UNITED STATES
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IDEANOMICS, INC.
Annual Report on FORM 10-K
For the Fiscal Year Ended December 31, 2020
TABLE OF CONTENTS
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Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act (as defined below), and Section 21E of the Exchange Act (as defined below). We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning our transition to become a next-generation financial technology company; our expectations regarding the market for our new and existing products and industry segment growth; our expectations regarding demand for and acceptance of our new and existing products or services; our expectations regarding our partnerships and joint ventures, acquisitions, investments; our beliefs regarding the potential benefits and opportunities from integrating digital artificial intelligence and blockchain technology as part of our product and services offerings; our business strategies and goals; any projections of sales, earnings, revenue, margins or other financial items; any statements regarding the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in the PRC; and all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including, and without limitation, those identified in Item 1A—“Risk Factors” included herein, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included herein are made as of the date of this report. We undertake no obligation to update any of these forward-looking statements, whether written or oral, that may be made, from time to time, after the date of this report to conform our prior statements to actual results or revised expectations.
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:
| ● | “CB Cayman” refers to our wholly-owned subsidiary China Broadband, Ltd., a Cayman Islands company; |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “EV” refers to electric vehicles, particularly battery operated electric vehicles; |
| ● | “FINRA” refers to the Financial Industry Regulatory Authority; |
| ● | “HK SAR” refers to the Hong Kong Special Administrative Region of the People’s Republic of China; |
| ● | “Hua Cheng” refers to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., a PRC company that is 39% owned by Sinotop Beijing and is a 20% owner of Zhong Hai Media; |
| ● | “Intelligenta” refers to the BDCG investment which was rebranded as Intelligenta; |
| ● | “Legacy YOD” business refers to the premium content and integrated value-added service solutions for the delivery of VOD (defined below) and paid video programing to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers and operators, as well as direct customers; |
| ● | “MEG” refers to Mobile Energy Global the subsidiary that holds all of the Company’s EV; |
| ● | “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; |
| ● | “Sinotop Beijing” refers to Beijing Sino Top Scope Technology Co., Ltd., a PRC company controlled by YOD Hong Kong through contractual arrangements; |
| ● | “U.S. dollars,” “dollars,” “USD,” “US$,” and “$” refer to the legal currency of the United States; |
| ● | “U.S. Tax Reform” refers to the Tax Cuts and Jobs Act, enacted by the United States of America on December 22, 2017; |
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| ● | “VOD” refers to video on demand, which includes near video on demand (“NVOD,”) subscription video on demand (“SVOD,”) and transactional video on demand (“TVOD;”) |
| ● | “WFOE” refers to Beijing China Broadband Network Technology Co., Ltd., a PRC company and a “wholly foreign-owned enterprise,” which we previously wholly owned and which was sold during the quarter ended March 31, 2014; |
| ● | “YOD Hong Kong” refers to YOU On Demand (Asia) Limited, formerly Sinotop Group Limited, a Hong Kong company, which is wholly- owned by CB Cayman; |
| ● | “YOD WFOE” refers to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company and a “wholly foreign-owned enterprise,” which is wholly-owned by YOD Hong Kong; and |
| ● | “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. |
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PART I
ITEM 1.BUSINESS
Overview
Ideanomics, Inc. (“Ideanomics” or the “Company”) (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004. From 2010 through 2017, our primary business activities were providing premium content video on demand (“VOD”) services, with primary operations in the PRC, through our subsidiaries and variable interest entities (“VIEs”) under the brand name You-on-Demand (“YOD.”) We closed the YOD business during 2019.
Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company built a network of businesses, operating principally in the trading of petroleum products and electronic components that the Company believed had significant potential to recognize benefits from blockchain and artificial intelligence (“AI”) technologies including enhancing operations, addressing cost inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement. During 2018, the Company ceased operations in the petroleum products and electronic components trading businesses and disposed of the businesses during 2019. As we looked to deploy fintech solutions in late 2018 and into 2019, we identified a unique opportunity in the Chinese Electric Vehicle (“EV”) industry to facilitate large scale conversion of fleet vehicles from internal combustion engines to EV. This led us to establish our Mobile Energy Global (“MEG”) business unit. Fintech continues to be a sector of interest to us as we look to invest in and develop businesses that can improve the financial services industry, particularly as it relates to deploying blockchain and AI technologies.
Principal Products or Services and Their Markets
Overview
Ideanomics Mobility
Ideanomics Mobility is driving EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the 3 key pillars of EV: Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)
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Each operating company within Ideanomics Mobility offers its own unique products and participates in a shared services ecosystem fulfilling Ideanomics’ Sales-to-Financing-to-Charging (“S2F2C”) model, with centralized supply chain operations and marketing expertise designed to accelerate growth and business opportunities across the group.
The combination of products from within its subsidiaries and investments, coupled with Ideanomics Mobility’s shared services, will provide the Company with the opportunity to bring to market unique business solutions intended to drive commercial fleet electrification such as Charging-as-a-Service and Vehicle-as-a-Service. These solutions offer fleet operators an opportunity to benefit from an OpEx-driven model which lowers the barrier to entry for the adoption of zero emissions fleets.
The Company believes that the EV market is poised for rapid growth. Bloomberg NEF estimates that global commercial EV sales will reach 1.2 million units in 2023. The global EV charging infrastructure market is expected to grow at a compound annual growth rate of 33.4% from 2021 to 2028 to $144.97 billion. President Biden’s administration is supportive of EV with a goal to achieve a 100% clean-energy economy and states such as California have accelerated timelines to phase out internal combustion engine (“ICE”) vehicles.
Ideanomics Mobility’s mission is to leverage its ecosystem of synergistic operating companies to generate efficiencies and increase business opportunities across the group. With a diverse commercial EV product offering, the company plans to use EV and EV battery sales and financing solutions to attract commercial fleet operators that will generate large scale demand for energy. The Company operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs for fleet operators of commercial EV. Ideanomics Mobility focuses on commercial EV rather than passenger personal EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – which is expected to take between ten to fifteen years. We focus on four distinct commercial vehicle types with supporting income streams: 1) Closed-area heavy commercial, in sectors such as Mining, Airports, and Sea Ports 2) Last-mile delivery light commercial 3) Buses and Coaches 4) Taxis. The vehicle financing solutions (such as purchase or leasing) would generate fee-based revenues whereas the charging and energy management would yield recurring revenue streams.
Ideanomics Mobility’s revenues are generated from its S2F2C operating model. The Company’s planned EV revenues will come from the sale of EVs under our Medici Motor Works and Treeletrik brands outside of the China and within China through our MEG operating units sale of other manufacturers vehicles and batteries.
The Company’s presence in the China market creates a deep knowledge of the logistics and supply chain for the manufacture of EVs, batteries and related components; this in turn enables the sourcing of high quality components at competitive prices for the Company’s operations outside of China.
Within the Ideanomics Mobility business unit there are four operating companies:
Mobile Energy Global (“MEG”)
The Company’s MEG business operates in China where government clean air regulations and subsidy programs provide a strong impetus for the adoption of commercial EV. The Company competes in China using its S2F2C. Using this model the Company helps the customer find the best vehicle for its needs and earns fees for every completed sale; revenue is derived from the spread between group buying of vehicles and price sold, fees for the arrangement of financing, and payments from subsequent charging and energy management.
Tree Technologies Sdn. Bhd. (“Tree Technologies”)
Tree Technologies is headquartered in Kuala Lumpur, Malaysia and through its Treeletrik brand sells EV bikes, scooters, and batteries throughout the ASEAN region. Two-wheel bikes and scooters form a large part of the transport infrastructure in the ASEAN region; according to Deloitte Consulting, there were 13.7 million motor bikes sold in the six major ASEAN countries in 2019. Environmental regulations in the ASEAN region help accelerate the adoption of EV bikes. The Company has also started to import Treeletrik brand EV bikes into the United States.
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Medici Motor Works
Medici Motor Works plans to sell its own brand vehicles in the United States, Latin America and Europe. Presently, the Company is working with manufacturers based in China to design and build trucks, buses and closed-area vehicles for mining, airports and seaports.
Solectrac, Inc. (“Solectrac”)
On October 21, 2020 the Company acquired 15%, and on November 23, 2020 the Company subsequently increased its ownership to 24% in California-based Solectrac, Inc. Solectrac develops, assembles and distributes 100% battery-powered electric tractors—an alternative to diesel tractors—for agriculture and utility operations.
According to Research And Markets, the global agricultural tractor market is currently valued at $75 billion, with the North American agricultural tractor market expected to reach $20 billion by 2023. The largest segment for agricultural tractors is the below-40HP segment, where Solectrac's initial three models address the broad needs of the market. Its tractors are specifically designed to serve the needs of community-based farms, vineyards, orchards, equestrian arenas, greenhouses, and hobby farms.
Founded in 2012 to take electric tractors into commercial production, Solectrac was incorporated as a California Benefit Corp in 2019. It has received grants from the Indian U.S. Science and Technology Fund and the National Science Foundation. In 2020, Solectrac received the World Alliance Solar Impulse Efficient Solutions label from the Solar Impulse Foundation. The label was awarded for being one of the one thousand most efficient and profitable solutions that can transition society to being economically viable while being environmentally sustainable.
Recent Developments Since December 31, 2020
Since December 31, 2020 the Company has completed a number of transactions that have expanded the scope of the Company’s EV activities.
WAVE
On January 15, 2021 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 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.
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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 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.)
Ideanomics Capital
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.
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.
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.
Delaware Board of Trade (“DBOT”)
The Delaware Board of Trade (“DBOT”) is a broker dealer that also operates an Alternative Trading System (“ATS,”) presently DBOT is not trading; the business remains in full regulatory compliance. Recent developments have pointed to increased recognition of digital securities’ relevance in regulated global capital markets. As well, regulatory easing of certain restrictions such as the threshold for private securities (Reg A+), along with good demand for products such as pre-IPO issuance, provide good tailwind for the broker dealers business. The Company has filed a continuing membership application for private placement activities in the primary markets. The Company believes that growing demand for private placements, along with increased attention in digital securities, provide a favorable environment for DBOT’s future growth.
Timios
On January 8, 2021 the Company acquired 100% of privately-held Timios Holdings Corp. ("Timios.") Timios, a 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.
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Non-Core Assets
The Company has identified a number of business units that it considers non-core and is evaluating strategies for divesting these assets. The non-core assets are Grapevine, a marketing and ecommerce platform focused on influencer marketing, and FinTech Village a 58-acre development site in West Hartford, Connecticut.
On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a non-binding sale contract on March 15, 2021. The Company believes that Fintech Village met the criteria for held for sale classification on January 28, 2021.
Sources and Availability of Raw Materials
The Company’s Tree Technologies business located in Malaysia and its WAVE business located in Utah, United States, (acquired in the first quarter of 2021 – see Recent Developments section) assemble and manufacture motor bikes and inductive charging systems respectively. These businesses depend on a ready supply of components that are sourced domestically and internationally and any interruption to the supply of components could have an adverse impact on the Company’s results. The Company’s suppliers that manufacture EVs and batteries depend on a ready supply of raw materials and components, consequently a shortage of raw materials or components could adversely impact their manufacturing process and, potentially, impact the Company’s revenues as it may not be able to complete orders that it had received. The Company may also be adversely impacted if global logistic and supply chains are interrupted.
Seasonality
The Company expects that orders and sales 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.
Working Capital Requirements
As the Company expands its business the need for working capital will continue to grow. From time to time the Company’s MEG operating division in China has the opportunity to purchase a large number of vehicles at a favorable price, the terms of the purchase contract frequently require the Company to pay some or all of the cost in advance of the delivery of the vehicles with the resultant need to commit material amounts of working capital. The Company’s Tree Technologies subsidiary requires working capital to support the assembly of EV motor bikes and scooters for the ASEAN market. The Company acquired WAVE and Solectrac in the first quarter of 2021 (see the Recent Developments section), both of these businesses will require working capital to fund the purchase of components for the assembly of wireless charging systems and electric tractors, respectively. The Company will continue to raise both debt and equity capital to support the working capital needs of these businesses and its U.S. Head Office functions.
Trade marks, Patents and Licenses
The Company’s Intelligenta business operates under a license granted by Seasail Ventures Limited (“Seasail.”) The license does not have a stated term.
Customer Concentration
The Company is in the process of building out its Ideanomics Mobility unit and has not yet reached a stage of development where the loss of any single customer would have a material adverse effect on the Company.
Reliance on Government Contracts
The Company does not contract directly with the government of the PRC, however it does have investments, partnerships and agreements with the State Own Entities (“SOE”) described above. Additionally, the rate at which commercial fleets convert to EV is heavily
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influenced by federal and provincial policies in the PRC as they relate to clean air and adoption of EV technology. Consequently, the Company’s results may be adversely impacted by changes in regulations in the PRC.
Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition
Ideanomics Mobility
Purchasers of commercial vehicles have the choice between traditional ICE vehicles and EVs and this is likely to continue for at least the next five years and possibly longer. The most important drivers for the development of the commercial fleet EV market are federal and provincial regulations relating to clean air and electronic vehicles including subsidies and incentives to help owners of fleets of commercial vehicles to convert from combustion engines to EV. The speed at which fleet operators convert to EV is highly correlated with government regulations, targets and related subsidies and incentives. If the governments, or municipalities, change the regulations, targets, incentives or subsidies then the rate at which fleet operators convert their vehicles to EV could slow down which in turn may lead to lower revenues for the Company. Additionally, the rate, and form in which, the commercial fleet EV market develops is dependent upon technological developments in battery and charging systems; deployment of the charging infrastructure to support widespread commercial EV use and the development of new financing and lending structures that address the different collateral and resale values of the battery and vehicle versus internal combustion engine vehicles.
In addition to its directly owned operations the Company operates through a network of investment arrangements, partnerships and formal and informal alliances; consequently, its competitive position could be adversely impacted if one of the members of the alliance was not able to meet the demand for its products, decides not to continue to cooperate with the Company, or goes out of business.
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Ideanomics Capital
The Company’s Ideanomics Capital business unit operates in sectors that are undergoing rapid change.
DBOT is a broker dealer that also operates an ATS. In April 2020 the Company ceased trading OTC equities, terminated the employees assigned to DBOT and the services needed to operate the business. The Company has continued to maintain DBOT’s regulatory licenses and required regulatory capital. The Company has applied for regulatory approval to broker digital securities and tokens, this is a nascent market which the Company believes has good long term potential.
Corporate Structure
The following chart depicts our corporate structure as of December 31, 2020:
(1) | In 2020, the Company renamed You On Demand (Asia) Limited to Medici Operation Limited. |
(2) | In 2020, the Company renamed You On Demand (Beijing) Information Consulting Co., Limited. to Beijing Medici New Energy Automobile Co,, Ltd. |
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(3) | In 2020, the Company renamed Wecast Services Group Limited to MEG Technology Services Group Limited. |
(4) | In 2020, the Company renamed Shanghai Boqu Investment Management Consulting Co., Ltd. to Shanghai Ainengju Investment Management Consulting Co., Ltd. |
VIE Structure and Arrangements
The Company consolidated certain VIEs located in the PRC in which it held variable interests and was the primary beneficiary through contractual agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected their economic performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations and financial position of these VIEs are included in the consolidated financial statements for the year ended December 31, 2019. A shareholder in one of the VIEs is the spouse of Bruno Wu (“Dr. Wu,”) the former Chairman of the Company.
Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.
The contractual agreements listed below, which collectively granted the Company the power to direct the VIEs activities that most significantly affected their economic performance, as well to cause the Company to have the obligation to absorb or right to receive the majority of their losses or benefits, were terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019. The deconsolidation resulted in a net loss of $2.0 million recorded in “Gain (loss) on disposal of subsidiaries, net” in the consolidated statements of operations, and a statutory income tax of $0.2 million in the year ended December 31, 2019.
For these consolidated VIEs, their assets were not available to the Company and their creditors did not have recourse to the Company. Prior to December 31, 2019, in order to operate certain legacy business in the PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company entered into a series of contractual agreements with two VIEs. These contractual agreements were initially set to expire in March 2030 and April 2036, respectively, and could not be terminated by the VIEs, except with the consent of, or a material breach, by the Company. A shareholder in one of the VIEs is the spouse of Dr. Wu, the former Chairman of the Company.
The key terms of the VIE Agreements are summarized as follows:
| ● | Equity Pledge Agreement - The VIEs’ shareholders pledged all of their equity interests in the VIEs to a wholly-owned subsidiary of the Company in the PRC; |
| ● | Call Option Agreement - The VIEs’ shareholders granted an exclusive option to a wholly-owned subsidiary of the Company in the PRC, or its designee, to purchase all or any portion of the VIEs’ Shareholders’ equity in the VIEs; |
| ● | Power of Attorney - The VIEs’ shareholders granted to a wholly-owned subsidiary of the Company in the PRC the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of VIEs; |
| ● | Technical Service Agreement – A wholly-owned subsidiary of the Company in the PRC had the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to the VIEs, and the VIEs were required to take all commercially reasonable efforts to permit and facilitate the provision of the services; |
| ● | Spousal Consent - The spouses of the VIEs’ shareholders unconditionally and irrevocably agreed to the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement; |
| ● | Letter of Indemnification – A wholly-owned subsidiary of the Company in the PRC agreed to indemnify such nominee shareholder against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law; |
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| ● | Management Services Agreement - In addition to agreements described above, another of the Company’s wholly-owned subsidiaries entered into a Management Services Agreement with each VIE. Pursuant to such Management Services Agreement, the wholly-owned subsidiary had the exclusive right to provide to the VIE management, financial and other services related to the operation of the VIE’s business, and the VIE was required to take all commercially reasonable efforts to permit and facilitate the provision of the services by the subsidiary. In addition, at the sole discretion of the subsidiary, the VIE was obligated to transfer to the subsidiary, or its designee, any part or all of the business, personnel, assets and operations of the VIE which could be lawfully conducted, employed, owned or operated by the subsidiary; and |
| ● | Loan Agreement - Pursuant to the Loan Agreement dated April 5, 2016, a wholly-owned subsidiary of the Company in the PRC agreed to lend RMB 19.8 million and RMB 0.2 million, respectively, to the VIEs’ Shareholders, one of whom is the spouse of Dr. Wu, the Company’s former Chairman. The termination of the Loan Agreement resulted in a loss of $5.1 million in the year ended December 31, 2019. |
Our Unconsolidated Equity Investments
We hold a 34.0% ownership interest in Glory, which through its subsidiary Tree Manufacturing, holds a domestic EV manufacturing license in Malaysia. Tree Manufacturing had entered into a product supply and a product distribution arrangement for EVs with Tree Technologies, a consolidated subsidiary of the Company.
In 2018, we signed an investment agreement to establish Intelligenta for providing services for financial or energy industries by utilizing AI and big data technology in the United States. We hold a 60.0% ownership interest and Seasail holds 40% of Intelligenta.
On October 22, 2020, the Company acquired 1.4 million common shares, representing 15.0% of the total common shares outstanding, of Solectrac for a purchase price of $0.91 per share, for total consideration of $1.3 million. On November 19, 2020, Ideanomics acquired an additional 1.3 million shares of common stock for $1.00 per share, for a subsequent investment of $1.3 million. With this subsequent investment, Ideanomics owned 2.7 million common shares out of a total number of issued and outstanding common shares of 10.2 million after the transaction, or 27.0%.
Solectrac develops, assembles and distributes 100% battery-powered electric tractors-an alternative to diesel tractors-for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the world to power their tractors by using the sun, wind, and other clean renewable sources of energy.
Our investments in Glory, BDCG and Solectrac, where we may exercise significant influence, but not control, are classified as a 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 our share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the investee’s obligations or we are committed to provide additional funding.
In the years ended December 31, 2020 and 2019, the Company recorded impairment losses with respect to its equity method investments of $16.6 million and $13.1 million, respectively.
Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.
Our Competition
Ideanomics Mobility Business Unit
The Company’s EV business operates in the market for fleet commercial vehicles, this market is still in its development stage. The Company could face competition from other companies that develop and operate a similar integrated platform for the procurement, purchase, financing, charging and energy management needs of fleet EV operators. The Company could also face competition from companies that only operate in one part of the vehicle purchase and operation cycle, for example, an EV vehicle or battery manufacturer may sell directly to EV fleet operators while also participating in the platform operated by the Company’s MEG business.
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Other
Grapevine competes in the consumer marketing sector and specializes in designing and managing “influencer” led social media campaigns for brands and advertising agencies that do not have a capability to manage influencer marketing campaigns directly. This is a very competitive sector with multiple competitors.
Revenue Recognition
The Company records and reports revenues in accordance with generally accepted accounting principles in the U.S., particularly ASC 606, Revenue from Contracts with Customers which provides guidance on how revenues should be reported and the timing of when revenues should be reported. ASC 606 includes guidance on when revenue should be recognized on a Gross (Principal) or Net (Agent) basis, the Company’s contracts are typically with large enterprises and consequently are heavily negotiated as to the services to be provided; consequently the accounting treatment for the reporting of revenues may vary materially between contracts including whether the revenue is reported on a Principal (Gross) or Agent (Net) basis.
Regulation
General Regulation of Businesses in the PRC
We are required to obtain government approval from or filing with the Ministry of Commerce of the PRC (“MOFCOM”) and/or other government agencies in the PRC for transactions, such as our acquisition or disposition of business entities in the PRC. Additionally, foreign ownership of certain business and assets in the PRC is not permitted without specific government approval.
Investment activities in the PRC by foreign investors are principally governed by the Special Administrative Measures for Access of Foreign Investment (Negative List) ("Negative List") and the Catalogue of Industries for Encouraged Foreign Investment ("Encouraged Foreign Investment Catalogue," together with the Negative List, the "Catalogue,") which was promulgated and is amended from time to time by the MOFCOM and the National Development and Reform Commission. The Catalogue sets forth the industries in which foreign investments are encouraged, restricted, or prohibited. Industries that are not listed in any of the above three categories are permitted areas for foreign investments and are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign owned enterprises is generally allowed in encouraged and permitted industries. Foreign investors are not allowed to invest in industries in the prohibited category.
Under PRC law, the establishment of a wholly foreign owned enterprise is subject to the approval of or filing with the MOFCOM or its local counterparts and the wholly foreign owned enterprise must register with the competent administration for market regulation. Our significant PRC subsidiaries have duly obtained all material approvals required for their business operations.
In addition, the transportation sector is subject to regulation at the central and provincial level. The PRC government may issue from time to time new laws or new interpretations on existing laws, some of which are not published on a timely basis or may have retroactive effect. Administrative and court proceedings in the PRC may also be protracted, resulting in substantial costs and diversion of resources and management attention.. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and our legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on our ability to conduct business in the PRC.
Chinese regulations will also significantly impact our MEG business unit. For example, in September 2017, reports were published that the PRC may begin prohibiting the practice of using digital assets for capital fundraising. In 2018, reports surfaced that the PRC had banned local digital asset exchanges from operating within the country. On January 10, 2019, the Cyberspace Administration of China passed the Administrative Provisions on Blockchain Information Services (“Provisions on Blockchain,”) which took effect on February 19, 2019. The Provisions on Blockchain clarify terms of the scope of blockchain information services, the filing process for blockchain information services, the responsibilities for blockchain information service providers, and the consequences of violations. Until there is greater regulatory clarity and acceptance of digital token and blockchain-based financial products in the PRC, we may not be able to provide services under our MEG business unit in the PRC.
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Taxation
On March 16, 2007, the National People’s Congress of the PRC passed the Enterprise Income Tax law (“EIT Law,”) and on November 28, 2007, the State Council of China passed its implementing rules which took effect on January 1, 2008. The EIT Law and its implementing rules impose a unified earned income tax (“EIT”) rate of 25.0% on all domestic-invested enterprises and foreign invested enterprises (“FIEs”) unless they qualify under certain limited exceptions. In addition, under the EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization’s global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see Part I—Item 1A—“Risk Factors—Risks Related to Doing Business in the PRC- Under the EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in dividends payable to our foreign investor and gains on sale of our common stock by our foreign investors may become subject to PRC taxation.”
Foreign Currency Exchange
Under the PRC foreign currency exchange regulations applicable to us, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Currently, our PRC operating entities may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the PRC State Administration of Foreign Exchange (“SAFE,”) by complying with certain procedural requirements. Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE. In particular, if our PRC operating entities borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be registered or filed with by certain government authorities. These limitations could affect our PRC operating entities’ ability to obtain foreign exchange through debt or equity financing.
Dividend Distributions
PRC regulations restrict the ability of our PRC entities to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC entities only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with generally accepted accounting principles in the PRC to a statutory general reserve fund until the amounts in such fund reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Our PRC subsidiaries have the discretion to allocate a portion of their after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
In addition, under the EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates (“Notice 112,”) which was issued on January 29, 2008, dividends from our PRC operating subsidiaries paid to us through our entities will be subject to a withholding tax at a rate of 10%. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the tax residence of the holder of the PRC subsidiary. Dividends declared and paid from before January 1, 2008 on distributable profits are grandfathered under the EIT Law and are not subject to withholding tax.
We intend to reinvest profits, if any, and do not intend on making cash distributions of dividends in the near future.
Regulation Regarding our Fintech Businesses
Securities and Commodities Laws
In order for a securities exchange to operate, it must register as a broker-dealer with the SEC, and become a member of FINRA. Depending on a securities exchange’s activities, it may be required to also register as a broker dealer on the state level. DBOT is a registered broker dealer with an ATS. Depending upon the jurisdiction, we may also be required to comply with laws applicable to securities exchanges.
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Financial Crimes and Sanctions Compliance
The jurisdictions in which we operate and intend to operate generally have adopted laws to prevent money laundering, terrorist financing, fraud and other financial crime, as well as to ensure compliance with applicable sanctions regimes. Various aspects of our business require us to develop and implement policies and procedures that confirm the identity of customers, detect suspicious activities and ensure we do not do business with blocked persons.
Environmental Disclosures
As part of the acquisition of the Fintech Village property (see Part I—Item 2—“Properties,”) we agreed to assume responsibility for completing environmental remediation, previously initiated by the prior owner, relating to the cleanup of asbestos and polychlorinated biphenyls (“PCBs”) from building materials on the property and any contamination of soil and groundwater on the land, an existing condition cited by the Department of Energy and Environmental Protection for the State of Connecticut (“DEEP.”) We were required, as part of the purchase of the land, to post an $8.0 million surety bond, the approximate cost of previous remediation costs. The surety bond will serve either serve as collateral to the state if we do not complete the environmental remediation to state and federal requirements or be returned to us in full if remediation efforts are successful and completed.
On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a non-binding sale contract on March 15, 2021. The Company is required to remove or renovate the contaminated buildings on the property. If we elect to sell, transfer or change the use of the facility, additional environmental testing may be required. We cannot assure that we will not discover further environmental contamination, that any planned timeline for remediation will not be delayed, that we would not be required by DEEP or the EPA to incur significant expenditures for environmental remediation in the future.
Human Capital Management
Human Capital Resources
As of December 31, 2020, we had more than 110 employees in four countries. Within this total, 100% of the employee base is comprised of full-time employees and 32.4% are in the United States.
We are an organization built on strong values, employee engagement and ownership. At our core, we are committed to our employees by providing them with an opportunity to participate in our success. By cultivating a dynamic mix of people and ideas, we enrich our businesses’ performance, the experience of an increasingly diverse employee base, and our communities’ engagement.
Human Capital Measures and Objectives
In operating our businesses, human capital measures and objectives are critical drivers of revenues and margins. We continually work to expand service offerings and geographies and seek to manage human capital resources to maximize profitability in the face of shifting client demands.
Our human capital measures and objectives include revenue per employee and profit per employee. The Company is transforming itself and in a phase of rapid growth, consequently these measures may not be comparable between time periods or may be distorted by a change in the nature of our business.
We continue to invest in the business by adding talented professionals across all of our businesses and functional areas. In 2020, we hired approximately 50 new employees.
Human Capital and Social Policies and Practices
We are committed to our people and the communities we serve, investing in our employees' long-term development and engagement by delivering training, programs and a culture where our people can thrive. We are committed to equal opportunity, diversity and other policies and practices, and an abiding pledge to community service and charity. We take seriously the health, safety and welfare
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of our employees, clients, vendors and the broader communities in which we operate and are taking extraordinary measures in light of the current COVID-19 pandemic.
Environmental, Social and Governance (“ESG”) / Sustainability Information
To learn more about policies and practices and our continuing efforts related to human capital and ESG matters, please refer to our website at www.ideanomics.com for further information. You may also find our Corporate Governance Guidelines, the charters of the committees of our Board of Directors. The information contained on, or that may be accessed through, our website, is not part of, and not incorporated into, this Annual Report on Form 10-K.
Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.
We are required under PRC law to make contributions to employee benefit plans at specified percentages of employee salary. In addition, we are required by the PRC law to cover employees in the PRC with various types of social insurance. We believe that we are in compliance with the relevant PRC laws.
ITEM 1A.RISK FACTORS
The business, financial condition and operating results of the Company may be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause the Company’s actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The following information should be read in conjunction with Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II—Item 8—“Financial Statements and Supplementary Data” of this Annual Report.
RISKS RELATED TO OUR BUSINESS AND STRATEGY
We expect to require additional financing in the future to meet our business requirements. Such capital raising may be costly, difficult or not possible to obtain and, if obtained, could significantly dilute current stockholders’ equity interests.
We must continue to rely on proceeds from debt and equity issuances to pay for ongoing operating expenses and repay existing debt in order to execute our business plan. Although we may attempt to raise funds by issuing debt or equity instruments, additional financing may not be available to us on terms acceptable us or at all or such resources may not be received in a timely manner. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or to discontinue certain operations, scale back or discontinue the development of new business lines, reduce headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.
We are in the process of transforming our business model, such that there is only a limited basis to evaluate our business and prospects. This transformation may continue to evolve, and ultimately may not be successful.
We are in the process of transforming our business model to develop a platform for the procurement, purchase, and financing of vehicles, charging and energy solutions for commercial fleets of Electric Vehicles. In connection with this transformation, we are in the process of considerable changes, including initiatives to assemble a new management team, reconfigure the business structure, and expand our mission and business lines. It is uncertain whether these efforts will prove beneficial or whether we will be able to develop the necessary business models, infrastructure and systems to support the business. This includes having or hiring the right talent to execute our business strategy, and building a team with the technological capability and know-how to build the products and provide the services we envision. Market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer requirements, and optimally price our products and services to meet customer demand and cover our costs.
Even if we implement our plan in accordance with our expectations, our assumptions regarding costs and growth of revenue may differ substantially from reality. Furthermore, even if the anticipated benefits and savings are realized in part, there may be consequences,
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internal control issues, or business impacts that were not expected. Additionally, as a result of our restructuring efforts in connection with our business transformation plan, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees’ time and focus, which may divert attention from operating activities and growing our business. If we fail to achieve some or all of the expected benefits of these activities, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. Such transformations may lead to a significant fluctuation in operating results and they may vary materially from market expectations.
The success of the Company’s efforts to develop its Ideanomics Mobility business unit is highly dependent upon suitable financing structures being developed.
The market for commercial fleets of EVs is in the early stage of development and provides unique challenges to fleet owners trying to finance the purchase of fleets of EV and the related charging, storage and battery infrastructure. Unlike vehicles powered by Internal Combustion Engines, the power source in an EV, the battery, can be separated from the vehicle which creates unique challenges for lenders in valuing the collateral for any loan. Additionally, the market for commercial EVs is very new and consequently there is no reliable history of resale values to support lending decisions. Large scale adoption of EVs will require a range of borrowing options and loan types to be available to fund purchases and leasing of EV similar to those that currently exist to finance the purchasing and leasing of traditional internal combustion engine vehicles. Additionally, in some of the Company’s target markets there is no well developed market for lending to private enterprises and this may further slow down the adoption of EVs. The Company is working with banks and insurance companies to create lending structures and pools of capital that can be used to finance fleet purchases of commercial EVs. Even if the Company can create the necessary pools of capital and lending structures there is no guarantee that any regulatory approvals required for these new structures will be obtained. If the Company is not able to develop a solution for the funding of fleet purchases of EVs and related charging and battery infrastructure then the Company’s Ideanomics Mobility business may not be successful and generate minimal revenues and incur substantial losses.
The transformation of our business will put added pressure on our management and operational infrastructure, impeding our ability to meet any potential increased demand for our services and possibly hurting our future operating results.
Our business plan is to significantly grow our operations to meet anticipated growth in demand for the services that we offer, and by the introduction of new goods or services. Growth in our businesses will place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:
| ● | our ability to successfully and rapidly expand sales to potential new distributors in response to potentially increasing demand; |
| ● | the costs associated with such growth, which are difficult to quantify, but could be significant; and |
| ● | rapid technological change. |
To accommodate any such growth and compete effectively, we will need to obtain additional funding for working capital and to improve develop supply chain and logistics capabilities, information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.
The success of our business is dependent on our ability to hire and retain key employees with the specialists skills that we need for our business.
We depend on the services of our key employees. Our success will largely depend on our ability to hire and retain these key employees and to attract and retain qualified senior and middle level managers to our management team.
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We have recruited executives and management both in the United States and the in our operations outside of the United States to assist in our ability to manage the business and to recruit and oversee employees. While we believe we offer compensation packages that are consistent with market practice, we cannot be certain that we will be able to hire and retain sufficient personnel to support our business. The loss of any of our key employees, or failure to find a suitable successor, would significantly harm our business. Our future success will also depend on our ability to identify, hire, develop and retain skilled key employees. We do not maintain key person life insurance on any of our employees. Future sales or acquisitions by us may also cause uncertainty among our current employees and employees of an acquired entity, which could lead to the departure of key employees. Such departures could have an adverse impact on our business and the anticipated benefits of a sale or acquisition.
Our international operations expose us to a number of risks.
Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations and platforms, and promote our brand internationally.
Our international sales and operations are subject to a number of risks, including:
| ● | local economic and political conditions, including sanctions and other regulatory actions that prohibit sales to, or purchases from, countries and legal entities that are within the scope of the sanction. Government regulations, both federal and municipal, that may restrict the available market for our products and services through the requirement for a minimum value of local produced content, or restrict the availability of subsidies for products that do not meet designated value for local produced content, e.g. the Buy America program; |
| ● | government regulation and restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership; |
| ● | restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of IP rights; |
| ● | limitations on the repatriation and investment of funds and foreign currency exchange restrictions; |
| ● | limited technology infrastructure; |
| ● | environmental and health and safety liabilities and expenditures relating to the disposal and remediation of hazardous substances into the air, water and ground; |
| ● | shorter payable and longer receivable cycles and the resultant negative impact on cash flow; |
| ● | increased risk over the ability to collect accounts receivable and other amounts owed to the Company due the limited credit checking information available in some of the countries we operate in and possible difficulties to pursue legal action to collect amounts owed to us; |
| ● | laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts; |
| ● | geopolitical events, including war and terrorism. |
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We may face challenges in expanding our international and cross-border businesses and operations.
As we expand our international and cross-border businesses into an increasing number of international markets, we will face risks associated with expanding into markets in which we have limited or no experience and in which we may be less well-known. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The expansion of our international and cross-border businesses will also expose us to risks inherent in operating businesses globally, including:
| ● | inability to recruit international and local talent and challenges in replicating or adapting our Company policies and procedures to different local and regional operating environments; |
| ● | lack of acceptance of our product and service offerings; |
| ● | challenges and increased expenses associated with staffing and managing international and cross-border operations and managing an organization spread over multiple jurisdictions; |
| ● | trade barriers, such as import and export restrictions, customs duties and other taxes, competition law regimes and other trade restrictions, as well as other protectionist policies; |
| ● | differing and potentially adverse tax consequences; |
| ● | increased and conflicting regulatory compliance requirements; |
| ● | challenges caused by distance, language and cultural differences; |
| ● | increased costs to protect the security and stability of our information technology systems, IP and personal data, including compliance costs related to data localization laws; |
| ● | availability and reliability of international and cross-border payment systems and logistics infrastructure; |
| ● | exchange rate fluctuations; and |
| ● | political instability and general economic or political conditions in particular countries or regions. |
As we acquire, dispose of or restructure our businesses, product lines, and technologies, we may encounter unforeseen costs and difficulties that could impair our financial performance.
An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our capabilities. As a result, we may seek to make acquisitions of companies, products, or technologies, or we may reduce or dispose of certain product lines or technologies that no longer fit our business strategies. For regulatory or other reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost opportunities, and diversion of management’s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails numerous operational and financial risks, including, among other things, (i) difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, (ii) diversion of management’s attention away from other business concerns, (iii) amortization of acquired intangible assets, (iv) adverse customer reaction to our decision to cease support for a product, and (v) potential loss of key employees or customers of acquired or disposed operations. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and/or cash flows.
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In addition, any acquisition could result in changes, such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, results of operations, cash flows, and/or the price of our common stock.
Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to IP claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of IP litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Our ability to conduct our businesses may be materially adversely impacted by catastrophic events, including natural disasters, pandemics and other international health emergencies, weather-related events, terrorist attacks, and other disruptions.
We may encounter disruptions involving power, communications, transportation or other utilities or essential services depended on by us or by third parties with whom we conduct business. This could include disruptions as the result of natural disasters, pandemics, other international health emergencies, or weather-related or similar events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions including the effects of climate change), political instability, labor strikes or turmoil, or terrorist attacks. The global coronavirus pandemic had a significant impact on global commerce. Similar potential disruptions may occur in any of the locations in which we, our counterparties or our customers do business. We continue to assess the potential impact on our counterparties and customers of such events, and what impact, if any, these events could have on our businesses, financial condition, results of operations and prospects.
If we fail to develop and maintain effective disclosure controls and an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and market price of our shares may be adversely impacted.
Our reporting obligations as a public company place a significant strain on our management and our operational and financial resources and systems and will continue to do so for the foreseeable future. We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act,”) which requires us to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Material weaknesses and significant deficiencies may be identified during the audit process or at other times.
If we fail to develop and maintain effective internal control over financial reporting, our management may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements. If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports. Any failure to improve and maintain the effectiveness of our internal controls over financial reporting could lead to future errors in our financial statements that could require a restatement or untimely filings, which could cause investors to lose confidence in our reported financial information, and result in a decline in our stock price.
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The Sarbanes-Oxley Act also requires that we maintain effective disclosure controls and procedures. As a publicly traded company, we are required to file periodic reports containing our consolidated financial statements with the SEC within a specified time following the completion of quarterly and annual periods. Maintaining effective disclosure controls and procedures is necessary to identify information we must disclose in our periodic reports. Our disclosure controls and procedures have been ineffective in the past, and to the extent that our disclosure controls and procedures are found to be ineffective in the future, such finding could result in the loss of investor confidence in the reliability of our disclosures, harm our business, and negatively impact the trading price of our common stock.
We are currently, and may in the future be, subject to substantial litigation, investigations and proceedings that could cause us to incur significant legal expenses and result in harm to our business.
The Company and certain of its former officers and directors are defendants in a purported class action captioned Rudani v. Ideanomics, Inc., et al, pending in the United States District Court for the Southern District of New York against the Company. 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. The Company and certain of its current and former officers and directors are also defendants in a consolidated purported securities class action captioned In Re Ideanomics, Inc. Securities Litigation, pending in the United States District Court for the Southern District of New York, which alleges 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 Company is also a nominal defendant, and certain of its former officers and directors are named as defendants, in a consolidated shareholder derivative action pending in the United States District Court for the Southern District of New York, captioned In re Ideanomics, Inc. Derivative Litigation which alleges violations of 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. The Company is also a nominal defendant, and certain of its former officers and directors are named as defendants, in a shareholder derivative action pending in the United States District Court for the District of Nevada, captioned Zare v. Wu, et al., 20-cv-608, which alleges breach of fiduciary duties, gross mismanagement, and contribution against certain defendants under Section 10(b) and 21D of the Securities Exchange Act of 1934. While the Company believes that these lawsuits are without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations. There is currently a mediation scheduled for April 2021 for all of the pending actions that have been filed and discussed above.
As reported previously, the Company is subject to an investigation by the SEC and has responded to various information requests and subpoenas from the SEC. The Company is fully cooperating with the SEC’s requests, and cannot predict the outcome of this investigation.
We are exposed to potential liabilities and reputational risk associated with litigation, regulatory proceedings and government investigations and enforcement actions. In addition, we are obligated to indemnify and advance expenses to certain individuals involved in certain of these proceedings. Further, volatility in our stock price may also make us vulnerable to future class action litigation. Any adverse judgment in or settlement of any pending or any future litigation or investigation could result in payments, fines and penalties that could adversely affect our business, results of operations and financial condition. Regardless of the merits of the claims and the outcome, legal proceedings have resulted in, and may continue to result in, significant legal fees and expenses, diversion of management’s time and other resources, and adverse publicity. Such proceedings could also adversely affect our business, results of operations and financial condition.
RISKS RELATED TO OUR IDEANOMICS MOBILITY BUSINESS UNIT
We experience significant competitive pressure in the Ideanomics Mobility business unit, which may negatively impact our business, financial condition, and results of operations.
The Company’s Ideanomics Mobility business unit is operating in the fleet commercial EV market globally. The commercial EV market is still in its development stage and the rate at which the operators of fleets of commercial vehicles replace their internal combustion engine (ICE) vehicles with EV is very dependent upon (i) environmental and clean air regulations that mandate conversion to EV, (ii) the subsidies that government bodies make available to cover the cost of conversion and (iii) the availability of financing to cover some or all of the cost of conversion, (iv) regulations governing the amount of locally manufactured content required in vehicles sold in a particular market, (v) the availability of charging and battery swap infrastructure, (vi) the rate at which EV technologies evolve.
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Environmental and clean air regulations drive the timing and rate at which fleet operators convert to EV and by extension the size of the market and the type of vehicles that are in demand at any time. The Company’s revenues and profits may be adversely impacted if demand for EV is lower than expected due to a change in regulation or regulations favor conversion of vehicle types that have lower profit margins.
Converting fleets to EV is very capital intensive and most operators require substantial amounts of funding in the form of government and municipal subsidies and bank financing. The amount and form of subsidies are subject to change from time to time as government bodies adjust subsidies to influence consumer behavior. The mechanisms for financing of EV are still being developed and large scale conversion from internal combustion engines to EV is highly dependent upon the amount and terms of financing available for the conversion to EV.
We currently have limited intellectual property rights related to our Ideanomics Mobility business unit, and primarily rely on third parties through agreements with them to conduct research and development activities and protect proprietary information.
Although we believe our success will depend in part on our ability to acquire, invest in or develop proprietary technology to effectively compete with our competitors, we currently have, and for the foreseeable future will have, limited direct IP rights related to our new Ideanomics Mobility business unit. The IP relevant to the products and services we plan to provide is held primarily by third-parties, including our strategic partners. Accordingly, we will rely on these third parties for research and development activities, which will present certain risks. For example, we will have limited control over the research and development activities of the business of our partners, and may require licenses from these third parties if we wish to develop products directly. If these businesses are unable to effectively maintain a competitive edge relative to the market with their technologies and IP, it may adversely affect our business and financial position.
Our reliance on third parties also presents risks related to ownership, use and protection of proprietary information. We are required to rely on the terms of the related agreements, including the partnership agreements to protect our interests, as well as our investments and partners’ trade secret protections, non-disclosure agreements, and invention assignment agreements to protect confidential and proprietary information. If the IP and other confidential information of our investments and strategic partners are not adequately protected, competitors may be able to use their proprietary technologies and information, thereby eroding any competitive advantages that IP provides to us.
RISKS RELATED TO DOING BUSINESS IN THE PRC
U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S. Department of Justice and U.S. national securities exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC concerning our Company, our PRC-based officers, directors, market research services or other professional services or experts.
A substantial part of our assets and our current operations are conducted in the PRC, and some of our officers, directors and other professional service providers are nationals and residents of the PRC. U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S. Department of Justice and U.S. national securities exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC concerning our Company, and the PRC may have limited or no agreements in place to facilitate cooperation with the SEC’s Division of Enforcement for investigations within its jurisdiction.
Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic growth of the PRC, which could materially and adversely affect the growth of our business and our competitive position.
Our business operations have a material dependency on the PRC for both revenues generated with the PRC and as a source of finished products and components for our global operations. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in the PRC. The Chinese economy differs from the economies of most developed countries in many respects, including:
| ● | the degree of government involvement; |
| ● | the level of development; |
| ● | the growth rate; |
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| ● | the control of foreign exchange; |
| ● | the allocation of resources; |
| ● | an evolving and rapidly changing regulatory system; and |
| ● | a lack of sufficient transparency in the regulatory process. |
While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and across various sectors of the economy. The Chinese economy has also experienced certain adverse effects due to the global financial crisis. In addition, the growth rate of the PRC’s gross domestic product has materially slowed in recent years, according to the National Bureau of Statistics of China. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments, foreign currency exchange restrictions or changes in tax regulations that are applicable to us.
The continued control of these assets and other aspects of the national economy by the Chinese government could materially and adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
Any adverse change in the economic conditions or government policies in the PRC could have a material adverse effect on overall economic growth, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.
Uncertainties with respect to the PRC legal system could limit the legal protections available to you and to us, which could cause material adverse effects to our business operations.
We conduct part of our business through our subsidiaries in the PRC. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in the PRC and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in the PRC. However, there could be a change of law and it is uncertain whether business industries in which our China subsidiaries operate will be subject to the foreign investment restrictions or prohibitions.
Since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and to us. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention. In addition, some of our executive officers and directors are residents of the PRC and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and entities.
You may have difficulty enforcing judgments against us.
Most of our operations are located outside of the United States and part of our current operations are conducted in the PRC. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, that are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Courts in the PRC may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our
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directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest.
Our results could be adversely affected by the trade tensions between the United States and the PRC.
| ● | With the increasing interconnectedness of global economic and financial systems and our business related to the PRC, trade tensions between the United States and the PRC can have an immediate and material adverse impact on our business. Changes to trade policies, treaties and tariffs in the jurisdictions in which we operate, or the perception that these changes could occur, could adversely affect our international and cross-border operations, our financial condition and results of operations. For example, the U.S. administration under has advocated greater restrictions on trade generally and significant increases on tariffs on goods imported into the United States, particularly from the PRC. Such trade restrictions or tariffs could cause U.S. companies to respond by minimizing their use of Chinese suppliers, thereby moving the supply chain away from China and limiting our competitive advantage in developing our logistics management and financing business. Further, the U.S. or the PRC could impose additional sanctions that could restrict us from doing business directly or indirectly in either country. Such actions could have material adverse impact on our profitability and operations. Government regulations, both federal and municipal, that may restrict the available market for our products and services through the requirement for a minimum value of local produced content, or restrict the availability of subsidies for products that do not meet designated value for local produced content, e.g. the Buy America program. |
Restrictions on currency exchange may limit our ability to use cash generated from sales in the PRC to fund our business activities outside of the PRC.
At present, a substantial part of our sales will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside the PRC or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that FIEs may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in the PRC authorized to conduct foreign exchange business. In addition, foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities and companies are required to open and maintain separate foreign exchange accounts for capital account items. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries and the VIEs. Recent volatility in the RMB foreign exchange rate as well as capital flight out of the PRC may lead to further foreign exchange restrictions and policies or practices which adversely affect our operations and ability to convert RMB. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.
Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.
At present, part of our sales are earned by our PRC operating entities. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of their registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
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We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations and agreements with third parties, and make most of our sales in the PRC. The PRC also strictly prohibits bribery of government officials. Our activities in the PRC create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company, which may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Our operations in foreign countries are subject to risks that could adversely impact our financial results, such as economic or political volatility, foreign legal and regulatory requirements, international trade factors (export controls, trade sanctions, duties, tariff barriers and other restrictions), protection of our proprietary technology in certain countries, potentially burdensome taxes, crime, employee turnover, staffing, managing personnel in diverse culture, labor instability, transportation delays, and foreign currency fluctuations.
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Over the past several years, U.S. public companies that have substantially all of their operations in the PRC, particularly companies like ours which have completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity is in connection with financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what affect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or not, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from growing our Company.
The disclosures in our reports and other filings with the SEC and our other public announcements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in the PRC, where part of our operations and business are located, has conducted any due diligence on our operations or reviewed or cleared any of our disclosure.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the United States, however, substantially all of our operations are located in the PRC, Hong Kong and Singapore. Since substantially all of our operations and business takes place outside of United States, it may be more difficult for the staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public announcements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the CSRC. Accordingly, you should review our SEC reports, filings and our other public announcements with the understanding that no local regulator has done any due diligence on our Company and with the understanding that none of our SEC reports, other filings or any of our other public announcements has been reviewed or otherwise been scrutinized by any local regulator.
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RISKS RELATED TO OUR STOCK
The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.
The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control or are not discernible or determinable by our Company, may cause the market price of our common stock to fluctuate significantly. In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our products could cause the market price for our shares to change substantially. Following periods of such volatility in the market price of a company’s securities, securities class action as well as derivative litigation has often been brought against that company and its officers and directors. Because of the potential volatility of the Company’s common stock price, it may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from its business.
Moreover, the trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about us or our business. If one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price for our common stock or trading volume to decline.
The market price of our common stock could be also subject to volatility if the value of our business and common stock is viewed as being linked to the price and value of digital assets. If investors view our business and the value of our common stock as dependent upon or linked to the value or growth of digital assets, whether or not tokenized on our blockchain platforms, the price of such digital assets may influence significantly the market price of shares of our common stock.
Furthermore, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.
Provisions in our articles of incorporation and bylaws or Nevada law might discourage, delay or prevent a change of control of us or changes in our management and, therefore, depress the trading price of our common stock.
Our articles of incorporation authorize our Board to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board without further action by the shareholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our Board to issue preferred stock could make it more difficult, delay, discourage, prevent or make it costlier to acquire or effect a change-in-control, which in turn could prevent our shareholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.
In addition, Section 78.438 of the Nevada Revised Statutes prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
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Certain of our shareholders hold a significant percentage of our outstanding voting securities.
As of March 29, 2021, Dr. Wu, is the beneficial owners of approximately 11.1% of our outstanding voting securities (through their ownership of the Common Stock and 100% our Series A Preferred Stock, which entitle the holder to cast ten votes for every share of common stock that is issuable upon conversion of a share of Series A Preferred Stock (each share of Series A Preferred Stock is convertible into 0.1333333 shares of common stock), or a total of 9,333,330 votes). Mr. Shane McMahon, our Vice Chairman, is the beneficial owner of approximately 2.2% of our outstanding voting securities. As a result, each possesses significant influence over the election of our directors and the authorization of any proposed significant corporate transactions. Their respective ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.
We do not intend to pay dividends for the foreseeable future.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock or Series A preferred stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our Board and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. In addition, our ability to declare and pay dividends is dependent on our ability to declare dividends and profits in our subsidiaries domiciled outside of the United States. Rules in other jurisdictions may greatly restrict and limit the ability of our subsidiaries to declare dividends to us which, in addition to restricting our cash flow, limits our ability to pay dividends to our shareholders.
Even if we are able to pay dividends on our common stock or Series A preferred stock, our Board may choose not to declare dividends on our capital stock. In addition, financing agreements that we may enter into in the future may limit our ability to pay cash dividends. Fluctuations in exchange rates could adversely affect our business and the value of our securities.
The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and those currencies in which our sales may be denominated. Appreciation or depreciation in the value of currencies in which are sales are denominated relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to exchange rate fluctuations. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all.
ITEM 1B.UNRESOLVED STAFF COMMENTS
The Company has no unresolved Staff Comments.
ITEM 2.PROPERTIES
In 2018, we relocated our principal executive office from Beijing, China to New York, New York. We lease our principal executive office, which is located at 1441 Broadway, Suite 5116, New York, NY 10018. We lease an approximately 6,085 square foot office space in Beijing, China, which is used by both our Mobile Energy Group Services business unit and legacy YOD business for our PRC-based operations. In October 2018, we completed the $5.2 million acquisition of a 58-acre property located at 1700 and 1800 Asylum Avenue in West Hartford, Connecticut, which was formerly part of the University of Connecticut campus and will be the site of our new “Fintech Village.”
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In response to the COVID-19 pandemic the company closed its New York City office at 55 Broadway in the first quarter of 2020. The Company concluded that it did not require the 55 Broadway office and terminated the lease in the third quarter of 2020. The Company has entered into a short term lease for a very limited amount of office space at 1441 Broadway, New York, NY 10018. The Company has a 15 year lease on showroom and office space in the city of Qingdao in the PRC. The Company's Tree Technologies subsidiary has office space in Kuala Lumpur in Malaysia and a long term lease on 250 acres of vacant land zoned for industrial development on the Gebeng Industrial Estate, Kuantan, Pahang Darul Makmur,Malaysia which is near the port of Kuantan.
Except for FinTech Village, the Company believes that all its properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
ITEM 3.LEGAL PROCEEDINGS
Refer to Note 19 of the Notes to Consolidated Financial Statements included in Part 4, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price Information
The Company’s common stock is quoted on the Nasdaq Capital Market under the symbol “IDEX.” The following table sets forth, for the periods indicated, the high and low closing bid prices of the Company’s common stock.
Closing Bid Prices | ||||||
High | Low | |||||
Year Ended December 31, 2020 |
|
|
|
| ||
1st Quarter | $ | 1.34 | $ | 0.30 | ||
2nd Quarter | $ | 3.29 | $ | 0.38 | ||
3rd Quarter | $ | 1.78 | $ | 0.81 | ||
4th Quarter | $ | 3.15 | $ | 0.82 | ||
Year Ended December 31, 2019 |
|
|
|
| ||
1st Quarter | $ | 2.07 | $ | 1.13 | ||
2nd Quarter | $ | 2.46 | $ | 1.28 | ||
3rd Quarter | $ | 2.80 | $ | 1.46 | ||
4th Quarter | $ | 1.59 | $ | 0.66 | ||
Approximate Number of Holders of Our Common Stock
As of March 29, 2021, there were approximately 365 holders of record of the Company’s common stock. This number excludes the shares of the Company’s common stock beneficially owned by shareholders holding stock in securities trading accounts through DTC, or under nominee security position listings.
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Dividend Policy
The Company has never declared or paid a cash dividend. Any future decisions regarding dividends will be made by the Company’s Board. The Company currently intends to retain and use any future earnings for the development and expansion of the business and does not anticipate paying any cash dividends in the foreseeable future. The Company’s Board has complete discretion on whether to pay dividends, subject to the approval of the Company’s shareholders. Even if the Company’s Board decides to pay dividends, the form, frequency and amount will depend upon future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board may deem relevant. In addition, the Company’s ability to declare and pay dividends is dependent on the Company’s ability to declare dividends and profits in the PRC subsidiaries. PRC rules greatly restrict and limit the ability of the Company’s subsidiaries to declare dividends which, in addition to restricting the Company’s cash flow, limits its ability to pay dividends to its shareholders.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III—Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters—“Securities Authorized for Issuance Under Equity Compensation Plans.”
Recent Sales of Unregistered Securities
The Company did not sell any equity securities during the fiscal year ended December 31, 2020 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2020 fiscal year.
Purchases of Equity Securities
No repurchases of the Company’s common stock were made in the year ended December 31, 2020.
ITEM 6.SELECTED FINANCIAL DATA
Not Applicable.
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PART II
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis is presented in five sections as below and should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report on Form 10-K. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.
| ● | Overview |
| ● | Results of Operations |
| ● | Liquidity and Capital Resources |
| ● | Outlook |
| ● | Critical Accounting Policies and Estimates |
OVERVIEW
Ideanomics, Inc. (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004. From 2010 through 2017, our primary business activities were providing premium content video on demand (“VOD”) services, with primary operations in the PRC, through our subsidiaries and variable interest entities under the brand name You-on-Demand (“YOD.”) We closed the YOD business during 2019.
Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company built a network of businesses, operating principally in the trading of petroleum products and electronic components that the Company believed had significant potential to recognize benefits from blockchain and AI technologies including, for example, enhancing operations, addressing cost inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement. During 2018 the Company ceased operations in the petroleum products and electronic components trading businesses and disposed of the businesses during 2019. As we looked to deploy fintech solutions in late 2018 and into 2019, we found a unique opportunity in the Chinese EV industry to facilitate large scale conversion of fleet vehicles from internal combustion engines to EV. This led us to establish our MEG business unit to take advantage of this opportunity, subsequently we have extended our EV business to the ASEAN countries and have made an acquisition in the U.S. in the first quarter of 2021.
Fintech continues to be an important area for us as we look to invest in and develop businesses that can improve the financial services industry, particularly as it relates to digital securities.
Principal Factors Affecting Our Financial Performance
Our 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 our operations in the years ended December 31, 2020 and 2019:
| ● | Our ability to transform our business and to meet internal or external expectations of future performance. In connection with this transformation, we are in the process of considerable changes, which include assembling a new management team in the United States and overseas, reconfiguring our business structure, continuing to further enhance our controls, procedures, and oversight during this transformation, and expanding our mission and business lines for continued growth. It is uncertain whether these efforts will prove beneficial or whether we will be able to develop the necessary business models, infrastructure and systems to support our businesses. To succeed, among other things, we will need to have or hire the right talent to execute our business strategy. Market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer requirements, and optimally price our products and services to meet customer demand and cover our costs. |
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| ● | Our ability to remain competitive. We will continue to face intense competition: these new technologies are constantly evolving, and our competitors may introduce new platforms and solutions that are superior to ours. In addition, our 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 we can. We may never establish and maintain a competitive position in the hybrid financing and logistics management businesses. |
| ● | The fluctuation in earnings resulting from acquisitions, strategic equity investments, the formation of joint ventures, and in-licenses of technology. Our results of operations may fluctuate from period to period based on our entry into new transactions to expand our business. In addition, while we intend to contribute cash and other assets to our investments, we do not intend for our holding company to conduct significant research and development activities. In general we intend research and development activities to be conducted by our technology partners and licensors. These fluctuations in growth or costs and in our investments and partnerships may contribute to significant fluctuations in the results of our operations. |
Liquidity Improvements
In the year ended December 31, 2020, the Company improved its liquidity position by raising a total of $225.5 million: $191.4 million through the issuance of common stock and exercise of warrants, $7.1 million from noncontrolling interest shareholders, and $27.0 million through the issuance of senior secured convertible notes. The Company converted senior secured convertible notes of $34.4 million plus accrued interest of $0.3 million to common stock. Additionally, the Company converted $4.6 million of convertible notes payable and accrued interest to related parties and an additional $1.5 million due to related parties to common stock. As a result of these actions, the Company reduced its the principal amount of its indebtedness by $50.9 million, and as of December 31, 2020, had cash and cash equivalents of $165.8 million, $163.8 million of which is held in U.S. financial institutions.
Based upon its business projections and its cash and cash equivalents balance as of December 31, 2020, the Company believes it has the ability to continue as a going concern.
Effects of COVID-19
Novel Coronavirus 2019 (“COVID-19”) is an infectious disease cause by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of March 21, 2021, over 122.9 million cases had been reported across the globe, resulting in 2.7 million deaths.
The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels for worldwide immunization against COVID-19 remains challenging.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
Many of the Company’s operations are in the development or early stage, have not had significant revenues to date, and the Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.
29
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Information about segments
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units: Ideanomics Mobility and Ideanomics Capital.
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 our share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the investee’s obligations or we are committed to provide additional funding. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.
Taxation
United States
Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC are United States companies subject to the provisions of the Internal Revenue Code. No provision for income taxes has been provided as none of the companies had taxable profit since inception. At the acquisition of Grapevine Logic, Inc. in 2018, deferred tax liabilities were recorded relating to intangible assets recorded for financial reporting purposes but not recognized for income tax purposes. The intangible assets consequently could not provide deductible amortization expense for income tax purposes. The deferred tax liabilities were recorded on the acquisition date to the extent that they could not be offset by usable net operating loss carryforwards acquired in the acquisition. These deferred tax liabilities were reduced, providing an income tax benefit, to the extent that the intangible assets were reduced by amortization expense and additional net operating loss carry forwards were created to offset the liabilities. These benefits include $152,875 in 2019. The 2019 amount related to activities in the first two quarters of 2019. Ideanomics, Inc. increased its ownership in Grapevine Logic, Inc. such that beginning with the third quarter of 2019, the result of which was that Grapevine Logic, Inc. activities would be included in the consolidated tax return of Ideanomics, Inc. As a result, the valuation allowance provided against Ideanomics’ deferred tax assets were reduced by $361,059, the amount of Grapevine Logic, Inc.’s remaining deferred tax liabilities as that portion of Ideanomics Inc.’s net operating loss carryovers could now be utilized to offset these liabilities.
The Tax Cut and Jobs Act (“TCJA”) of 2017 includes provision for Global Intangible Low-Taxed Income (“GILTI”) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries. TCJA also enacted the Base Erosion and Anti-Abuse Tax (“BEAT”) under which taxes are imposed on certain base eroding payments to related foreign companies, subject to certain requirements.
Based on current year financial results, the company has determined that there is no GILTI nor BEAT tax liability.
In addition, the TCJA now entitles U.S. companies that owns 10.0% or more of a foreign corporation a 100% dividends-received deduction for the foreign-source portion of dividends paid by such foreign corporation. Also, net operating losses (“NOLs”) arising after December 31, 2017 are deductible only to the extent of 80.0% of the taxpayer’s taxable income, and may be carried forward indefinitely but generally not allowed to be carried back.
Cayman Islands and the British Virgin Islands
Under current laws of the Cayman Islands and the British Virgin Islands, the Company is not subject to tax on its income or capital gains. In addition, dividend payments are not subject to withholding tax in the Cayman Islands or British Virgin Islands.
30
Hong Kong
The Company’s subsidiaries incorporated in Hong Kong are subject to Profits Tax of 16.5%. Tax expense of $0.1 million was recorded in the year ended December 31, 2019 relating to the income on one Hong Kong subsidiary relating to a gain recorded on the sale of VIE related assets. All other Hong Kong subsidiaries had losses for 2019 and the resulting deferred tax assets relating to the loss carryovers were fully offset by a valuation allowance.
The People’s Republic of China
Under the PRC’s Enterprise Income Tax Law, the company’s Chinese subsidiaries and VIEs are subject to an EIT of 25.0%.
The Company’s future effective income tax rate depends on various factors, such as tax legislation, geographic composition of its pre-tax income and non-tax deductible expenses incurred. The Company’s management regularly monitors these legislative developments to determine if there are changes in the statutory income tax rate.
During the year ended December 31, 2019, one of the Company’s PRC subsidiaries incurred a tax obligation of $0.6 million relating to its EV sales. The entity did not have operating loss carryovers and is not able to utilize the loss carryovers of other subsidiaries. The transactions under which the VIE agreements were terminated resulted in gains to one VIE entity, prior to deconsolidation, that triggered a tax expense of $0.2 million. Other PRC entities either had losses that created additional operating loss carryovers, where the related deferred tax assets were offset by a valuation allowance, or had income that would have resulted in a current tax liability, except that they were able to offset those liabilities with operating loss carryovers from prior years. The use of prior year carryovers, in all cases for which the related deferred tax assets all had previously been offset by a valuation allowance, avoided $0.2 million of income tax expense.
31
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 2020 and 2019 (USD in thousands, except per share amounts)
For the years ended December 31, |
| 2020 |
| 2019 |
| Amount Change |
| % Change |
| |||
Revenue | $ | 26,759 | $ | 44,566 | $ | (17,807) |
| (40) | % | |||
Cost of revenue |
| 24,702 |
| 1,458 |
| 23,244 |
| n/m | ||||
Gross profit |
| 2,057 |
| 43,108 |
| (41,051) |
| (95) | % | |||
Operating expenses: |
|
|
|
|
|
|
| |||||
Selling, general and administrative expenses |
| 32,399 |
| 24,862 |
| 7,537 |
| 30 | % | |||
Research and development expense |
| 1,635 |
| — |
| 1,635 |
| n/m | ||||
Professional fees |
| 12,541 |
| 5,828 |
| 6,713 |
| n/m | ||||
Depreciation and amortization |
| 5,310 |
| 2,229 |
| 3,081 |
| n/m | ||||
Impairment losses |
| 42,554 |
| 73,669 |
| (31,115) |
| (42) | % | |||
Change in fair value of contingent consideration, net |
| (5,503) |
| 5,094 |
| (10,597) |
| n/m | ||||
Total operating expenses |
| 88,936 |
| 111,682 |
| (22,746) |
| (20) | % | |||
Loss from operations |
| (86,879) |
| (68,574) |
| (18,305) |
| 27 | % | |||
Interest and other income (expense): | ||||||||||||
Interest expense, net |
| (15,970) |
| (5,616) |
| (10,354) |
| n/m | ||||
Expense due to conversion of notes | (2,266) | — | (2,266) | n/m | ||||||||
Gain (loss) on extinguishment of debt | 8,891 | (3,940) | 12,831 | n/m | ||||||||
Impairment of and equity in loss of equity method investees | (16,698) |
| (13,718) |
| (2,980) |
| 22 | % | ||||
Gain (loss) on disposal of subsidiaries, net |
| 276 |
| (952) |
| 1,228 |
| n/m | ||||
Loss on remeasurement of DBOT investment |
| — |
| (3,179) |
| 3,179 |
| n/m | ||||
Other income (expense), net |
| 6,603 |
| (433) |
| 7,036 |
| n/m | ||||
Loss before income taxes and non-controlling interest |
| (106,043) |
| (96,412) |
| (9,631) |
| 10 | % | |||
Income tax (expense) benefit |
| — |
| (417) |
| 417 |
| n/m | ||||
Net loss |
| (106,043) |
| (96,829) |
| (9,214) |
| 10 | % | |||
Deemed dividend related to warrant repricing |
| (184) |
| (827) |
| 643 |
| (78) | % | |||
Net loss attributable to common shareholders |
| (106,227) |
| (97,656) |
| (8,571) |
| 9 | % | |||
Net (income) loss attributable to non-controlling interest |
| 7,827 |
| (852) |
| 8,679 |
| n/m | ||||
Net loss attributable to IDEX common shareholders | $ | (98,400) | $ | (98,508) | $ | 108 |
| 0 | % | |||
Basic and diluted loss per share | $ | (0.46) | $ | (0.82) |
|
|
|
| ||||
Revenues (USD in thousands)
For the years ended December 31, |
| 2020 |
| 2019 |
| Amount Change |
| % Change |
| |||
Digital asset management services | $ | — | $ | 40,700 | $ | (40,700) |
| n/m | ||||
Electric vehicles | 19,462 | 2,693 | 16,769 |
| n/m | |||||||
Combustion engine vehicles |
| 5,160 |
| — |
| 5,160 |
| n/m | ||||
Charging and batteries |
| 506 |
| — |
| 506 |
| n/m | ||||
Digital advertising services |
| 1,631 |
| 1,173 |
| 458 |
| 39 | % | |||
Total | $ | 26,759 | $ | 44,566 | $ | (17,807) |
| (40) | % | |||
32
n/m = Not Meaningful
Revenue for the year ended December 31, 2020 was $26.8 million as compared to $44.6 million for the same period in 2019, a decrease of $17.8 million, or 40%. The decrease was due to a change to our business focus from digital asset management services to the EV business. The Company generated $19.5 million from the sale of EVs as compared to $2.7 million in the prior year, an increase of $16.8 million. In the current year, the Company earned revenues of $5.2 million from the sale of combustion engine vehicles; the sale of combustion engine vehicles is not the Company’s primary focus, however, from time to time, the Company will sell combustion engine vehicles if a client places an order. During 2020, the Company made its first sales of charging and battery equipment. The Company believes this is very encouraging development as the provision of charging, battery and battery swap services is an important strategic focus for the Company. Revenues from Grapevine, the Company’s business focused on digital advertising services were $1.6 million as compared to $1.2 million in the prior year, an increase of $0.5 million or 39%. Grapevine is considered a non-core asset for Ideanomics.
The revenues for the years ended December 31, 2020 and 2019 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. The majority of the revenue from the sale of EVs, as well as revenue from the sale of the combustion engine vehicles and charging and batteries for the year ended December 31, 2020 were recorded on a Principal basis because the Company has inventory risk in the transactions. The revenue from the sale of EVs for the year ended December 31, 2019 was recorded on an Agent basis due to the terms of the transaction.
Cost of revenue (USD in thousands)
For the years ended December 31, |
| 2020 |
| 2019 |
| Amount Change |
| % Change |
| |||
Digital asset management services | $ | — | $ | 467 | $ | (467) |
| n/m | ||||
Electric vehicles | 18,035 | — | 18,035 |
| n/m | |||||||
Combustion engine vehicles |
| 5,121 |
| — |
| 5,121 |
| n/m | ||||
Charging and batteries |
| 488 |
| — |
| 488 |
| n/m | ||||
Digital advertising services |
| 1,058 |
| 991 |
| 67 |
| 6.7 | % | |||
Total | $ | 24,702 | $ | 1,458 | $ | 23,244 |
| n/m | ||||
n/m = Not Meaningful
Cost of revenues was $24.7 million for the year ended December 31, 2020, as compared to $1.5 million for the year ended December 31, 2019. The cost of revenues increased by $23.2 million. From a comparability perspective, the cost of revenue during 2019 is not indicative of the new business in 2020. The cost of revenue during 2019 was primarily associated with the digital asset management services and creator payments from the Grapevine business. The cost of revenue from the sale of EVs was $18.0 million; there was no cost of revenue recorded for the sale of EVs during 2019 as the company acted as agent in the sale of EVs in 2019 and consequently revenues were recorded on “net” basis without any corresponding cost of revenues. Cost of revenues from the sale of combustion engine vehicles was $5.1 million; there were no sales of combustion engine vehicles in the prior year. Cost of revenues for charging and batteries was $0.5 million; there were no sales of charging and batteries in the prior year. The cost of revenues for the digital advertising services provided by Grapevine were $1.1 million as compared to $1.0 million in the prior year, an increase of almost $0.1 million or 6.7%.
Gross profit (USD in thousands)
For the years ended December 31, |
| 2020 |
| 2019 |
| Amount Change |
| % Change | |||
Digital asset management services | $ | — | $ | 40,233 | $ | (40,233) | n/m | ||||
Electric vehicles | 1,427 | 2,693 | (1,266) |
| n/m | ||||||
Combustion engine vehicles |
| 39 |
| — |
| 39 |
| n/m | |||
Charging and batteries |
| 18 |
| — |
| 18 |
| n/m | |||
Digital advertising services |
| 573 |
| 182 |
| 391 |
| n/m | |||
Total | $ | 2,057 | $ | 43,108 | $ | (41,051) |
| n/m | |||
n/m = Not Meaningful
33
Gross profit ratio
For the years ended December 31, |
| 2020 |
| 2019 |
|
Digital asset management services |
| — | % | 99 | % |
Electric vehicles |
| 7 | 100 | ||
Combustion engine vehicles |
| 1 | — | ||
Charging and batteries |
| 4 | — | ||
Digital advertising services |
| 35 | 16 | ||
Total |
| 8 | % | 97 | % |
The gross profit for the year ended December 31, 2020 was $2.1 million, as compared to $43.1 million during the same period in 2019, a decrease of $41.1 million. The decrease was due to the Company recorded service revenue from digital asset management services in 2019 which was not repeated in 2020 and had a low cost of revenue. The gross profit earned from the sale of EVs was $1.4 million a decrease of $1.3 million from the prior year. The Company acted in an agent capacity in the sale of EVs in 2019 and consequentially the revenue was recorded on a “net” basis without any cost of revenue which resulted in a higher gross profit and gross margin.
Selling, general and administrative expenses
Our selling, general and administrative expense for the year ended December 31, 2020 was $32.4 million as compared to $24.9 million for the same period in 2019, an increase of $7.5 million or 30%. The majority of the increase was due to increased stock based compensation expense, bonuses and sales commissions and salaries resulting from the increase in employee numbers and sales activity, and bad debt expense which was partially offset by lower spending on travel and entertainment due to the restrictions on travel and entertaining arising from COVID-19 and lower severance expense.
Research and development expense
Research and development expense for the year ended December 31, 2020 represents the fees paid for EV technical development and design.
Professional fees
Professional fees for the year ended December 31, 2020 were $12.5 million as compared to $5.8 million for the same period in 2019, an increase of $6.7 million. The majority of this increase was due to increased expense for investor relations programs, legal fee expense related to regulatory enquires, fund raising and merger and acquisition activities, and class action lawsuits. Expenses for consultants and contractors increased as a result of the Company’s continued expansion.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2020 was $ 5.3 million as compared to $2.2 million for the same period in 2019, an increase of $3.1 million. The increase was mainly due to the increase in amortization expense of $2.1 million arising from the shortening of the useful life on an intellectual property intangible asset.
34
Impairment losses
The following table summarizes the impairment losses recorded in the years ended December 31, 2020 and 2019 (in thousands):
Asset Impaired |
| Note |
| Caption |
| Amount | ||||
2020 | 2019 | |||||||||
GTB – digital currency |
| Note 9 – Goodwill and Intangible Assets |
| Impairment losses | $ | — | $ | 61,124 | ||
Equity method investments |
| Note 10 - Long-term Investments |
| Impairment of and equity in loss of equity method investments | 16,650 |
| 13,062 | |||
Intangible assets |
| Note 9 – Goodwill and Intangible Assets |
| Impairment losses | 20,446 |
| 5,715 | |||
Goodwill |
| Note 9 – Goodwill and Intangible Assets |
| Impairment losses | 9,323 |
| — | |||
Right of use assets | Note 11 - Leases | Impairment losses | 6,424 | — | ||||||
Fintech buildings, land and capitalized fees | Note 8 - Property and Equipment, net | Impairment losses | 3,315 | 2,299 | ||||||
Fintech buildings asset retirement cost | Note 8 - Property and Equipment, net | Impairment losses | 1,996 | 1,504 | ||||||
Fixed assets and other |
|
| 923 |
| — | |||||
Cost method investments |
| Note 10 - Long-term Investments |
| Impairment losses | 241 |
| 3,026 | |||
Total |
|
| $ | 59,318 | $ | 86,730 | ||||
Additional information related to the impairment losses recorded in the years ended December 31, 2020 and 2019 is as follows:
Year Ended December 31, 2020
| ● | The Company recorded impairment losses of $16.7 million related to its equity method investments, Glory and BDCG. In the fourth quarter of 2020, Tree Technologies obtained its own domestic manufacturing license, and determined that it would not purchase vehicles from Tree Manufacturing, Glory’s subsidiary, and that the investment in Glory was therefore impaired. The Company evaluated the business prospects of BDCG in light of the continued political tensions between China and the U.S., and determined that its business prospects had diminished. |
| ● | The Company recorded impairment losses of $20.4 million related to intangible assets: |
| o | An impairment loss of $12.5 million related to Tree Technologies marketing and distribution agreement with Tree Manufacturing after Tree manufacturing obtained its own domestic manufacturing license, and determining that it would not purchase vehicles from Tree Manufacturing. |
| o | Impairment losses of $7.1 million related to DBOT’s intangible assets, its continuing membership agreement and customer list. |
| o | An impairment loss of $0.8 million related to Grapevine’s influencer network, after determining that the attrition rate of the influencer network was higher than expected. |
| ● | The Company recorded an impairment loss of $9.3 million related to the goodwill of its consolidated subsidiary, DBOT, after evaluating its business prospects. |
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| ● | The Company recorded impairment losses of $6.4 million related to right of use assets after ceasing to use the related real estate premises. |
| ● | The Company recorded impairment losses of $3.3 million related to its investment in Fintech Village, and recorded an impairment loss of $2.0 million for the related asset retirement cost. |
| ● | The Company recorded an impairment loss of $0.2 million related to a cost method investment after its price per share declined in the fourth quarter of 2020. |
Year Ended December 31, 2019
| ● | The Company recorded an impairment loss of $61.1 million in the fourth quarter of 2019 related to GTB which the Company had received in connections with a services agreement and an asset purchase agreement with GT Dollar Pte, a minority shareholder at the time of the transaction. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through the fourth quarter of 2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis and recorded an impairment loss. |
| ● | The Company recorded a $13.1 million impairment loss in Glory, an equity method investment, in the fourth quarter of 2019, when it became apparent that Glory’s subsidiary, Tree Manufacturing, would not receive the land use rights to 250 acres of vacant land and other assets. |
| ● | The Company recorded a $5.7 million impairment loss related to a secure mobile financial information, social, and messaging platform that has been designed for streamlining financial-based communication for professional and retail users. Management determined these assets had no future use and recorded an impairment loss. |
| ● | The Company recorded impairment losses of $3.0 million in two non-marketable equity investments after management evaluated their performance. |
| ● | The Company recorded an impairment loss of $2.3 million in the third quarter of 2019 in connection with four buildings in Fintech Village, which were later demolished, and recorded an impairment loss of $1.5 million for the related asset retirement cost. |
Change in fair value of contingent consideration, net
For the year ended December 31, 2020, Change in fair value of contingent consideration, net of $5.5 million represents the remeasurement loss of $1.5 million of the contingent consideration payable to the former DBOT shareholder and remeasurement gain of $7.0 million of the contingent consideration payable to the Tree Technology shareholders.
For the year ended December 31, 2019, Change in fair value of contingent consideration, net of $5.1 million represents the remeasurement of the contingent consideration payable to the former DBOT shareholders due to the decline in Ideanomics’ stock price.
Loss from operations
Loss from operations for the year ended December 31, 2020 was $86.9 million as compared to loss of $68.6 million for the year ended December 31, 2019 an increase of $18.3 million. The increased Loss from Operations is due to number of factors, the gross profit for 2019 included revenues from digital asset services which had a gross profit margin of almost 100% which was not repeated in 2020, increased expenses for selling, general and administrative, research and development, professional fees, and depreciation and amortization expense partially offset by lower impairment charges and a gain resulting from a change in the fair value of contingent consideration.
36
Interest expense, net
Our interest expense increased $10.4 million to $16.0 million for the year ended December 31, 2020, from $5.6 million during 2019. The interest expense increase during 2020 was primarily due to the amortization of beneficial conversion features and the interest associated with convertible notes issued in 2020. The following table summarizes the breakdown of the interest expense (in thousands):
|
| Year ended December 31, |
| Year ended December 31, | |||
2020 | 2019 | ||||||
Interest, net | $ | 1,485 | $ | 1,381 | |||
Amortization of discount |
| 14,485 |
| 4,235 | |||
Total | $ | 15,970 | $ | 5,616 | |||
Expense due to conversion of notes
Expense due to conversion of notes for the year ended December 31, 2020 represents the expense recognized as a result of the reduction of conversion price to induce the conversion of the convertible notes from the related parties.
Gain (loss) on extinguishment of debt
In the year ended December 31, 2020, the Company recorded a gain on the extinguishment of debt of $8.9 million, as it paid a promissory note prior to its scheduled maturity. The Company also settled several outstanding balances with vendors and recorded a gain of $0.5 million.
In the year ended December 31, 2019, the Company recorded a loss on extinguishment of debt of $3.9 million which resulted from modifications made to various convertible notes.
Impairment of and equity in loss of equity method investees
Impairment of and equity in loss of equity method investments increased by $3.0 million to $16.7 million in the year ended December 31, 2020 from $13.7 million in the year ended December 31, 2019. The increase was due to impairments losses of $16.7 million recorded in the year ended December 31, 2020, as compared to an impairment loss of $13.1 million recorded in the year ended December 31, 2019. Refer to “Impairment losses” above.
Gain (loss) on disposal of subsidiaries, net
The following table summarizes gains and (losses) recorded in “Gain (loss) on disposal of subsidiaries, net” in the years ended December 31, 2020 and 2019 (in thousands):
| Year ended December 31, |
| Year ended December 31, | |||
Subsidiary | 2020 | 2019 | ||||
Guang Min | $ | 276 | $ | — | ||
Red Rock Global Capital LTD |
| — |
| 552 | ||
Amer Global Technology Limited |
| — |
| 505 | ||
Deconsolidation of VIEs |
| — |
| (2,009) | ||
Total | $ | 276 | $ | (952) | ||
Gain (loss) on disposal of subsidiaries was a gain of $0.3 million for year ended December 31, 2020 as compared to a loss of $1.0 million in the same period in 2019.
Loss on remeasurement of DBOT investment
In the year ended December 31, 2019, the Company increased its ownership in DBOT and consolidated DBOT in July 2019. Immediately prior to the consummation of the acquisition, the Company’s investment in DBOT had a fair value of $3.1 million, and the Company recorded a loss of $3.2 million to record the investment in DBOT to its fair value.
37
Other income (expense), net
Other income (expense), net increased $7.0 million for the year ended December 31, 2020 in comparison to the same period of 2019 mainly because of a gain of $4.9 million from the lease settlement of its New York City headquarters at 55 Broadway with the landlord, a gain of $0.8 million from the DBOT lease settlement with the landlord and sublease income $0.1 million.
Net (income)/loss attributable to non-controlling interest
Net (income)/loss attributable to non-controlling interests was a $7.8 million loss in 2020 as compared to a net income of $0.9 million in 2019. The loss in 2020 is primarily due to net loss from our investments in entities formed and acquired in 2019. The gain in 2019 is primarily due to the taxis commission revenue recognized in an entity we have 51% ownership during the third quarter of 2019.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2020, we had cash of $165.8 million. Approximately $164.5 million was held in our Hong Kong, U.S., Malaysia and Singapore entities and $1.2 million was held in our PRC entities.
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.
As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.2 million as of December 31, 2020, which was necessary for DBOT to meet its minimum capital requirements. The Company consolidates a 51.0% owned investment in an entity which is based in Singapore. This entity venture had cash of $0.6 million as of December 31, 2020. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures.
The following table provides a summary of our net cash flows from operating, investing, and financing activities (in thousands).
Year Ended | ||||||
December 31, | December 31, | |||||
2020 | 2019 | |||||
Net cash used in operating activities |
| $ | (41,468) |
| $ | (13,784) |
Net cash used in investing activities |
| (3,500) |
| (1,794) | ||
Net cash provided by financing activities |
| 208,049 |
| 15,114 | ||
Effect of exchange rate changes on cash |
| 50 |
| (9) | ||
Net increase/(decrease) in cash, cash equivalents and restricted cash |
| 163,131 |
| (473) | ||
Total cash, cash equivalents and restricted cash at beginning of period |
| 2,633 |
| 3,106 | ||
Cash and cash equivalents at end of period | $ | 165,764 | $ | 2,633 | ||
Operating Activities
Cash used in operating activities decreased by $27.7 million for the year ended December 31, 2020 compared to 2019, primarily due to (1) an increase in net loss from $96.8 million in 2019 to $106.0 million in 2020, (2) total non-cash adjustments to net loss was $75.9 million and $67.9 million for the years ended December 31, 2020 and 2019, respectively; and (3) total changes in operating assets and liabilities resulted in an increase of $11.3 million and $15.1 million in cash used in operating activities for the years ended December 31, 2020 and 2019, respectively.
Investing Activities
Cash used in investing activities was $3.5 million for the year ended 2020 mainly due to the investment to Solectrac. Cash used in investing activities was $1.8 million for the year ended December 31, 2019 primarily due to the payment of $1.8 million for Fintech Village.
38
Financing Activities
For the year ended December 31, 2020. The Company received $182.5 million from the issuance of common stock, $8.9 million from warrant and option exercise, $27.0 million from the issuance of convertible notes, $7.1 million from noncontrolling shareholders contribution and made repayments of $17.5 million, primarily of a $12.0 million convertible note and other borrowings. For the year ended December 31, 2019, the Company received $9.1 million from the issuance of convertible notes, $2.8 million in proceeds in a private placement from the issuance of common shares, warrant and options for the year ended December 31, 2019.
Effects of Inflation
Inflation and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the foreseeable future. Our management will closely monitor the price change and make efforts to maintain effective cost control in operations.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in investments accounted for under the equity method of accounting. The Company does not control these investments and therefore does not consolidate them.
We do not have other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our 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 our securities.
Contractual Obligations
The tabular presentation of contractual obligations is not required for Smaller Reporting Companies.
Seasonality
The Company expects that orders and sales 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.
OUTLOOK
The Company believes that the investment made to build out its sales capacity in China and a related capability in sourcing and supply chain and related logistics in China will help drive growth in China using the Company's S2F2C business model and enable the Company to source high quality components and completed vehicles at competitive prices for its Medici, Treeletrik, WAVE and Solectrac businesses outside of China. The global focus on climate change and the related regulatory changes to encourage the adoption of EVs is very favorable for the Company's business, particularly the charging and battery businesses, which are critical to the widespread adoption of EVs. Providing customers with easy access to financing options for their purchases of vehicles, batteries and charging infrastructure is an important enabler for the deployment of EV and related technologies and the Company will continue to work to develop funding sources in conjunction with manufactures and established lenders.
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.
39
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Company management has identified certain accounting policies that are significant to the preparation of its financial statements. These accounting policies are important for an understanding of the Company’s financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. Company management believes the following critical accounting policies involve the most significant estimates and judgments used in the preparation of its financial statements. Company management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation. Management evaluates the relationships between the Company and the various VIEs and the economic benefit flow of the contractual arrangement with the VIEs. In connection with such evaluation, management also considers whether or not, as a result of such contractual arrangements, the Company controls the legal shareholders’ voting interests and has power of attorney in the VIEs, and therefore which counterparty is able to direct all business activities of the VIEs. As a result of such evaluation, management concluded that the Company is the primary beneficiary of certain VIEs, which are consolidated, and that the Company is not the primary beneficiary of one investment in which the Company holds a 60.0% interest, and of one investment in which the Company holds a 34.0% investment and which had a supply agreement with a consolidated entity. Both of these investments are accounted for as an equity method investments.
As of December 31, 2019, the Company has terminated the agreements with the PRC VIEs and will not consolidate them beyond that date.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of the promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine the amount and timing of revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606,”) the Company performs the following five steps: (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies the respective performance obligations.
A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is generally evaluated by measuring our progress in satisfying the performance obligation as evidenced by the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time when the customer obtains control over the promised good.
40
The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for the promised goods or services, or the transaction price. In determining the transaction price, we evaluate consideration promised in a contract that includes a variable amount, or variable consideration, and estimate the amount of consideration that is due to us. Variable consideration is included in the transaction price only to the extent that we believe it is probable that a significant reversal in the amount of revenue recognized will not occur.
Additionally, an analysis is performed in order to evaluate whether the Company is acting as a principal, in which case revenue is reported on a gross basis, or as an agent, in which case revenue is reported on a net basis. This analysis considers whether or not the Company obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.
The Company’s contracts are typically with large enterprises and consequently are heavily negotiated as to the services to be provided; consequently the accounting treatment for the reporting of revenues may vary materially between contracts including whether the revenue is reported on a gross or net basis.
Long-lived Assets
Long-lived assets, including property and equipment and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount.
Factors which could result in the Company performing an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, and significant negative industry or economic trends.
The Company received a specific type of digital currency, GTB, as a result of two transactions in the three months ended March 31, 2019, and recorded the GTB currency as indefinite-lived intangible assets. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through the fourth quarter of 2019, and on December 31, 2020 the quoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the fourth quarter of 2019 and recorded an impairment loss of $61.1 million.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for future expansion development.
As a result of the impairment analyses performed in the year ended December 31, 2020, the Company recorded impairment losses related to land, asset retirement costs, influencer networks, a membership agreement, and a marketing and distribution agreement of $22.5 million.
As part of the impairment analyses discussed above in the year ended December 31, 2020, the Company also evaluated the remaining useful life of intangible assets, and determined that one intangible asset, intellectual property, no longer had a useful life and recorded amortization expense of $2.1 million.
As a result of the impairment analyses performed in the year ended December 31, 2019, the Company recorded an impairment loss related to a secure mobile financial information, social and messaging platform of $5.7 million.
Acquisition accounting
Our consolidated financial statements include the operations of acquired businesses subsequent to the closing of the transaction. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Transaction costs are expensed as incurred.
41
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including the identification of and our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from our management of the acquired companies and are inherently uncertain.
When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:
| ● | Income approach, which is based on the present value of a future stream of net cash flows; |
| ● | Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities; and |
| ● | Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence. |
Fair value methodologies depend on the following types of inputs:
| ● | Quoted prices for identical assets or liabilities in active markets (Level 1 inputs); |
| ● | Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs); and |
| ● | Unobservable inputs that reflect estimates and assumptions (Level 3 inputs). |
The determination of fair value is extremely subjective and complex, and requires judgements concerning future events, including future cash flows, the appropriate discount factors and weighted average cost of capital, and market comparables, among other factors. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and liabilities assumed in a business combination. Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. The Company performs goodwill impairment testing at the reporting unit level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business for which discrete financial information is available and regularly reviewed by segment management. The Company tests goodwill for impairment annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more-likely-than-not that the fair value of a reporting unit has declined below its carrying amount. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures.
The Company has the option to first perform qualitative testing to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. If, after assessing the totality of events and circumstances, the Company determines it is not more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value of the reporting unit to its carrying amount.
42
The fair value of a reporting unit may be determined using externally quoted prices (if available), a discounted cash flow model, or a market approach. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.
An impairment loss, if any, is recorded when the fair value of a reporting unit has declined below its carrying amount.
As a result of its goodwill impairment analyses performed in the year ended December 31, 2020, the Company recorded goodwill impairment losses of $9.3 million. The Company recorded no goodwill impairment losses in the year ended December 31, 2019.
Long-term Investments
The Company accounts for equity investments through which management exercises significant influence but does not have control over the investee under the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or losses of the investee. The Company’s share of losses is not recognized when the investment is reduced to zero since the Company does not guarantee the investees’ obligations nor is the Company committed to providing additional funding.
The equity investments which are not consolidated or accounted for under the equity method are either carried at fair value or under the measurement alternative upon the adoption of the Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU No 2016-01.”)
The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.
Management periodically reviews long-term investments for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investment may not be fully recoverable. Management considers impairment indicators such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist, further analysis must be performed in order to determine if the impairment, if any, is other-than-temporary. If the impairment is deemed to be other-than-temporary, the fair value of the investment must be determined. In the absence of quoted market prices, management must use judgement to determine the fair value of the investment, considering such factors as current economic and market conditions, the operating performance of the entities, including current earnings trends and forecasted cash flows, and other company and industry specific information. If the fair value of the investment is below the carrying amount, an impairment loss is recorded to record the investment at fair value.
The Company recorded impairment losses of $0.2 million and $3.0 million in the years ended December 31, 2020 and 2019, respectively, for equity investments accounted for under the measurement alternative, and recorded impairment losses of $16.6 million and $13.1 in the years ended December 31, 2020 and 2019, respectively, for investments accounted for as equity method investments.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2 of the Notes to the Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This Item 7A is not required for Smaller Reporting Companies.
43
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IDEANOMICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Ideanomics, Inc.
Opinions on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ideanomics Inc. (the "Company") as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as of December 31, 2020. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion as of December 31, 2020.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit of internal control over financial reporting also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Accounts Receivable
As described in Note 2 to the financial statements, the Company reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts receivable aging, and the customer’s payment patterns. The Company has $7.4 million of accounts receivable carrying value as of December 31, 2020.
The principal considerations for our determination that auditing management’s assessment of allowance for doubtful accounts is a critical audit matter are there was significant judgment made by management when considering factors in management’s assessment on collectability of the accounts receivables as described above, as well as the likelihood of the occurrence of these factors impacting the collectability. In turn, such management’s assessment led to challenging and subjective auditor judgment in performing our audit procedures.
Our audit procedures included, among others, understanding of controls relating to management assessment of accounts receivable allowance, interviewing client account managers, examining transaction-related documents, testing historical collections for estimation accuracy, and reviewing collections subsequent to the balance sheet date. Our procedures also included confirming balances with clients, searching public information for the operating and financial conditions of the clients, and interviewing the business contacts of the Company. Our audit procedures also included testing their adequacy of footnote disclosures.
Impairment assessment of intangible assets and goodwill
As described in Note 2 to the financial statements, the Company performs an annual impairment assessment of its indefinite-lived intangible assets and goodwill, or more frequently if events or circumstances indicate that the carrying values exceeds its fair value. The Company reviews other intangible assets with estimable lives for impairment whenever indicators are present that the carrying value may not recoverable. These intangible assets and goodwill have carrying value of $29.7 million and $1.2 million as of December 31, 2020, respectively.
Auditing the valuation of intangible assets and goodwill involved complex judgment due to subjective evaluation of indicators and significant estimation required in determining the recoverability or fair value of the intangible assets and goodwill. Specifically, the cash flow forecasts were sensitive to significant assumptions about future market and economic conditions. Significant assumptions used in the Company’s estimates included sales volume, growth rates, gross profits, operating expenditures, tax rates, and discount rate, as applicable.
We obtained an understanding of the controls over the Company’s annual impairment assessments of intangible assets and goodwill. We compared, by searching online information, management’s assessment in qualitative factors, to public information including economic growth forecast, industry outlook, and business environment, relating to the intangible assets and goodwill. We also tested the estimated future cash flows, including but not limited to, comparing significant inputs to observable third party and industrial sources, comparing to the historical performance of the Company, and evaluating the reasonableness of management’s projected financial information by comparing to observable average industry historical trends and projections, and other internal and external data. For certain intangible asset with comparable current market value such of land use rights, we looked for nearby areas for their market value and price trending of similar lands. We performed sensitivity analyses of significant assumptions to evaluate the reasonableness of the Company’s cash flow forecasts. We assessed the Company’s disclosure of its impairment assessments included in Note 2 as well as the sufficiency of footnote disclosure of impairment assessment of intangible assets and goodwill in Note 9.
F-3
Fair value measurement of acquisition contingent consideration
As described in the Note 2 to the financial statements, accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date including the identification of and estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. The Company recognized $5.5 million of remeasurement gain for the year ended December 31, 2020.
Auditing the fair value of contingent liabilities, or earn-out liabilities, relating to business combination involved complex judgment due to subjective evaluation of indicators and significant estimation required in determining the fair value of the liabilities. Specifically, the discounted cash flow forecasts commonly used in the valuation were sensitive to significant assumptions about future market and economic conditions. Significant assumptions used in the Company’s estimates included sales volume, growth rates, gross profits, operating expenditures, tax rates, and discount rate, as applicable.
We obtained an understanding of the controls over the Company’s financial reporting process for business acquisitions. We tested the estimated future cash flows, including but not limited to, comparing significant inputs to observable third party and industrial sources, and evaluating the reasonableness of management’s projected financial information by comparing to observable average industry historical trends and projections, and other internal and external data. We performed sensitivity analyses of significant assumptions to evaluate the reasonableness of management’s cash flow analyses of the fair value of the liabilities. We then agreed the Company’s conclusion to the relevant terms of contingent consideration in the business acquisition agreements. We assessed the Company’s disclosure of its business combination accounting policies and fair value measurement included in Note 2 as well as the sufficiency of footnote disclosures to the changes in contingent consideration in Note 23.
/s/ B F Borgers CPA PC
We have served as the Company’s auditor since 2018.
Lakewood, Colorado
March 31, 2021
F-4
IDEANOMICS, INC.
CONSOLIDATED BALANCE SHEETS (USD in thousands)
As of December 31, | 2020 |
| 2019 | |||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net (including due from related parties of $ |
| |
| | ||
Amount due from related parties |
| |
| | ||
Prepaid expenses |
| |
| | ||
Other current assets |
| |
| | ||
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 , REDEMABLE NON-CONTROLLING INTEREST AND EQUITY |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Deferred revenue |
| |
| | ||
Accrued salaries |
| |
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Amount due to related parties |
| |
| | ||
Other current liabilities |
| |
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Current portion of operating lease liabilities |
| |
| | ||
Current contingent consideration | | | ||||
Promissory note-short term | | | ||||
Convertible promissory note due to third-parties-short term | | | ||||
Convertible promissory note due to related parties-short term | | | ||||
Total current liabilities |
| |
| | ||
Asset retirement obligations |
| |
| | ||
Convertible promissory note due to third-parties-long term |
| |
| | ||
Convertible promissory note due to related parties-long term | | | ||||
Operating lease liability-long term | | | ||||
Non-current contingent liabilities | | | ||||
Other long-term liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 19) |
|
|
|
| ||
Convertible redeemable preferred stock and Redeemable non-controlling interest: |
|
|
|
| ||
Series A - |
| |
| | ||
Redeemable non-controlling interest | | | ||||
Equity: |
|
|
|
| ||
Common stock - $ | | | ||||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| |
| ( | ||
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 consolidated financial statements.
F-5
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (USD in thousands, except per share data)
For the years ended December 31, |
| 2020 |
| 2019 | ||
Revenue from third-parties | $ | | $ | | ||
Revenue from related parties |
| |
| | ||
Total revenue |
| |
| | ||
Cost of revenue from third-parties |
| |
| | ||
Cost of revenue from related parties |
| |
| | ||
Gross profit |
| |
| | ||
Operating expenses: |
|
|
|
| ||
Selling, general and administrative expenses |
| |
| | ||
Research and development expense |
| |
| | ||
Professional fees | | | ||||
Depreciation and amortization | | | ||||
Change in fair value of contingent consideration, net |
| ( |
| | ||
Impairment losses | | | ||||
Total operating expenses |
| |
| | ||
Loss from operations |
| ( |
| ( | ||
Interest and other income (expense): |
|
|
|
| ||
Interest expense, net |
| ( |
| ( | ||
Expense due to conversion of notes | ( | | ||||
Gain (loss) on extinguishment of debt | | ( | ||||
Impairment of and equity in loss of equity method investees |
| ( |
| ( | ||
Gain (loss) on disposal of subsidiaries, net | | ( | ||||
Loss on remeasurement of DBOT investment | | ( | ||||
Other income (expense), net |
| |
| ( | ||
Loss before income taxes and non-controlling interest |
| ( |
| ( | ||
Income tax (expense) benefit |
| |
| ( | ||
Net loss |
| ( |
| ( | ||
Deemed dividend related to warrant repricing | ( | ( | ||||
Net loss attributable to common stockholders | ( | ( | ||||
Net (income) loss attributable to non-controlling interest |
| |
| ( | ||
Net loss attributable to IDEX common shareholders | $ | ( | $ | ( | ||
Basic and diluted loss per share | $ | ( | $ | ( | ||
Weighted average shares outstanding: |
|
|
|
| ||
Basic and diluted |
| |
| | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD in thousands)
For the years ended December 31, |
| 2020 |
| 2019 | ||
Net loss | $ | ( | $ | ( | ||
Other comprehensive loss, net of |
|
| ||||
Foreign currency translation adjustments |
| |
| | ||
Comprehensive loss |
| ( |
| ( | ||
Deemed dividend related to warrant repricing | ( | ( | ||||
Comprehensive loss attributable to non-controlling interest |
| |
| ( | ||
Comprehensive loss attributable to IDEX common shareholders | $ | ( | $ | ( | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2020 and 2019 (USD in thousands, except per share data)
Accumulated | ||||||||||||||||||||||||||||
Series E | Series E | Additional | Other | Ideanomics | Non- | |||||||||||||||||||||||
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Balance, December 31, 2018 |
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Share-based compensation |
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Disposal of subsidiary |
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Common stock issued to settle debt |
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Net loss** | |
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Foreign currency translation adjustments, net of nil tax | |
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Balance, December 31, 2019 |
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Share-based compensation |
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Common stock issuance for professional fees |
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Common stock issuance for convertible notes |
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Common stock issuance for acquisitions, investments, and assets |
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Measurement period adjustment |
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Common stock issued to settle debt |
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Common stock issued under employee stock incentive plan |
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Extinguishment of convertible note | |
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Common stock issuance | |
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Net loss** |
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Foreign currency translation adjustments, net of nil tax |
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Balance, December 31, 2020 |
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*
**
The accompanying notes are an integral part of these consolidated financial statements.
F-8
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands)
For the years ended December 31, |
| 2020 |
| 2019 | ||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities |
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Share-based compensation expense |
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Depreciation and amortization |
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Non-cash interest expense | | | ||||
Allowance for doubtful accounts |
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Bad debt expense | | | ||||
Expense due to conversion of notes | | | ||||
Change in fair value of contingent consideration, net | ( | | ||||
Loss (gain) on extinguishment of debt | ( | | ||||
Impairment of and equity in losses of equity method investees | | | ||||
Settlement of ROU operating lease liabilities | ( | | ||||
Loss on impairment of assets |
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Loss (gain) on disposal of subsidiaries, net |
| ( |
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Loss on remeasurement of DBOT investment | | | ||||
Digital tokens received as payment for services | | ( | ||||
Disposal of equity method investments | | | ||||
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Change in assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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Accounts payable |
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Deferred revenue |
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Amount due to related parties (interest) |
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Accrued expenses, salary and other current liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Acquisition of property and equipment | ( | ( | ||||
Disposal of subsidiaries, VIEs, net of cash disposed |
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Acquisition of subsidiaries, net of cash acquired |
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Investments in long term investment |
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Loans to third parties |
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Proceeds from loan repayment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of convertible notes | | | ||||
Repayment of convertible notes | ( | | ||||
Proceeds from issuance of shares, stock options and warrant | | | ||||
Proceeds from noncontrolling interest shareholder | | | ||||
Proceeds (repayments) due from/to related parties |
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Borrowings(repayments) from/to third parties |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at the beginning of the year |
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Cash, cash equivalents and restricted cash at the end of the year | $ | | $ | | ||
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Supplemental disclosure of cash flow information: |
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Cash paid for income tax | $ | | $ | | ||
Cash paid for interest | | | ||||
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Issuance of shares for contingent consideration | | | ||||
Issuance of shares for convertible notes conversion | | | ||||
Tree Technologies measurement period adjustment on goodwill, non-controlling interest and intangible assets | | | ||||
Disposal of assets in exchange of GTB | | | ||||
Issuance of shares for acquisition of intangible assets | | | ||||
Issuance of shares for acquisition of long-term investments | | | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
IDEANOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Principal Activities
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 consolidated financial statements refers to Ideanomics, Inc, ("Ideanomics") its consolidated subsidiaries and variable interest entities.
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units, Ideanomics Mobility, formally referred to as the Mobile Energy Group (“MEG,”) and Ideanomics Capital. MEG is a subsidiary which holds the Company’s China based vehicle operations.
Ideanomics Mobility’s mission is to use electronic vehicles (“EVs”) and EV battery sales and financing to attract commercial fleet operators that will generate large scale demand for energy, energy storage systems, and energy management contracts. Ideanomics Mobility operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs for fleet operators of commercial EVs.
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.
The Company also seeks to identify industries and business processes where blockchain and artificial intelligence (“AI”) technologies can be profitably deployed to disrupt established industries and business processes.
Liquidity Improvements
In the year ended December 31, 2020, the Company improved its liquidity position by raising a total of $
Based upon its business projections and its cash and cash equivalents balance as of December 31, 2020, the Company believes it has the ability to continue as a going concern.
Effects of COVID-19
Novel Coronavirus 2019 (“COVID-19”) is an infectious disease cause by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of March 21, 2021, over
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.
F-10
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020 and continuing, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels for worldwide immunization against COVID-19 remains challenging.
The future effects of the virus are 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.
Many of the Company’s operations are in the development or early stage, have not had significant revenues to date, and the Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Note 2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements of Ideanomics, its subsidiaries and VIEs were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the subsidiaries over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to the bad debt allowance, sales returns, fair values of financial instruments, equity investments, stock-based compensation, intangible assets 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 amounts of assets and liabilities.
(c) Cash and Cash Equivalents
Cash consists of cash on hand, demand deposits, time deposits, and other highly liquid instruments with an original maturity of three months or less when purchased. Refer to Notes 20 (d) and (e) for additional information on our credit and foreign currency risks.
(d) Accounts Receivable, net
Accounts receivable are recognized at invoiced amounts and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts receivable aging, and the customer’s payment patterns. After all attempts to collect a receivable have failed and the potential for recovery is remote, the receivable is written off against the allowance.
F-11
(e) Licensed Content
The Company previously obtained content through content license agreements with studios and distributors. The Company recognized licensed content when the license fee and the specified content titles were known or reasonably determinable. Prepaid license fees were classified as an asset (licensed content) and accrued license fees payable were classified as a liability on the consolidated balance sheets.
The Company amortized licensed content in cost of revenues over the contents’ contractual availability based on the expected revenue derived from the licensed content, beginning with the month of first availability, such that our revenues bore a representative amount of the cost of the licensed content. Management reviewed factors that impacted the amortization of licensed content at each reporting date, including factors that may have had a direct impact on expected revenue from specific content titles. Changes in the expected revenue from licensed content could have had a significant impact on the amortization pattern.
Management evaluated the recoverability of the licensed content whenever events or changes in circumstances indicated that its carrying amount may not have been recoverable.
(f) Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Expenditures for major renewals and improvements, which extend the original estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation of assets sold or retired are removed from the accounts and any gain or loss thereon is recognized in the consolidated statement of operations. Depreciation is provided for on a straight-line basis over the estimated useful lives of the respective assets. The estimated useful life is
Construction in progress is stated at the lower of cost or fair value, which includes the cost of construction and other direct costs attributable to the construction.
Asset Retirement Obligations
Asset retirement obligations generally apply to legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction or development and the normal operation of a long-lived asset. If a reasonable estimate of fair value can be made, the fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred or a change in estimate occurs. Asset retirement costs associated with asset retirement obligations are capitalized with the carrying amount of the related long-lived assets and depreciated over the related asset’s estimated useful life. The Company’s asset retirement obligations as of December 31, 2020 and 2019 are associated with the acquisition of Fintech Village, in which the Company is contractually obligated to remediate certain existing environmental conditions. The Company will start to amortize the asset retirement costs if and when the related assets are completed, put into use and depreciation commences. Refer to Note 24 for additional information regarding Fintech Village.
The Company recorded impairment losses of $
(g) Business Combinations
The Company includes the results of operations of the businesses that are acquired as of the acquisition date. The Company allocates the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
F-12
(h) Intangible Assets and Goodwill
The Company accounts for intangible assets and goodwill in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350.”) ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be evaluated for impairment at least annually. In accordance with ASC 350, goodwill is allocated to reporting units, which are either the operating segment or one reporting level below the operating segment. On an annual basis, in the fourth quarter of the fiscal year, management reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances makes it more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying amount to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Goodwill impairment, if any, is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value.
Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates, and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.
The Company recorded an impairment loss of $
The Company has other intangible assets, excluding goodwill, which consist primarily of customer relationships and contracts, trademarks and tradenames and other intellectual property, which are generally recorded in connection with acquisitions at their fair value. Intangible assets with estimable lives are amortized, generally on a straight-line basis, over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company recorded impairment losses related to intangible assets acquired in various acquisitions of $
(i) Digital Currency
The Company may, from time to time, enter into transactions denominated in digital currency, which may consist of GTDollar Coins (“GTB,”) Bitcoin, Ethereum and/or other types of digital currency.
Digital currency is a type of digital asset that is not a fiat currency and is not backed by hard assets or other financial instruments. As a result, the value of digital currency is determined by the value that various market participants place on the respective digital currencies through their transactions. Holders of digital currency make or lose money from buying and selling digital currency.
Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital currencies under U. S. GAAP at the time of the transactions, the Company determined to account for these currencies as indefinite-lived intangible assets in accordance with ASC 350.
In the year ended December 31, 2019, the Company entered into transactions in which it received
F-13
(j) Long-term Investments
The Company accounts for equity investments through which management exercises significant influence but does not have control over the investee under the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or losses of the investee. The Company’s share of losses is not recognized when the investment is reduced to zero since the Company does not guarantee the investees’ obligations nor is the Company committed to providing additional funding.
The equity investments which are not consolidated or accounted for under the equity method are either carried at fair value or under the measurement alternative upon the adoption of the Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU No 2016-01.”)
The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.
The Company classifies its long-term investments as non-current assets on the consolidated balance sheets.
Impairment of Investments
Management periodically reviews long-term investments for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investment may not be fully recoverable. Management considers impairment indicators such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist and the fair value of the investment is below the carrying amount, an impairment loss is recorded to record the investment at fair value. The Company recorded impairment losses of $
(k) Leases
The Company adopted ASU No. 2016-02 (“ASU 2016-02”) as of January 1, 2019 using a modified retrospective method. The Company leases certain office space and equipment from third-parties. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. For leases beginning in 2019 and later, at the inception of a contract management assesses whether the contract is, or contains, a lease. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the right to substantially all the economic benefit from the use of the asset throughout the period is obtained, and (3) whether the Company has the right to direct the use of the asset. At the inception of a lease, management allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the nonlease components (e.g., common-area maintenance costs).
Leases may include one or more options to renew, with renewal terms that can extend the lease term from one year or more. Renewal periods are included in the lease term only when renewal is reasonably certain, which is a high threshold and requires management to apply judgment to determine the appropriate lease term. The Company’s leases do not include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Certain lease agreements include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. All of the Company’s leases are classified as operating leases. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases and initial direct costs on our right-of-use asset and lease liability was not material.
ASC 842, Leases, (“ASC 842”) requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or cancellation provisions, and determining the discount rate.
F-14
As the rate implicit in the lease is not usually available, the Company used an incremental borrowing rate based on the information available at the adoption date of ASC 842 in determining the present value of lease payments for existing leases. The Company uses information available at the lease commencement date to determine the discount rate for any new leases.
In the year ended December 31, 2020, the Company recorded impairment losses of $
Refer to Note 11 for additional information.
(l) Convertible Promissory Notes
The Company accounts for its convertible notes at issuance by allocating the proceeds received among freestanding instruments according to ASC 470, Debt ("ASC 470,") based upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock on the date of the transaction, and the fair value of warrants, if any, is determined using the Black-Scholes option-pricing model. Convertible notes are subsequently carried at amortized cost. The fair value of the warrants is recorded as additional paid-in capital, with a corresponding debt discount from the face amount of the convertible note.
Each convertible note is analyzed for the existence of a beneficial conversion feature, defined as the fair value of the common stock at the commitment date for the convertible note less the effective conversion price. Beneficial conversion features are recognized at their intrinsic value, and recorded as an increase to additional paid-in capital, with a corresponding reduction in the carrying amount of the convertible note (as a debt discount from the face amount of the convertible note.) The discounts on the convertible notes, consisting of amounts ascribed to warrants and beneficial conversion features, are amortized to interest expense, using the effective interest method, over the terms of the related convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.
Each convertible note is also analyzed for the existence of embedded derivatives, which may require bifurcation from the convertible note and separate accounting treatment.
The Company also analyzes the features of its convertible notes which, when triggered, mandate a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price.
(m) Fair Value Measurements
U.S. GAAP requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The various levels of the fair value hierarchy are described as follows:
| ● | Level 1 - Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access. |
| ● | Level 2 - Quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability. |
| ● | Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company reviews the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis, and evaluates and adjusts the unobservable inputs used in the fair value measurements based on current market conditions and third-party information.
F-15
Our financial assets and liabilities that are measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable, accrued other expenses, and other current liabilities. The fair values of these assets and liabilities approximate carrying amounts because of the short-term nature of these instruments.
Our financial and non-financial assets and liabilities that are measured at fair value on a nonrecurring basis include goodwill and other intangible assets, asset retirement obligations, and adjustment in carrying amount of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. Refer to Notes 2(f), 2(h), 2(i), 2(j), and 2(k) for additional information on impairment losses.
(n) Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal group) to be sold as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal groups; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal group; (3) an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and (5) transfer of the disposal group is expected to qualify as a completed sale within one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (6) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (7) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying amount or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent losses as an adjustment to the carrying amount of the disposal group.
As part of this assessment, the Company also evaluates the criteria for reporting the disposal group as a discontinued operation. Factors which the Company considers includes, but is not limited to, the level of continuing involvement, if any, whether the disposal constitutes a strategic shift, and the relative magnitude of revenue, net income or loss, and total assets.
(o) Foreign Currency Translation
The Company uses the United States dollar (“$” or “USD”) as its reporting currency. The Company’s worldwide operations utilize the local currency or USD as the functional currency, where applicable. For certain foreign subsidiaries, USD is used as the functional currency, and the local records are maintained in USD. This occurs when the subsidiary is considered an extension of the parent. The functional currency of certain subsidiaries and VIEs located in the Peoples Republic of China (“PRC” or “China”) and Hong Kong is either the Renminbi (“RMB”) or Hong Kong dollars (“HKD.”) In the consolidated financial statements, the financial information of the entities which use RMB and HKD as their functional currency has been translated into USD: assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at the historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the period. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of “Accumulated other comprehensive loss” in the equity section of the consolidated balance sheets.
Transactions denominated in currencies other than functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated in the functional currency at the applicable rates of exchange in effect at the balance sheet date. The resulting exchange differences are recorded in “Other income (expense), net” in the consolidated statements of operations.
F-16
(p) Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. For most of the Company’s customer arrangements, control transfers to customers at a point in time, as that is generally when legal title, physical possession and risk and rewards of goods/services transfer to the customer. In certain arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits as the Company completes the performance obligations.
Our contracts with customers may include multiple performance obligations. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on the observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors.
The Company performs an analysis of the relevant terms of its sales contracts, including whether or not it controls the product prior to sale, whether or not it incurs inventory risk, and other factors in order to determine if revenue should be recorded as a principal or agent.
Certain customers may receive discounts or rebates, which are accounted for as variable consideration. Variable consideration is estimated based on the expected amount to be provided to customers, and initially reduces revenues recognized.
The Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable. Substantially all of the deferred revenue as of December 31, 2019 was recognized as revenue in the year ended December 31, 2020.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
(q) Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $
(r) Research and Development Costs
The Company expenses research and development costs, which may be incurred for the design, development, experimentation and testing of products related to the automotive industry.
(s) Share-Based Compensation
The Company awards share options and other equity-based instruments to its employees, directors and consultants (collectively “share-based payments.”) Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation cost over the period the individual is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the effect of forfeiture as they occur. When no future services are required to be performed by the individual in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date.
F-17
(t) Income Taxes
The Company accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, as needed, to reduce the amount of deferred tax assets if it is considered more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the effect of uncertain income tax positions only if those positions are more-likely-than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50.0% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company’s policy is to record interest and penalties related to uncertain tax positions as a component of income tax expense. There were no such interest or penalty for the years ended December 31, 2020 and 2019.
On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Tax Act”) was signed into law, which among other effects, reduces the U.S. federal corporate income tax rate to
(u) Net Loss Per Share Attributable to IDEX Shareholders
Net loss per share attributable to our shareholders is computed in accordance with ASC 260, Earnings Per Share (Topic 260) (“ASC 260.”) The two-class method is used for computing earnings per share. Under the two-class method, net income is allocated between common shares and participating securities based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. The Company’s convertible redeemable preferred shares are participating securities because the holders are entitled to receive dividends or distributions on an as converted basis. For the years presented herein, the computation of basic loss per share using the two-class method is not applicable as the Company is in a net loss position and net loss is not allocated to other participating securities, since these securities are not obligated to share the losses in accordance with the contractual terms.
Basic net loss per share is computed by dividing net loss attributable to IDEX common shareholders by the weighted average number of common shares outstanding during the period. Options and warrants are not considered outstanding in computation of basic earnings per share. Diluted net loss per share is computed by dividing net loss attributable to IDEX common shareholders by the weighted-average number of common shares and potential common shares outstanding during the period under the treasury stock method. Potential common shares include options and warrants to purchase common shares, preferred shares and convertible promissory notes, unless they were anti-dilutive. The computation of diluted net loss per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net loss per share.
(v) Reclassifications of a General Nature
The Company has renamed captions in its consolidated balance sheet, consolidated statement of operations, and its consolidated statement of cash flows. There were no changes to the composition of these accounts, and therefore no change to the consolidated financial accounts aside from the renaming of the captions.
F-18
Statement |
| Previous caption |
| Current caption | ||
Consolidated balance sheet | Acquisition earn-out liability | Contingent consideration | ||||
Consolidated statement of operations | Acquisition earn-out/true up expense, net | Change in fair value of contingent consideration, net | ||||
Consolidated statement of cash flows | Acquisition earn-out expense | Change in fair value of contingent consideration, net |
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net loss, total assets, or cash flows.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses depends on classification as a finance or operating lease. The Company adopted ASU 2016-02 as of January 1, 2019, using a modified retrospective transition method.
The lease liability was based on the present value of the remaining minimum lease payments, determined under ASC 842, discounted using the Company’s incremental borrowing rate at the effective date of January 1, 2019, using the original lease term as the tenor. As permitted under the transition guidance, the Company elected several practical expedients that permitted the Company to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. The adoption of ASU 2016-02 resulted in the recording of operating right-of-use assets and the related lease liabilities of $
In July 2017, the FASB issued ASU No. 2017-11 (“ASU 2017-11”) “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception,” which applies to issuers of financial instruments with down round features. A down round feature is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price. ASU 2017-11 amends (1) the classification of such instruments as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments, and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. The Company adopted ASU 2017-11 as of January 1, 2019 on a prospective basis. Refer to Note 13 for additional information.
In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”) “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which largely aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. ASU 2018-07 also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, “Revenue from Contracts with Customers.” The Company adopted ASU 2018-07 as of January 1, 2019 on a modified retrospective basis. There was no impact to the consolidated financial statements because the Company did not have material payments in the year ended December 31, 2019.
F-19
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 December 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”) “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions currently provided for in ASC 740, “Income Taxes” (“ASC 740,”) and by amending certain other requirements of ASC 740. The changes resulting from ASU 2019-12 will be made on a retrospective or modified retrospective basis, depending on the specific exception or amendment. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company will adopt ASU 2019-12 effective January 1, 2021. The adoption of this standard is not expected to be 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 will adopt ASU 2020-06 effective January 1, 2021. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
Note 3. Notes Receivable
| (a) | Zhu Note Receivable |
In May 2020, a subsidiary of the Company, Qingdao Chenyang Ainengju New Energy Sales and Service Company Limited ("Energy Sales") provided a note receivable to Mr. Jianya Zhu ("Mr. Zhu") in the amount of
F-20
| (b) | Fuzhou Note Receivable |
In May 2020, Energy Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited ("Zhengtong") in the amount of
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):
Year Ended | ||||||
December 31, | December 31, | |||||
| 2020 |
| 2019 | |||
Geographic Markets |
|
|
|
| ||
Malaysia | $ | | $ | | ||
USA |
| |
| | ||
PRC | |
| | |||
Total | $ | | $ | | ||
Product or Service |
|
|
|
| ||
Digital asset management services | $ | | $ | | ||
Digital advertising services and other | | | ||||
Electric vehicles* | | | ||||
Combustion engine vehicles* |
| |
| | ||
Charging and batteries* | | | ||||
Total | $ | | $ | | ||
Timing of Revenue Recognition | ||||||
Products and services transferred at a point in time | $ | | $ | | ||
Services provided over time | | | ||||
Total | $ | | $ | | ||
*The revenues for the years ended December 31, 2020 and 2019 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. The majority of the revenue from the sale of electric vehicles, as well as revenue from the sale of the combustion engine vehicles and charging and batteries for the year ended December 31, 2020 were recorded on a Principal basis because the Company has inventory risk in the transactions. The revenue from the sale of electric vehicles for the year ended December 31, 2019 was recorded on an Agent basis due to the terms of the transaction.
In the year ended December 31, 2020, the balance of deferred revenue increased primarily as the Company sold vehicles with on-site maintenance agreement and allocated a portion of the transaction price to this performance obligation and will recognize this revenue over the service period.
In the year ended December 31, 2020 the Company sold vehicles whose contractual terms contained provisions which gave rise to variable consideration or other obligations. The Company has estimated the variable consideration and other obligations, and will continue to revise these estimates in the future. The liabilities associated with these estimates are recorded as “Deferred revenue” or “Other long-term liabilities,” as appropriate, in the consolidated balance sheet.
F-21
Note 5. VIE Structure and Arrangements
The Company consolidated certain VIEs located in the PRC in which it held variable interests and was the primary beneficiary through contractual agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected their economic performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations and financial position of these VIEs are included in the consolidated financial statements for the year ended December 31, 2019. A shareholder in one of the VIEs is the spouse of Bruno Wu (“Dr. Wu,”) the former Chairman of the Company.
Refer to Note 10 for information on an additional VIE.
The contractual agreements listed below, which collectively granted the Company the power to direct the VIEs activities that most significantly affected their economic performance, as well to cause the Company to have the obligation to absorb or right to receive the majority of their losses or benefits, were terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019. The deconsolidation resulted in a net loss of $
For these consolidated VIEs, their assets were not available to the Company and their creditors did not have recourse to the Company.
Prior to December 31, 2019, in order to operate certain legacy business in the PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company entered into a series of contractual agreements with
The key terms of the VIE agreements are summarized as follows:
| ● | Equity Pledge Agreement - The VIEs’ shareholders pledged all of their equity interests in the VIEs to a wholly-owned subsidiary of the Company in the PRC; |
| ● | Call Option Agreement - The VIEs’ shareholders granted an exclusive option to a wholly-owned subsidiary of the Company in the PRC, or its designee, to purchase all or any portion of the VIEs’ shareholders’ equity in the VIEs; |
| ● | Power of Attorney - The VIEs’ shareholders granted to a wholly-owned subsidiary of the Company in the PRC the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of VIEs; |
| ● | Technical Service Agreement – A wholly-owned subsidiary of the Company in the PRC had the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to the VIEs, and the VIEs were required to take all commercially reasonable efforts to permit and facilitate the provision of the services; |
| ● | Spousal Consent - The spouses of the VIEs’ shareholders unconditionally and irrevocably agreed to the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement; |
| ● | Letter of Indemnification – A wholly-owned subsidiary of the Company in the PRC agreed to indemnify such nominee shareholder against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law; |
F-22
| ● | Management Services Agreement - In addition to agreements described above, another of the Company’s wholly-owned subsidiaries entered into a Management Services Agreement with each VIE. Pursuant to such Management Services Agreement, the wholly-owned subsidiary had the exclusive right to provide to the VIE management, financial and other services related to the operation of the VIE’s business, and the VIE was required to take all commercially reasonable efforts to permit and facilitate the provision of the services by the subsidiary. In addition, at the sole discretion of the subsidiary, the VIE was obligated to transfer to the subsidiary, or its designee, any part or all of the business, personnel, assets and operations of the VIE which could be lawfully conducted, employed, owned or operated by the subsidiary; and |
| ● | Loan Agreement - Pursuant to the Loan Agreement dated April 5, 2016, a wholly-owned subsidiary of the Company in the PRC agreed to lend RMB |
Note 6. Acquisitions and Divestitures
2020 Acquisitions and Divestitures
The Company has 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
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.
In the year ended December 31, 2020, the Company commenced the liquidation of a consolidated entity and therefore deconsolidated the entity. As a result of the deconsolidation, the Company recorded a gain of $
| 2019 | Acquisitions |
(a) Acquisition of Tree Technologies Sdn. Bhd. ("Tree Technologies")
On December 26, 2019, the Company completed the acquisition of a
The fair value of the Ideanomics stock was based upon the closing price of $
Tree Technologies holds the land use rights for
F-23
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in Tree Technologies recognized. The Company has completed the fair value analysis of the assets acquired, liabilities assumed, the noncontrolling interest, and the contingent consideration, and therefore the adjustments are incorporated in the table below (in thousands):
Land use rights | $ | | |
Accounts payable |
| ( | |
Noncontrolling interest |
| ( | |
Goodwill |
| | |
Marketing and distribution agreement |
| | |
$ | |
The completion of the fair value analysis resulted in measurement period adjustments of $
The accounts payable above of $
Tree Technologies had not commenced operations as of the acquisition date, therefore pro forma results as if the acquisition had occurred as of January 1, 2019, and related information, are not presented.
Refer to Note 9(e) for information regarding the impairment of the marketing and distribution agreement.
(b) Acquisition of Grapevine Logic, Inc. (“Grapevine”)
On September 4, 2018, the Company completed the acquisition of
In May 2019, the Company entered into
In June 2019, the Company issued
Refer to Note 9(c) for information regarding the impairment of Grapevine’s influencer network.
F-24
(c) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire
Immediately prior to the consummation of the transaction, the Company’s investment in DBOT consisted of
DBOT operated
The consolidated statements of operation for the year ended December 31, 2019 include the results of DBOT from July 2019 to December 31, 2019. For the time period from July 2019 through December 31, 2019, DBOT contributed $
The following table summarizes supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2018 (in thousands):
| December 31, 2019 | ||
Revenue | $ | | |
Net loss attributable to IDEX common shareholders | $ | ( | |
The unaudited pro forma results of operations do not purport to represent what the Company’s results of operations would actually have been had the acquisition occurred on January 1, 2019. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
F-25
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in DBOT recognized (in thousands):
Cash |
| $ | |
Other financial assets |
| | |
Financial liabilities |
| ( | |
Noncontrolling interest |
| ( | |
Goodwill |
| | |
Intangible asset – continuing membership agreement |
| | |
Intangible asset – customer list |
| | |
$ | |
The excess of the consideration over the fair value of the net assets acquired has been recorded as goodwill, of which none is expected to be deductible for tax purposes. For all intangible assets acquired, the continuing membership agreements were determined to have a useful life of
Refer to Note 9 for information regarding the impairment of DBOT's goodwill, continuing membership agreement, and customer list.
2019 Divestitures
(d) Red Rock Global Capital LTD (“Red Rock”)
In May 2019, the Company determined to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of Dr. Wu, to sell its entire interest in Red Rock for consideration of $
(e) Amer Global Technology Limited
On June 30, 2019, the Company entered into an agreement with BCC Technology Company Limited (“BCC”) and Tekang Holdings Technology Co., Ltd (“Tekang ”) pursuant to which Tekang will inject certain assets in the robotics and electronic internet industry and Internet of Things business consisting of manufacturing data, supply chain management and financing, and lease financing of industrial robotics into Amer in exchange for
The Company recognized a disposal gain of $
Pro forma results of operations for the year ended December 31, 2019 have not been presented because they are not material to the consolidated results of operations. Amer had no revenue and minimal operating expenses in the year ended December 31, 2019.
In the three months ended September 30, 2020, the Company sold its remaining
F-26
Note 7. Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
| December 31, |
| December 31, | |||
2020 | 2019 | |||||
Accounts receivable, gross | $ | | $ | | ||
Less: allowance for doubtful accounts |
| ( |
| — | ||
Accounts receivable, net | $ | | $ | | ||
As of December 31, 2020 and 2019, the gross balance includes the taxi commission revenue receivables from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. of $
The following table summarizes the movement of the allowance for doubtful accounts (in thousands):
| December 31, |
| December 31, | |||
2020 | 2019 | |||||
Balance at the beginning of the year | $ | | $ | | ||
Increase in the allowance for doubtful accounts | ( | | ||||
Balance at the end of the year | $ | ( | $ | | ||
In the year ended December 31, 2020, the Company increased its allowance for doubtful accounts by $
Note 8. Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
| December 31, |
| December 31, | |||
2020 | 2019 | |||||
Furniture and office equipment | $ | | $ | | ||
Vehicle |
| |
| | ||
Leasehold improvements |
| |
| | ||
Total property and equipment |
| |
| | ||
Less: accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net | | | ||||
Fintech Village | ||||||
Land | | | ||||
Building | | | ||||
Assets retirement obligations - environmental remediation | | | ||||
Capitalized direct development cost | | | ||||
Construction in progress (Fintech Village) |
| |
| | ||
Property and Equipment, net | $ | | $ | | ||
The Company recorded depreciation expense of $
F-27
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
On October 10, 2018, the Company purchased a 58-acre former University of Connecticut campus in West Hartford from the State of Connecticut for $
The following table summarizes the activity in the asset retirement obligation for the year ended December 31, 2020 (in thousands):
| January 1, | Liabilities | Remediation | Accretion |
| December 31, | ||||||||||||
2020 | Incurred | Performed | Expense | Revisions | 2020 | |||||||||||||
Asset retirement obligation | $ | | $ | — | $ | ( | $ | — | $ | — | $ | | ||||||
The Company capitalized direct costs incurred on Fintech Village and the capitalized cost is recorded as part of Construction in progress. Capitalized costs were $
In the year ended December 31, 2020, the Company impaired the remaining building with a carrying amount of $
In the year ended December 31, 2019, the Company impaired buildings with a carrying amount of $
In connection with the acquisition, the Company also entered into an Assistance Agreement by and between the State of Connecticut, acting by the Department of Economic and Community Development (the “Assistance Agreement,”) pursuant to which the State of Connecticut may provide up to $
Note 9. Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 (in thousands):
Balance as of January 1, 2019 |
| $ | |
Acquisitions |
| | |
Balance as of December 31, 2019 | | ||
Measurement period adjustments* | ( | ||
Effect of change in foreign currency exchange rates |
| ( | |
Impairment loss | ( | ||
Balance as of December 31, 2020 | $ | |
F-28
*During the three months ended December 31, 2019, the Company completed the acquisition of a
Impairment of DBOT Goodwill
Throughout 2020, the Company pursued its initial business goals for DBOT involving the sale of digital securities and brokering commodity products, more specifically investigating applications to new and underserved markets, or targeting of specific transactions, such as the origination of foreign securities, the formation of an investment vehicle with a third-party, or the securitization of digital assets. These efforts have not come to fruition, and although the Company continues these efforts, the Company concluded sufficient impairment indicators existed to evaluate the fair value of DBOT’s intangible assets. As part of this fair value analysis, the Company determined that the goodwill associated with the DBOT acquisition was fully impaired, and recorded an impairment loss of $
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||
| Weight |
|
|
|
|
|
|
|
| ||||||||||||||||||
Average | Gross | Gross | |||||||||||||||||||||||||
Remaining | Carrying | Accumulated | Impairment | Net | Carrying | Accumulated | Impairment | Net | |||||||||||||||||||
| Useful Life |
| Amount |
| Amortization |
| Loss |
| Balance |
| Amount |
| Amortization |
| Loss |
| Balance | ||||||||||
Amortizing Intangible Assets | |||||||||||||||||||||||||||
Software and licenses |
| $ | | $ | ( | $ | $ | | $ | | $ | ( | $ | | $ | | |||||||||||
Solid Opinion IP (a) |
|
| |
| ( |
|
| |
| |
| ( |
| |
| | |||||||||||
Fintalk intangible assets (b) | | ( | | | ( | | | ||||||||||||||||||||
Influencer network (c) |
|
| |
| ( |
| ( |
| |
| |
| ( |
| |
| | ||||||||||
Customer contract (c) |
|
| |
| ( |
|
| |
| |
| ( |
| |
| | |||||||||||
Continuing membership agreement (d) | | ( | ( | | | ( | | | |||||||||||||||||||
Customer list (d) | | ( | ( | | | ( | | | |||||||||||||||||||
Trade name (c) |
|
| |
| ( |
|
| |
| |
| ( |
| |
| | |||||||||||
Technology platform (c) |
|
| |
| ( |
|
| |
| |
| ( |
| |
| | |||||||||||
Land use rights (e) | | ( | | | | | |||||||||||||||||||||
Marketing and distribution agreement (e) | | ( | ( | | | | | ||||||||||||||||||||
Total | | ( | ( | | | ( | | | |||||||||||||||||||
Indefinite lived intangible assets |
|
|
|
| |||||||||||||||||||||||
Website name |
| |
| |
| |
| |
| |
|
| |
| | ||||||||||||
Patent |
| |
| |
| |
| |
| |
|
| |
| | ||||||||||||
Total | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | | $ | | |||||||||||
| a) | During the first quarter of 2019, the Company completed the acquisition of certain assets from Solid Opinion in exchange for |
F-29
| b) | In September 2018, the Company entered into an agreement to purchase Fintalk Assets from Sun Seven Star International Limited, a Hong Kong company and an affiliate of Dr. Wu. FinTalk Assets include the rights, titles and interest in a secure mobile financial information, social, and messaging platform that has been designed for streamlining financial-based communication for professional and retail users. The initial purchase price for the Fintalk Assets was $ |
| c) | During the third quarter of 2018, the Company completed the acquisition of |
| d) | During the third quarter of 2019, the Company completed the acquisition of additional shares in DBOT, which increased its ownership to |
| e) | During the fourth quarter of 2019, the Company completed the acquisition of a |
| f) | During the first quarter of 2019, the Company completed the sale of certain intangible assets to GTD, and entered into a service agreement with GTD, a minority shareholder, in exchange for GTB. As a result of these transactions, the Company received |
Amortization expense, excluding impairment losses of $
The following table summarizes future expected amortization expense (in thousands):
| Amortization to be | ||
Years ending December 31, |
| recognized | |
2021 | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter | | ||
Total | $ | | |
F-30
Note 10. Long-term Investments
The following table summarizes the composition of long-term investments (in thousands):
| December 31, |
| December 31, | |||
| 2020 |
| 2019 | |||
Non-marketable equity investments | $ | | $ | | ||
Equity method investments |
| |
| | ||
Total | $ | | $ | | ||
Non-marketable equity investments
Our non-marketable equity investments are investments in privately held companies without readily determinable fair values and are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership, among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount. Based on management’s analysis of certain investment’s performance, impairment losses of $
The Company sold one non-marketable equity investment with a carrying amount of $
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting (in thousands):
December 31, 2020 | ||||||||||||||||||||||||||
Income (loss) | Reclassification | Impairment | Foreign currency | |||||||||||||||||||||||
|
|
| January 1, 2020 |
| Addition |
| on investment |
| to subsidiaries |
| losses |
| Disposal |
| translation adjustments |
| December 31, 2020 | |||||||||
BDCG |
| (a) |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | — |
| $ | |
| $ | |
Glory |
| (b) |
| |
| |
| ( |
| |
| ( |
| — |
| |
| | ||||||||
Solectrac |
| (c) |
| |
| |
| ( |
| |
| |
| — |
| |
| | ||||||||
Total |
|
| $ | | $ | | $ | ( | $ | | $ | ( | $ | — | $ | | $ | | ||||||||
December 31, 2019 | ||||||||||||||||||||||||||
|
|
|
| Income (loss) | Reclassification | Impairment |
| Foreign currency |
| |||||||||||||||||
January 1, 2019 | Addition | on investment |
| to subsidiaries |
| losses |
| Disposal | translation adjustments | December 31, 2019 | ||||||||||||||||
Wecast Internet |
| (d) | $ | | $ | | $ | | $ | — | $ | ( | $ | — | $ | | $ | — | ||||||||
Hua Cheng |
| (e) |
| |
| |
| ( | — |
| |
| ( |
| ( |
| — | |||||||||
BDCG |
| (a) |
| |
| |
| | — |
| |
| — |
| |
| | |||||||||
DBOT | (f) | | | ( | ( | | — | | — | |||||||||||||||||
Glory |
| (b) |
| |
| |
| ( | — |
| ( |
| — |
| |
| | |||||||||
Total | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | | ||||||||||
All the investments above are privately held companies; therefore, quoted market prices are not available. The Company has received no dividends from equity method investees in the years ended December 31, 2020 and 2019.
F-31
| a) |
In 2018, the Company signed an investment agreement with
Intelligenta’s target customer base is financial institutions and large energy companies in the U. S.; however, due to the political relations between the U.S. and China, Intelligenta has been unable to commercialize its product as such companies are hesitant to engage a company with China-based ownership to perform AI and block chain services. The Company evaluated the business prospects of Intelligenta, and determined the investment was impaired, and the impairment was other-than-temporary. Accordingly, the Company recorded an impairment loss of $
Intelligenta has yet to record revenue or earnings or losses, and therefore its statement of operations and balance sheet data are not material.
As of December 31, 2019, the excess of the Company’s investment over its proportionate share of Intelligenta’s net assets was $
| b) |
On July 18, 2019, the Company entered into an acquisition agreement to purchase a
Upon the initial investment, the Company performed a valuation analysis and allocated $
As initially contemplated, Glory, through its subsidiary Tree Manufacturing, would hold a domestic EV manufacturing license in Malaysia, a marketing and distribution agreement for EVs in the ASEAN region, as well as the land use rights for
In December 2019, the Company acquired a
Tree Technologies had also entered into a product supply arrangement and a product distribution arrangement with a subsidiary of Glory. The Company performed an assessment of these arrangements, and determined that Glory is a variable interest entity, but that the Company is not the prime beneficiary. As of December 31, 2019, the Company accounted for Glory as an equity method investment. Refer to Note 6(a) for additional information on the acquisition of Tree Technologies.
F-32
In the three months ended December 31, 2020, Tree Technologies obtained a domestic EV manufacturing license in Malaysia; and therefore determined it would not purchase vehicles from Glory's subsidiary, Tree Manufacturing. As Glory's value was predicated on the underlying manufacturing agreement between Tree Technologies and Tree Manufacturing, the Company evaluated the business prospects of Glory, and determined that its investment was impaired, and the impairment was other-than-temporary. Accordingly, the Company recorded an impairment loss of $
As of December 31, 2019, the excess of the Company’s investment over its proportionate share of Glory’s net assets was $
The following table summarizes the income statement information of Glory for the year ended December 31, 2019 (in thousands):
December 31, 2019 | |||
Revenue |
| $ | |
Gross profit |
| | |
Net loss from operations |
| ( | |
Net loss |
| ( | |
Net loss attributable to Glory | ( | ||
| (c) | Solectrac, Inc. (“Solectrac”) |
On October 22, 2020, the Company acquired
Solectrac develops, assembles and distributes
| (d) | Wecast Internet limited (“Wecast Internet”) |
As of January 1, 2019, the Company had a
| (e) | Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd. (“Hua Cheng”) |
As of January 1, 2019, the Company held a
| (f) | Delaware Board of Trade Holdings, Inc. |
DBOT is an approved and licensed FINRA and SEC regulated electronic trading platform. One of the Company’s subsidiaries was powered by DBOT’s platform, trading system and technology. The Company previously accounted for this investment using the cost method as the Company then owned less than
In October 2018, the Company issued
F-33
In July 2019, the Company issued
Note 11. Leases
On May 1, 2020, the Company took possession of premises in Qingdao, China in furtherance of a larger public/private initiative to promote EV business in the region and reduce the reliance on traditional combustion engines. The premises are indirectly and partially owned by local governmental entities, and were provided to the Company at no charge. The Company, pursuant to the underlying lease, has use of the premises until November 30, 2034.
The Company has determined the fair value of the lease and recorded the lease in accordance with ASC 842, ASC 845 Nonmonetary Transactions(“ASC 845,”) and ASC 958, Not-for-Profit Entities (“ASC 958.”) In connection with this lease agreement, the Company recorded operating right of use assets of $
As of December 31, 2020, the Company’s operating lease right of use assets and operating lease liability are $
The following table summarizes the components of lease expense (in thousands):
| Year Ended | |||||
December 31, 2020 |
| December 31, 2019 | ||||
Operating lease cost | $ | | $ | | ||
Short-term lease cost |
| |
| | ||
Sublease income |
| ( |
| ( | ||
Total | $ | | $ | | ||
The following table summarizes supplemental information related to leases (in thousands):
| Year Ended | |||||
| December 31, 2020 |
| December 31, 2019 | |||
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 following table summarizes the maturity of operating lease liabilities (in thousands):
Leased Property | |||
Years ending December 31 |
| Costs | |
2021 | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
Total lease payments | | ||
Less: Interest |
| ( | |
Total | $ | | |
F-34
In the three months ended March 31, 2020 the Company ceased to use the premises underlying one lease and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $
In the three months ended June 30, 2020 the Company ceased to use its New York City headquarters at 55 Broadway, which are subject to two leases, and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $
Note 12. Supplementary Information
Other Current Assets
“Other current assets” were $
Other Current Liabilities
“Other current liabilities” were $
Note 13. Promissory Notes
The following is the summary of outstanding promissory notes as of December 31, 2020 and 2019 (in thousands):
December 31, | December 31, | |||||||||||||
2020 | 2019 | |||||||||||||
| Interest rate |
| Principal Amount |
| Carrying Amount* |
| Principal Amount |
| Carrying Amount* | |||||
Convertible Note-Mr. McMahon(Note 15 (a)) |
| $ | — | $ | — | $ | |
| $ | | ||||
Convertible Note -SSSIG (Note 15 (a)) |
|
| — |
| — |
| |
| | |||||
Convertible Note-SSSIG (Note 15 (a)) | — | — | | | ||||||||||
Convertible Note-Advantech (a) |
|
| — |
| — |
| |
| | |||||
Senior Secured Convertible Note (b) |
|
| — |
| — |
| |
| | |||||
Senior Secured Convertible Note (c) |
|
| — |
| — |
| |
| | |||||
Senior Secured Convertible Note (d) |
|
| — |
| — |
| |
| | |||||
Convertible Debenture (e) | — | — | — | — | ||||||||||
Promissory Note (f) | — | — | | | ||||||||||
Vendor Note Payable (g) | | | — | — | ||||||||||
Small Business Association Paycheck Protection Program (h) |
| | | — | — | |||||||||
Total |
|
| $ | | | $ | | | ||||||
Less: Current portion | ( | ( | ||||||||||||
Long-term Note, less current portion | $ | — | $ | | ||||||||||
*Carrying amount includes the accrued interest.
As of December 31, 2020 and 2019, the Company was in compliance with all ratios and covenants.
F-35
(a) $12.0 Million Convertible Note - Advantech
On June 28, 2018, the Company entered into a convertible note purchase agreement with Advantech Capital Investment II Limited (“Advantech”) in the aggregate principal amount of $
The Company received aggregate gross proceeds of $
The initial difference between the conversion price and the fair value of the common stock on the commitment date resulted in a beneficial conversion feature (“BCF”) recorded of $
In December 2020, the Company entered the into a payoff letter agreement with Advantech, and repaid in full all remaining obligations under the Advantech Note in cash. The payoff amount, including the outstanding principal and interest, was $
Total interest expense recognized for the Advantech Note was $
(b) $2.05 Million Senior Secured Convertible Debenture due in August 2020 - ID Venturas 7
On February 22, 2019, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $
The Company received aggregate gross proceeds of $
Interest on the February IDV Note was payable quarterly starting from April 1, 2019. The February IDV Note was redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the February IDV Note plus additional warrants and accrued and unpaid interest to the date of redemption.
The Company was also subject to penalty fee at
F-36
The security purchase agreement contained customary representations, warranties, and covenants. The February IDV Note was collateralized by the Company’s equity interest in Grapevine and the Company had the right to request the removal of the guarantee and collateral by the issuance of additional
Modification/Extinguishment
On September 27, 2019, the Company issued
Down Round Price Adjustment on October 30, 2019
As a result of the additional financing on October 30, 2019, the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the February IDV Note and the exercise price of the warrants from $
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the February IDV Note and the exercise price of the warrants was reduced from $
Conversion
As of December 31, 2019, $
During year ended December 31, 2020, the remaining $
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $
F-37
(c) $3.58 Million Senior Secured Convertible Debenture due in March 2021 - ID Venturas 7
On September 27, 2019, the Company executed a security purchase agreement with IDV (“IDV September Agreement,”) whereby the Company issued $
The Company received net proceeds of $
The September IDV Note was redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the September IDV Note plus additional warrants and accrued and unpaid interest to the date of redemption.
The security purchase agreement contains customary representations, warranties, and covenants. The September IDV Note was collateralized by the Company’s equity interest in DBOT.
The Company was also subject to penalty fee at
Down Round Price Adjustment on October 30, 2019
On October 29, 2019 the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the debentures and the exercise price of the warrants from $
Additional Issuance for No Additional Consideration - Consent of IDV for Subsequent Financing with YA II PN
On December 19, 2019, the Company executed an additional issuance agreement with IDV, pursuant to which the Company obtained a consent from IDV for subsequent financing with YA II PN in exchange for: (1)
F-38
The additional issuance above and the exercise period extension in exchange for the consent was treated as a modification of the September IDV Note pursuant to the guidance of ASC 470. The Company concluded that the September IDV Note qualified for debt extinguishment as the
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the September IDV Note and the exercise price of the warrants was reduced from $
Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with IDV pursuant to which the Company agreed to reduce the conversion price of $
Conversion
During the nine months ended September 30, 2020, $
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $
(d) $5.0 Million Senior Secured Convertible Debenture due in December 2020 - YA II PN
On December 19, 2019, the Company completed the initial closing with respect to a securities purchase agreement with YA II PN, Ltd, a company incorporated under the laws of the Cayman Islands ("YA II PN"), where YA II PN agreed to purchase from the Company up to $
| 1. | First Closing: $ |
| 2. | Second Closing $ |
| 3. | Third Closing: $ |
The YA II PN Note was scheduled to mature in December 2020 and accrued interest at an
F-39
The Company received aggregate gross proceeds of $
The YA II PN Note was redeemable at the option of the Company in whole or in part at an initial redemption price of the principal amount of the YA II PN Note plus a redemption premium equal to
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the YA II PN Note was reduced from $
Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with YA II PN pursuant to which the Company agreed to reduce the conversion price of $
Conversion
During year ended December 31, 2020, $
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $
(e) $25.0 Million Convertible Debenture due in June 2021 – YA II PN
On December 14, 2020, the Company executed a security purchase agreement with YA II PN, whereby the Company issued $
Conversion
During the year ended December 31, 2020, $
F-40
The Company received aggregate gross proceeds of $
(f) $3.0 Million Promissory Note due in November 2020 – New Castle County
On November 25, 2015, DBOT, the subsidiary which the Company acquired in 2019, entered into a promissory note with New Castle County, a political subdivision of the State of Delaware in the aggregate principal amount of $
(g)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 one lease and vacated the real estate. In the three months ended June 30, 2020, the Company completed negotiations with the landlord to settle the remaining operating lease liability of $
(h) Small Business Association Paycheck Protection Program
On April 10, 2020, the Company borrowed $
On May 1, 2020 Grapevine borrowed $
Total interest expense recognized was $
Note 14. Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
Our Board of Directors has authorized
F-41
Common Stock
Our 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 for the year ended December 31, 2020 (in thousands):
January 1, 2020 |
| $ | — |
Initial investment |
| | |
Accretion of dividend |
| | |
Loss attributable to non-controlling interest |
| ( | |
Adjustment to redemption value |
| | |
December 31, 2020 | $ | |
Standby Equity Distribution Agreement (“SEDA”)
The Company entered into a SEDA with YA II PN on April 3, 2020 and amended the SEDA to reduce the aggregate amount of facility from $
The Company entered into the second SEDA with YA II PN on September 4, 2020, the Company will be able to sell up to $
For each share of common stock purchased under the SEDA, YA II PN will pay
YA II PN’s obligation under the SEDA is subject to certain conditions, including the Company maintaining the effectiveness of a registration statement for the securities sold under the SEDA. In addition, the Company may not request advances if the common shares to be issued would result in YA II PN owning more than
The SEDA contains customary representations, warranties and agreements of the Company and YA II PN, indemnification rights and other obligations of the parties. YA II PN has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s shares of common stock.
F-42
During the year ended December 31, 2020, the Company issued
2020 Equity Transactions
Refer to Note 13 for information related to issuance of common stock resulting from the conversion of convertible notes, Note 15 for information related to the issuance of common stock resulting from the conversion of convertible notes with related parties, Note 16 for information related to the issuance to common stock for warrant and option exercise, and Note 6(c) for the information related to the issuance of common stock for DBOT contingent consideration.
2019 Equity Transactions
Refer to Note 13 for information related to issuance of common stock resulting from the conversion of convertible notes, Note 6 for information related to the issuance of common stock resulting from the business acquisitions, Note 9 for information related to the issuance to common stock for asset acquisition, and Note 10 for the information related to the issuance of common stock for long term investment .
Note 15. Related Party Transactions
| (a) | Convertible Notes |
$3.0 Million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, our Vice Chairman, made a loan to the Company in the amount of $
The accumulated interest payable as of December 31, 2019 was $
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $
For the years ended December 31, 2020 and 2019, the Company recorded interest expense of $
$2.5 Million Convertible Promissory Note with SSSIG
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $
As of December 31, 2019, the Company received $
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $
F-43
$1.0 Million Convertible Promissory Note with SSSIG
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $
As of December 31, 2019, the Company received $
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $
| (b) | Transactions with GTD |
Disposal of Assets in exchange of GTB
In March 2019, the Company completed the sale of the following assets (with total carrying amount of $
| ● | License content (net carrying amount $ |
| ● |
| ● | Animation copy right (net carrying amount $ |
Digital asset management services
The Company recognized revenue for the master plan development services over the contract period based on the progress of the services provided towards completed satisfaction. Based on ASC 606, at contract inception, the Company considered the following factors to estimate the value of GTB (noncash consideration): 1) it only trades in one exchange, which operations have been less than one year; 2) its historical volatility is high; and 3) the Company’s intention at the time to hold the majority of GTB, as part of its digital asset management services; and 4) associated risks related to holding GTB. Therefore, the value of
Refer to Note 9(f) for information concerning the impairment loss of $
F-44
(c) Severance payments
On February 20, 2019, the Company accepted the resignation of its former Chief Executive Officer, former Chief Investment Officer and former Chief Strategy Officer and agreed to pay $
(d) Borrowing from Dr. Wu. and his affiliates
In the year ended December 31, 2020, the Company’s net borrowings from Dr. Wu and his affiliates decreased by $
The Company recorded these borrowings in “Amount due to related parties” in its consolidated balance sheet as of December 31, 2020 and 2019. These borrowings bear no interest.
On June 5, 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings at a conversion price of $
(e) Zhu Note Receivable
Refer to Note 3 for this note collateralized by equity in a company partially-owned by a related party.
(f) Disposal of the ownership in Amer
Refer to Note 6(e) for the disposal of
(g) Service agreement with SSSIG
The Company entered a service agreement with SSSIG for the period from July 1, 2020 through June 30, 2021 for $
(h) Amounts due from and due to Glory
Glory has made partial payment of $
(i) Research and development contract with a related party
The Company has entered a research and development contract with an entity with the total amount of $
(j) Borrowing from DBOT
During the three months ended June 30, 2019, the Company obtained several borrowings, $
F-45
(k) Acquisition of Fintalk Assets
Refer to Note 9(b) for additional information.
(l) Sale of Red Rock Global Capital LTD (“Red Rock”)
Refer to Note 6(d) for additional information.
(m) Acquisition of Grapevine Logic. (“Grapevine”)
Refer to Note 6(b) for additional information.
(n) Sale of Amer Global Technology Limited (“Amer”)
Refer to Note 6(e) for additional information.
(o) Taxis commission revenue from Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
During the second quarter of 2019, the Company signed an agreement with iUnicorn (also known as Shenma Zhuanche) to form a strategic entity that will focus on green finance and integrated marketing services for new energy taxi vehicles as part of Ideanomics' Mobile Energy Group ("MEG.") The Company agreed to contribute advisory and sales resources which include arranging ABS-based auto financing with its bank partners, and will have
During the third quarter of 2019, the joint venture took over an order of
(p) Long Term Investment to Qianxi
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co.("Shenma") to acquire its
Note 16. Share-Based Compensation
As of December 31, 2020, the Company had
The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option awards to employees and directors pursuant to the provisions of ASC 718, Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, the Company’s Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which options or other similar securities may be granted. 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
F-46
that may be issued under the 2010 Plan increased from
For the years ended December 31, 2020 and 2019, total share-based payments expense was $
(a) Stock Options
The following table summarizes stock option activity for the year ended December 31, 2020:
Weighted | ||||||||||
Weighted | Average | |||||||||
Average | Remaining | Aggregated | ||||||||
Options | Exercise | Contractual | Intrinsic | |||||||
| Outstanding |
| Price |
| Life (Years) |
| Value | |||
Outstanding at January 1, 2020 |
| | $ | |
| — | $ | — | ||
Granted |
| | |
| — |
| — | |||
Exercised |
| ( |
| |
| — |
| — | ||
Expired |
| ( | |
| — |
| — | |||
Forfeited |
| ( | |
| — |
| — | |||
Outstanding at December 31, 2020 |
| | |
| | |||||
Vested as of December 31, 2020 |
| | | | ||||||
Expected to vest as of December 31, 2020 |
| | | | ||||||
As of December 31, 2020, $
The following table summarizes the assumptions used to estimate the fair values of the share options granted in the year ended December 31, 2020 and 2019.
| 2020 |
| 2019 | ||
Expected term (in years) |
| ||||
Expected volatility |
| % | | % | |
Expected dividend yield |
| — | % | — | % |
Risk free interest rate |
| % | | % |
F-47
(b) Warrants
In connection with certain of the Company’s financings and service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The warrants issued to Warner Brother expired without exercise on January 31, 2019. The weighted average exercise price was $
2020 | 2019 | ||||||||
Number of | Number of | ||||||||
Warrants | Warrants | ||||||||
Outstanding and | Outstanding and | Exercise | Expiration | ||||||
Warrants Outstanding |
| Exercisable |
| Exercisable |
| Price |
| Date | |
2018 IDV (Senior secured convertible note)** |
| — |
| | $ | |
| ||
2019 IDV (Senior secured convertible note)** | — | | | ||||||
2019 YA II PN, Ltd. (Senior secured convertible debenture)* | — | | | ||||||
2019 YA II PN, Ltd. (Senior secured convertible debenture)* | — | | | ||||||
Service providers | | — | | ||||||
Service providers |
| |
| — | |
| |||
| |
| | ||||||
* YA II PN exercised
** ID Venturas exercised
On September 24, 2018, the Company entered into an employment agreements with
| (c) | Restricted Shares |
In November 2020, the Company granted
A summary of the unvested restricted shares is as follows:
|
| Shares |
| Weighted-average fair value | |
Non-vested restricted shares outstanding at January 1, 2020 |
| — | $ | — | |
Granted |
| |
| | |
Forfeited |
| — |
| — | |
Vested |
| ( |
| | |
Non-vested restricted shares outstanding at December 31, 2020 |
| — | — | ||
As of December 31, 2020, there was $
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Note 17. Loss Per Common Share
The following table summarizes the Company's earnings (loss) per share (USD in thousands, except per share amounts):
| 2020 |
| 2019 | |||
Net loss attributable to IDEX common stockholders | $ | ( | $ | ( | ||
Basic | ||||||
Basic weighted average common shares outstanding |
| |
| | ||
Diluted |
|
|
|
| ||
Diluted weighted average common shares outstanding |
| |
| | ||
Net loss per share: |
|
|
|
| ||
Basic | $ | ( | $ | ( | ||
Diluted | $ | ( | $ | ( | ||
Basic loss per common share attributable to our shareholders is calculated by dividing the net loss attributable to our shareholders by the weighted average number of outstanding common shares during the period.
Diluted 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.
The following table includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have a contractual obligation to share in our losses and thus these shares were not included in the computation of diluted loss per share because the effect was antidilutive (in thousands.)
| December 31, |
| December 31, |
| |
2020 | 2019 |
| |||
Warrants |
| |
| | |
Options and RSUs |
| |
| | |
Series A Preferred Stock |
| |
| | |
DBOT contingent shares | | | |||
Convertible promissory note and interest |
| — |
| | |
Total |
| |
| |
Note 18. Income Taxes
(a) Corporate Income Tax (“CIT”)
Ideanomics, Inc., M.Y. Products LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC and Red Rock Global Capital Ltd. are subject to U.S. federal and state income tax.
CB Cayman was incorporated in the Cayman Islands as an exempted company and is not subject to income tax under the current laws of the Cayman Islands.
YOD WFOE, Sinotop Beijing, and Sevenstarflix are PRC entities. The income tax provision of these entities is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in the PRC.
In accordance with the Corporate Income Tax Law of the PRC (“CIT Law”), effective beginning on January 1, 2008, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of
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The CIT Law imposes a
Loss before tax and the provision for income tax benefit consists of the following components (in thousands):
| 2020 |
| 2019 | |||
Loss before tax | ||||||
United States | $ | ( | $ | ( | ||
PRC/Hong Kong/Singapore |
| ( |
| ( | ||
$ | ( | $ | ( | |||
Deferred tax expense (benefit) of net operating loss |
|
| ||||
United States | $ | | $ | — | ||
PRC/Hong Kong/Singapore |
| |
| ( | ||
| $ | ( | ||||
Deferred tax expense (benefit) other than benefit of net operating loss |
|
| ||||
United States | $ | | $ | ( | ||
PRC/Hong Kong |
| |
| — | ||
Total deferred income tax (expense) benefit | | ( | ||||
Current tax expense (benefit) other than benefit of net operating loss | ||||||
United States | $ | | $ | — | ||
PRC/Hong Kong | | | ||||
Total current income tax (expense) benefit | | | ||||
Total income tax expense (benefit) | $ | | $ | | ||
A reconciliation of the expected income tax derived by the application of the U.S. corporate income tax rate to the Company’s loss before income tax benefit is as follows:
| 2020 |
| 2019 |
| |
U. S. statutory income tax rate |
| | % | | % |
Non-deductible expenses: |
| ||||
Non-deductible stock awards |
| ( | ( | ||
Non-deductible loss on contingent consideration |
| | ( | ||
Others |
| ( | ( | ||
Non-deductible interest expenses |
| ( | ( | ||
Increase in valuation allowance |
| ( | ( | ||
Tax rate differential |
| | ( | ||
Effective income tax rate |
| | % | ( | % |
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Deferred income taxes are recognized for future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows (in thousands):
| December 31, |
| December 31, | |||
2020 |
| 2019 | ||||
U.S. NOL | $ | | $ | | ||
Foreign NOL |
| |
| | ||
U.S. capital loss carryover | | | ||||
Accrued payroll and expense |
| — |
| | ||
Nonqualified options |
| |
| | ||
Convertible notes | | | ||||
Impaired assets | | | ||||
Equity investment loss and others |
| |
| | ||
Total deferred tax assets | | | ||||
Less: valuation allowance | ( | ( | ||||
Property and equipment | ( | ( | ||||
Intangible assets | ( | ( | ||||
Total deferred tax liabilities | ( | ( | ||||
Net deferred tax assets | $ | — | $ | — | ||
As of December 31, 2020 and 2019, the Company had U.S. domestic cumulative tax loss carryforwards of $
Realization of the Company’s net deferred tax assets is dependent upon the Company’s ability to generate future taxable income in the respective tax jurisdictions to obtain benefit from the reversal of temporary differences and net operating loss carryforwards. The valuation allowance increased by $
(b) Uncertain Tax Positions
Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that a tax position must meet for any of the benefit of uncertain tax position to be recognized in the financial statements. there were
As of December 31, 2020 and 2019, the Company did not accrue any material interest and penalties.
The Company’s United States income tax returns are subject to examination by the Internal Revenue Service for at least 2007 and later years. Due to the uncertainty regarding the filing of tax returns for years before 2007, it is possible that the Company is subject to examination by the IRS for earlier years. All of the PRC tax returns for the PRC operating companies are subject to examination by the PRC tax authorities for all periods from the companies’ inceptions in 2009 through 2020 as applicable.
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Note 19. Contingencies and Commitments
Lawsuits and Legal Proceedings
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the business.
Vendor Settlement
In the three months ended September 30, 2020, Ideanomics preliminarily settled a payable of $
Shareholder Class Actions and Derivative Litigations
On July 19, 2019, a purported class action, now captioned Rudani v. Ideanomics, et al. Inc., was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers and directors. The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018.
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics et al. Inc., was filed in the United State District Court for the Southern District of New York against the Company and certain current officers and directors of the Company. Additionally, on July 7, 2020, a purported securities class action captioned Kim v. Ideanomics, et al, was filed in the Southern District of New York against the Company and certain current officers and directors of the Company. Both cases alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division. On November 4, 2020, the Lundy and Kim actions were consolidated and is now titled “In re Ideanomics, Inc. Securities Litigation.” In December 2020, the Court appointed Rene Aghajanian as lead plaintiff and an amended complaint was filed in February 2021, alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division
On March 20, 2020, the Company received a formal demand letter to the Board of Directors ascertain allegations similar to those alleged in the Rudani Complaint and demanding that the Board pursue causes of action on behalf of the Company against certain of the Company’s former and current directors and officers. In response to this stockholder demand letter, the Board established a demand review committee to review the demand and make a recommendation to the Board of Directors regarding a response to the demand. The demand review committee has not yet completed its review.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al., 1:20-cv-05333. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, 20-cv-5333, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, 20-cv-608, alleging violations and allegations similar to the Toorani and Elleisy litigations.
While the Company believes that the above litigations are without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations. There is currently a mediation scheduled for April 2021 for all of the pending actions that have been filed and discussed above.
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SEC Investigation
As previously reported, the Company is subject to an investigation by the SEC and has responded to various information requests from the SEC. The Company is fully cooperating with the SEC’s requests, and cannot predict the outcome of this investigation.
Note 20. Concentration, Credit and Other Risks
a) PRC Regulations
The PRC market in which the Company operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extended to the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated. The Company conducted legacy YOD business in China through a series of contractual arrangements, which were terminated as of December 31, 2019. Refer to Note 5 for additional information. The Company believed that these contractual arrangements were in compliance with PRC law and were legally enforceable, or their respective legal shareholders failed to perform their obligations under the contractual arrangements or any dispute relating to these contracts remained unresolved, the Company could enforce its rights under the VIE contracts through PRC law and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties.
b) Major Customers
For the year ended December 31, 2020,
For the year ended December 31, 2019,
c) Major Suppliers
For the year ended December 31, 2020,
For the year ended December 31, 2019,
(d) 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 December 31, 2020 and 2019, 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. 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.
(e) Foreign Currency Risks
A majority 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.
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As of December 31, 2020, the Company had cash of $
As of December 31, 2020 and 2019 deposits of $
Note 21. Defined Contribution Plan
For U.S. employees, during 2011, the Company began sponsoring a 401(k) defined contribution plan ("401(k) Plan") that provides for a
Full time employees in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to make contributions based on certain percentages of the employees’ basic salaries. Other than such contributions, there is no further obligation under these plans. The total contributions for such PRC employee benefits were $
Note 22. Geographic Areas
The following table summarizes geographic information for long-lived assets (in thousands):
|
| December 31, 2020 |
| December 31, 2019 | ||
United States | $ | | $ | | ||
Malaysia |
| |
| | ||
British Virgin Islands |
| — |
| | ||
Other |
| |
| | ||
Total | $ | | $ | | ||
Note 23. Fair Value Measurement
The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the input to fair value is observable (in thousands):
December 31, 2020 | ||||||||||||
|
| Level I |
| Level II |
| Level III |
| Total | ||||
Contingent consideration1 |
| $ | — |
| $ | — |
| $ | |
| $ | |
Contingent consideration2 |
| — |
| — |
| |
| | ||||
Total | $ | — | $ | — | $ | | $ | | ||||
Note
1 This represents the liability incurred in connection with the acquisition of DBOT shares during the three months ended September 30, 2019 and as remeasured as of April 17, 2020 as disclosed in Note 6(c). The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future. The Company issued
2 This represents the liability incurred in connection with the acquisition of Tree Technology shares during the three months ended December 31, 2019 and as subsequently remeasured as of December 31, 2020 as disclosed in Note 6(a).
The fair value of the DBOT contingent consideration as of March 31, 2020 and December 31, 2019 was valued using the Black-Scholes Merton model.
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The following table summarizes the significant inputs and assumptions used in the model:
|
| March 31, 2020 |
| December 31, 2019 | |
Risk-free interest rate | | % | | % | |
Expected volatility | | % | | % | |
Expected term | |||||
Expected dividend yield | | % | | % |
The significant unobservable inputs used in the fair value measurement of the contingent consideration includes the risk-free interest rate, expected volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The fair value of the Tree Technology contingent consideration as of December 31, 2020 and 2019 was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors.
The following table summarizes the significant inputs and assumptions used in the scenario-based method:
| December 31, 2020 |
| December 31, 2019 |
| |
Weighted-average cost of capital |
| | % | | % |
Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):
Contingent | |||
Consideration | |||
January 1, 2020 |
| $ | |
Measurement period adjustment | ( | ||
Settlement | ( | ||
Remeasurement (loss)/gain recognized in the income statement |
| ( | |
December 31, 2020 | $ | | |
Note 24. Subsequent Events
Held for Sale
Fintech Village
On January 28, 2021, the Company’s Board of Directors accepted an offer of $
Acquisitions and Investments
WAVE Acquisition
On January 4, 2021, the Company entered into an agreement and plan of merger (the “WAVE Agreement”) to acquire
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gross revenue targets and certain gross profit margins are achieved for 2021 and 2022. WAVE is a provider of wireless charging solutions for medium and heavy-duty electric vehicles. The Company closed the acquisition of WAVE on
Timios Acquisition
On January 8, 2021 the Company completed the acquisition of Timios Holdings Corp. (“Timios”) pursuant to the stock purchase agreement (the “Timios Agreement”) entered into on November 11, 2020. Pursuant to the Timios Agreement, the Company acquired
Technology Metals Investment
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 £
Silk EV Investment
On January 28, 2021, the Company entered into a convertible promissory note (the “SilkEV Note”) with SilkEV Cayman LP (“SilkEV”) pursuant to which the Company invested $
Energica Investment
On March 3, 2021, the Company entered into an investment agreement with Energica Motor Company S.P.A (“Energica.”) The Company invested €
Debt Transactions
YA Notes
On various dates subsequent to the balance sheet date, the Company entered into convertible debentures (“YA Note(s)”) with YA II PN, Ltd (“YA.”) The table below summarizes the issuances respectively:
Date of Issuance |
| Principal Amount |
| Fixed Conversion Price |
| Maturity Date | ||
$ | $ | | ||||||
$ | $ | | ||||||
$ | $ | | ||||||
$ | $ | | ||||||
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For each issuance, at any time before the maturity date, the Investor may convert the YA Note(s) at their option into shares of Company common stock at the fixed conversion price noted in the table. The Company has the right, but not the obligation, to redeem a portion or all amounts outstanding under the YA Note(s) prior to the maturity date at a cash redemption price equal to the principal amount to be redeemed, plus accrued and unpaid interest, if any. The Investor may convert all or any part of the YA Note(s) after receiving a redemption notice, in which case the redemption amount shall be reduced by the amount converted. No public market currently exists for the YA Note(s), and the Company does not intend to apply to list the YA Note(s) on any securities exchange or for quotation on any inter-dealer quotation system. The Note contains customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
Equity Transactions
Roth Capital Share Placement
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 $
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based on that evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2020, 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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2020. During our assessment, we did not identify any material weaknesses in our internal control over financial reporting.
53
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal year that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following sets forth the name and position of each of our current executive officers and directors as of March 29, 2020.
NAME |
| AGE |
| POSITION |
Shane McMahon |
| 51 |
| Vice Chairman |
Alf Poor |
| 50 |
| Chief Executive Officer, Director and Interim Chairman |
Conor McCarthy |
| 63 |
| Chief Financial Officer |
James Cassano |
| 74 |
| Director |
Jerry Fan |
| 51 |
| Director |
Harry Edelson |
| 87 |
| Director |
Shane McMahon. Mr. McMahon was appointed Vice Chairman as of January 12, 2016 and was previously our Chairman from July 2010 to January 2016. Prior to joining us, from 2000 to December 31, 2009, Mr. McMahon served in various executive level positions with World Wrestling Entertainment, Inc. (NYSE: WWE). Mr. McMahon also sits on the Boards of Directors of International Sports Management (USA) Inc., a Delaware corporation, and Global Power of Literacy, a New York not-for-profit corporation.
Mr. Alf Poor. Our Chief Executive Officer is a former Chief Operating Officer at Global Data Sentinel, a cybersecurity company that specializes in identity management, file access control, protected sharing, reporting and tracking, AI and thread response, and backup and recovery. He is the former President and Chief Operating Officer of Agendize Services Inc., a company with an integrated suite of applications that help businesses generate higher quality leads, improve business efficiency and customer engagement. Mr. Poor is a client-focused and profitability-driven management executive with a track record of success at both rapidly-growing technology companies and large, multi-national, organizations.
Mr. Conor McCarthy. Mr. McCarthy was appointed as our Chief Financial Officer on September 9, 2019. Mr. McCarthy has over 30 years of experience as a Chief Financial Officer in areas such as corporate strategy and corporate finance including capital raising and Mergers and Acquisitions. Mr. McCarthy most recently served as the Chief Financial Officer of OS33, a private equity backed FinTech SaaS platform for compliance and productivity enablement for the wealth management industry with 200 employee from July 2018 to May 2019. Prior to that, Mr. McCarthy served as the (i) Chief Financial Officer of Intent from May 2016 to July 2018; (ii) the Chief Financial Officer of Convergex Group from June 2014 to July 2015 and (iii) the Chief Financial Officer and Finance Director of the Americas for GFI Group, Inc., a NYSE-listed fintech wholesale money broker with revenues of almost $1 billion (now part of BGC Partners, Nasdaq: BGCP), from March 2005 to June 2014. Mr.McCarthy, holds a CA from the Institute of Chartered Accountants in Ireland. Mr. McCarthy started his career as an auditor with KPMG in Ireland. Mr. McCarthy then transitioned into financial services, working as CFO, Treasurer, and in other executive finance roles, with trading and brokerage firms, as well as high growth fintech partners supporting the financial services industry.
54
James S. Cassano. Mr. Cassano was appointed as director of the Company effective as of January 11, 2008. Mr. Cassano is currently a Partner and Chief Financial Officer of CoActive Health Solutions, LLC, a worldwide contract research organization, supporting the pharmaceutical and biotechnology industries. Mr. Cassano has served as executive vice president, chief financial officer, secretary and director of Jaguar Acquisition Corporation a Delaware corporation (OTCBB: JGAC), a blank check company, since its formation in June 2005. Mr. Cassano has served as a managing director of Katalyst LLC, a company which provides certain administrative services to Jaguar Acquisition Corporation, since January 2005. In June 1998, Mr. Cassano founded New Forum Publishers, an electronic publisher of educational material for secondary schools, and served as its chairman of the Board and chief executive officer until it was sold to Apex Learning, Inc., a company controlled by Warburg Pincus, in August 2003. He remained with Apex until November 2003 in transition as vice president business development and served as a consultant to the company through February 2004. In June 1995, Mr. Cassano co-founded Advantix, Inc., a high volume electronic ticketing software and transaction services company which handled event related client and customer payments, that was renamed Tickets.com and went public through an IPO in 1999. From March 1987 to June 1995, Mr. Cassano served as senior vice president and chief financial officer of the Hill Group, Inc., a privately-held engineering and consulting organization, and from February 1986 to March 1987, Mr. Cassano served as vice president of investments and acquisitions for Safeguard Scientifics, Inc., a public venture development company. From May 1973 to February 1986, Mr. Cassano served as partner and director of strategic management services (Europe) for the strategic management group of Hay Associates. Mr. Cassano received a B.S. in Aeronautics and Astronautics from Purdue University and an M.B.A. from Wharton Graduate School at the University of Pennsylvania.
Jerry Fan. Mr. Fan was appointed as director of the Company on January 12, 2016. Mr. Fan has served as Managing Director and Country Manager for the Greater China region at Analog Devices, Inc. (NASDAQ: ADI), a global semiconductor company since November, 2012. Prior to ADI, Mr. Fan worked for Cisco Systems, Inc. (NASDAQ: CSCO) for 15 years between 1997 and 2012 in a number of senior management roles, including Sales Managing Director for Cisco China, Sale Director for Cisco Australia and Senior Manager for Operations and Strategy for the Cisco Service Provider business based in Hong Kong. Mr. Fan started his career in 1998 working at Fudan University as a faculty member in both teaching and research roles. He graduated from Fudan University with a Computer Science Bachelor degree and an Executive MBA degree from CEIBS (China European International Business School) in 1999.
Harry Edelson. Mr. Edelson was appointed as director of the Company effective as of September 15, 2019, CFA, CCP, CDP, is the Founder of Edelson Technology Partners, and President since 1980 of Edelson Technology, Inc., a company involved in consulting, fundraising, Mergers and Acquisitions, and investments. From 1984 until 2005 Mr. Edelson was an advisor and consultant for 10 multinational corporations (AT&T, Viacom, 3M, Ford Motor, Cincinnati Bell, Colgate-Palmolive, Reed Elsevier, Imation, Asea Brown Boveri and UPS). During this time he managed four technology-oriented strategic venture capital funds for the aforementioned 10 companies using corporate rather than pension money. He has served on over 150 boards of directors, 12 as chairman. At some time in the past five years, Harry Edelson served as a director of four private companies, Airwire, PogoTec, eChinaCash, Pathway Genomics, and one public company, China Gerui. Executive positions in industry include Senior Systems Computer Engineer for Unisys, Transmission Engineer for AT&T (1962-1967), CTO for Cities Service (1967-1970) and Director of Marketing for a terminal manufacturer serving the nascent internet industry (1971-1973). His experience in technology led him to a 12 year career as a securities analyst on Wall Street covering telecommunications, computers, and office equipment for three leading investment banking firms in the 1970s and 1980s. Harry obtained a BS in Physics from Brooklyn College in 1962, MBA from New York University Graduate School of Business in 1965, and completed a Graduate Program in Telecommunications Engineering at the Cornell Graduate School of Electrical Engineering in 1966. In 2007, Harry served as Chairman and Chief Executive Officer for China Opportunity Acquisition Corp., a SPAC that raised $40 million and merged with China Gerui in 2009. Mr. Edelson was a Council member of The Julliard School of Music, Dance and Drama, and is the founder and still Chairman of the China Investment Group; and the founder and current member of the Chinese Cultural Foundation. Harry’s qualifications to serve as a director include decades of experience on Wall Street and various venture capital ventures. He has SPAC experience, vast board experience, and participated in numerous Mergers and Acquisitions transactions.
There are no agreements or understandings between any of our executive officers or directors and any other persons to resign at the request of another such other person and to act on behalf of or at the direction of any such other person.
Directors are elected for one-year term and until their successors are duly elected and qualified.
55
Corporate Governance
Our current corporate governance practices and policies are designed to promote shareholder value and we are committed to the highest standards of corporate ethics and diligent compliance with financial accounting and reporting rules. Our Board provides independent leadership in the exercise of its responsibilities. Our management oversees a system of internal controls and compliance with corporate policies and applicable laws and regulations, and our employees operate in a climate of responsibility, candor and integrity.
Corporate Governance Guidelines
We and our Board are committed to high standards of corporate governance as an important component in building and maintaining shareholder value. To this end, we regularly review our corporate governance policies and practices to ensure that they are consistent with the high standards of other companies. We also closely monitor guidance issued or proposed by the SEC and the provisions of the Sarbanes-Oxley Act, as well as the emerging best practices of other companies. The current corporate governance guidelines are available on the Company’s website www.ideanomics.com. Printed copies of our corporate governance guidelines may be obtained, without charge, by contacting our Corporate Secretary at No.4 Drive-in Movie Theater Park, No. 21 Liangmaqiao Road, Chaoyang District, Beijing, 100125, China.
The Board and Committees of the Board
The Company is governed by the Board that currently consists of five members: Shane McMahon, Alfred Poor, James Cassano, Jerry Fan, and Harry Edelson. The Board has established three Committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Each of the Audit Committee, Compensation Committee and Nominating and Governance Committee are comprised entirely of independent directors. From time to time, the Board may establish other committees. The Board has adopted a written charter for each of the Committees which are available on the Company’s website www.ideanomics.com. Printed copies of these charters may be obtained, without charge, by contacting our Corporate Secretary at 1441 Broadway, Suite 5116, New York, NY 10018.
Governance Structure
Our Board of Directors is responsible for corporate governance in compliance with reporting laws and for representing the interests of our shareholders. As of the date of this Annual report, the Board was composed of nine members, five of whom are considered independent, non-executive directors. Details on Board membership, oversight and activity are reported below.
We encourage our shareholders to learn more about our Company’s governance practices at our website, www.ideanomics.com.
The Board’s Role in Risk Oversight
The Board oversees that the assets of the Company are properly safeguarded, that the appropriate financial and other controls are maintained, and that the Company’s business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the Board of Directors’ oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee critical business risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of the Company’s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its objectives.
While the Board oversees risk management, Company management is charged with managing risk. The Company has robust internal processes and a strong internal control environment to identify and manage risks and to communicate with the Board. The Board and the Audit Committee monitor and evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board, Board committees and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.
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The Board implements its risk oversight function both as a whole and through Committees. Much of the work is delegated to various Committees, which meet regularly and report back to the full Board. All Committees play significant roles in carrying out the risk oversight function. In particular:
| ● | The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting and legal matters. The Audit Committee members meet separately with representatives of the independent auditing firm. |
| ● | The Compensation Committee evaluates the risks and rewards associated with the Company’s compensation philosophy and programs. The Compensation Committee reviews and approves compensation programs with features that mitigate risk without diminishing the incentive nature of the compensation. Management discusses with the Compensation Committee the procedures that have been put in place to identify and mitigate potential risks in compensation. |
Independent Directors
In considering and making decisions as to the independence of each of the directors of the Company, the Board considered transactions and relationships between the Company (and its subsidiaries) and each director (and each member of such director’s immediate family and any entity with which the director or family member has an affiliation such that the director or family member may have a material direct or indirect interest in a transaction or relationship with such entity). The Board has determined that James Cassano, Shane McMahon, Jerry Fan, and Harry Edelson are independent as defined in applicable SEC and NASDAQ rules and regulations, and that each constitutes an “Independent Director” as defined in NASDAQ Listing Rule 5605.
Audit Committee
Our Audit Committee consists of James Cassano, Harry Edelson and Jerry Fan with Mr. Cassano acting as Chair. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. Mr. Cassano serves as our Audit Committee financial experts as that term is defined by the applicable SEC rules. The Audit Committee is responsible for, among other things:
| ● | selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors; |
| ● | reviewing with our independent auditors any audit problems or difficulties and management’s response; |
| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as amended; |
| ● | discussing the annual audited financial statements with management and our independent auditors; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our Audit Committee charter; |
| ● | overseeing the work of our independent auditor, including resolution of disagreements between management and the independent auditor regarding financial reporting; |
| ● | reporting regularly to and reviewing with the full Board any issues that arise with respect to the quality or integrity of the Company’s financial statements, the performance and independence of the independent auditors and any other matters that the Audit Committee deems appropriate or is requested to review for the benefit of the Board. |
The Audit Committee may engage independent counsel and such other advisors it deems necessary to carry out its responsibilities and powers, and, if such counsel or other advisors are engaged, shall determine the compensation or fees payable to such counsel or other advisors. The Audit Committee may form and delegate authority to subcommittees consisting of one or more of its members as the Audit Committee deems appropriate to carry out its responsibilities and exercise its powers.
57
Compensation Committee
Our Compensation Committee consists of James Cassano, Harry Edelson and Jerry Fan with Mr. Cassano acting as Chair. Our Compensation Committee assists the Board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. The Compensation Committee is responsible for, among other things:
| ● | reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; |
| ● | reviewing and making recommendations to the Board with regard to the compensation of other executive officers; |
| ● | reviewing and making recommendations to the Board with respect to the compensation of our directors; and |
| ● | reviewing and making recommendations to the Board regarding all incentive-based compensation plans and equity-based plans. |
The Compensation Committee has sole authority to retain and terminate any consulting firm or other outside advisor to assist the committee in the evaluation of director, chief executive officer or senior executive compensation and other compensation-related matters, including sole authority to approve the firms’ fees and other retention terms. The Compensation Committee may also form and delegate authority to subcommittees consisting of one or more members of the Compensation Committee.
Governance and Nominating Committee
Our Governance and Nominating Committee consists of Harry Edelson, Jim Cassano and Jerry Fan with Harry Edelson acting as Chair. The Governance and Nominating Committee assists the Board of Directors in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees. The Governance and Nominating Committee is responsible for, among other things:
· | identifying and recommending to the Board nominees for election or re-election to the Board, or for appointment to fill any vacancy; |
· | selecting directors for appointment to committees of the Board; and |
· | overseeing annual evaluation of the Board and its committees for the prior fiscal year. |
The Governance and Nominating Committee has sole authority to retain and terminate any search firm that is to be used by the Company to assist in identifying director candidates, including sole authority to approve the firms’ fees and other retention terms. The Governance and Nominating Committee may also form and delegate authority to subcommittees consisting of one or more members of the Governance and Nominating Committee.
Director Qualifications
Directors are responsible for overseeing the Company’s business consistent with their fiduciary duty to shareholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes and professional experience. The Board believes that there are general requirements for service on the Company’s Board of Directors that are applicable to all directors and that there are other skills and experience that should be represented on the Board as a whole but not necessarily by each director. The Board and the Governance and Nominating Committee of the Board consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.
Qualifications for All Directors
In its assessment of each potential director candidate, including those recommended by shareholders, the Governance and Nominating Committee considers the nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors the Governance and Nominating Committee determines are pertinent in light of the current needs of the Board. The Governance and Nominating Committee also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company.
58
The Board and the Governance and Nominating Committee require that each director be a recognized person of high integrity with a proven record of success in his or her field. Each director must demonstrate innovative thinking, familiarity with and respect for corporate governance requirements and practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the qualifications required of all directors, the Board assesses intangible qualities including the individual’s ability to ask difficult questions and, simultaneously, to work collegially.
The Board does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional experiences in evaluating candidates for Board membership. Diversity is important because a variety of points of view contribute to a more effective decision-making process.
Qualifications, Attributes, Skills and Experience to be represented on the Board as a Whole
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of the Company’s current needs and business priorities. The Company’s services are performed in areas of future growth located outside of the United States. Accordingly, the Board believes that international experience or specific knowledge of key geographic growth areas and diversity of professional experiences should be represented on the Board. In addition, the Company’s business is multifaceted and involves complex financial transactions. Therefore, the Board believes that the Board should include some directors with a high level of financial literacy and some directors who possess relevant business experience as a Chief Executive Officer or President. Our business involves complex technologies in a highly specialized industry. Therefore, the Board believes that extensive knowledge of the Company’s business and industry should be represented on the Board.
Summary of Qualifications of Current Directors
Set forth below is a narrative disclosure that summarizes some of the specific qualifications, attributes, skills and experiences of our directors. For more detailed information, please refer to the biographical information for each director set forth above.
Shane McMahon. Mr. McMahon has significant marketing and promotion experience and has been instrumental in exploiting pay-per-view programming on a global basis. In light of our business and structure, Mr. McMahon’s extensive executive and industry experience led us to the conclusion that he should serve as a director of our Company.
Alfred Poor. Mr. Poor is a client-focused and profitability-driven management executive with a track record of success at both rapidly-growing technology companies and large, multi-national, organizations. In light of our business and structure, Mr. Poor’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our Company.
James S. Cassano. Mr. Cassano has substantial experience as a senior executive in management consulting, corporate development, mergers and acquisitions and start up enterprises across a numerous different industries. In light of our business and structure, Mr. Cassano’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our Company.
Harry Edelson. Mr. Edelson is the Founder of Edelson Technology Partners, and President since 1980 of Edelson Technology, Inc., a company involved in consulting, fundraising, Mergers and Acquisitions, and investments. In light of our business and structure, Mr. Edelson’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our Company.
Jerry Fan. Mr. Fan has more than 20 years of experience in top management positions in China and the Asia Pacific region, working for several multinational technology companies. He also has served in senior management positions of several U.S. public companies. In light of our business and structure, Mr. Fan’s extensive industry and business experience and his educational background led us to the conclusion that he should serve as a director of our Company.
Family Relationships
There are no family relationships among our directors and officers.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
· | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
· | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
· | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
· | been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
· | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
· | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below in Item 13 - Certain Relationships and Related Transactions, and Director Independence - Transactions with Related Persons, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Section 16(A) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of copies of such reports filed with the SEC by and representations of our directors and executive officers, except for the Form 3 Initial Statement of Beneficial Ownership to be filed by our director Jerry Fan and chief financial officer, Conor McCarthy, and the Form 4 in connection with grants of stock options to be filed by our directors Jim Cassano, Shane McMahon, Harry Edelson and Jerry Fan, the Company is not aware of any failures to file reports or report transactions in a timely manner during the year ended December 31, 2020.
Code of Ethics
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors, which became effective in January 2015. We have posted a copy of our code of business conduct and ethics on our website at www.ideanomics.com.
60
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table (2020 and 2019)
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons (our “named executive officers”) for services rendered in all capacities during the noted periods.
|
|
|
|
|
|
| Nonqualified |
|
| |||||||||
Stock | Nonequity | deferred | ||||||||||||||||
awards | incentive plan | compensation | All other | |||||||||||||||
Salary | Bonus | (3) | Option awards | compensation | earnings | compensation | Total | |||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | (#) | ($) | ($) | ($) | ($) | |||||||||
Bruno Wu (Former Chief Executive Officer)(1) |
| 2019 |
| 250,000 |
| — | — |
| 2,500,000 |
| — |
| — |
| — |
| 250,000 | |
| 2020 |
| 250,000 |
| — | — |
| — |
| — |
| — |
| — |
| 250,000 | ||
Alf Poor (Chief Executive Officer ) | 2019 |
| 300,000 |
| 50,000 |
| — |
| 2,000,000 |
| — |
| — |
| — |
| 350,000 | |
| 2020 |
| 383,333 |
| 500,000 |
| — |
| 1,000,000 |
| — |
| — |
| — |
| 883,333 | |
Conor McCarthy (Chief Financial Officer)(2) | 2019 |
| 116,667 |
| 50,000 | — |
| 1,500,000 |
| — |
| — |
| — |
| 166,667 | ||
| 2020 |
| 289,900 |
| 350,000 | — |
| — |
| — |
| — |
| — |
| 639,900 | ||
Carla Oiong Zhou (Chief Revenue Officer) | 2019 |
| 250,000 |
| — |
| — |
| 1,000,000 |
| — |
| — |
| — |
| 250,000 | |
| 2020 |
| 250,000 |
| — |
| — |
|
| — |
| — |
| — |
| 250,000 |
| (1) | On November 12, 2018 , Bruno Wu resigned from his position as a Chief Executive Officer of the Company. On February 22, 2019 Bruno Wu rejoined the Company as Executive Chairman. On December 31, 2020 Bruno Wu resigned his position as Executive Chairman. |
| (2) | Mr.McCarthy joined The Company on September 9, 2019, the salary represents a prorated amount for the year. |
| (3) | Reflects the aggregate grant date fair value of option or restricted stock units determined in accordance with FASB ASC Topic 718. |
Employment Agreements
Alfred Poor
Effective on July 31, 2020, we entered into employment agreement with Mr. Poor for a term of 2 years pursuant to which Mr. Poor will receive an annual base salary of $500,000, a bonus of $300,000 earned on July 21, 2020, the date the employment contract became effective, and will be entitled to participate in all employment benefit plan and policies of the Company generally available. Mr. Poor will be entitled to stock options of up to 2,000,000 shares in 2021.
Conor McCarthy
Effective on July 31, 2020, we entered into an employment agreement with Mr.McCarthy for a term of 2 years pursuant to which Mr. McCarthy will receive an annual salary of $350,000 and will be entitled to participate in all employment benefit plan and policies of the Company. Mr. McCarthy will be entitled to stock options of up to 750,000 shares in 2021.
We have not provided retirement benefits (other than a state pension scheme in which all of our employees in China participate) or change of control benefits to our named executive officers.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the equity awards of our named executive officers outstanding at December 31, 2020.
Option awards | |||||||||||||||
Equity | |||||||||||||||
incentive | |||||||||||||||
plan awards: Number | |||||||||||||||
of | Number of | ||||||||||||||
Number of | Number of | securities | shares or | Market value | |||||||||||
securities | securities | underlying | units of | of shares of | |||||||||||
underlying | underlying | unexercised | Option | stock that | units of stock | ||||||||||
unexercised | unexercised | unearned | exercise | Option | have not | that have not | |||||||||
options | options | options | price | expiration | vested | vested | |||||||||
Name | (#) exercisable | (#) unexercisable | (#) | ($) | date | (#) | ($) | ||||||||
Bruno Wu |
| 1,041,666 |
| 1,458,334 |
| — |
| 1.98 |
| February 20, 2029 |
| 1,458,334 |
| $ | 2,902,084 |
Alf Poor |
| 833,333 |
| 1,166,667 |
| — |
| 1.98 | February 20, 2029 |
| 1,166,667 |
| 2,231,667 | ||
250,000 | 499,998 | 0.53 | December 7, 2030 | 499,998 | 994,996 | ||||||||||
Conor McCarthy |
| 937,500 |
| 562,500 |
| — |
| 0.53 | September 20, 2029 |
| 562,500 |
| 1,119,375 | ||
Compensation of Directors
The following table sets forth certain information concerning the compensation paid to our directors for services rendered to us during the fiscal year ended December 31, 2020.
| Fees |
|
|
|
| Nonqualified |
|
| ||||||
earned or | Non-equity | deferred | ||||||||||||
paid in | Stock | Option | incentive plan | compensation | All other | |||||||||
cash | awards(1) | awards(2) | compensation | earnings | compensation | Total | ||||||||
Name | ($) | ($) | (#) | ($) | ($) | ($) | ($) | |||||||
Bruno Wu |
| 250,000 |
| — |
| — |
| — |
| — |
| — |
| 250,000 |
Shane McMahon |
| 36,000 |
| — |
| — |
| — |
| — |
| — |
| 36,000 |
Alf Poor |
| 383,333 |
| — |
| 1,000,000 |
| 500,000 |
| — |
| — |
| 833,333 |
James Cassano |
| 81,504 |
| — |
| 263,333 |
| — |
| — |
| 50,000 |
| 131,504 |
Jerry Fan |
| 36,000 |
| — |
| — |
| — |
| — |
| — |
| 36,000 |
John Wallace |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Steven Fadem |
| 19,894 |
| — |
| — |
| — |
| — |
| — |
| 19,894 |
Harry Edelson |
| 13,473 |
| — |
| 500,000 |
| — |
| — |
| — |
| 13,473 |
(1)Reflects the aggregate grant date fair value of restricted stock determined in accordance with FASB ASC Topic 718.
(2)Reflects the number of stock options granted in 2020.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of our common stock as of March 29, 2021 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our executive officers and directors as a group; and (iii) by all of our executive officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of Ideanomics, Inc., at 1441 Broadway, Suite 5116, New York, NY 10018
Name and | Combined Common Stock and |
| |||||||||||||
Address of | Common Stock(2) | Series A Preferred Stock (3) | Series A(4) |
| |||||||||||
Beneficial | Office, If | % of | % of |
| |||||||||||
Owner | Any | Shares | Class | Shares | Class | Votes | Percentage |
| |||||||
Directors and Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shane McMahon |
| Vice Chairman | 6,090,589 | (3) | 2.3 | % | 0 |
| * |
| 6,101,767 |
| 2.2 | % | |
Alfred Poor |
| CEO and Interim Chairman | 2,500,000 | (4) | * | 0 |
| * |
| 2,500,000 |
| * | |||
James Cassano |
| Director | 938,366 | (5) | * |
| 0 |
| * |
| 938,364 |
| * | % | |
Harry Edelson |
| Director | 395,827 | (6) | * |
| 0 |
| * |
| 395,827 |
|
| ||
Jerry Fan |
| Director | 519,806 | (7) | * |
| 0 |
| * |
| 519,806 |
| * | % | |
Conor McCarthy |
| CFO | 1,250,000 | (8) | * |
| 0 |
| * |
| 1,250,000 |
| * | % | |
|
|
|
|
| |||||||||||
All officers and directors as a group (6 persons named above) |
| 14,484,298 | 3.5 | % |
|
| 14,484,298 |
| 3.5 | % | |||||
5% Securities Holders |
|
|
|
|
|
|
|
| |||||||
Bruno Wu | 40,138,232 | (9) | 9.5 | % | 7,000,000 | (10) | 100 | % | 49,471,565 | () | 11.5 | % | |||
*Less than 1%. |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| (1) | Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to our securities. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator. |
| (2) | Applicable percentage ownership is based on 419,314,800 shares of common stock outstanding as of March 29, 2021 and the number of convertible securities held by each beneficial owner that has the right to acquire stock through the exercise of such convertible securities within 60 days from March 29, 2021. |
| (3) | Includes (i) 8,166,208 shares of Common Stock, (ii) 111,110 shares of Common Stock underlying options exercisable within 60 days at $1.84 per share, (iii) 40,000 shares of Common Stock underlying options exercisable within 60 days at $4.50 per share; (iv) 166,666 shares of Common Stock underlying options exercisable within 60 days at $2.00 per share, (v) 75,800 shares of Common Stock underlying options exercisable within 60 days at $5.57 per share |
| (4) | Includes (i) 250,000 shares of Common Stock, (ii) 250,000 shares underlying options exercisable within 60 days at $0.53 per share, and (iii) 2,000,000 shares underlying options exercisable within 60 days at $1.98 per share. |
| (5) | Includes (i) 225,808 shares of Common Stock, (ii)2,780 shares underlying options exercisable within 60 days at $1.84 per share, (iii) 8,974 shares underlying options exercisable within 60 days at $2.91 per share, (iv)75,800 shares underlying options exercisable within 60 days at $5.57, (v) 500,000 shares underlying options exercisable within 60 days at $1.98 per shares, and(vi) 125,004 shares underlying options exercisable with 60 days at $0.53 per share. |
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| (6) | Includes 395,827 shares underlying options exercisable within 60 days at $0.53. |
| (7) | Includes (i) 269,806 shares of Common Stock, (ii) 250,000 shares underlying options exercisable within 60 days at $1.98 . |
| (8) | Includes 1,250,000 shares underlying options exercisable within 60 days at $0.53 |
| (9) | Includes 37,638,232 (ii) 2,500,000 options exercisable within 60 days at $1.98 |
| (10) | Based on 7,000,000 shares of Series A Preferred Stock issued and outstanding as of March 25, 2019, with the holders thereof being entitled to cast ten (10) votes for every share of Common Stock that is issuable upon conversion of a share of Series A Preferred Stock (each share of Series A Preferred Stock is convertible into 0.1333333 shares of Common Stock), or a total of 9,333,330 votes. |
| (11) | Represents total voting power with respect to all shares of our Common Stock and Series A Preferred Stock. |
Changes in Control
There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.
Securities Authorized for Issuance under Equity Compensation Plans
The following table includes the information as of December 31, 2020 for each category of our equity compensation plan:
|
|
|
|
| Number of securities remaining | ||
Number of securities to | Weighted-average | available for future issuance | |||||
be issued upon exercise | exercise price of | under equity compensation | |||||
of outstanding options | outstanding options | plans (excluding securities | |||||
Plan category | and rights (a) | and rights (b) | reflected in column (a)) (c) | ||||
Equity compensation plans approved by security holders (1) |
| 25,172,209 | $ | 1.29 |
| 24,721,195 | |
Equity compensation plans not approved by security holders |
| — |
| — |
| — | |
Total |
| 25,172,209 | $ | 1.29 |
| 24,721,195 | |
(1)On August 3, 2018, our Board of Directors approved and on August 28, 2018 our shareholders approved the Ideanomics Amended and Restated 2010 Equity Incentive Plan (the “Plan”) to increase the number of shares authorized for issuance under the Plan to 31,500,000 pursuant to which incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares may be granted to employees, directors and consultants of the Company and its subsidiaries. On October 22, 2020 our shareholders at our Annual General Meeting approved an increase of 25,300,000 in the number of shares authorized for issuance under the Plan to 56,800,000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Related Party Transactions
We have adopted a written policy with respect to the review, approval and ratification of related person transactions. The Audit Committee has primary responsibility for reviewing all related party transactions involving the Company’s directors, officers and directors’ and officers’ immediate family members. The Board may determine to permit or prohibit the Related Party Transaction. For any ongoing relationships, the Board shall annually review and assess the relationships with the Related Party and whether the Related Party Transaction should continue.
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Under the policy, a “related party transaction” means any transaction directly or indirectly involving any Related Party that would need to be disclosed under Item 404 of Regulation S-K. Under Item 404, the Company is required to disclose any transaction occurring since the beginning of the Company’s last fiscal year, or any currently proposed transaction, in which the Company was or is a participant and the amount involved exceeds $120,000, and in which any related party had or will have a direct or indirect material interest. “Related Party Transaction” also includes any material amendment or modification to an existing Related Party Transaction. For the purposes of this policy, a “Related Party” means (A) a director, including any director nominee, (B) an executive officer; (C) a person known by the Company to be the beneficial owner of more than 5% of the Company’s common stock; or (D) a person known by the Company to be an immediate family member of any of the foregoing. “Immediate family member” means a child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer, nominee for director, or beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee for director, or beneficial owner.
The following is a summary of transactions since the beginning of the 2018 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item 11—“Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related Party Transactions with Bruno Wu, Chairman
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $1.0 million. The convertible promissory note bore interest at a rate of 4.0%, was initially scheduled to mature on November 25, 2021, and was convertible into the shares of the Company’s common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. As of December 31, 2019, the Company received $0.25 million from SSSIG. The Company did not receive the remaining $0.975 million due under this note. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 0.4 million shares of common stock.
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $2.5 million. The convertible promissory note bore interest at a rate of 4.0%, was scheduled to mature on February 8, 2020, and was convertible into shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG. As of December 31, 2019, the Company received $1.3 million from SSSIG. The Company did not receive the remaining $1.2 million due under this note. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note including accumulated interest was converted into 2.2 million shares of common stock.
In connection with our acquisition with Grapevine on September 4, 2018, Fomalhaut Limited (“Fomalhaut”), a British Virgin Islands company and an affiliate of Bruno Wu (“Dr. Wu”), the Chairman of the Company, is the non-controlling equity holder of 34.35% in Grapevine (the “Fomalhaut Interest.”) Fomalhaut entered into an option agreement, effective as of August 31, 2018 (the “Option Agreement”), with the Company pursuant to which the Company provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company. In May 2019, the Company entered into two amendments to the Option Agreement. The aggregate exercise price for the Option was amended to the greater of: (1) fair market value of the Fomalhaut Interest in Grapevine as of the close of business on the date preceding the date upon which the option is exercised; and (2) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price shall be paid in the form of common stock of the Company. In June 2019, the Company issued 0.6 million shares in exchange for a 34.3% ownership in Grapevine as a result of the exercise of the Option.
On September 7, 2018, the Company entered into an agreement to purchase FinTalk Assets with Sun Seven Star International Limited, a Hong Kong company and an affiliate of Dr. Wu. FinTalk Assets are the rights, titles and interest in a secure mobile financial information, social, and messaging platform that has been designed for streamlining financial-based communication for professional and retail users. The purchase price for Fintalk Assets is $7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded in prepaid expense because the transaction had not closed. The purchase price was later amended to $6.4 million, payable with $1.0 million in cash and
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shares of the Company’s common stock with a value of $5.4 million. The Company issued 2.9 million common shares in June 2019 and completed the transaction.
In May 2019, the Company determined to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of Dr. Wu, to sell its entire interest in Red Rock for consideration of $0.7 million. The Company decided to sell Red Rock primarily because it has incurred operating losses and its business is no longer needed based on the Company’s business plan. The transaction was completed in July 2019 and the Company recorded a disposal gain of $0.6 million recorded in “Gain (loss) on disposal of subsidiaries, net” in the consolidated statements of operations.
In June 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings from Dr. Wu at a conversion price of $0.59 per common share, contingent upon the immediate conversion of these amounts. On June 5, 2020, the borrowings of $1.5 million, including the $0.4 million transferred from Beijing Financial Holding Limited, were converted into 2.6 million shares of common stock.
In June 2020, the Company entered a service agreement with SSSIG for the period from July 1, 2020 through June 30, 2021 for $1.4 million in exchange for consulting services from SSSIG, the services include but are not limited to human resources, finance and legal advice. The Company recorded the service charges of $0.7 million in "professional fess" for the year ended December 31 2020, and $0.2 million in "Amount due to related parties" as of December 31 2020. The Company is currently in process of negotiating the agreement with SSSIG.
Other Related Party Transactions
On May 10, 2012, Mr. McMahon, our Vice Chairman, made a loan to the Company in the amount of $3.0 million. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3.0 million (the “Note”) at a 4.0% interest rate computed on the basis of a 365-day year. The Company entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.50), convertible stocks (changed from of Series E Preferred Stock to Common Stock) and extension of the maturity date to December 31, 2020. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the Note. On June 5, 2020, the Note was converted into 5.1 million shares of common stock. The Company paid the accumulated interest $0.3 million in cash prior to the conversion.
Except as set forth in our discussion above, none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five fiscal years.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Auditor’s Fees
The following is a summary of the fees billed to the Company by its principal accountants for professional services rendered for the years ended December 31, 2020 and 2019 (in thousands):
Year Ended December 31, | ||||||
2020 | 2019 | |||||
Audit Fees: |
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BF Borgers (BFB) | $ | 850 | $ | 856 | ||
TOTAL | $ | 850 | $ | 856 | ||
* “Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and for any other services that were normally provided in connection with our statutory and regulatory filings or engagements.
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Pre-Approval Policies and Procedures
Under the Sarbanes-Oxley Act, all audit and non-audit services performed by our auditors must be approved in advance by our Audit Committee to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Audit Committee pre-approved the audit services performed by BFB for our consolidated financial statements as of and for the year ended December 31, 2020 and 2019.
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
Exhibit List
See the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K, which is incorporated by reference here.
ITEM 16.FORM 10-K SUMMARY
None.
Exhibit Index
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67
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68
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69
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70
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71
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72
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73
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74
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75
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76
77
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Stock purchase agreement, dated October 2, 2020, between the Company and Solectrac, Inc. | ||
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101.INS* |
| XBRL Instance Document. |
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101.SCH* |
| XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
| XBRL Taxonomy Extension Definitions Linkbase Document. |
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101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
*Filed herewith.
†Indicates management contract or compensatory plan, contract, or agreement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
Date: March 31, 2021
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| IDEANOMICS, INC. |
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| By: | /s/ Alf Poor |
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| Alf Poor |
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| Chief Executive Officer |
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| By: | /s/ Conor McCarthy |
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| Conor McCarthy |
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| Chief Financial Officer |
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