the same period in 2020. The increase is primarily due to the increase in loss of our investment with Tree Technologies.
Net loss attributable to non-controlling interests was $0.4 million for the six months ended June 30, 2021 compared to a net loss of $0.3 million in the same period in 2020. The increase is primarily due to the increase in loss of our investment with Tree Technologies, partially offset by the decrease in loss of iUnicorn.
Liquidity and Capital Resources
As of June 30, 2021, we had cash of $395.6 million. Approximately $39.3 million was held in accounts outside of the United States, primarily in Hong Kong and the PRC.
Due to the strict regulations governing the transfer of funds held in the PRC to other jurisdictions, the Company does not consider funds held in its PRC entities to be available to fund operations and investment outside of the PRC and consequently does not include them when evaluating the liquidity needs of its businesses operating outside of the PRC.
Timios holds various regulatory licenses related to its business as a title insurance agency and is required to hold a minimum cash balance of $2.0 million. As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.2 million as of June 30, 2021, which was necessary for DBOT to meet its minimum capital requirements. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures.
The following table provides a summary of net cash flows from operating, investing and financing activities (in thousands):
| Six Months Ended | |||||
June 30, 2021 | June 30, 2020 | |||||
Net cash used in operating activities | $ | (10,370) | $ | (10,390) | ||
Net cash used in investing activities |
| (142,837) |
| (1,879) | ||
Net cash provided by financing activities |
| 383,046 |
| 45,737 | ||
Effect of exchange rate changes on cash |
| 39 |
| 283 | ||
Net increase in cash and cash equivalents |
| 229,878 |
| 33,751 | ||
Cash and cash equivalents at beginning of period |
| 165,764 |
| 2,633 | ||
Cash and cash equivalents at end of period | $ | 395,642 | $ | 36,384 |
Operating Activities
Cash used in operating activities was $(10.4) million for the six months ended June 30, 2021 as compared to cash used in operating activities of $(10.4) million in the same period in 2020. This was primarily due to: (1) a reduction in net loss to $(14.0) million in the current period as compared to a net loss of $(39.0) million in the same period of 2020, (2) total non-cash adjustments increase (decrease) to net loss was $(2.9) million and $28.5 million for the six months ended June 30,
55
2021 and 2020, respectively; and (3) total changes in operating assets and liabilities resulted in an decrease of $2.6 million and of $0.2 million in cash used in operating activities for the six months ended June 30, 2021 and 2020, respectively
Investing Activities
Cash used in investing activities was $(142.8) million, primarily due to expenditures incurred for the acquisitions of Timios, WAVE, Solectrac and US Hybrid, the investments in Energica and FNL and the acquisition of the convertible note with Silk EV.
Financing Activities
The Company received $383.0 million from financing activities in the current quarter versus $45.7 million in the same period in the prior year. The issuance of convertible notes generated $220.0 million in the current period as compared to $2.0 million in the same period of 2020. The exercise of warrants and issuance of common stock generated $163.0 million as compared to $39.1 million in the same period of 2020. In the period ended June 30, 2020 the Company received $7.1 million from a non-controlling shareholders contribution and made a repayment of $3.0 million to a related party.
The Company expects to continue to raise both equity and debt finance to support the Company’s investment plans and operations.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds interests in investments accounted for under the equity method of accounting. The Company does not control these investments and therefore does not consolidate them.
The Company does not have other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in its securities.
Seasonality
The Company expects that orders and sales in its Ideanomics Mobility business unit will be influenced by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the
year when companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the new budget cycle commences. The Company’s operating businesses are in the early stage of their development and consequently do not have sufficient trading histories to project seasonal buying patterns with any degree of confidence.
Orders and sales in our Ideanomics Capital business unit will principally be influenced by changes in interest rates and the resulting impact on in the U.S.
housing market particularly as it relates to purchases of homes and the refinancing of existing mortgages which are central to our Timios business.
OUTLOOK
The Company has made significant acquisitions and investments in both its Ideanomics Mobility and Ideanomics Capital business units in the first six months of 2021. The Company anticipates that the Ideanomics Mobility and Ideanomics Capital units will be complimentary to each other with Ideanomics Capital arranging funding for projects which include Ideanomics Mobility deploying both vehicles and charging equipment at customer designated sites. The company operates in four verticals in the EV sector - Infrastructure, Components, Vehicles, and Financing. Using its S2F2C (Sales to Financing to Charging) business model the Company offers customers a vertically integrated offering across the entire value chain of owning and operating a commercial EV fleet which includes offering Mobility as a Service (MaaS) through Vehicle as a
56
Service (VaaS) and Charging as a Service (CaaS) offerings, designed to remove barriers to entry by shifting the commercial fleet operator’s costs from an upfront CapEx model and onto a recurring revenue based OpEx model. The VaaS and CaaS offerings turn the high upfront capital costs of converting to EV into a monthly recurring cost basis for fleet operators – and we refer to this as turning Capex into Opex. The Company believes that VaaS and CaaS will be important differentiators in the commercial EV market and provide the Company with stable and predictable revenues.
Over the next twelve months the Company anticipates increased spending in its operating businesses as they hire and invest in new facilities to support their expansion.
The Company’s operations in China continue to develop the business selling ride hailing vehicles and batteries. The China business is in discussions with customers to deploy WAVE technology in China and is working to develop ancillary financial products to make purchasing of commercial EV vehicles easier.
The Company’s Tree Technologies subsidiary secured a large order to supply up to 200,000 units of its 100% electric motorbikes to Indonesia through PSE, its exclusive distributor, during a three year term. As part of supplying this order the Company anticipates entering into arrangements to assemble these motorbikes in Indonesia and setting up a battery swap business.
Fintech continues to provide opportunities which could generate high rates of return through the deployment of technology to disrupt existing business models. The Company’s acquisition of Timios in the first quarter of 2021 marks the first entrance into the real estate title agency and closing market. Management believes that through deployment of advanced technology and complimentary acquisitions it can increase Timios’ value. The regulatory environment for the adoption of digital securities is improving with regulators and central bankers in the world’s most developed economies acknowledging that digital securities should be part of the financial ecosystem. This change favors companies like Ideanomics that have assets, such as DBOT, that are fundamental building blocks of any move towards digital securities.
The Company anticipates making continued investments in both the Ideanomics Mobility and Ideanomics Capital business units.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2 to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10Q/A.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
57
As required by Rule 13a-15 under the Exchange Act, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021. Based on that evaluation, in our Original Form 10-Q, our chief executive officer and chief financial officer concluded that as of June 30, 2021, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.
Our management has reevaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021. During the preparation of the condensed consolidation financial statements as of and for the period ended September 30, 2021, the Company identified material misstatements in its Original Form 10-Q’s as of and for the periods ended March 31, 2021 and June 30, 2021. Our chief executive officer and chief financial officer concluded that as of June 30, 2021, our disclosure controls and procedures were not effective because of material weaknesses in the Company’s accounting and financial reporting for complex transactions.
Management has determined that the Company has the following material weaknesses in its internal control over financial reporting:
● | The design and implementation of internal controls over the review of management’s inputs into valuation models and associated valuation outputs from third party valuation specialists. |
● | The design and implementation of internal controls over the revenue recognition process, specifically the failure to properly evaluate whether the Company was to be considered the principal or the agent in contracts with customers. |
● | There is a lack of sufficient personnel in accounting and financial reporting functions with sufficient experience and expertise with respect to the application of U.S. GAAP and SEC disclosure requirements. |
● | Operating effectiveness of internal controls to identify and evaluate the accounting implications of non-routine transactions. |
These material weaknesses, individually or in the aggregate, could result in misstatements of accounts or disclosures that would each result in a material misstatement of the interim or annual Consolidated Financial Statements that would not be prevented or detected.
Notwithstanding the conclusion by our management that our disclosure controls and procedures as of June 30, 2021 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q/A fairly present in all material respects our financial position, results of operations and cash flows as of and for the dates presented, and for the periods ended on such dates, in conformity with US GAAP.
Our evaluation excluded Timios, WAVE, Solectrac and US Hybrid which were acquired in the six months ended June 30, 2021. As of and for the three months ended June 30, 2021, Timios represented 9.7% of total assets and 72.2% of revenue, WAVE represented 9.4% of total assets and 7.7% of revenue, Solectrac represented 3.9% of total assets and less than 1.0% of revenue, and US Hybrid represented 8.3% of total assets and approximately 1.0% of revenue. In accordance with guidance issued by the SEC, we expect to exclude the acquisitions from our assessment of internal controls over financial reporting during the first year following the acquisition.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2021, which have materially affected or would likely materially affect our internal control over financial reporting. The Company continues to invest resources in order to upgrade internal controls.
58
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of the Company’s legal proceedings, see Note 18, Commitments and Contingencies, to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 2020 Form 10-K which could materially affect the Company’s business, financial condition or future results. The risks described in the 2020 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition or future results.
Risks Related to the Restatement of our Prior Period Condensed Consolidated Financial Statements and Material Weaknesses in our Internal Control
We have restated our condensed consolidated financial statements for several prior periods, which has affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, and our reputation with our customers, which may result in stockholder litigation and may reduce customer confidence in our ability to complete new opportunities.
This Quarterly Report on Form 10-Q/A includes restated condensed consolidated financial statements as of and for the period ended June 30, 2021. The restatement of our condensed consolidated financial statements primarily reflects the correction of certain errors, which resulted from an incorrect application of US GAAP, as described in more detail elsewhere in this Quarterly Report on Form 10-Q/A. Such restatement may have the effect of eroding investor confidence in the Company and our financial reporting and accounting practices and processes, and may negatively impact the trading price of our common stock, may result in stockholder litigation, may make it more difficult for us to raise capital on acceptable terms, if at all, and may negatively impact our reputation with our customers and cause customers to place new orders with other companies.
We have identified material weaknesses in our internal control over financial reporting, which, did and could continue to, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.
We have concluded that our internal control over financial reporting was not effective as of June 30, 2021 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of June 30, 2021 due to material weaknesses in our internal control over financial reporting, all as described in Part I, Item 4, “Controls and Procedures” of this Quarterly Report on Form 10-Q/A. Although we have initiated remediation measures to address the identified weaknesses, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future.
We intend to continue our remediation activities and to continue to improve our overall control environment and our operational and financial systems and infrastructure, as well as to continue to train, retain and manage our personnel who are essential to effective internal control. In doing so, we will continue to incur expenses and expend management’s time on compliance-related issues. However, we cannot ensure that the steps that we have taken or will take will successfully remediate the errors. If we are unable to successfully complete our remediation efforts or favorably assess the effectiveness of our internal control over financial reporting, our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and our stock price could be adversely affected.
Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected and corrected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal control may also cause us to fail to meet reporting obligations, negatively affect investor and customer confidence in our management and the accuracy of our financial statements and disclosures, result in events of default under our
59
banking agreements, or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties or additional stockholder litigation, and have a material adverse impact on our business and financial condition.
Risks Related to Our Information Technology Systems and Cyber-Security
Defects or disruptions in our technology or services could diminish demand for our products and services and subject us to liability.
Because our technology, products and services are complex and use or incorporate a variety of computer hardware, software and databases, both developed in-house and acquired from third-party vendors, our technology, products and services may have errors or defects. Errors and defects could result in unanticipated downtime or failure and could cause financial loss and harm to our reputation and our business. We have from time to time found defects and errors in our technology, products and service and defects and errors in our technology, products or services may be detected in the future. In addition, our customers may use our technology, products and services in unanticipated ways that may cause a disruption for other customers. As we acquire companies, we may encounter difficulty in incorporating the acquired technologies, products and services, and maintaining the quality standards that are consistent with our technology, products and services. Since our customers use our technology, products and services for important aspects of their businesses and for financial transactions, any errors, defects, or disruptions in such technology, products and services or other performance problems with our technology, products and services could subject our customers to financial loss and hurt our reputation.
Our platform functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our software code may only be discovered after the code has been deployed. Any errors, bugs or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results.
We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We have previously experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity constraints. If our application is unavailable when customers attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Malicious cyber-attacks and other adverse events affecting our operational systems or infrastructure, or those of third parties, could disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses or regulatory penalties.
Developing and maintaining our operational systems and infrastructure are challenging, particularly as a result of us and our clients entering into new businesses, jurisdictions and regulatory regimes, rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data processing or other operating and compliance systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including malicious cyber-attack or other adverse events, which may adversely affect our ability to process these transactions or provide services or products.
In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take protective measures, such as software programs, firewalls and similar technology, to maintain the confidentiality, integrity and availability of our and our customers’ information, and endeavor to modify these protective measures as circumstances warrant, the nature of cyber threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential customer information), account takeovers, unavailability or disruption of service, computer viruses, acts of vandalism, or other malicious code, ransomware, hacking, phishing and other cyber-attacks and other
60
adverse events that could have an adverse security impact. Despite the defensive measures we have taken, these threats may come from external forces, such as governments, nation-state actors, organized crime, hackers, and other third parties, including outsource or infrastructure-support providers and application developers, or may originate internally from within us. Given the high volume of transactions, certain errors may be repeated or compounded before they are discovered and rectified.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including vendors, customers, counterparties, exchanges, clearing agents, clearinghouses or other financial intermediaries. Such parties could also be the source of a cyber-attack on or breach of our operational systems, network, data or infrastructure.
There have been an increasing number of ransomware, hacking, phishing and other cyber-attacks in recent years in various industries, including ours, and cyber-security risk management has been the subject of increasing focus by our regulators. Like other companies, we have on occasion experienced, and may continue to experience, threats to our systems, including viruses, phishing and other cyber-attacks. The number and complexity of these threats continue to increase over time. The techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. If one or more cyber-attacks occur, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, as well as our customers’ or other third parties’ operations, which could result in reputational damage, financial losses, customer dissatisfaction and/or regulatory penalties, which may not in all cases by covered by insurance. If an actual, threatened or perceived cyber-attack or breach of our security occurs, our clients could lose confidence in our platforms and solutions, security measures and reliability, which would materially harm our ability to retain existing clients and gain new clients. As a result of any such attack or breach, we may be required to expend significant resources to repair system, network or infrastructure damage and to protect against the threat of future cyber-attacks or security breaches. We could also face litigation or other claims from impacted individuals as well as substantial regulatory sanctions or fines.
The extent of a particular cyber- attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, we may not necessarily know the full extent of the harm caused by the cyber-attack, and any resulting damage may continue to spread. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyber-attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyber-attack.
Our regulators in recent years have increased their examination and enforcement focus on all matters of our businesses, especially matters relating to cyber-security threats, including the assessment of firms’ vulnerability to cyber-attacks. In particular, regulatory concerns have been raised about firms establishing effective cyber-security governance and risk management policies, practices and procedures that enable the identification of risks, testing and monitoring of the effectiveness of such procedures and adaptation to address any weaknesses; protecting firm networks and information; data loss prevention, identifying and addressing risk associated with remote access to client information and fund transfer requests; identifying and addressing risks associated with customers business partners, counterparties, vendors, and other third parties, including exchanges and clearing organizations; preventing and detecting unauthorized access or activities; adopting effective mitigation and business continuity plans to timely and effectively address the impact of cyber-security breaches; and establishing protocols for reporting cyber-security incidents. As we enter new jurisdictions or different product area verticals, we may be subject to new areas of risk or to cyber-attacks in areas in which we have less familiarity and tools. A technological breakdown could also interfere with our ability to comply with financial reporting requirements. The SEC has issued guidance stating that, as a public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber-attacks or other information security breaches in disclosures required to be made under the federal securities laws. While any insurance that we may have that covers a specific cyber-security incident may help to prevent our realizing a significant loss from the incident, it would not protect us from the effects of adverse regulatory actions that may result from the incident or a finding that we had inadequate cyber-security controls, including the reputational harm that could result from such regulatory actions.
Additionally, data privacy is subject to frequently changing rules and regulations in countries where we do business. For example, the European Union adopted a new regulation that became effective in May 2018, the General Data Protection
61
Regulation (“GDPR,”) which requires entities both in the European Economic Area and outside to comply with new regulations regarding the handling of personal data. We are also subject to certain U.S. federal and state laws governing the protection of personal data. These laws and regulations are increasing in complexity and number. In addition to the increased cost of compliance, our failure to successfully implement or comply with appropriate processes to adhere to the GDPR and other laws and regulations relating to personal data could result in substantial financial penalties for non-compliance, expose us to litigation risk and harm our reputation.
Risks Related to the Real Estates Services Industry
If adverse changes in the levels of real estate activity occur, the revenues of our Timios subsidiaries may decline.
Title insurance, settlement services, and appraisal revenue is closely related to the level of real estate activity, which includes, among other things, sales, mortgage financing and mortgage refinancing. The levels of real estate activity are primarily affected by the average price of real estate sales, the availability of funds to finance purchases and mortgage interest rates. Both the volume and the average price of residential real estate transactions have increased substantially in many parts of the country over the past year. Due to the unprecedented nature of activity, these trends are unlikely to continue at the same level in the long term.
We have found that residential real estate activity generally decreases in the following situations:
● | Mortgage interest rates are high or increasing; |
● | Mortgage funding supply is limited; and |
● | The United States economy is weak, including high unemployment levels. |
If there is a decline in the level of real estate activity or the average price of real estate sales may adversely affect our title insurance, settlement services, and appraisal management revenues. In 2020, the mortgage interest rate reached record lows increasing mortgage refinancing to the highest levels in history. In 2021, the mortgage interest rate has increased, which may negatively impact the amount of mortgage refinancing activity in comparison to 2020. Sales and mortgage financing remain elevated and the interest rate remains low in respect to historical averages. This activity may be adversely impacted if the economy does not continue to perform well, mortgage rates increase greatly, or lending institutions experience losses that prohibit their ability to lend. Our revenues in future periods will continue to be subject to these and other factors which are beyond our control and, as a result, are likely to fluctuate.
If financial institutions at which we hold escrow funds fail, it could have a material adverse impact on our company.
We hold customers’ assets in escrow at various financial institutions, pending completion of real estate transactions. These assets are maintained in segregated bank accounts. Failure of one or more of these financial institutions may lead us to become liable for the funds owed to third parties and there is no guarantee that we would recover all of the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise.
If we experience changes in the rate or severity of title insurance claims, it may adversely impact our ability to conduct business.
By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. We are an underwritten title company, and if our claims exceed the threshold established by the title companies that underwrite the insurance we offer, it may be cause to have our appointments revoked and negatively impact our ability to conduct business.
Because our Timios subsidiary is dependent upon California for a substantial portion of our title insurance premiums, our business may be adversely affected by regulatory conditions in California.
California is the largest source of revenue for the title insurance industry and, in 2020, California-based premiums accounted for a substantial portion of the premiums earned by our Timios subsidiary. A significant part of our revenues and profitability
62
are therefore subject to our operations in California and to the prevailing regulatory conditions in California. Adverse regulatory developments in California, which could include reductions in the maximum rates permitted to be charged, cost of employment
regulations, inadequate rate increases or more fundamental changes in the design or implementation of the California title insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition.
The title insurance business is highly competitive.
Competition in the title insurance and appraisal management industry is intense, particularly with respect to price, service and expertise. Business comes primarily by referral from real estate agents, lenders, developers and other settlement providers. The sources of business lead to a great deal of competition among title agents and appraisal management companies. There are numerous national companies and smaller companies at the regional and local levels. The smaller companies are an ever-present competitive risk in the regional and local markets where their business connections can give them a competitive edge. Although we are not aware of any current initiatives to reduce regulatory barriers to entering our industry, any such reduction could result in new competitors, including financial institutions, entering the title insurance business. From time to time, new entrants enter the marketplace with alternative products to traditional title insurance, although many of these alternative products have been disallowed by title insurance regulators. These alternative products, if permitted by regulators, could adversely affect our revenues and earnings. Competition among the major title insurance companies and any new entrants could lower our premium and fee revenues.
Industry regulatory changes and scrutiny could adversely affect our ability to compete for or retain business or increase our cost of doing business.
The title insurance industry has recently been, and continues to be, under regulatory scrutiny in a number of states with respect to pricing practices, and alleged Real Estate Settlement Procedures Act violations and unlawful rebating practices. The regulatory environment could lead to industry-wide reductions in premium rates and escrow fees, the inability to get rate increases when necessary, as well as to changes that could adversely affect the Company’s ability to compete for or retain business or raise the costs of additional regulatory compliance. Further, if regulatory decrees delaying foreclosures are extended, it will continue to impact our ability to recognize revenue and profitability from our default title and settlement services department.
We may pursue opportunities that involve business, regulatory, legal or other complexities.
We may pursue unusually complex opportunities. This can often take the form of substantial business, regulatory or legal complexity. Our tolerance for complexity presents risks, as such contracts can be more difficult, expensive and time-consuming to execute; it can be more difficult to manage or realize value from the assets managed in such activity; and such activity sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could harm the results of our operations.
Our business depends upon our ability to keep pace with the latest technological changes, and our failure to do so could make us less competitive in our industry.
The market for our products and services is characterized by rapid change and technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. Products using new technologies or emerging industry standards could make our products and services less attractive. Failure to respond in a timely and cost-effective way to these technological developments may result in serious harm to our business and operating results. As a result, our success will depend, in part, on our ability to develop and market product and service offerings that respond in a timely manner to the technological advances available to our customers, evolving industry standards and changing preferences.
Rapid technological changes in our industry require timely and cost-effective responses. Our earnings may be adversely affected if we are unable to effectively use technology to increase productivity.
Technological advances occur rapidly in the title insurance industry as industry standards evolve and title insurers introduce new products and services. We believe that our future success depends on our ability to anticipate technological changes
63
and to offer products and services that meet evolving standards on a timely and cost-effective basis. Successful implementation and customer acceptance of our technology-based services will be crucial to our future profitability. There is a risk that the introduction of new products and services, or advances in technology, could reduce the usefulness of our products and render them obsolete.
Risks Related to the Wireless Charging System Industry
The success of our business depends in large part on our ability to protect our proprietary information and technology and enforce our intellectual property rights against third parties.
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We cannot assure you that any patents will issue with respect to our currently pending patent applications, in a manner that gives us the protection that we seek, if at all, or that any future patents issued to us will not be challenged, invalidated or circumvented. Our currently issued patents and any patents that may issue in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that any future service mark registrations will be issued with respect to pending or future applications or that any registered service marks will be enforceable or provide adequate protection of our proprietary rights.
We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed.
Further, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available over the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in EV-related industries are uncertain and still evolving.
Changes to existing federal, state or international laws or regulations applicable to us could cause an erosion of our current competitive strengths.
Our business is subject to a variety of federal, state and international laws and regulations, including those with respect government incentives promoting fuel efficiency and alternate forms of energy, electric vehicles and others. These laws and regulations, and the interpretation or application of these laws and regulations, could change. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in diminished revenues from government sources and diminished demand for our products. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.
There are many federal, state and international laws that may affect our business, including measures to regulate EVs and charging systems. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.
There are a number of significant matters under review and discussion with respect to government regulations which may affect business and/or harm our customers, and thereby adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the fiscal quarter ended June 30, 2021, other than those that were previously reported in the Company’s Current Reports on Form 8-K.
64
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the fiscal quarter ended June 30, 2021.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
65
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 22, 2021.
IDEANOMICS, INC.
By: | /s/ Conor McCarthy | |
Conor McCarthy | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
67