UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q/A
(Amendment No. 1)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 20192020
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:001-35561
IDEANOMICS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 20-1778374 | ||
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
551441 Broadway, 195th Floor, Suite 5116
New York, NY 1000610018
(Address of principal executive offices)
212-206-1216212-206-1216
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Common stock, $0.001 par value per share | IDEX | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x☒ No ¨
◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x☒ No ¨
◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||
Large accelerated filer | Accelerated filer | ☒ |
Non-accelerated filer | Smaller reporting company | ☒ |
Emerging growth company ☐ | |
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨☐ No x
☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date: 133,871,256238,971,366 shares as ofNovember 11, 2019.5, 2020.
EXPLANATORY NOTE
The following Form 10-Q/A for the quarter ended September 30, 2019 is being filed to conform to the disclosure contained in the Form S-1/A filed with the Securities and Exchange Commission on February 13, 2020; specifically, to adjust the number of contingently issuable shares disclosed in Note 16 to the financial statements contained herein and to adjust the disclosure related to GTDollar Coins (“GTB”) as it related to GTB being denominated in Bitcoin and Ethereum.
QUARTERLY REPORT ON FORM 10-Q
OF IDEANOMICS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 20192020
TABLE OF CONTENTS
4 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44 | |
58 | ||
58 | ||
59 | ||
59 | ||
59 | ||
59 | ||
59 | ||
59 | ||
59 | ||
60 |
References
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 following: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:
“ |
● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
● | “ |
● | “ |
● | “ | |
● | “Intelligenta” refers to the BDCG investment which was rebranded as Intelligenta. As part of the rebranding, Intelligenta’s strategy will now include AI solutions to enhance corporation services, index services and products, and capital market services and products; |
● | “Legacy YOD” business refers to the premium content and integrated value-added service solutions for the delivery of VOD (defined below) and paid video programing to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers, and operators, as well as direct customers; |
● | “MEG” refers to Mobile Energy Global the subsidiary that holds all of the Company’s electric vehicles investments; |
● | “Renminbi” and “RMB” refer to the legal currency of |
● | “SEC” refers to the United States Securities and Exchange Commission; |
● | “Securities Act” refers to the Securities Act of 1933, as amended; |
“SSF” refers to Tianjin Sevenstarflix Network Technology Limited, a PRC company controlled by YOD Hong Kong through contractual arrangements; |
● | “Sinotop Beijing” refers to Beijing Sino Top Scope Technology Co., Ltd., a PRC company controlled by YOD Hong Kong through contractual arrangements; |
● | “U.S. |
● | “U.S. Tax Reform” refers to the Tax Cuts and Jobs Act, enacted by the United States |
● | “VIEs” refers to our |
● | “ |
● | “Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company that is 51% owned by the Company; |
● | “Wide Angle” refers to Wide Angle Group Limited, a Hong Kong company that is 55% owned by the Company; |
● | “ |
● | “YOD WFOE” refers to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company |
● | “SSSIG” refers to Sun Seven Stars Investment Group Limited, a British Virgin Islands corporation, an affiliate of Dr. |
PART I - FINANCIAL INFORMATION
IDEANOMICS, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page | |
5 | |
6 | |
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) | 7 |
8 | |
10 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 11 |
IDEANOMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD in thousands)
September 30, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,686,596 | $ | 3,106,244 | ||||
Accounts receivable, net | 2,941,245 | 19,370,665 | ||||||
Licensed content, current | - | 16,958,149 | ||||||
Prepayments | 1,013,384 | 2,042,041 | ||||||
Other current assets | 2,371,913 | 3,594,942 | ||||||
Total current assets | 8,013,138 | 45,072,041 | ||||||
Property and equipment, net | 14,504,993 | 15,029,427 | ||||||
Intangible assets, net | 81,960,331 | 3,036,352 | ||||||
Goodwill | 10,028,073 | 704,884 | ||||||
Long-term investments | 42,159,313 | 26,408,609 | ||||||
Operating lease right of use assets | 6,845,031 | - | ||||||
Other non-current assets | 1,252,797 | 3,983,799 | ||||||
Total assets | $ | 164,763,676 | $ | 94,235,112 | ||||
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY | ||||||||
Current liabilities: (including amounts of the consolidated VIEs without recourse to Ideanomics, Inc. See Note 4) | ||||||||
Accounts payable | $ | 1,543,291 | $ | 19,265,094 | ||||
Deferred revenue | 458,894 | 405,929 | ||||||
Amount due to related parties | 2,565,812 | 800,822 | ||||||
Other current liabilities | 9,141,870 | 5,321,697 | ||||||
Current portion of operating lease liabilities | 912,271 | - | ||||||
Convertible promissory note due to related parties | 1,288,032 | 4,140,055 | ||||||
Total current liabilities | 15,910,170 | 29,933,597 | ||||||
Deferred tax liabilities | - | 513,935 | ||||||
Asset retirement obligations | 6,392,500 | 8,000,000 | ||||||
Convertible promissory note due to related parties – long term | 3,000,000 | - | ||||||
Convertible note - long term | 12,627,531 | 11,313,770 | ||||||
Promissory note - long term | 3,000,000 | - | ||||||
Operating lease liability-long term | 6,329,533 | - | ||||||
Total liabilities | 47,259,734 | 49,761,302 | ||||||
Commitments and contingencies (Note 18) | ||||||||
Convertible redeemable preferred stock: | ||||||||
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of September 30, 2019 and December 31, 2018 | 1,261,995 | 1,261,995 | ||||||
Equity: | ||||||||
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 132,696,071 shares and 102,766,006 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 132,696 | 102,765 | ||||||
Additional paid-in capital | 255,737,318 | 195,779,576 | ||||||
Accumulated deficit | (138,468,441 | ) | (149,975,302 | ) | ||||
Accumulated other comprehensive loss | (1,557,346 | ) | (1,664,598 | ) | ||||
Total IDEX shareholder’s equity | 115,844,227 | 44,242,441 | ||||||
Non-controlling interest | 397,720 | (1,030,626 | ) | |||||
Total equity | 116,241,947 | 43,211,815 | ||||||
Total liabilities, convertible redeemable preferred stock and equity | $ | 164,763,676 | $ | 94,235,112 |
| | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | ||
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 27,605 | | $ | 2,633 | |
Accounts receivable, net (including due from related parties of $586 and $2,284 as of September 30, 2020 and December 31, 2019, respectively) | |
| 4,315 | |
| 2,405 | |
Prepayments | | | 999 | | | 572 | |
Amount due from related parties | | | 1,601 | | | 1,256 | |
Notes receivable | | | 464 | | | 0 | |
Other current assets | |
| 581 | |
| 587 | |
Total current assets | |
| 35,565 | |
| 7,453 | |
Property and equipment, net | |
| 165 | |
| 378 | |
Fintech Village | | | 9,337 | | | 12,561 | |
Intangible assets, net | |
| 52,398 | |
| 52,771 | |
Goodwill | |
| 10,472 | |
| 23,344 | |
Long-term investments | |
| 22,651 | |
| 22,621 | |
Operating lease right of use assets | | | 7,357 | | | 6,934 | |
Other non-current assets | |
| 519 | |
| 883 | |
Total assets | | $ | 138,464 | | $ | 126,945 | |
| | | | | | | |
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK, REDEMABLE NON-CONTROLLING INTEREST AND EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable | | $ | 4,738 | | $ | 3,380 | |
Deferred revenue | |
| 1,178 | |
| 477 | |
Accrued salaries | |
| 906 | |
| 923 | |
Amount due to related parties | |
| 1,333 | |
| 3,962 | |
Other current liabilities | |
| 4,195 | |
| 6,466 | |
Current portion of operating lease liabilities | |
| 520 | |
| 1,113 | |
Current contingent consideration | | | 4,082 | | | 12,421 | |
Promissory note-short term | | | 3,750 | | | 3,000 | |
Convertible promissory note due to third-parties | | | 9,033 | | | 1,753 | |
Convertible promissory note due to related parties | | | 0 | | | 3,260 | |
Total current liabilities | |
| 29,735 | |
| 36,755 | |
Asset retirement obligations | |
| 4,653 | |
| 5,094 | |
Convertible promissory note due to third-parties-long term | |
| 0 | |
| 5,089 | |
Convertible promissory note due to related parties-long term | | | 0 | | | 1,551 | |
Other long-term liabilities | | | 514 | | | 0 | |
Operating lease liability-long term | | | 6,820 | | | 6,222 | |
Non-current contingent consideration | | | 7,608 | | | 12,235 | |
Total liabilities | |
| 49,330 | |
| 66,946 | |
Commitments and contingencies (Note 18) | |
|
| |
|
| |
Convertible redeemable preferred stock and Redeemable non-controlling interest: | |
|
| |
|
| |
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of September 30, 2020 and December 31, 2019 | | | 1,262 | | | 1,262 | |
Redeemable non-controlling interest | | | 7,370 | | | 0 | |
Equity: | |
|
| |
|
| |
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 238,871,366 shares and 149,692,953 shares issued and outstanding as of September 30, 2020 and December 31, 2019 , respectively | | | 239 | | | 150 | |
Additional paid-in capital | |
| 362,346 | |
| 282,554 | |
Accumulated deficit | |
| (295,693) | |
| (248,481) | |
Accumulated other comprehensive income (loss) | |
| 290 | |
| (664) | |
Total IDEX shareholders' equity | |
| 67,182 | |
| 33,559 | |
Non-controlling interest | |
| 13,320 | |
| 25,178 | |
Total equity | |
| 80,502 | |
| 58,737 | |
Total liabilities, convertible redeemable preferred stock, redeemable non-controlling interest and equity | | $ | 138,464 | | $ | 126,945 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD in thousands, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue from third parties | $ | 249,512 | $ | 43,707,937 | $ | 949,384 | $ | 362,628,296 | ||||||||
Revenue from related party | 2,854,178 | - | 43,554,178 | - | ||||||||||||
Total revenue | 3,103,690 | 43,707,937 | 44,503,562 | 362,628,296 | ||||||||||||
Cost of revenue from third parties | 243,360 | 42,844,876 | 750,290 | 115,729,433 | ||||||||||||
Cost of revenue from related parties | - | - | 466,894 | 244,110,132 | ||||||||||||
Gross profit | 2,860,330 | 863,061 | 43,286,378 | 2,788,731 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative expense | 7,769,503 | 4,333,259 | 18,442,280 | 16,861,425 | ||||||||||||
Research and development expense | - | 667,416 | - | 1,393,025 | ||||||||||||
Professional fees | 1,388,842 | 1,927,431 | 3,918,461 | 3,280,729 | ||||||||||||
Impairment of property and equipment | 2,298,887 | - | 2,298,887 | - | ||||||||||||
Depreciation and amortization | 806,481 | 291,512 | 1,420,480 | 314,737 | ||||||||||||
Total operating expense | 12,263,713 | 7,219,618 | 26,080,108 | 21,849,916 | ||||||||||||
Income (loss) from operations | (9,403,383 | ) | (6,356,557 | ) | 17,206,270 | (19,061,185 | ) | |||||||||
Interest and other income (expense) | ||||||||||||||||
Interest expense, net | (639,395 | ) | (145,610 | ) | (1,955,476 | ) | (201,782 | ) | ||||||||
Equity in loss of equity method investees | (40,369 | ) | (13,882 | ) | (606,390 | ) | (44,316 | ) | ||||||||
Gain on disposal of subsidiaries | 1,057,363 | - | 1,057,363 | - | ||||||||||||
Loss on remeasurement of DBOT investment | (3,178,702 | ) | - | (3,178,702 | ) | - | ||||||||||
Other | (99,997 | ) | (925,771 | ) | (155,946 | ) | (558,271 | ) | ||||||||
Income (loss) before income taxes and non-controlling interest | (12,304,483 | ) | (7,441,820 | ) | 12,367,119 | (19,865,554 | ) | |||||||||
Income tax benefit | - | - | 513,935 | - | ||||||||||||
Net income (loss) | (12,304,483 | ) | (7,441,820 | ) | 12,881,054 | (19,865,554 | ) | |||||||||
Net (income) loss attributable to non-controlling interest | (1,407,384 | ) | 254,973 | (1,374,193 | ) | 637,314 | ||||||||||
Net income (loss) attributable to IDEX common shareholders | $ | (13,711,867 | ) | $ | (7,186,847 | ) | $ | 11,506,861 | $ | (19,228,240 | ) | |||||
Earnings (loss) per share | ||||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
Diluted | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 127,609,748 | 74,063,495 | 113,964,933 | 71,574,303 | ||||||||||||
Diluted | 127,609,748 | 74,063,495 | 118,319,893 | 71,574,303 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 | | ||||
Revenue from third-parties | | $ | 10,618 | | $ | 250 | | $ | 15,681 | | $ | 950 | |
Revenue from related parties | |
| 2 | |
| 2,854 | |
| 9 | |
| 43,554 | |
Total revenue | |
| 10,620 | |
| 3,104 | |
| 15,690 | |
| 44,504 | |
Cost of revenue from third-parties | |
| 9,906 | |
| 244 | |
| 14,674 | |
| 751 | |
Cost of revenue from related parties | |
| 0 | |
| 0 | |
| 2 | |
| 467 | |
Gross profit | |
| 714 | |
| 2,860 | |
| 1,014 | |
| 43,286 | |
| | | | | | | | | | | | | |
Operating expenses: | |
|
| |
|
| |
|
| |
|
| |
Selling, general and administrative expenses | |
| 7,636 | |
| 7,770 | |
| 20,188 | |
| 18,443 | |
Research and development | |
| 1,318 | |
| 0 | |
| 1,318 | |
| 0 | |
Professional fees | | | 3,968 | | | 1,389 | | | 8,096 | | | 3,918 | |
Impairment loss | | | 3,275 | | | 2,299 | | | 10,363 | | | 2,299 | |
Change in fair value of contingent consideration, net | |
| (4,179) | |
| 0 | |
| (2,900) | |
| 0 | |
Depreciation and amortization | |
| 695 | |
| 806 | |
| 1,651 | |
| 1,420 | |
Total operating expenses | |
| 12,713 | |
| 12,264 | |
| 38,716 | |
| 26,080 | |
| | | | | | | | | | | | | |
Income (loss) from operations | |
| (11,999) | |
| (9,404) | |
| (37,702) | |
| 17,206 | |
| | | | | | | | | | | | | |
Interest and other income (expense): | |
|
| |
|
| |
|
| |
|
| |
Interest expense, net | |
| (2,014) | |
| (639) | |
| (14,061) | |
| (1,955) | |
Equity in income (loss) of equity method investees | | | 7 | | | (40) | | | (8) | | | (606) | |
Gain on disposal of subsidiaries | | | 0 | | | 1,057 | | | 0 | | | 1,057 | |
Loss on remeasurement of DBOT investment | | | 0 | | | (3,179) | | | 0 | | | (3,179) | |
Conversion expense | | | 0 | | | 0 | | | (2,266) | | | 0 | |
Other income (expense) | |
| 5,283 | |
| (100) | |
| 6,272 | |
| (156) | |
Income (loss) before income taxes and non-controlling interest | |
| (8,723) | |
| (12,305) | |
| (47,765) | |
| 12,367 | |
| | | | | | | | | | | | | |
Income tax benefit | |
| 0 | |
| 0 | |
| 0 | |
| 514 | |
| | | | | | | | | | | | | |
Net income (loss) | |
| (8,723) | |
| (12,305) | |
| (47,765) | |
| 12,881 | |
| | | | | | | | | | | | | |
Deemed dividend related to warrant repricing | | | 0 | | | 0 | | | (184) | | | 0 | |
| | | | | | | | | | | | | |
Net loss (income) attributable to non-controlling interest | |
| 437 | |
| (1,408) | |
| 737 | |
| (1,374) | |
| | | | | | | | | | | | | |
Net income (loss) attributable to IDEX common shareholders | | $ | (8,286) | | $ | (13,713) | | $ | (47,212) | | $ | 11,507 | |
| | | | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | | | |
Basic | | $ | (0.03) | | $ | (0.11) | | $ | (0.25) | | $ | 0.10 | |
Diluted | | | (0.03) | | | (0.11) | | | (0.25) | | | 0.10 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | | 237,535,999 | | | 127,609,748 | | | 191,976,856 | | | 113,964,933 | |
Diluted | | | 237,535,999 | | | 127,609,748 | | | 191,976,856 | | | 118,319,893 | |
| | | | | | | | | | | | | |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | (12,304,483 | ) | $ | (7,441,820 | ) | $ | 12,881,054 | $ | (19,865,554 | ) | |||||
Other comprehensive income (loss), net of nil tax | ||||||||||||||||
Foreign currency translation adjustments | 23,502 | 708,140 | 102,481 | 565,315 | ||||||||||||
Comprehensive income (loss) | (12,280,981 | ) | (6,733,680 | ) | 12,983,535 | (19,300,239 | ) | |||||||||
Comprehensive loss attributable to non-controlling interest | (1,470,410 | ) | 243,078 | (1,419,916 | ) | 614,298 | ||||||||||
Comprehensive income (loss) attributable to IDEX common shareholders | $ | (13,751,391 | ) | $ | (6,490,602 | ) | $ | 11,563,619 | $ | (18,685,941 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITYCOMPREHENSIVE INCOME (LOSS) (Unaudited) (USD in thousands)
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
Common Stock | Par Value | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Ideanomics Shareholders' | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
Balance, January 1, 2018 | 68,509,090 | $ | 68,509 | $ | 158,449,544 | $ | (126,693,022 | ) | $ | (782,074 | ) | $ | 31,042,957 | $ | (1,289,367 | ) | $ | 29,753,590 | ||||||||||||||
Share-based compensation | - | - | 121,190 | - | - | 121,190 | - | 121,190 | ||||||||||||||||||||||||
Common stock issuance for RSU vested | 13,464 | 13 | (13 | ) | - | - | - | - | - | |||||||||||||||||||||||
Common stock issuance for option exercised | 42,501 | 43 | 2,589 | - | - | 2,632 | - | 2,632 | ||||||||||||||||||||||||
Common stock issued for warrant exercised | 300,000 | 300 | 524,700 | - | - | 525,000 | - | 525,000 | ||||||||||||||||||||||||
Net loss | - | - | - | (3,721,369 | ) | - | (3,721,369 | ) | (91,444 | ) | (3,812,813 | ) | ||||||||||||||||||||
Foreign currency translation adjustments, net of nil tax | - | - | - | - | (32,481 | ) | �� | (32,481 | ) | (9,148 | ) | (41,629 | ) | |||||||||||||||||||
Balance, March 31, 2018 (restated) | 68,865,055 | $ | 68,865 | $ | 159,098,010 | $ | (130,414,391 | ) | $ | (814,555 | ) | $ | 27,937,929 | $ | (1,389,959 | ) | $ | 26,547,970 | ||||||||||||||
Share-based compensation | - | - | 3,239,727 | - | - | 3,239,727 | - | 3,239,727 | ||||||||||||||||||||||||
Investment from GTD and SSS | - | - | 5,900,000 | - | - | 5,900,000 | - | 5,900,000 | ||||||||||||||||||||||||
Common stock issuance for RSU vested | 1,227,244 | 1,227 | (1,227 | ) | - | - | - | - | - | |||||||||||||||||||||||
Common stock issuance for acquisition of BDCG | 3,000,000 | 3,000 | 7,797,000 | - | - | 7,800,000 | - | 7,800,000 | ||||||||||||||||||||||||
Net loss | - | - | - | (8,320,024 | ) | - | (8,320,024 | ) | (290,897 | ) | (8,610,921 | ) | ||||||||||||||||||||
Foreign currency translation adjustments, net of nil tax | - | - | - | - | (121,465 | ) | (121,465 | ) | 20,269 | (101,196 | ) | |||||||||||||||||||||
Balance, June 30, 2018 | 73,092,299 | $ | 73,092 | $ | 176,033,510 | $ | (138,734,415 | ) | $ | (936,020 | ) | $ | 36,436,167 | $ | (1,660,587 | ) | $ | 34,775,580 | ||||||||||||||
Share-based compensation | - | - | 11,530 | - | - | 11,530 | - | 11,530 | ||||||||||||||||||||||||
Investment from GTD and SSS | - | - | 5,288,502 | - | - | 5,288,502 | - | 5,288,502 | ||||||||||||||||||||||||
Common stock issued for warrant exercised | 343,714 | 344 | 601,156 | - | - | 601,500 | - | 601,500 | ||||||||||||||||||||||||
Common stock issuance for option exercised | 40,295 | 40 | (40 | ) | - | - | - | - | ||||||||||||||||||||||||
Common stock issuance for Star Thrive Group Limited | 3,770,493 | 3,770 | 6,869,138 | - | - | 6,872,908 | - | 6,872,908 | ||||||||||||||||||||||||
Conversion feature of convertible note | - | - | 1,384,614 | - | - | 1,384,614 | - | 1,384,614 | ||||||||||||||||||||||||
Acquisition of Grapevine | - | - | - | - | - | 1,154,419 | 1,154,419 | |||||||||||||||||||||||||
Net loss | - | - | - | (7,186,847 | ) | - | (7,186,847 | ) | (254,973 | ) | (7,441,820 | ) | ||||||||||||||||||||
Foreign currency translation adjustments, net of nil tax | - | - | - | - | 696,245 | 696,245 | 11,895 | 708,140 | ||||||||||||||||||||||||
Balance, September 30, 2018 | 77,246,801 | 77,246 | 190,188,410 | (145,921,262 | ) | (239,775 | ) | 44,104,619 | (749,246 | ) | 43,355,373 |
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 | | ||||
Net income (loss) | | $ | (8,723) | | $ | (12,305) | | $ | (47,765) | | $ | 12,881 | |
Other comprehensive income (loss), net of NaN tax | |
| | |
| | |
| | |
| | |
Foreign currency translation adjustments | |
| 1,356 | |
| 24 | |
| 1,639 | |
| 103 | |
Comprehensive income (loss) | |
| (7,367) | |
| (12,281) | |
| (46,126) | |
| 12,984 | |
Deemed dividend related to warrant repricing | | | — | | | — | | | (184) | | | — | |
Comprehensive income (loss) attributable to non-controlling interest | |
| 122 | |
| (1,470) | |
| (51) | |
| (1,420) | |
Comprehensive income (loss) attributable to IDEX common shareholders | | $ | (7,245) | | $ | (13,751) | | $ | (46,361) | | $ | 11,564 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited) (USD in thousands)
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||
Common Stock | Par Value | Additional Paid-in Capital | Retained Earnings/ Accumulated (Deficit) | Accumulated Other Comprehensive Income (Loss) | Ideanomics Shareholders' equity | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
Balance, January 1, 2019 | 102,766,006 | $ | 102,765 | $ | 195,779,576 | $ | (149,975,302 | ) | $ | (1,664,598 | ) | $ | 44,242,441 | $ | (1,030,626 | ) | $ | 43,211,815 | ||||||||||||||
Share-based compensation | - | - | 224,484 | - | - | 224,484 | - | 224,484 | ||||||||||||||||||||||||
Common stock issuance for restricted shares | 129,840 | 130 | (130 | ) | - | - | - | - | - | |||||||||||||||||||||||
Common Stock issuance for acquisition-SolidOpinion (Note 5(a)) | 4,500,000 | 4,500 | 7,150,500 | - | - | 7,155,000 | - | 7,155,000 | ||||||||||||||||||||||||
Common stock issuance for convertible debt (Note 12(b)) | 1,166,113 | 1,166 | 2,048,834 | - | - | 2,050,000 | - | 2,050,000 | ||||||||||||||||||||||||
Net income (loss) | - | - | - | 19,926,515 | - | 19,926,515 | (17,761 | ) | 19,908,754 | |||||||||||||||||||||||
Foreign currency translation adjustments, net of nil tax | - | - | - | - | 172,133 | 172,133 | (25,295 | ) | 146,838 | |||||||||||||||||||||||
Balance, March 31, 2019 | 108,561,959 | $ | 108,561 | $ | 205,203,264 | $ | (130,048,787 | ) | $ | (1,492,465 | ) | $ | 73,770,573 | $ | (1,073,682 | ) | $ | 72,696,891 | ||||||||||||||
Share-based compensation | - | - | 3,702,636 | - | - | 3,702,636 | - | 3,702,636 | ||||||||||||||||||||||||
Common stock issuance for asset acquisition-Fintalk (Note 5(b)) | 2,860,963 | 2,861 | 5,347,139 | - | - | 5,350,000 | - | 5,350,000 | ||||||||||||||||||||||||
Common stock issuance for acquisition of non-controlling interest Grapevine (Note 5(c)) | 590,671 | 591 | 491,027 | - | - | 491,618 | (491,618 | ) | - | |||||||||||||||||||||||
Investment from SSSIG1 | 575,431 | 576 | (576 | ) | - | - | - | - | - | |||||||||||||||||||||||
Net income (loss) | - | - | - | 5,292,213 | - | 5,292,213 | (15,430 | ) | 5,276,783 | |||||||||||||||||||||||
Foreign currency translation adjustments, net of nil tax | - | - | - | - | (75,851 | ) | (75,851 | ) | 7,992 | (67,859 | ) | |||||||||||||||||||||
Balance, June 30, 2019 | 112,589,024 | $ | 112,589 | $ | 214,743,490 | $ | (124,756,574 | ) | $ | (1,568,316 | ) | $ | 88,531,189 | $ | (1,572,738 | ) | $ | 86,958,451 | ||||||||||||||
Share-based compensation | - | - | 2,547,107 | - | - | 2,547,107 | - | 2,547,107 | ||||||||||||||||||||||||
Common stock issuance for acquisition of BlackHorse Ventures2 | 815,217 | 815 | 1,499,475 | - | - | 1,500,290 | - | 1,500,290 | ||||||||||||||||||||||||
Common stock issuance for acquisition of Glory Connection (Note 5(e)) | 12,190,000 | 12,190 | 24,367,810 | - | - | 24,380,000 | - | 24,380,000 | ||||||||||||||||||||||||
Common stock issuance for acquisition of DBOT (Note 5(f)) | 5,851,830 | 5,852 | 9,708,186 | - | - | 9,714,038 | 104,648 | 9,818,686 | ||||||||||||||||||||||||
Common stock issuance for releasing Grapevine as collateral | 250,000 | 250 | 372,250 | - | - | 372,500 | - | 372,500 | ||||||||||||||||||||||||
Common stock issuance for Convertible note (Note 12(c)) | 1,000,000 | 1,000 | 2,499,000 | - | - | 2,500,000 | - | 2,500,000 | ||||||||||||||||||||||||
Deconsolidation of Amer (Note 5(h)) | - | - | - | - | - | 445,894 | 445,894 | |||||||||||||||||||||||||
Net income (loss) | - | - | - | (13,711,867 | ) | - | (13,711,867 | ) | 1,407,384 | (12,304,483 | ) | |||||||||||||||||||||
Foreign curency translation adjustments, net of nil tax | - | - | - | - | 10,970 | 10,970 | 12,532 | 23,502 | ||||||||||||||||||||||||
Balance, September 30, 2019 | 132,696,071 | 132,696 | 255,737,318 | (138,468,441 | ) | (1,557,346 | ) | 115,844,227 | 397,720 | 116,241,947 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | |||||||||||||||||||||
| | | | | | | | | | Retained | | Accumulated | | | | | | | | | |||
| | | | | | | Additional | | Earnings/ | | Other | | Ideanomics | | Non- | | | | |||||
| | Common | | Par | | Paid-in | | Accumulated | | Comprehensive | | Shareholders' | | controlling | | Total | |||||||
|
| Stock |
| Value |
| Capital |
| (Deficit) |
| Loss |
| equity |
| Interest |
| Equity | |||||||
Balance, January 1, 2019 |
| 102,766,006 | | $ | 103 | | $ | 195,780 | | $ | (149,975) | | $ | (1,665) | | $ | 44,243 | | $ | (1,031) | | $ | 43,212 |
Share-based compensation |
| — | |
| — | |
| 224 | |
| — | |
| — | |
| 224 | |
| — | |
| 224 |
Common stock issuance for restricted shares |
| 129,840 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Common stock issuance for assets (SolidOpinion, Inc) |
| 4,500,000 | |
| 5 | |
| 7,150 | |
| — | |
| — | |
| 7,155 | |
| — | |
| 7,155 |
Common stock issuance for convertible debt |
| 1,166,113 | |
| 1 | |
| 2,049 | |
| — | |
| — | |
| 2,050 | |
| — | |
| 2,050 |
Net income (loss) |
| — | |
| — | |
| — | |
| 19,927 | |
| — | |
| 19,927 | |
| (18) | |
| 19,909 |
Foreign currency translation adjustments, net of nil tax | | — | | | — | | | — | | | — | | | 172 | | | 172 | | | (25) | | | 147 |
Balance, March 31, 2019 |
| 108,561,959 | | | 109 | | | 205,203 | | | (130,048) | | | (1,493) | | | 73,771 | | | (1,074) | | | 72,697 |
Share-based compensation |
| — | |
| — | |
| 3,703 | |
| — | |
| — | |
| 3,703 | |
| — | |
| 3,703 |
Common stock issuance for assets (Fintalk) |
| 2,860,963 | |
| 3 | |
| 5,347 | |
| — | |
| — | |
| 5,350 | |
| — | |
| 5,350 |
Common stock issuance for acquisition of non-controlling interest Grapevine1 |
| 590,671 | |
| 1 | |
| 491 | |
| — | |
| — | |
| 492 | |
| (492) | |
| — |
Investment from SSSIG |
| 575,431 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net income (loss) |
| — | |
| — | |
| — | |
| 5,292 | |
| — | |
| 5,292 | |
| (15) | |
| 5,277 |
Foreign currency translation adjustments, net of nil tax |
| — | | | — | | | — | |
| — | |
| (76) | |
| (76) | |
| 8 | |
| (68) |
Balance, June 30, 2019 |
| 112,589,024 | | | 113 | | | 214,744 | | | (124,756) | | | (1,569) | | | 88,532 | | | (1,573) | | | 86,959 |
Share-based compensation |
| — | |
| — | |
| 2,547 | |
| — | |
| — | |
| 2,547 | |
| — | |
| 2,547 |
Common stock issuance for acquisition of BlackHorse Ventures2 |
| 815,217 | | | 1 | | | 1,499 | | | — | | | — | | | 1,500 | | | — | | | 1,500 |
Common stock issuance for acquisition of Glory Connection |
| 12,190,000 | |
| 12 | |
| 24,368 | |
| — | |
| — | |
| 24,380 | |
| — | |
| 24,380 |
Common stock issuance for acquisition of DBOT |
| 5,851,830 | |
| 6 | |
| 9,708 | |
| — | |
| — | |
| 9,714 | |
| 105 | |
| 9,819 |
Common stock issuance for releasing Grapevine as collateral |
| 250,000 | |
| — | |
| 372 | |
| — | |
| — | |
| 372 | |
| — | |
| 372 |
Common stock issuance for releasing Grapevine as collateral Convertible note |
| 1,000,000 | |
| 1 | |
| 2,499 | |
| — | |
| — | |
| 2,500 | |
| — | |
| 2,500 |
Deconsolidation of Amer |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 446 | |
| 446 |
Net income (loss) |
| — | |
| — | |
| — | |
| (13,712) | |
| — | |
| (13,712) | |
| 1,407 | |
| (12,305) |
Foreign currency translation adjustments, net of nil tax |
| — | |
| — | |
| — | |
| — | |
| 11 | |
| 11 | |
| 13 | |
| 24 |
Balance, September 30, 2019 |
| 132,696,071 | | $ | 133 | | $ | 255,737 | | $ | (138,468) | | $ | (1,558) | | $ | 115,844 | | $ | 398 | | $ | 116,242 |
Notes:
1In 2018, the Company entered into a subscription agreement and amended agreements with SSSIG to purchase $1.1 million of Common Stock at the then market price. The Company has received $1.1 million in total in 2018 and issued 575,431 shares of common stock in June 2019.
2On July 16, 2019, the Company entered into a share subscription agreement to subscribe 1,186 Pre-A preferred shares of BlackHorse Ventures, a Cayman Islands company, for a consideration of $1,500,290 paid in the form of common shares of the Company. The subscription shares represent 10% of the share capital of BlackHorse Ventures on a fully diluted basis.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.statements.
8
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||||||||||||||
| | | | | | | | | | Retained | | Accumulated | | | | | | | | ||||
| | | | | | | Additional | | Earnings/ | | Other | | Ideanomics | | Non- | | | ||||||
| | Common | | Par | | Paid-in | | Accumulated | | Comprehensive | | Shareholders’ | | controlling | | | |||||||
|
| Stock |
| Value |
| Capital |
| (Deficit) |
| Loss |
| equity |
| Interest* |
| Total Equity | |||||||
Balance, January 1, 2020 |
| 149,692,953 | | $ | 150 | | $ | 282,554 | | $ | (248,481) | | $ | (664) | | $ | 33,559 | | $ | 25,178 | | $ | 58,737 |
Share-based compensation |
| — | |
| — | | | 2,202 | |
| — | |
| — | |
| 2,202 | |
| — | |
| 2,202 |
Common stock issuance for professional fee |
| 429,000 | |
| — | | | 240 | |
| — | |
| — | |
| 240 | |
| — | |
| 240 |
Common stock issuance for interest (ID Venturas) | | 29,766 | | | — | | | 21 | | | — | | | — | | | 21 | | | — | | | 21 |
Common stock issuance for acquisition (DBOT) | | 10,883,668 | | | 11 | | | 6,737 | | | — | | | — | | | 6,748 | | | — | | | 6,748 |
Common stock issued for warrant exercised (YA II) | | 1,000,000 | | | 1 | | | 999 | | | — | | | — | | | 1,000 | | | — | | | 1,000 |
Common stock issuance for convertible note (YA II) | | 1,424,658 | | | 1 | | | 592 | | | — | | | — | | | 593 | | | — | | | 593 |
Tree Technologies measurement period adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | (11,454) | | | (11,454) |
Non-controlling shareholder contribution (DBOT) | | — | | | — | | | — | | | — | | | — | | | — | | | 100 | | | 100 |
Net income (loss) | | — | | | — | | | — | | | (12,348) | | | — | | | (12,348) | | | (378) | | | (12,726) |
Foreign currency translation adjustments, net of nil tax | | — | | | — | | | — | | | — | | | (16) | | | (16) | | | 23 | | | 7 |
Balance, March 31, 2020 | | 163,460,045 | | | 163 | | | 293,345 | | | (260,829) | | | (680) | | | 31,999 | | | 13,469 | | | 45,468 |
Share-based compensation | | — | | | — | | | 3,394 | | | — | | | — | | | 3,394 | | | — | | | 3,394 |
Common stock issuance for acquisition (DBOT) | | 459,180 | | | — | | | 293 | | | — | | | — | | | 293 | | | — | | | 293 |
Common stock issuance for convertible note conversion (Mr. McMahon) | | 5,084,746 | | | 5 | | | 2,995 | | | — | | | — | | | 3,000 | | | — | | | 3,000 |
Common stock issuance for convertible note conversion (SSSIG) | | 2,656,361 | | | 3 | | | 1,565 | | | — | | | — | | | 1,568 | | | — | | | 1,568 |
Common stock issuance for debt (SSSIG) | | 2,577,876 | | | 3 | | | 1,515 | | | — | | | — | | | 1,518 | | | — | | | 1,518 |
Common stock issuance for debt |
| 2,000,000 | |
| 2 | | | 795 | |
| — | |
| — | |
| 797 | |
| — | |
| 797 |
Common stock issuance for option exercised |
| 23,223 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — |
Common stock issuance for professional fee |
| 515,942 | |
| 1 | | | 308 | |
| — | |
| — | |
| 309 | |
| — | |
| 309 |
Common stock issuance for RSU vested |
| 270,634 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — |
Convertible notes conversion price reset (Mr. McMahon and SSSIG) |
| — | | | — | | | 2,265 | | | — | | | — | | | 2,265 | | | — | | | 2,265 |
Common stock issuance for warrants exercised (YA II) | | 1,666,667 | | | 2 | | | 2,498 | | | — | | | — | | | 2,500 | | | — | | | 2,500 |
Common stock issuance for convertible notes conversion (YA II) | | 9,739,021 | | | 10 | | | 5,073 | | | — | | | — | | | 5,083 | | | — | | | 5,083 |
Common stock issuance for convertible notes conversion (ID Venturas) | | 8,751,506 | | | 9 | | | 4,608 | | | — | | | — | | | 4,617 | | | — | | | 4,617 |
Common stock issuance for financing (SEDA) | | 34,473,719 | | | 34 | | | 32,466 | | | — | | | — | | | 32,500 | | | — | | | 32,500 |
Convertible notes conversion price reset (YA II) | | — | | | — | | | 2,661 | | | — | | | — | | | 2,661 | | | — | | | 2,661 |
Convertible notes conversion price reset (ID Venturas) | | — | | | — | | | 817 | | | — | | | — | | | 817 | | | — | | | 817 |
Common stock issuance for warrants exercised (ID Venturas) | | 5,329,239 | | | 5 | | | 3,122 | | | — | | | — | | | 3,127 | | | — | | | 3,127 |
Tree Technologies MPA adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | (131) | | | (131) |
Net income (loss)** | | — | | | — | | | — | | | (26,578) | | | — | | | (26,578) | | | (133) | | | (26,711) |
Foreign currency translation adjustments, net of nil tax | | — | | | — | | | — | | | — | | | 172 | | | 172 | | | 104 | | | 276 |
Balance, June 30, 2020 | | 237,008,159 | | | 237 | | | 357,720 | | | (287,407) | | | (508) | | | 70,042 | | | 13,309 | | | 83,351 |
Share-based compensation |
| — | |
| — | |
| 3,252 | |
| — | |
| — | |
| 3,252 | |
| — | |
| 3,252 |
Common stock issuance for acquisition (DBOT) |
| 1,613,207 | | | 2 | | | 1,031 | | | — | | | — | | | 1,033 | | | — | | | 1,033 |
Common stock and warrants issuance for professional fee |
| 250,000 | |
| — | |
| 343 | |
| — | |
| — | |
| 343 | |
| — | |
| 343 |
Net income (loss) |
| — | |
| — | |
| — | |
| (8,286) | |
| — | |
| (8,286) | |
| (547) | |
| (8,833) |
Foreign currency translation adjustments, net of nil tax |
| — | |
| — | |
| — | |
| — | |
| 798 | |
| 798 | |
| 558 | |
| 1,356 |
Balance, September 30, 2020 |
| 238,871,366 | | $ | 239 | | $ | 362,346 | | $ | (295,693) | | $ | 290 | | $ | 67,182 | | $ | 13,320 | | $ | 80,502 |
* Excludes accretion of dividend for redeemable non-controlling interest
** Excludes deemed dividend related to warrant repricing
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended | ||||||||
September 30,2019 | September 30, 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 12,881,054 | $ | (19,865,554 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
Share-based compensation expense | 6,474,227 | 3,372,447 | ||||||
Depreciation and amortization | 1,420,480 | 314,737 | ||||||
Non-cash interest expense | 2,265,921 | - | ||||||
Equity in losses of equity method investees | 606,390 | 44,316 | ||||||
Digital currency received as payment for services | (40,700,000 | ) | - | |||||
Gain on disposal of subsidiaries | (1,057,363 | ) | - | |||||
Impairment of property and equipment | 2,298,887 | |||||||
Loss on remeasurement of DBOT investment | 3,178,702 | - | ||||||
Change in operating assets and liabilities, net of effects of businesses acquired: | ||||||||
Accounts receivable | (2,814,198 | ) | (78,572,438 | ) | ||||
Prepaid expenses and other assets | 2,446,822 | (3,332,696 | ) | |||||
Accounts payable | 1,024,370 | 6,560,434 | ||||||
Deferred revenue | 149,723 | 366,474 | ||||||
Amount due to related parties | (104,323 | ) | 71,939,834 | |||||
Accrued expenses, salary and other current liabilities | 3,217,279 | 1,530,544 | ||||||
Net cash used in operating activities | (8,712,029 | ) | (17,641,902 | ) | ||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment | (1,809,092 | ) | (167,891 | ) | ||||
Proceeds from disposal of subsidiaries | 694,282 | - | ||||||
Acquisition of subsidiaries, net of cash acquired | 246,929 | (2,840,219 | ) | |||||
Payments for long term investments | (870,000 | ) | (2,035,190 | ) | ||||
Net cash used in investing activities | (1,737,881 | ) | (5,043,300 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible note | 4,802,300 | 12,000,000 | ||||||
Proceeds from issuance of shares and warrant | 2,500,000 | 19,186,771 | ||||||
Borrowings from related parties | 1,764,992 | - | ||||||
Net cash provided by financing activities | 9,067,292 | 31,186,771 | ||||||
Effect of exchange rate changes on cash | (37,030 | ) | (48,638 | ) | ||||
Net (decrease)/increase in cash and restricted cash | (1,419,648 | ) | 8,452,931 | |||||
Cash and cash equivalents at the beginning of the period | 3,106,244 | 7,577,317 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,686,596 | $ | 16,030,248 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Disposal of assets in exchange of GTB | $ | 20,218,920 | $ | - | ||||
Service Revenue received in GTB | $ | 40,700,000 | $ | - | ||||
Issuance of shares for acquisition of intangible assets | $ | 10,005,000 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
IDEANOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD in thousands)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, 2020 | | September 30, 2019 | ||
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | (47,765) | | $ | 12,881 |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | |
| |
Share-based compensation expense | |
| 8,848 | |
| 6,474 |
Depreciation and amortization | |
| 1,651 | |
| 1,420 |
Allowance for doubtful accounts | | | 585 | | | 0 |
Non-cash interest expense | |
| 14,143 | |
| 2,266 |
Equity in losses of equity method investees | | | 8 | | | 606 |
Digital tokens received as payment for services | | | 0 | | | (40,700) |
Gain on disposal of subsidiaries | | | 0 | | | (1,057) |
Loss on remeasurement of DBOT investment | | | 0 | | | 3,179 |
Conversion expense | | | 2,266 | | | 0 |
Impairment loss | | | 4,143 | | | 2,299 |
Impairment of operating lease assets | | | 6,220 | | | 0 |
Settlement of ROU operating lease liabilities | |
| (5,706) | |
| 0 |
Change in fair value of contingent consideration, net | |
| (2,900) | |
| 0 |
Change in assets and liabilities: | |
| | |
| |
Accounts receivable | |
| (2,496) | |
| (2,814) |
Prepaid expenses and other assets | |
| (689) | |
| 2,447 |
Accounts payable | |
| 1,358 | |
| 1,024 |
Deferred revenue | |
| 701 | |
| 150 |
Amount due to related parties | |
| 1,542 | |
| (104) |
Accrued expenses, salary and other current liabilities | |
| (3,827) | |
| 3,217 |
Net cash used in operating activities | |
| (21,918) | |
| (8,712) |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Acquisition of property and equipment | |
| (45) | |
| (1,809) |
Proceeds from note receivable repayment | |
| 1,469 | |
| 0 |
Proceeds from disposal of subsidiaries | | | 0 | | | 694 |
Acquisition of subsidiaries, net of cash acquired | |
| 0 | |
| 247 |
Payments for long-term investments | |
| 0 | |
| (870) |
Notes receivable | |
| (1,910) | |
| 0 |
Net cash used in investing activities | |
| (486) | |
| (1,738) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from issuance of convertible notes | |
| 2,000 | |
| 4,802 |
Proceeds from exercise of warrants and issuance of common stocks | | | 39,128 | | | 2,500 |
Proceeds from noncontrolling interest shareholder | | | 7,148 | | | 0 |
Borrowings from Small Business Association Paycheck Protection Program | | | 460 | | | 0 |
Proceeds from/(Repayment of) amounts due to related parties | | | (2,999) | | | 1,765 |
Net cash provided by financing activities | |
| 45,737 | |
| 9,067 |
Effect of exchange rate changes on cash | |
| 1,639 | |
| (37) |
Net increase (decrease) in cash and cash equivalents | |
| 24,972 | |
| (1,420) |
| | | | | | |
Cash and cash equivalents at the beginning of the period | |
| 2,633 | |
| 3,106 |
| | | | | | |
Cash and cash equivalents at the end of the period | | $ | 27,605 | | $ | 1,686 |
| | | | | | |
Supplemental disclosure of cash flow information: | |
| | |
| |
Cash paid for income tax | | $ | 0 | | $ | 0 |
Cash paid for interest | | | 311 | | | 0 |
Issuance of shares for acquisition of DBOT | | | 8,074 | | | 0 |
Issuance of shares for convertible notes conversion | | | 20,069 | | | 0 |
Tree Technologies measurement period adjustment on goodwill, non-controlling interest and intangible assets | | | 12,848 | | | 0 |
Disposal of assets in exchange for GTB tokens | | | 0 | | | 20,219 |
Issuance of shares for acquisition of intangible assets | | | 0 | | | 10,005 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
IDEANOMICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ideanomics, Inc. (“Ideanomics” or the “Company”) (Nasdaq: IDEX) is a Nevada corporation that primarily operates in Asia and the United States through its subsidiaries and Asia. variable interest entities ("VIEs"). Unless the context otherwise requires, the use of the terms "we," "us," "our," and the "Company" in these notes to condensed consolidated financial statements refers to Ideanomics, Inc., its consolidated subsidiaries and VIEs.
The Company's chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Therefore, the Company is comprised ofoperates in one segment with two business units, the Mobile Energy Group ("MEG"), and Ideanomics Capital. As the chief executive officer previously reviewed two operating segments (i) our Legacy YOD business with primary operations inseparately for this purpose, the PRC whichCompany has been winding down operations over the last 12 monthschanged its presentation accordingly, from two reportable segments to one reportable segment.
The segment reporting changes were retrospectively applied to all periods presented.
MEG’s mission is to use electronic vehicles (“EVs”) and (ii) our Mobile Energy Group (MEG) (formally known as our Wecast Service) business, which is transitioningEV battery sales and financing to focus on theattract commercial fleet marketoperators that will generate large scale demand for electric vehicles in addition to the Company’s existing fintech advisory business. Ourenergy, energy storage systems, and energy management contracts. MEG business operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs forof fleet operators of commercial Electronic Vehicles (EV). MEG operates through a seriesEVs.
Ideanomics Capital is involved with areas of joint venturescapital markets such as financial products advisory and creation, with the leading companies in the commercial EV space, principally in China, and earns fees for every transaction completed basedspecific focus on the spread for group buyingapplication of vehiclesblockchain and fees derived from the arrangement of financing and energy management such as commercial purchasing of pre-paid electricity credits. MEG focuses on commercial EV rather than passenger 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 vehicles types with supporting income streams: 1) Closed-area heavy commercial,artificial intelligence in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3) Buses and Coaches; 4) Taxis. The purchase and financing of vehicles provides for one-time fees and the charging and energy management provides for recurring revenue streams. In July 2019 the company invested in Glory Connection Snd. Bhd, (Glory) a vehicle manufacturer based in Malaysia. Glory holds the only license granted so far for the manufacture of electric vehicles in Malaysia and is in the process of setting up its manufacturing and assembly capabilities.
We continue to develop our FinTech services which principally consist of our ownership of the Delaware Board of Trade (DBOT) ATS, Intelligenta for marketing AI solutions to the Financial Services industry and FinTech Village, a 58 acre development site in West Hartford, Connecticut.
Fintech.
The fintechCompany also seeks to identify industries and business intendsprocesses where blockchain and artificial intelligence (“AI”) technologies can be profitably deployed to offer customized services based on best-in-class blockchain, AIdisrupt established industries and other technologies to mature and emerging businesses across various industries. To do so, we are building a financial technology ecosystem through license agreements, joint ventures and strategic investments, which we refer to as our “Fintech Ecosystem”.business processes.
Basis of Presentation
In this Form 10-Q, unless the context otherwise requires, the use of the terms "we," "us", "our" and the “Company” refers to Ideanomics, Inc, its consolidated subsidiaries and variable interest entities (“VIEs”).
On April 24, 2018, the Company completed the acquisition of a 100% equity ownership in Shanghai Guang Ming Investment Management (“Guang Ming”), a PRC limited liability company. One of the two selling shareholders is a related party, an affiliate of Bruno Wu (“Dr. Wu”). Guang Ming holds a special fund management license. The acquisition will help the Company develop a fund management platform. Under Accounting Standard Codification (“ASC”) 805-50-05-5 and ASC 805-50-30-5, the transaction was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of interest, using historical costs. As a result of the reorganization, the net assets of Guang Ming were transferred to the Company, and the accompanying consolidated financial statements as of and for the three and nine months ended September 30, 2018 have been prepared as if the current corporate structure had been in place at the beginning of the periods presented in which the common control existed.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated onin consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.
We useThe Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (“SEC”) on April 1, March 16, 2020 (“2019 (“2018 Annual Report”Form 10-K.”).
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
11
On an ongoing basis, we evaluate ourmanagement evaluates the Company's estimates, including those related to the bad debt allowance, variable considerations,consideration, fair values of financial instruments, intangible assets (including digital currencies) and goodwill, useful lives of intangible assets and property and equipment, asset retirement obligations, income taxes, and contingent liabilities, among others. We base ourThe Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Significant Accounting Policies
Fair Value Measurements
For a detailed discussion about Ideanomics’ significant accounting policies, refer to Note 2 — “Summary of Significant Accounting standards require the categorization ofPolicies,” in Ideanomics’ consolidated 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:
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 evaluate and adjust the unobservable inputs usedstatements included in the fair value measurements based on current market conditions and third party information.
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 expenses, other current liabilities and convertible notes. The fair values of these assets approximate carrying values because ofCompany’s 2019 Form 10-K. During the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.
Our financial assets that are measured at fair value on a nonrecurring basis include goodwill and other intangible assets, asset retirement obligations, and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. There were no material impairments and no material adjustments to equity securities using the measurement alternative for the three and nine months ended September 30, 20192020, there were no significant changes made to Ideanomics’ significant accounting policies.
Reclassifications
The Company has renamed captions in its condensed consolidated balance sheet, condensed consolidated statement of operations, and 2018.
Digital Currency
Digital currency consistsits condensed consolidated statement of GTDollar Coins (“GTB”).
GTB is received in connection withcash flows. There were no changes to the services agreementcomposition of these accounts, and assets purchase agreement with GT Dollar Pte. Ltd. (“GTD”), our minority shareholder attherefore no change to the timecondensed consolidated financial accounts aside from the renaming of the transaction (Note 3captions.
Statement | | Previous caption | | Current caption | ||
Condensed consolidated balance sheet | | | Acquisition earn-out liability | | | Contingent consideration |
Condensed consolidated statement of operations | | | Acquisition earn-out/true up expense, net | | | Change in fair value of contingent consideration, net |
Condensed consolidated statement of cash flows | | | Acquisition earn-out expense | | | Change in fair value of contingent consideration, net |
Liquidity Improvements
In the nine months ended September 30, 2020, the Company improved its liquidity position by raising a total of $48.2 million: $39.1 million through the issuance of common stock and 14 (b)).exercise of warrants, $7.1 million from noncontrolling interest shareholders, and $2.0 million through the issuance of senior secured convertible notes. The Company converted senior secured convertible notes of $9.4 million plus accrued interest of $0.3 million to common stock. Additionally, the Company converted $4.6 million of convertible notes payable and accrued interest to related parties and an additional $1.5 million due to related parties to common stock. As a result of these actions, the Company reduced its the principal amount of its indebtedness by $13.9 million, and as of September 30, 2020, had cash and cash equivalents of $27.6 million, $19.0 million of which is held in U. S. financial institutions.
Based upon its business projections and its cash and cash equivalents balance as of September 30, 2020, the Company believes it has the ability to continue as a going concern.
Effects of COVID-19
Novel Coronavirus 2019 GTD(“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 disposed of its investmentsince spread globally, resulting in the Companyongoing COVID-19 pandemic. As of October 31, 2020, over 44.7 million cases had been reported across the globe, resulting in 1.2 million deaths.
The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and is no longerinternational commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing has shut down significant parts of the local, regional, national, and international economies with the exception of government designated essential services.
12
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020, the U.S. as well as countries in Europe began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus.
Public health experts have expressed concern that the influenza season in the northern hemisphere will coincide with a minority shareholder.
GTB is a typespread of digital asset that is not a fiat currencyCOVID-19 cases, adding further stress to the affected populations, businesses, governments, and is not backed by hard assets or other financial instruments, and does not represent an investment in GTD or a right to access GTD’s platform. As a result,economies. The future effects of the value of GTB is determined by the value that various market participants place on GTB through their transactions. GTB holders make or lose money from buying and selling GTB. To date, the Asia EDX exchange has not permitted holders of GTB to exchange digital currencies held in accounts at the exchange for fiat. The company is unablevirus are difficult to predict, when our cryptocurrency holdings will be convertible into fiat and consequently does not consider themdue to be partuncertainty about the course of the company’s liquid resources.virus, and the prospects for a vaccine as well as its global implementation.
Given that there is limited precedent regardingThe Company assesses the classification and measurementrecoverability of cryptocurrenciesgoodwill and other digital currencies under current GAAP, the Company has determined to account for these currencies as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.
Indefinite-lived intangible assets are recorded at cost and are not subject to amortization, but shall be tested for impairment annually andfourth quarter of each year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If, at the time of an impairment test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized. The fair value of GTB currency was a Level 2 measurement (see Note 3) based upon the consideration agreed by GTD and the Company with a discount considering volatility, risk and limitations at contract inception.
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: management, having the authority to approve the action, commits to a plan to sell the disposal groups; 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; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and 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; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and 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 value 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.warrant. The Company assesses the fair valuerecoverability of other long-lived assets as circumstances warrant, and in the nine months ended September 30, 2020 did not consider any long-lived assets to be impaired other than certain right of use and fixed assets, including assets comprising a disposal group, less any costsportion of Fintech Village. Many of the Company’s operations are in the development or early stage, have not had significant revenues to sell, each reporting period it remains classifieddate, and the Company does not anticipate significant adverse effects on its operations’ revenue as heldcompared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Resulting Delay in Documentation
In the three months ended March 31, 2020, the Company commenced the process of formulating and implementing a share-based compensation plan whereby key employees and certain consultants of its MEG business unit and wholly-owned subsidiary would benefit.
As one component of this process, the Company had initially transferred 10,000 common shares of MEG, representing 20.0% of the overall outstanding common shares, to Merry Heart Technology Limited ("MHTL"),who was intended to act as a trustee over these shares, for salea nominal amount. It was the Company’s intent that this arrangement would be structured in a manner similar to other trusts used to effect share-based compensation plans, and reports any subsequent losseswould qualify as an adjustmenta VIE and consequently be consolidated.
However, the disruption caused by the COVID-19 virus, particularly in China, where many of the Company’s personnel and business advisors are located, initially delayed the Company’s efforts to implement this share-based compensation plan.
The Company has determined not to proceed with the MEG share-based compensation plan described above, and the parties have declared the transfer of the MEG shares, which was not believed to be substantive, to be null and void and they have reverted to the carrying value of the disposal group.Company.
No share-based awards had been granted to employees or consultants pursuant to this arrangement as originally contemplated.
Reclassifications of a General Nature
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 income. Note 2 provides information about our adoption of new accounting standards for leases.
Note 2. New Accounting Pronouncements Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
We adopted Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2019, using a modified retrospective transition method and as a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases, or ASC 840. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.
The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our 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, we elected several practical expedients that permit us 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. Adoption of the new standard resulted in the recording of operating right of use assets and the related lease liabilities of approximately $3.6 million and $3.7 million, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities was immaterial. The standard did not materially impact our consolidated operating results and had no impact on cash flows. Please see Note 10.
In June 2018, the FASB issued ASU No. 2018-07, 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. The ASU also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606,Revenue from Contracts with Customers. The ASU requires a modified retrospective transition approach. We adopted ASU 2018-07 as of January 1, 2019 and there is no impact to our consolidated financial statement because we did not have such payments in 2019.
In July 2017, the FASB issued ASU No. 2017-11, (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. The new standard applies to issuers of financial instruments with down-round features. A down-round provision 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. The ASU 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. For the Company, this ASU was effective January 1, 2019. Please see Note 12.
Standards Issued and Not Yet Adopted
In June 2016, the FASB issuedFinancial Accounting Standards UpdateBoard (“FASB”) issued ASU No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326)(“ASU 2016-13”) "Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments"Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses
13
rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. WeIn 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, 2020. We are2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on ourthe consolidated financial statements. The effect will largely depend on the composition and credit quality of ourthe 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 recognizes revenue when its customer obtains controlwill adopt ASU 2019-12 effective January 1, 2021. Management does not expect the adoption of promised goods or servicesASU 2019-12 to have a material effect on the consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an amountEntity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that reflectscontinue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the considerationhost contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company expects to receive in exchange for those goods or services.
Allwill adopt ASU 2020-06 effective January 1, 2024. Management is currently evaluating the effect of the Company’s revenueadoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
Note 3. Notes Receivable
(a)Zhu Note Receivable
In May 2020, a subsidiary of the Company, Qingdao Chenyang Ainengju New Energy Sales and Service Company Limited ("Energy Sales") provided a note receivable to Mr. Jianya Zhu ("Mr. Zhu") in the amount of 10.0 million RMB ($1.4 million). Mr. Zhu, through his wholly-owned entity Prime Capital Enterprise Pte. Ltd., provided collateral in the form of its 50.0% ownership of Seven Stars Founder Space Industrial Pte. Ltd ("Founder Space.") Founder Space is derivedalso 50.0% owned by a related party, Seven Stars Innovative Industries Group Limited, an affiliate of Dr. Bruno Wu (“Dr. Wu”), the Chairman of the Company. Mr. Zhu agreed to repay 10.5 million RMB ($1.5 million) one month from Mobilethe disbursement date. In September 2020, a third-party satisfied the note receivable and accrued interest in the amount of 10.5 million RMB ($1.5 million) on behalf of Mr. Zhu, and the Company terminated the note and collateral agreement.
(b)Fuzhou Note Receivable
In May 2020, Energy Group (formerly Wecast Services)Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited ("Zhengtong") in the amount of 3.0 million RMB ($0.4 million). The note receivable is not collateralized. Zhengtong agreed to repay 3.3 million RMB ($0.5 million) within three months of the disbursement date. As of this date,
14
this note receivable has not been satisfied; however, the Company believes the note receivable to be collectible based upon discussions that have been held.
Note 4. Revenue
The following table presents oursummarizes the Company's revenues disaggregated by revenue source, geography (based on ourthe Company's business locations), and timing of revenue recognition.recognition (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||
Geographic Markets | ||||||||||||||||
Singapore | $ | - | $ | - | $ | - | $ | 260,034,401 | ||||||||
USA | 249,512 | 200,660 | 41,649,384 | 200,660 | ||||||||||||
Hong Kong/PRC | 2,854,178 | 43,507,277 | 2,854,178 | 102,393,235 | ||||||||||||
Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 | ||||||||
Services Lines | ||||||||||||||||
Mobile Energy Group (formerly Wecast Services) | ||||||||||||||||
Crude oil | $ | - | $ | - | $ | - | $ | 260,034,401 | ||||||||
Consumer electronics | - | 43,432,556 | - | 102,081,176 | ||||||||||||
Digital asset management services | - | - | 40,700,000 | - | ||||||||||||
Electric Vehicles (“EV”) | 2,854,178 | - | 2,854,178 | - | ||||||||||||
Digital advertising services and other | 249,512 | 275,381 | 949,384 | 512,719 | ||||||||||||
Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Products and services transferred at a point in time | $ | 3,103,690 | $ | 43,707,937 | $ | 3,803,562 | $ | 362,628,296 | ||||||||
Services provided over time | - | - | 40,700,000 | - | ||||||||||||
Total | $ | 3,103,690 | $ | 43,707,937 | $ | 44,503,562 | $ | 362,628,296 |
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 |
| ||||
Geographic Markets |
| |
|
| |
|
| |
|
| |
|
|
Malaysia | | $ | 33 | | $ | — | | $ | 42 | | $ | — | |
USA | |
| 480 | |
| 250 | |
| 908 | |
| 41,650 | |
China | |
| 10,107 | |
| 2,854 | |
| 14,740 | |
| 2,854 | |
Total | | $ | 10,620 | | $ | 3,104 | | $ | 15,690 | | $ | 44,504 | |
Product or Service | |
|
| |
|
| |
|
| |
|
| |
Digital asset management services | | $ | — | | $ | — | | $ | — | | $ | 40,700 | |
Digital advertising services and other | |
| 480 | | | 250 | |
| 908 | | | 950 | |
Electric vehicles* | | | 8,872 | | | 2,854 | | | 9,622 | | | 2,854 | |
Combustion engine vehicles* | |
| 1,268 | |
| — | |
| 5,160 | |
| — | |
Total | | $ | 10,620 | | $ | 3,104 | | $ | 15,690 | | $ | 44,504 | |
| | | | | | | | | | | | | |
Timing of Revenue Recognition | | | | | | | | | | | | | |
Products transferred at a point in time | | $ | 10,620 | | $ | 3,104 | | $ | 15,690 | | $ | 3,804 | |
Services provided over time | | | — | | | — | | | — | | | 40,700 | |
Total | | $ | 10,620 | | $ | 3,104 | | $ | 15,690 | | $ | 44,504 | |
Mobile Energy Group revenue (formerly Wecast Services)
Mobile Energy Group is engaged in the sourcing, procurement, financing and management of commercial fleets of electronic vehicles. Historically, the Mobile Energy Group were mainly engaged in the logistics management, including sales of crude oil, consumer electronics, and digital consulting services such as assets management and marketing services. As of September 30, 2019, we no longer have control over Amer, the subsidiary that engaged in consumer electronics business, as disclosed in Note 5(h).
Logistics management revenue:
Revenue from the sales of crude oil and consumer electronics is recognized when the customer obtains control of the Company’s crude oil and consumer electronics, which occurs at a point in time, usually upon shipment or upon acceptance.* The contracts are generally short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year.
The most significant judgment is determining whether we are the principal or agent for the sales of crude oil and consumer electronics. We report revenues from these transactions on a gross basis where we are the principal considering the following principal versus agent indicators:
During the fourth quarter of 2018, we began experiencing market demand for non-logistics management revenue -generating opportunities and have begun focusing our efforts on these new market fintech services opportunities, while phasing out of the oil trading and electronics trading businesses.
Digital asset management service with GTD:
On March 14, 2019, the Company entered into a service agreement with GTD, one of our minority shareholders, to provide digital asset management services including consulting, advisory and management services which will be delivered in two phases. There are two performance obligations: (1) the development of a master plan for GTD’s assets for 7,083,333 GTB agreed by both parties; and (2) exclusive marketing and business development management services for a fee as percentage (0.25%) of the total market value of GTB ; based on a 10-day average of the 10 business days leading up to the end of a respective calendar month, and paid on the first day of each new calendar month. No marketing and business development management services were delivered by the Company during the current quarter and, furthermore, the company does not anticipate providing these services in the fourth quarter.
The Company recognizes 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 606-10-32, at contract inception, the Company considered the following factors to estimate the value of GTB (noncash consideration): a) it only trades in one exchange, which operations have been less than one year; b) its historical volatility is high; c) the Company’s intention to hold the majority of GTB, as part of our digital asset management services; and d) associated risks discussed in Note 19 (f). Therefore, the value of 7,083,333 GTB using Level 2 measurement was approximately $40.7 million with a 76% discount to the fixed contract price agreed upon by both parties when signing the contract. We considered similar assets exchanges in Singapore and considered the volatility of the quoted prices and determined a discount of 76%. The estimated value of GTB is calculated using the Black-Scholes valuation model using the following assumptions: expected terms 3.0 years; volatility 155%; dividend yield: zero and risk free interest rate 2.25%.
The Company considers the payments for marketing and business development management services as performance based consideration, in accordance with ASC 606 on constraining estimates of variable consideration, including the following factors:
As of September 30, 2019, all performance obligations associated with the development of the master plan for GTD’s assets have been satisfied. Accordingly, the Company recognized revenue of $0 and $40.7 million, for the three months and nine months ended September 30, 2019, respectively. No marketing and business development management services were delivered by the Company during the current quarter and, furthermore, the company does not anticipate providing these services in the fourth quarter.
Taxis Commission Revenue:
During Q2 2019, the Company signed an agreement with iUnicorn (also known as Shenma Zhuanche) to form a strategic joint venture (“JV”) 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 50.01% ownership interest in the JV and will have control of the board. iUnicorn, which will own 49.99% of the JV, agreed to contribute its vehicles sales orders in Sichuan province. The JV will generate revenues from commissions on vehicle sales order and ABS fees related to the financing, which will vary accordingly to manufacturer and vehicle model.
During Q3 2019, the JV took over an order of 4,172 EV taxis from a third-party and helped facilitate the completion of the order in Q3 2019. As part of the transaction, Qianxi agreed to pay a commission of $2.9 million to the JV for facilitating the completion of this order. There is no other remaining performance obligation relating to this commission. In addition, the commission revenue is considered revenue from related party as the minority shareholder of the JV is an affiliate of our customer, Qianxi.
Legacy YOD revenue
Since 2017, we have run our legacy YOD segment with limited resources. No revenue was recognized for the nine months ended September 30, 20192020 were recorded on either a Principal or Agency basis, depending on the terms of the underlying transaction, including the ability to control the product and 2018. Asthe level of inventory risk taken.The combustion engine vehicles for the three and the nine months ended September 30, 2019, we have ceased operations2020 were recorded on a Principal basis because the Company has inventory risk in the YOD segment.transaction.
ArrangementsIn the three months ended September 30, 2020 the balance of deferred revenue increased primarily due to two factors: 1) the Company sold vehicles with multiple performance obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenuea service warranty, and allocated a portion of the transaction price to eachthis performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based onand will recognize this revenue over the observable prices chargedservice period, and 2) the Company was engaged to customers or adjusted market assessment or using expected cost plus margin whenperform advertising services pursuant to one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditionssignificant contract, and entity specific factors.such services were partially fulfilled in the three months ended September 30, 2020 and the remainder will be fulfilled in the future.
Variable consideration
Certain customers may receive discounts,In the three months ended September 30, 2020 the Company sold vehicles whose contractual terms contained a provision which are accounted for asgave rise to variable consideration. We estimate these amounts based onThe Company has estimated the expected amount to be provided to customers and reduce revenues recognized. Our revenue reserves, consisting of various discounts and allowances, which are components of variable consideration, as discussed above, are considered an area of significant judgment. Additionally, our digital asset management service revenue, as discussed above, is calculated as a percentage (0.25%) of the total market value of GTB. For these areas of significant judgment, actual amounts may ultimately differ from our estimates and are adjustedwill continue to revise this estimate in the period in which they become known.future. The liability associated with this estimate is recorded as “Other long-term liabilities.”
Deferred revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.
Our payment terms vary by the type and location of our customer and the products or services offered. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.
Practical expedients and exemptions
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Note 5. VIE Structure and Arrangements
We consolidatePrior to December 31, 2019, the Company consolidated certain VIEs located in the People’s Republic of China (“PRC”) in which we hold ait held variable interestinterests and arewas the primary beneficiary through contractual agreements. We areThe Company was the primary beneficiary because we haveit had the power to direct activities that most significantly affectaffected their economic performance and havehad 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 ourthe consolidated financial statements.
For these consolidated VIEs, their assets are not available to us and their creditors do not have recourse to us. As of September 30, 2019 andstatements for the year ended December 31, 2018, assets (mainly long-term investments) that can only be used to settle obligations of these VIEs were approximately $0.2 million and $3.5 million, respectively, and the Company is the major creditor for the VIEs.
In order to operate our Legacy YOD business2019. A shareholder in 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: Beijing Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”) and Tianjin Sevenstarflix Network Technology Limited (“SSF”). These contractual agreements will expire in March 2030 and April 2036, respectively and may not be terminated by the VIEs, except with the consent of the Company , or , in event of a material breach of the agreement by the Company. Currently, the Company is still evaluating the overall operating strategy for YOD legacy business and does not have plan to provide any funding to these two VIEs. Please refer to Note 19(a) for associated regulatory risks.
Based on the contracts we entered with VIEs’ shareholders, we consider that there is no assetone of the VIEs that can be used only to settle obligationis the spouse of Dr. Wu.
The contractual agreements, which collectively granted the Company exceptthe power to direct the VIEs activities that most significantly affected their economic performance, as well to cause the Company to have the obligation to absorb or right
15
to receive the majority of their losses or benefits, were terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019.
Refer to Note 10 for the registered capital of VIEs amounting to RMB 38.2 million (approximately $5.7 million).information on an additional VIE.
Note 6. Acquisitions and Divestitures |
Acquisitions
(a) Assets Acquisition of SolidOpinion, Inc (“SolidOpinion”)
On February 19, 2019, the Company completed the acquisition of certain assets from SolidOpinion in exchange for 4,500,000 shares of the Company’s common stock. The assets include cash ($2.5 million)2020 Acquisitions and intellectual property (“IP”) which is complementary to the IP of Grapevine. The parties agreed that 450,000 of such shares of common stock (“Escrow Shares”) will be held in escrow until February 19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the agreement. SolidOpinion have the rights to vote and receive the dividends paid with respect to the Escrow Shares.
(b)DivestituresAssets Acquisition of Fintalk Assets (“Fintalk”)
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 purchase price for Fintalk Assets was $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 as of December 31, 2018 because the transaction had not closed.
In June 2019, the Company entered into an amendment to the agreement which amended the purchase price for Fintalk Assets to $6.35 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair market value of $5.35 million. The Company issued 2,860,963 shares ($1.87 per share) in June 2019 and completed the transaction. In addition, upon completion of transaction the $1.0 million cash paid in 2018 was reclassified from prepaid expense to intangible assets.
(c)Acquisition of Grapevine Logic, Inc. (“Grapevine”)
In September 2018, the Company completed the acquisition of a 65.65% share of Grapevine for $2.4 million in cash. Fomalhaut Limited (“Fomalhaut”), a British Virgin Islands company and an affiliate of 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 (the “Option”). The aggregate exercise price for the Option is the fair market value of the Fomalhaut Interest as of the close of business on the date preceding the date upon which the Option is exercised, and is payable in a combination of 1/3 in cash and 2/3 in the Company’s shares of common stock at the then market value on the exercise date. The Option Agreement will expire on August 31, 2021.
In May 2019, the Company entered into two amendments to the Option Agreement, The aggregate exercise price for the Option is amended to the greater of (i) 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 (ii) $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 590,671 shares in exchange for a 34.35% ownership in Grapevine as a result of the exercise of the Option, at the completion of this transaction the Company owned 100% of Grapevine. At the completion date of the transaction, the carrying amount of the non-controlling interest in Grapevine was approximately $0.5 million. The difference between the value of the consideration exchanged of approximately $1.1 million and the carrying amount of the non-controlling interest in Grapevine is recorded as a debit to Additional Paid in Capital based on ASC 810-10-45-23.
(d)Termination of agreements with Tree Motion Sdn. Bhd. (“Tree Motion”)
Effective July 18, 2019, Ideanomics, Inc. (the “Company”) terminated its Acquisition Agreement with Tree Motion Sdn. Bhd., a Malaysian company (“Tree Motion”), pursuant to which the Company was to acquire 51% of Tree Motion in exchange for 25,500,000 shares of the Company’s common stock at $2.00 per share. Further, the Company terminated its Acquisition Agreement to acquire 11.22% of Tree Motion’s parent company, Tree Manufacturing Sdn. Bhd. (the “Parent Company”) for 12,190,000 shares of the Company’s common stock; provided, however, that the Company has acquired 250 acres in Malaysia-China Kuantan Industrial Park (MCKIP), the 1st Malaysia National Industrial Park joint developed by both Malaysia and China for $620,000.
(e)Acquisition of Glory Connection Sdn. Bhd (“Glory”)
On July 18, 2019, Ideanomics, Inc. (the “Company”) entered into an Acquisition Agreement (“Glory Agreement”) to purchase a 34% interest in Glory Connection Sdn. Bhd. a Malaysian Company, from its shareholder Beijing Financial Holding Limited, a Hong Kong registered company, for the consideration of 12,190,000 restricted common shares of Ideanomics (IDEX), representing $24.4 million at $2.00 per share. As part of this transaction, the Company was also granted an option to purchase a 40% interest in Bigfair Holdings Limited (“Bigfair”) from its shareholder Beijing Financial Holding Limited for an exercise price of $13.2 million in the form of common shares of Ideanomics. Bigfair currently holds a 51% ownership stake in Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the option was exercised, the Company would have 20.4% indirect ownership in Glory in addition to the 34% direct ownership it already has. As of September 30, 2019, the Company does not have control of Glory and has accounted for Glory as an equity method investment.
The Company has performed a valuation analysis and allocated $23,000,000 and $1,380,000not acquired any companies nor disposed of the consideration transferred to the equity method investment and the call option, respectively. The call option is accounted for as an equity security without readily determinable fair value. Pro forma results of operations for Glory have not been presented because they are not material to the consolidated results of operations. Glory is currentlyany subsidiaries in the process of ramping up its operations.
The following table summarizes the income statement information of Glory as of September 30, 2019:
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Revenue | $ | 2,041 | $ | 3,936 | ||||
Gross Profit | 1,379 | 769 | ||||||
Net loss from operations | 173,465 | 354,502 | ||||||
Net loss | 171,719 | 352,606 | ||||||
Net loss attributable to Glory | $ | 95,477 | $ | 195,121 |
(f) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire 6,918,547 shares in DBOT in exchange for 4,427,870 shares of the Company’s common stock at $2.11 per share. In July 2019, the Company entered into another securities purchase agreement to acquire an additional 2,224,937 shares in DBOT in exchange for 1,423,960 shares of the Company’s common stock at $2.11 per share. The two transactions, which increased the Company’s ownership in DBOT to 99.04%, were completed in July 2019. The securities purchase agreements required the Company to issue additional shares of the Company’s common stock (“True-Up Common Stock”) in the event the stock price of the common stock fall below $2.11 at the close of trading on the date immediately preceding the lock-up date, which is 9 months from the closing date. The Company accounted for the additional True-Up Common Stock consideration as a liability in accordance with ASC 480. We recorded this liability at fair value of $2,217,034 on the date of acquisition. As of September 30, 2019, we remeasured this liability to $2,327,919 and the remeasurement loss of $(110,885) was recorded in the other income/(expense) of the income statement.
DBOT operates three companies: (i) DBOT ATS LLC, an SEC recognized Alternative Trading System; (ii) DBOT Issuer Services LLC, focused on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers; and (iii) DBOT Technology Services LLC, focused on the provision of market data and marketplace connectivity.
The consolidated statements of operation for the threenine months ended September 30, 2019 include2020, with the results of DBOT. Supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2018 is as follows:
Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||
Revenue | $ | 43,798,865 | $ | 44,612,471 | $ | 363,004,917 | ||||||
Net Income (loss) attributable to IDEX common shareholders | $ | (7,818,047 | ) | $ | 10,582,474 | $ | (21,387,162 | ) |
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, 2018. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
For all intangible assets acquired, continuing membership agreements have useful life of 20 years and the customer list has useful life of 3 years.
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair valueexception of the non-controllingdisposition of its remaining 10.0% interest in DBOT recognized:
Cash | $ | 246,929 | ||
Other financial assets | 1,686,464 | |||
Financial liabilities | (4,411,140 | ) | ||
Noncontrolling interest | (104,649 | ) | ||
Goodwill | 9,323,189 | |||
Intangible asset – continuing membership agreement | 8,255,440 | |||
Intangible asset – customer list | 58,830 | |||
$ | 15,055,063 |
Divestitures
Amer Global Technology Limited ("Amer") as disclosed in Note 6(e).
The Company may divest certain businesses from time to time based upon review of the Company’sCompany's portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders.
2019 Acquisitions
On December 26, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. The acquisition price was comprised of (1) $0.9 million in cash, (2) 9.5 million shares of Ideanomics common stock, and (3) contingent consideration of up to $32.0 million over three years, to be paid in cash or Ideanomics common shares at the election of the Company. The contingent consideration was initially based upon revenue targets over three 12 month periods beginning in the three months ended December 31, 2019; due to financing delays and resulting production delays, these three 12 month periods will commence on July 1, 2020. In the three and nine months ended September 30, 2020, the Company recorded remeasurement gains of $4.2 million and $4.4 million in "Change in fair value of contingent consideration, net" in the condensed consolidated statements of operations. As of September 30, 2020, the recorded balance of this liability was $10.9 million.
The fair value of the Ideanomics stock was based upon the closing price of $0.82 on December 26, 2019, and the fair value of the contingent consideration was estimated to be $15.5 million, and revised to $15.3 million upon finalization of the purchase, and was recorded as a liability on the date of acquisition. The Company estimated the fair value of the contingent consideration using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors. This fair value measurement is based on significant Level 3 inputs. The resulting probability-weighted cash flows were discounted using the Company's estimated weighted average cost of capital of 15.0%.
Tree Technologies holds the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia. The Company intends to develop this land and lease it to Tree Manufacturing for the manufacture of EVs. Tree Technologies holds an exclusive right to market and distribute the EVs manufactured by Tree Manufacturing. The goodwill arising from the acquisition consists largely of the synergies expected from the fulfillment of these contracts. None of the goodwill recognized is expected to be deductible for tax purposes.
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in Tree Technologies recognized. The Company has completed the fair value
16
analysis of the assets acquired, liabilities assumed, the noncontrolling interest, and the contingent consideration, and therefore the adjustments are incorporated in the table below (in thousands).
| | | |
Land use rights | | $ | 27,140 |
Accounts payable | |
| (743) |
Noncontrolling interest | |
| (15,452) |
Goodwill | |
| 468 |
Marketing and distribution agreement | |
| 12,590 |
| | $ | 24,003 |
The completion of the fair value analysis resulted in measurement period adjustments of $12.8 million, primarily to the amount initially assigned to the noncontrolling interest, and reduced the amount of goodwill recorded.
The accounts payable above of $0.7 million primarily represents the transfer tax payable for the land use rights for the 250 acres of vacant land, which the Company paid in the three months ended September 30, 2020.
Tree Technologies had not commenced operations as of the acquisition date, therefore pro forma results as if the acquisition had occurred as of January 1, 2019, and related information, are not presented.
(b) Acquisition of Grapevine Logic, Inc. ("Grapevine”)
On September 4, 2018, the Company completed the acquisition of 65.7% share of Grapevine for $2.4 million in cash. Fomalhaut Limited (“Fomalhaut,”) a British Virgin Islands company and an affiliate of Dr. Wu, was the non-controlling equity holder of 34.4% in Grapevine (the “Fomalhaut Interest.”) Fomalhaut entered into an option agreement, effective as of August 31, 2018 (the “Option Agreement,”) with the Company pursuant to which the Company provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company. The aggregate sale price for the Fomalhaut Interest was the fair market value of the Fomalhaut Interest as of the close of business on the date preceding the date upon which the right to sell the Fomalhaut Interest to the Company is exercised by Fomalhaut. If the option was to be exercised, the sale price for the Fomalhaut Interest was payable in a combination of 1/3 in cash and 2/3 in the Company’s shares of common stock at the then market value on the exercise date.
In May 2019, the Company entered into two amendments to the Option Agreement. The aggregate exercise price for the Option was amended to the greater of: (1) fair market value of the Fomalhaut Interest in Grapevine as of the close of business on the date preceding the date upon which the option is exercised; and (2) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price was to be paid in the form of common stock of the Company.
In June 2019, the Company issued 0.6 million shares in exchange for a 34.3% ownership in Grapevine as a result of the exercise of the Option. At the completion of this transaction the Company owned 100.0% of Grapevine. At the date of the transaction, the carrying amount of the non-controlling interest in Grapevine was $0.5 million. The difference between the value of the consideration exchanged of $1.1 million and the carrying amount of the non-controlling interest in Grapevine is recorded as a debit to additional paid-in capital based on ASC 810, Consolidation (“ASC 810.”)
(c) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire 6.9 million shares in DBOT in exchange for 4.4 million shares of the Company’s common stock at $2.11 per share. In July 2019, the Company entered into another securities purchase agreement to acquire an additional 2.2 million shares in DBOT in exchange for 1.4 million shares of the Company’s common stock at $2.11 per share. The two transactions, which increased the Company’s ownership in DBOT to 99.0% as of that date, were completed in July 2019. The securities purchase agreements required the Company to issue contingent consideration in the form of additional shares of the Company’s common stock in the event the stock price of the common stock falls below $2.11 at the close of trading on the date immediately preceding the lock-up date, which was 9 months from the closing date. The Company accounted for the contingent consideration as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. The Company recorded this liability at fair
17
value of $2.2 million on the date of acquisition. As of December 31, 2019, the Company remeasured this liability to $7.3 million and the remeasurement loss of $5.1 million was recorded in “Change in fair value of contingent consideration, net” in the consolidated statements of operations. In the three and nine months ended September 30, 2020, the Company recorded remeasurement losses of $0 and $1.5 million, respectively, in “Change in fair value of contingent acquisition, net” in the condensed consolidated statements of operations, and partially satisfied the liability with the issuance of 13.1 million shares of common stock. As of September 30, 2020, the recorded balance of this liability was $0.8 million. The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future.
Immediately prior to the consummation of the transaction, the Company’s investment in DBOT consisted of 37.0% of the common shares outstanding, which had a fair value of $3.1 million, and the Company recorded a loss of $3.2 million to record the investment in DBOT to its fair value. This loss was recorded in “Loss on remeasurement of DBOT investment” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019. The fair value of the investment in DBOT immediately prior to the consummation of the transaction was determined in conjunction with the overall fair value determination of the DBOT assets acquired and liabilities assumed.
DBOT operates 3 companies: (1) DBOT ATS LLC, an SEC recognized Alternative Trading System (“ATS”); (2) DBOT Issuer Services LLC, focused on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers; and (3) DBOT Technology Services LLC, focused on the provision of market data and marketplace connectivity. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and DBOT, as the Company executes its business plan of selling digital tokens and digital assets and other commodities on an approved ATS.
The consolidated statements of operation for the year ended December 31, 2019 include the results of DBOT from July 2019 to December 31, 2019. For the time period from July 2019 through December 31, 2019, DBOT contributed $15,838 and $1.9 million to the Company’s revenue and net loss, respectively.
The following table summarizes supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2019 (in thousands):
| | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||
|
| September 30, 2019 |
| September 30, 2019 |
| ||
Revenue | | $ | 3,213 | | $ | 44,612 | |
Net income (loss) attributable to IDEX common shareholders | |
| (15,163) | |
| 10,582 | |
The unaudited pro forma results of operations do not purport to represent what the Company’s results of operations would actually have been had the acquisition occurred on January 1, 2019. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in DBOT recognized (in thousands):
| | | |
Cash |
| $ | 247 |
Other financial assets | |
| 1,686 |
Financial liabilities | |
| (4,411) |
Noncontrolling interest | |
| (105) |
Goodwill | |
| 9,324 |
Intangible asset – continuing membership agreement | |
| 8,255 |
Intangible asset – customer list | |
| 59 |
| | $ | 15,055 |
The excess of the consideration over the fair value of the net assets acquired has been recorded as goodwill, of which none is expected to be deductible for tax purposes. For all intangible assets acquired, continuing membership agreements have useful life of 20 years and the customer list has useful life of 3 years.
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(g)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 a consideration of $700,000.$0.7 million. The Company decided to sell Red Rock primarily because it hashad incurred operating losses and its business iswas no longer needed based on our strategicthe Company’s business plan. The transaction was completed in July 2019 and the companyCompany recorded a disposal gain of $552,215.$0.6 million recorded in “Gain on disposal of subsidiaries” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019.
(h)(e) Amer Global Technology Limited (“Amer”)
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 IOTInternet of Things business consisting of manufacturing data, supply chain management &and financing, and lease financing of industrial robotics into Amer in exchange for 71.81%71.8% of ownership interest in Amer. The parties subsequently entered into several amendments includingincluding: (1) changing the name of Amer to Logistorm Technology Limited, (2) issuing 39,500 new shares in Amer or 71.81%71.8% ownership interest to BCC instead of Tekang, (3) issuing 5,500 new shares in Amer or 10%10.0% ownership interest to Merry Heart Technology Limited (“MHT”)MHTL, and (4) the Company is responsible for 20%20.0% of any potential tax obligation associated with Amer, if Amer fails to be publicly listed in 36 months from the closing date of this transaction. The Company concluded that it’s not probable that this contingent liability would be incurred. As a result of this transaction, the Company’s ownership interest in Amer was diluted from 55%55.0% to 10%10.0%. The transaction was completed on August 31, 2019.
2019.
The Company recognized a disposal gain of $505,148$0.5 million as a result of the deconsolidating Amer. $95,104Amer, and such gain was recorded in “Gain on disposal of subsidiaries” in the condensed consolidated statements of operations in the three and nine months ended September 30, 2019. $0.1 million of the gain is attributable to the 10%10.0% ownership interest retained in Amer. In addition, on the date Amer was deconsolidated, the Company recorded a bad debt expense of $622,286$0.6 million relating to a receivable due from Amer to a subsidiary of the Company.
The following table summarizesCompany, which was recorded in “Selling, general and administrative expense” in the Consolidated Statementcondensed consolidated statements of Operations foroperations in the three months and nine months ended September 30, 2018, on an unaudited pro forma basis, as if the dilution of the Company’s interest in Amer had been consummated as of January 1, 2018:
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||
Revenue | $ | 275,380 | $ | 260,547,120 | ||||
Net loss from operations | (6,305,340 | ) | (18,548,258 | ) | ||||
Net loss | (7,390,597 | ) | (19,351,526 | ) | ||||
Net loss attributable to IDEX common shareholders | $ | (7,158,674 | ) | $ | (18,945,524 | ) |
2019.
Pro forma results of operations for the periodthree and nine months ended September 30, 2019 have not been presented because they are not material to the consolidated results of operations. Amer hashad no revenue and minimal operating expenseexpenses in the year ended December 31, 2019.
In the three months ended September 30, 2020, the Company sold its remaining 10.0% interest in Amer to Fintalk Media Inc., a related party, for a nominal amount. As the Company had no basis in its remaining interest in Amer, the gain recognized on the sale was de minimis. In light of this disposition, the Company is negotiating the responsibility for the contingent tax obligation disclosed above.
Note 7. Accounts receivable is mainly from our Mobile Energy Group (formerly Wecast Services) business and consisted of the following:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Accounts receivable, gross | $ | 2,941,348 | $ | 19,370,665 | ||||
Less: allowance for doubtful accounts | (103 | ) | - | |||||
Accounts receivable, net | $ | 2,941,245 | $ | 19,370,665 |
Receivable
The following table outlinessummarizes the aging of theCompany’s accounts receivable:receivable (in thousands):
September 30, 2019 | December 31, 2018 | |||||||
Within 90 days | $ | 2,941,245 | $ | 1,219,526 | ||||
91-180 days | - | 633 | ||||||
181-365 days | - | 12,385,193 | ||||||
More than 1 year | - | 5,765,313 | ||||||
Total | $ | 2,941,245 | $ | 19,370,665 |
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Accounts receivable, gross | | $ | 4,900 | | $ | 2,405 |
Less: allowance for doubtful accounts | |
| (585) | |
| 0 |
Accounts receivable, net | | $ | 4,315 | | $ | 2,405 |
The decrease in balance is mainly due toincludes the deconsolidationtaxi commission revenue receivables of Amer$1.2 million and $2.3 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co, as of September 30, 2020 and December 31, 2019, as disclosedrespectively.
19
In the three months ended September 30, 2020, the Company increased its allowance for doubtful accounts by $0.6 million for the account receivable mentioned above. There were 0 changes in Note 5(h). Our payment term is usually within 180 days upon the receipts ofallowance for doubtful accounts for the goods. The Company has reviewed the outstanding balance by customersthree and concluded that the outstanding balances are collectible.nine months ended September 30, 2019.
Note 8. Property and Equipment, net |
The following is a breakdown oftable summarizes the Company’s property and equipment:equipment (in thousands):
September 30, | December 31, | |||||||||||||
2019 | 2018 | |||||||||||||
Furnitures and office equipment | 602,548 | 357,064 | ||||||||||||
| | | | | | | ||||||||
|
| September 30, |
| December 31, | ||||||||||
| | 2020 | | 2019 | ||||||||||
Furniture and office equipment | | $ | 309 | | $ | 441 | ||||||||
Vehicle | 60,951 | 63,135 | |
| 121 | |
| 62 | ||||||
Leasehold improvements | 239,781 | 200,435 | |
| 176 | |
| 243 | ||||||
Total property and equipment | 903,280 | 620,634 | |
| 606 | |
| 746 | ||||||
Less: accumulated depreciation | (482,548 | ) | (186,514 | ) | |
| (441) | |
| (368) | ||||
Property and equipment, net | | | 165 | | | 378 | ||||||||
Fintech Village | | | | | | | ||||||||
Land | 3,042,777 | 3,042,777 | | | 3,043 | | | 3,043 | ||||||
Building1 | 308,779 | 2,607,666 | ||||||||||||
Assets Retirement Obligations - Environmental Remediation | 8,000,000 | 8,000,000 | ||||||||||||
Building | | | — | | | 309 | ||||||||
Assets retirement obligations - environmental remediation | | | 6,294 | | | 6,496 | ||||||||
Capitalized direct development cost | 2,732,705 | 944,864 | | | — | | | 2,713 | ||||||
Construction in progress (Fintech Village) | 14,084,261 | 14,595,307 | |
| 9,337 | |
| 12,561 | ||||||
Property and Equipment, net | $ | 14,504,993 | $ | 15,029,427 | | $ | 9,502 | | $ | 12,939 |
Note
1 The $2.3 million decrease from the prior year represents the impairment charge recorded in connection with four of the five existing buildings on Fintech Village which are expected to be demolished.
The Company recorded depreciation expense of $25,170 and $65,862, which is included in its operating expense, of $65,862 and $14,820expenses, for the three months ended September 30, 2020 and 2019, respectively, and 2018$90,962 and $102,991 and $32,941 for the nine months ended September 30, 20192020 and 2018,2019, respectively.
In the three months ended June 30, 2020 the Company ceased to use the premises for its New York City headquarters at 55 Broadway, and vacated the premises. As a result, the Company recorded an impairment loss of $0.2 million related to leasehold improvements and other fixed assets at that location.
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
The Company recorded $8.0 million of Asset Retirement Obligations which are related to our legal contractualasset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The following table summarizes the activity in the asset retirement obligation for the nine months ended September 30, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| January 1, | | Liabilities | | Remediation | | Accretion | |
| | | September 30, | |||||
| | 2020 | | Incurred | | Performed | | Expense | | Revisions | | 2020 | ||||||
Asset retirement obligation | | $ | 5,094 | | $ | 0 | | $ | (441) | | $ | 0 | | $ | 0 | | $ | 4,653 |
The Company capitalized direct costs incurred on Fintech Village and the capitalized cost is recorded as part of Construction in progress. Capitalized direct development costs mainly represent the architecturalwere $0 million and $2.7 million as of September 30, 2020 and December 31, 2019, respectively, and are primarily related to legal and architect costs.
In the three months ended September 30, 2020, in relation to Fintech Village the Company recorded an impairment loss of $2.7 million for the capitalized architect costs, and recorded an impairment loss of $0.3 million for the remaining building and $0.2 million for the related asset retirement cost associated with the remaining building.
The Company has identified Fintech Village as a non-core asset and is evaluating its strategies for divesting of this asset.
20
Note 9. Goodwill and Intangible Assets |
Goodwill
ChangesThe following table summarizes changes in the carrying value of goodwill consist of following:
Nine months ended September 30, 2019 | Year Ended December 31, 2018 | |||||||
At the beginning of the year | 704,884 | - | ||||||
Goodwill Acquired1 | 9,323,189 | 704,884 | ||||||
At the end of the period | 10,028,073 | 704,884 |
Note
1 The change in carrying amount of goodwill in(in thousands):
| | | |
Balance as of January 1, 2019 |
| $ | 705 |
Acquisitions | |
| 22,639 |
Balance as of December 31, 2019 | | | 23,344 |
Measurement period adjustments* | | | (12,848) |
Effect of change in foreign currency exchange rates | |
| (24) |
Balance as of September 30, 2020 | | $ | 10,472 |
*During the current year wasthree months ended December 31, 2019, the result ofCompany completed the acquisition of DBOT as discloseda 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. The Company adjusted goodwill balance in connection with the completion of acquisition accounting. Refer to Note 5(f).6(a) for additional information.
Intangible Assets
InformationThe following table summarizes information regarding amortizing and indefinite lived intangible assets consisted(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | September 30, 2020 | | December 31, 2019 | ||||||||||||||||||||
|
| Weighted |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | Average | | Gross | | | | | | | | | | | Gross | | | | | | | | | | |||
| | Remaining | | Carrying | | Accumulated | | Impairment | | Net | | Carrying | | Accumulated | | Impairment | | Net | |||||||||
|
| Useful Life |
| Amount |
| Amortization |
| Loss |
| Balance |
| Amount |
| Amortization |
| Loss |
| Balance | |||||||||
Amortizing Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Software and licenses |
| | — | | $ | 94 | | $ | (94) | | $ | 0 | | $ | 0 | | $ | 97 | | $ | (97) | | $ | 0 | | $ | 0 |
Solid Opinion IP (a) |
| | 3.4 | |
| 4,655 | |
| (1,474) | |
| 0 | |
| 3,181 | |
| 4,655 | |
| (776) | |
| 0 | |
| 3,879 |
Fintalk intangible assets (b) | | | — | | | 635 | | | (635) | | | 0 | | | 0 | | | 635 | | | (635) | | | 0 | | | 0 |
Influencer network (c) |
| | 7.9 | |
| 1,980 | |
| (413) | |
| 0 | |
| 1,567 | |
| 1,980 | |
| (264) | |
| 0 | |
| 1,716 |
Customer contract (c) |
| | 0.9 | |
| 500 | |
| (347) | |
| 0 | |
| 153 | |
| 500 | |
| (222) | |
| 0 | |
| 278 |
Continuing membership agreement (d) | | | 18.8 | | | 8,255 | | | (516) | | | 0 | | | 7,739 | | | 8,255 | | | (206) | | | 0 | | | 8,049 |
Customer list | | | 1.8 | | | 59 | | | (25) | | | 0 | | | 34 | | | 59 | | | (10) | | | 0 | | | 49 |
Trade name (c) |
| | 12.9 | |
| 110 | |
| (15) | |
| 0 | |
| 95 | |
| 110 | |
| (10) | |
| 0 | |
| 100 |
Technology platform (c) |
| | 4.9 | |
| 290 | |
| (86) | |
| 0 | |
| 204 | |
| 290 | |
| (55) | |
| 0 | |
| 235 |
Land use rights (e) | | | 98.3 | | | 27,211 | | | (69) | | | 0 | | | 27,142 | | | 27,079 | | | 0 | | | 0 | | | 27,079 |
Marketing and distribution agreement (e) | | | 19.8 | | | 12,385 | | | (155) | | | 0 | | | 12,230 | | | 11,333 | | | 0 | | | 0 | | | 11,333 |
Total | | | | | | 56,174 | | | (3,829) | | | 0 | | | 52,345 | | | 54,993 | | | (2,275) | | | 0 | | | 52,718 |
Indefinite lived intangible assets | | | | |
| | | | | | | | | | | | | | |
| | |
|
| |
| |
Website name | | | | |
| 25 | |
| 0 | |
| 0 | |
| 25 | |
| 25 | |
| 0 | |
| 0 | |
| 25 |
Patent | | | | |
| 28 | |
| 0 | |
| 0 | |
| 28 | |
| 28 | |
| 0 | |
| 0 | |
| 28 |
Total | | | | | $ | 56,227 | | $ | (3,829) | | $ | 0 | | $ | 52,398 | | $ | 55,046 | | $ | (2,275) | | $ | 0 | | $ | 52,771 |
(a) | During the three months ended March 31, 2019, the Company completed the acquisition of certain assets from SolidOpinion in exchange for 4.5 million shares of the Company’s common stock with a fair value of $7.2 million. The assets acquired included cash of $2.5 million and intellectual property (“IP”) which is complementary to the IP of Grapevine. The parties agreed that 0.5 million of such shares of common stock (“Escrow Shares”) would be held in escrow until February 19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the agreement. SolidOpinion had the rights to vote and receive the dividends paid with respect to the Escrow Shares. The Escrow Shares were scheduled to be released on February 19, 2020, and were released in April 2020. |
(b) | In September 2018, the Company entered into an agreement to purchase Fintalk Assets from Sun Seven Star International Limited, a Hong Kong company and an affiliate of Dr. Wu. FinTalk Assets included the rights, titles, and interest in a secure mobile financial information, social, and messaging platform that had been designed for streamlining financial-based communication for professional and retail users. The initial purchase price for the Fintalk Assets was $7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair |
21
Table of the following:Contents
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||
Weighted Average Remaining | Gross Carry | Accumulated | Accumulated Impairment | Net | Gross Carry | Accumulated | Accumulated Impairment | Net | ||||||||||||||||||||||||||||
Useful Life | Amount | Amortization | Loss | Balance | Amount | Amortization | Loss | Balance | ||||||||||||||||||||||||||||
Amortizing Intangible Assets | ||||||||||||||||||||||||||||||||||||
Animation Copyright (Note 14 (b)) | - | $ | - | $ | - | $ | - | $ | - | $ | 301,495 | $ | (64,606 | ) | $ | - | $ | 236,889 | ||||||||||||||||||
Software and licenses | - | 97,308 | (97,308 | ) | - | - | 97,308 | (93,251 | ) | - | 4,057 | |||||||||||||||||||||||||
SolidOpinion IP (Note 5 (a)) | 4.4 | 4,655,000 | (543,084 | ) | - | 4,111,916 | - | - | - | - | ||||||||||||||||||||||||||
Fintalk intangible assets (Note 5 (b)) | 4.8 | 6,350,000 | (317,500 | ) | - | 6,032,500 | - | - | - | - | ||||||||||||||||||||||||||
Influencer network | 8.9 | 1,980,000 | (214,500 | ) | - | 1,765,500 | 1,980,000 | (66,000 | ) | - | 1,914,000 | |||||||||||||||||||||||||
Customer contract1 | 2.0 | 558,830 | (185,458 | ) | - | 373,372 | 500,000 | (55,556 | ) | - | 444,444 | |||||||||||||||||||||||||
Continuing Membership Agreement1 | 19.8 | 8,255,440 | (103,193 | ) | - | 8,152,247 | - | - | - | - | ||||||||||||||||||||||||||
Trade name | 13.9 | 110,000 | (7,944 | ) | - | 102,056 | 110,000 | (2,444 | ) | - | 107,556 | |||||||||||||||||||||||||
Technology platform | 5.9 | 290,000 | (44,881 | ) | - | 245,119 | 290,000 | (13,808 | ) | - | 276,192 | |||||||||||||||||||||||||
Total amortizing intangible assets | $ | 22,296,578 | $ | (1,513,868 | ) | $ | - | $ | 20,782,710 | $ | 3,278,803 | $ | (295,665 | ) | $ | - | $ | 2,983,138 | ||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||||||
Website name | 159,504 | - | (134,290 | ) | 25,214 | 159,504 | - | (134,290 | ) | 25,214 | ||||||||||||||||||||||||||
Patent | 28,000 | - | - | 28,000 | 28,000 | - | - | 28,000 | ||||||||||||||||||||||||||||
GTB (Note 14 (b)) | 61,124,407 | - | - | 61,124,407 | - | - | - | - | ||||||||||||||||||||||||||||
Total intangible assets | $ | 83,608,489 | $ | (1,513,868 | ) | $ | (134,290 | ) | $ | 81,960,331 | $ | 3,466,307 | $ | (295,665 | ) | $ | (134,290 | ) | $ | 3,036,352 |
Note
1 During the third quarter of 2019, the Company completed the acquisition of additional shares in DBOT which increased its ownership in DBOT to 99.04%. $8,314,270 of intangible assets were recognized on the date of acquisition as disclosed in Note 5(f).
market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded this amount in prepaid expenses as of December 31, 2018 because the transaction had not closed. The purchase price was later amended to $6.4 million, payable with $1.0 million in cash and shares of the Company’s common stock with a value of $5.4 million. The Company issued 2.9 million common shares in June 2019 and completed the transaction. In the three months ended December 31, 2019, management determined these assets had no future use and recorded an impairment loss of $5.7 million. |
(c) | During the three months ended September 30, 2018, the Company completed the acquisition of 65.7% share of Grapevine. Refer to Note 6(b). |
(d) | During the three months ended September 30, 2019, the Company completed the acquisition of additional shares in DBOT, which increased its ownership to 99.0 %. Intangible assets of $8.3 million were recognized on the date of acquisition. Refer to Note 6(c). |
(e) | During the three months ended December 31, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. In connection with the completion of acquisition accounting, the Company revised the estimated useful life of the marketing and distribution agreement from 5 to 20 years. As amortization of this agreement had not commenced, the revision of the estimated useful life had no effect on the condensed consolidated financial statements. Refer to Note 6(a) for additional information. |
Amortization expense relating to intangible assets was $764,010$0.7 million and $276,692$0.8 million for the three months ended September 30, 2020 and 2019, respectively, and 2018$1.6 million and $1,317,419 and $281,796$1.3 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
The following table outlinessummarizes the expected amortization expense for the following years:years (in thousands):
Amortization to be | ||||||||
| | | | |||||
| | | Amortization | |||||
| | | to be | |||||
Years ending December 31, | recognized |
| | recognized | ||||
2019 (excluding the nine months ended September 30, 2019) | $ | 761,702 | ||||||
2020 | 3,046,811 | |||||||
2020 (excluding the nine months ended September 30, 2020) | | $ | 668 | |||||
2021 | 2,991,255 | |
| 2,615 | ||||
2022 | 2,870,339 | |
| 2,494 | ||||
2023 | 2,860,534 | |
| 2,485 | ||||
2024 and thereafter | 8,252,069 | |||||||
Total amortization to be recognized | $ | 20,782,710 | ||||||
2024 | |
| 1,709 | |||||
2025 and thereafter | | | 42,374 | |||||
Total | | $ | 52,345 |
Note 10. Long-term Investments
The following table summarizes the Company's long-term investments consisted of Non-marketable Equity Investment and Equity Method Investment as below:(in thousands):
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Non-marketable Equity Investment | $ | 9,147,170 | $ | 9,452,103 | ||||
Equity Method Investment | 33,012,143 | 16,956,506 | ||||||
Total | $ | 42,159,313 | $ | 26,408,609 |
| | | | | | |
|
| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Non-marketable equity investments | | $ | 6,005 | | $ | 5,967 |
Equity method investments | |
| 16,646 | |
| 16,654 |
Total | | $ | 22,651 | | $ | 22,621 |
Non-marketable equity investment investments
Our non-marketableNon-marketable equity investments are investments in privately held companies without readily determinable fair values. These investmentsvalues are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership, among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes in current
22
earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount. There is noBased on management's analysis of certain investment's performance, 0 impairment forlosses were recorded in the three and nine months ended September 30, 2020 and 2019.
In the nine months ended September 30, 2019.
2019, the Company sold one non-marketable equity investment with a carrying amount of $3.2 million for GTB and recognized no gain or loss on the sale. Refer to Note 14(b) for additional information.
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting consist of the following:(in thousands):
September 30, 2019 | ||||||||||||||||||||||||||||
Foreign currency | ||||||||||||||||||||||||||||
December 31, | Loss on | Reclassification | translation | September 30, | ||||||||||||||||||||||||
2018 | Addition | investment | to subsidiaries | adjustments | 2019 | |||||||||||||||||||||||
Wecast Internet | (i) | $ | 4,114 | $ | - | $ | (5 | ) | $ | - | $ | 1,930 | $ | 6,039 | ||||||||||||||
Hua Cheng | (ii) | 308,666 | - | (32,890 | ) | - | (37,210 | ) | 238,566 | |||||||||||||||||||
Shandong Media | (iii) | - | - | - | - | - | - | |||||||||||||||||||||
BDCG | (iv) | 9,800,000 | - | - | - | - | 9,800,000 | |||||||||||||||||||||
DBOT | (v) | 6,843,726 | - | (3,719,735 | ) | (3,123,991 | ) | - | - | |||||||||||||||||||
Glory | (vi) | - | 23,000,000 | (32,462 | ) | - | - | 22,967,538 | ||||||||||||||||||||
Total | $ | 16,956,506 | $ | 23,000,000 | $ | (3,785,092 | ) | $ | (3,123,991 | ) | $ | (35,280 | ) | $ | 33,012,143 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2020 | | |||||||||||||||||||
| | | | | | | | | | Income (loss) | | Impairment | | | | | Foreign currency | | | | | |||
|
|
|
| January 1, 2020 |
| Addition |
| on investment |
| losses |
| Disposal |
| translation adjustments |
| September 30, 2020 |
| |||||||
BDCG |
| (a) |
| $ | 9,800 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | — |
| $ | 0 |
| $ | 9,800 |
|
Glory |
| (b) |
| | 6,854 |
| | 0 |
| | (8) |
| | 0 |
| | — |
| | 0 |
| | 6,846 |
|
Total |
|
| | $ | 16,654 | | $ | 0 | | $ | (8) | | $ | 0 | | $ | — | | $ | 0 | | $ | 16,646 |
|
All the investments above are privately held companies; therefore, quoted market prices are not available. We have not received any dividends since initial investments.
(i) Wecast Internet
Starting from October 2016, we have 50% interest in Wecast Internet Limited (“Wecast Internet”) and initial investment was invested RMB 1,000,000 (approximately $149,750). Wecast Internet is in the process of liquidation and the remaining carrying value is immaterial.
(ii) Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd.(“Hua Cheng”)
The Company held 39% equity ownership in Hua Cheng, a company established to provide integrated value-added service solutions for the delivery of VOD and enhanced content for cable providers.
(iii) Shandong Lushi Media Co., Ltd (“Shandong Media”)
The Company held 30% equity ownership in Shandong Media, a print based media business, for Legacy YOD business. The accumulated operating loss of Shandong Media reduced the Company’s investment in Shandong Media to zero. The Company has received no obligation to fund future operating losses.dividends from equity method investees in the three and nine months ended September 30, 2020 and 2019.
(iv) (a)BBD Digital Capital Group Ltd. (“BDCG”)
In 2018, wethe Company signed a joint venturean investment agreement, with two2 unrelated parties, to establish BDCG, subsequently renamed Intelligenta, located in the United States for providing block chain services for financial or energy industries by utilizing AIartificial intelligence and big data technology in the United States. The Company received 40% equity ownership in BDCG from the initial joint venture agreement. On April 24, 2018, the Company acquired 20%20.0% equity ownership in BDCG from one noncontrolling party for a total consideration of $9.8 million which consistsconsisted of $2$2.0 million in cash and $7.8 million paid in the form of the Company’s commoncapital stock (valued at $2.60 per share and equal to 33.0 million shares of the Company’s common stock), increasing the Company’s ownership to 60% in BDCG.60.0%. The remaining 40%40.0% of BDCG are held by Seasail ventures limitedVentures Limited (“Seasail”Seasail.”). The accounting treatment of the joint ventureinvestment is based on the equity method due to variable substantive participating rights (in accordance with ASC 810-10-25-11)810) granted to Seasail. The new entityIntelligenta is currently in the process of ramping updeveloping its operations. In April 2019,operations, although it has been impacted by international trade tentions. Intelligenta has yet to record revenue or earnings or losses, and therefore its statement of operations and balance sheet data are not material.
As of September 30, 2020, the company rebranded the nameexcess of the BDCG joint venture to Intelligenta. As partCompany's investment over its proportionate share of the rebranding, Intelligenta’s strategy will now include credit services, corporation services, index servicesIntelligenta's net assets was $9.8 million. The difference represents goodwill and products, and capital market services and products.is not being amortized.
(v) Delaware Board of Trade Holdings, Inc. (“DBOT”)
Refer to Note 5(f).
(vi)(b) Glory Connection Sdn. Bhd (“Glory”)
ReferOn July 18, 2019, the Company entered into an acquisition agreement to Note 5(e).
We lease certain office spacepurchase a 34.0% interest in Glory, a Malaysian company, from its shareholder Beijing Financial Holding Limited, a Hong Kong registered company, for the consideration of 12.2 million restricted common shares of the Company, initially representing $24.4 million at $2.00 per share, the contract price, and equipment from third parties. Leases with an initial term of 12 months or less are not recordedsubsequently revised to $20.0 million at $1.64 per share, the closing price on the balance sheet and we recognize lease expensedate of acquisition. As part of this transaction, the Company was also granted an option to purchase a 40.0% interest in Bigfair Holdings Limited (“Bigfair”) from its shareholder Beijing Financial Holding Limited for these leases on a straight-line basis overan exercise price of $13.2 million in the lease term. For leases beginning in 2019 and later, at the inceptionform of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the usecommon shares of the asset throughoutCompany. Bigfair currently holds a 51.0% ownership stake in Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the period,option is exercised, the Company would have 20.4% indirect ownership in Glory in addition to the 34.0% direct ownership it already has.
Upon the initial investment, the Company performed a valuation analysis and (3) whether we have the right to direct the useallocated $23.0 million and $1.4 million of the asset. At inception of a lease, we allocateconsideration transferred to the considerationequity method investment and the call option, respectively, which was subsequently revised to $20.0 million and $0, respectively. Glory is currently in the contractprocess of developing its products and its business, and is dependent upon the business of Tree Manufacturing.
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As initially contemplated, Glory, through its subsidiary Tree Manufacturing, would hold a domestic EV manufacturing license in Malaysia, a marketing and distribution agreement for EVs in the ASEAN region, as well as the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to each lease component basedKuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia, which was to be the site of the manufacturing operations.
In December 2019, the Company acquired a 51.0% ownership interest in Tree Technologies. Tree Technologies had previously been granted the land use rights to the 250 acres of vacant land mentioned above, which was previously anticipated to be owned by Glory. As Glory would no longer receive the land use rights to the 250 acres of vacant land, the Company evaluated its relative stand-alone price to determineinvestment in Glory for impairment, and recorded an impairment loss of $13.1 million in “Impairment of and equity in loss of equity method investees” in the lease payments. Leasesconsolidated statements of operations in the year ended December 31, 2019.
Tree Technologies has also entered into priora product supply arrangement and a product distribution arrangement with a subsidiary of Glory. The Company performed an assessment of these arrangements, and determined that Glory is a VIE, but that the Company is not the primary beneficiary. As of September 30, 2020, the Company accounts for Glory as an equity method investment.
The Company has advanced $0.4 million to January 1, 2019, are accounted for under ASC 840Glory in order to fund its operations, although it had no obligation to do so. The Company’s maximum exposure to Glory is $7.3 million, the sum of its investment and were not reassessed. We account 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).
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal options is at our sole discretion. Our 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 of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. All our leases are operating lease. We have 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.
advances.
As of September 30, 2019, our2020, the excess of the Company’s investment over its proportionate share of Glory’s net assets was $7.1 million. The difference primarily represents an amortizing intangible asset.
The following table summarizes the income statement information of Glory for the three and nine months ended September 30, 2020 (in thousands):
| | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||
| | September 30, 2020 |
| September 30, 2020 |
| ||
Revenue | | $ | — | | $ | 5 | |
Gross profit | |
| — | |
| (6) | |
Net loss from operations | |
| (8) | |
| (56) | |
Net income (loss) | |
| 21 | |
| (23) | |
Net income (loss) attributable to Glory | |
| 11 | |
| (14) | |
Note 11. Leases
On May 1, 2020, the Company took possession of premises in Qingdao, China in furtherance of a larger public/private initiative to promote EV business in the region and reduce the reliance on traditional combustion engines. The premises are indirectly and partially owned by local governmental entities, and were provided to the Company at no charge. The Company, pursuant to the underlying lease, has use of the premises until November 30, 2034.
The Company has determined the fair value of the lease and recorded the lease in accordance with ASC 842, Leases(“ASC 842,”) ASC 845 Nonmonetary Transactions(“ASC 845,”) and ASC 958, Not-for-Profit Entities (“ASC 958.”) In connection with this lease agreement, the Company recorded operating right of use assets of $7.2 million, and an operating lease liability of $7.2 million. The fair value of the annual lease payments is $0.7 million.
As of September 30, 2020, the Company's operating lease right of use assets and operating lease liabilityliabilities are approximately $6.8$7.4 million and $7.2$7.3 million, respectively. The weighted-average remaining lease term is 13.8 years and the weighted-average discount rate is 4.4%.
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As of December 31, 2019, the Company's operating right of use assets and operating lease liabilities were $6.9 million and $7.3 million, respectively. As of September 30, 2019, the weighted-average remaining lease term was 6.6 years and the weighted-average discount rate iswas 7.5%.
For the three and nine months ended September 30, 2019,The following table summarizes the components of lease expense were as follows:(in thousands):
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Operating Lease Cost | $ | 390,577 | $ | 1,264,049 | ||||
Short-Term Lease Cost | 78,076 | 250,924 | ||||||
Sublease Income | (10,605 | ) | (10,605 | ) | ||||
Total Lease Cost | $ | 458,048 | $ | 1,504,368 |
| | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||
| | September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 | | ||||
Operating lease cost | | $ | 519 | | $ | 391 | | $ | 1,488 | | $ | 1,264 | |
Short-term lease cost | |
| 82 | |
| 78 | |
| 279 | |
| 251 | |
Sublease income | |
| (11) | |
| (11) | |
| (74) | |
| (11) | |
Total | | $ | 590 | | $ | 458 | | $ | 1,693 | | $ | 1,504 | |
SupplementalThe following table summarizes supplemental information related to leases was as follows:(in thousands):
Nine Months Ended September 30, 2019 | |||||||||||||||||
| | | | | | | | | | | | | |||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 |
| ||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
| | | | |
| | | | | |
| |||||
Operating cash flows from operating leases | $ | 967,565 | | $ | 115 | | $ | 448 | | $ | 961 | | $ | 968 | | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 935,242 | |||||||||||||||
Right of use assets obtained in exchange for new operating lease liabilities | | | — | | | 935 | | | — | | 935 | |
MaturityThe following table summarizes the maturity of operating lease liabilities (in thousands):
| | | |
| | Leased Property | |
Years ending December 31 |
| Costs | |
2020 | | $ | 260 |
2021 | |
| 721 |
2022 | |
| 614 |
2023 | |
| 632 |
2024 | |
| 645 |
2025 and thereafter | |
| 7,009 |
Total lease payments | | | 9,881 |
Less: Interest | |
| (2,541) |
Total | | $ | 7,340 |
In the three months ended March 31, 2020 the Company ceased to use the premises underlying one lease and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $0.9 million. In the three months ended June 30, 2020, the Company completed negotiations with the landlord to settle the remaining operating lease liability of $0.9 million by issuing a promissory note for $0.1 million, bearing an annual interest rate of 4.0%, and which is as follows:
Maturity of Lease Liability | Operating Lease | ||||
2019 (excluding the nine months ended September 30, 2019) | $ | 332,549 | |||
2020 | 1,307,783 | ||||
2021 | 1,328,160 | ||||
2022 | 1,422,965 | ||||
2023 | 1,474,391 | ||||
2024 and thereafter | 3,377,653 | ||||
Total lease payments | 9,243,501 | ||||
Less: Interest | (2,001,696 | ) | |||
Total | $ | 7,241,805 |
Other Current Assets
“Other current assets” were approximately $2.4 milliondue and $3.6 million as of September 30, 2019 andpayable on December 31, 2018, respectively. Components2021. The Company recorded a gain of "Other current assets" that were more than 5 percent$0.8 million in “Other income (expense)” for the settlement of total current assets: (1) other receivable due from third parties in our subsidiaries located in PRC and Hong Kongthe operating lease liability in the amountthree months ended June 30, 2020.
In the three months ended June 30, 2020 the Company ceased to use its New York City headquarters at 55 Broadway, which are subject to two leases, and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of $1.7use asset of $5.3 million. The Company had an operating use liability of $5.8 million and $3.3with respect to these leases, excluding $0.6 million forin accounts payable. In the periodthree months ended September 30, 2019 and December 31, 2018 and (2) $0.62020, the Company completed negotiations with the landlord to settle the remaining amounts due of $6.4 million receivable due from ID Venturas 7 relating to the convertible debenture executed on September 27, 2019. As disclosed in Note 12(c), we have received the $0.6for a cash payment of $1.5 million. The Company recorded a gain of $4.9 million in October.
Other Current Liabilities
“Other current liabilities” were approximately $9.1 million and $5.3 million as“Other income (expense)” for the settlement of September 30, 2019 and December 31, 2018, respectively. Components of "Other current liabilities" that were more than 5 percent of total current liabilities: (1) $2.3 millionthe operating lease liability relating to additional True-Up Common Stock consideration from the DBOT acquisition as disclosed in Note 5 (f) and (2) other payable due to third parties in the amount of $5.1 million and $4.6 million for the periodthree months ended September 30, 2019 and December 31, 2018, respectively.2020.
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Note 12. Promissory Notes
The following istable summarizes the summary of outstanding convertiblepromissory notes as of September 30, 20192020 and December 31, 2018:2019 (dollars in thousands):
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Convertible Note-Mr. McMahon(Note 14 (a)) | $ | 3,229,808 | $ | 3,140,055 | ||||
Convertible Note-SSSIG (Note 14 (a)) | 1,288,032 | 1,000,000 | ||||||
Convertible Note-Advantech | 12,382,806 | 11,313,770 | ||||||
$2.05 million Senior Secured Convertible Note - ID Venturas 7 | 626,387 | - | ||||||
$2.5 million Senior Secured Convertible Note - ID Venturas 7 | 14,917 | - | ||||||
Total | $ | 17,541,950 | $ | 15,453,825 | ||||
Short-term Note | 1,914,419 | 4,140,055 | ||||||
Long-term Note | 15,627,531 | 11,313,770 |
| | | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | ||||||||
| | | | 2020 | | 2019 | | ||||||||
|
| Interest Rate |
| Principal Amount |
| Carrying Amount* |
| Principal Amount |
| Carrying Amount* |
| ||||
Convertible Note-Mr. McMahon (Note 14 (a)) |
| 4.0 | % | $ | — | | | — | | $ | 3,000 |
| $ | 3,260 |
|
Convertible Note -SSSIG (Note 14 (a)) |
| 4.0 | % |
| — | |
| — | |
| 1,252 |
| | 1,301 |
|
Convertible Note-SSSIG (Note 14 (a)) | | 4.0 | % | | — | | | — | | | 250 | | | 250 | |
Convertible Note-Advantech (a) |
| 8.0 | % |
| 12,000 | |
| 9,033 | |
| 12,000 |
| | 3,193 |
|
Senior Secured Convertible Note (b) |
| 10.0 | % |
| — | |
| — | |
| 850 |
| | 348 |
|
Senior Secured Convertible Note (c) |
| 10.0 | % |
| — | |
| — | |
| 3,580 |
| | 1,896 |
|
Senior Secured Convertible Note (d) |
| 4.0 | % |
| — | |
| — | |
| 3,000 |
| | 1,405 |
|
Promissory Note (e) | | 6.0 | % | | 3,000 | | | 3,153 | | | 3,000 | | | 3,000 | |
Vendor Notes Payable (f) | | 0.25%-4% | | | 135 | | | 135 | | | — | | | 0 | |
Small Business Association Paycheck Protection Program (g) | | 1 | % | | 460 | | | 462 | | | — | | | 0 | |
Total |
|
| | $ | 15,595 | | | 12,783 | | $ | 26,932 | | | 14,653 |
|
Less: Current portion |
|
| | | | | | 12,783 | |
| | | | 8,013 |
|
Long-term Note, less current portion |
|
| | | | | $ | — | | | | | $ | 6,640 |
|
| | | | | | | | | | | | | | | |
*Carrying amount includes the accrued interest.
The following table summarizes future maturities of the debt and contractual obligations (excluding the debt from the Small Business Association Paycheck Protection Program), as well as projected interest expense as of September 30, 2020 (in thousands):
| | | | | | | | | |
| | Principal | | Interest | | Interest | |||
| | Repayment | | Payment | | Expense | |||
2020 |
| $ | 3,030 |
| $ | 180 |
| $ | 1,997 |
2021 | |
| 12,105 | | | 2,875 | | | 3,878 |
Total | | $ | 15,135 | | $ | 3,055 | | $ | 5,875 |
As of September 30, 2020 and December 31, 2019, the Company was in compliance with all ratios and covenants.
On June 28, 2018, the Company entered into a convertible note purchase agreement with Advantech Capital Investment II Limited (“Advantech”) in the aggregate principal amount of $12,000,000$12.0 million (the Notes).“Advantech Note.”) The Notes bearAdvantech Note bears interest at a rate of 8%, mature8.0% and matures on June 28, 2021, and areis convertible into approximately 6,593,406the shares of the Company’s common stock at a stated conversion price, subject to adjustment if subsequent equity shares have a lower conversion price (“down round provision.”) The stated conversion price was initially $1.82 per share, which was subsequently reset to $1.00 in October 2019, $0.5869 on April 22, 2020, then further reduced to $0.36 on May 20, 2020 due to the down round provision.
The Company received aggregate gross proceeds of $ 1.82 per share. $12.0 million, net of $34,133 for the issuance expenses paid by Advantech.
The initial difference between the conversion price and the fair market value of the common stock on the commitment date (transaction date) resulted in a beneficial conversion feature (“BCF”) recorded of approximately $1.4 million. million and increased by $10.6 million due to the down round provision adjustment in October 2019.
NaN additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
For the three months ended September 30, 20192020 and 2018,2019, total interest expense recognized relating to the beneficial conversion feature was $117,000$2.0 million and $112,000, respectively. For$0.4 million, respectively, and was $5.8 million and $1.1 million for the nine months ended September 30, 20192020 and 2018, total interest expense recognized relating to the beneficial conversion feature was $347,000 and $112,000, 2019,
26
respectively. The agreement also requires the Company to comply with certain covenants, including restrictions on the use of the proceeds and other conditions of the convertible note offering. As of September 30, 2019, the Company was in compliance with all ratios and covenants.
$2.05 million$2.05 Million Senior Secured Convertible Debenture due in August 2020 - ID VenturaVenturas 7
On February 22, 2019, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $2,050,000$2.1 million of senior secured convertible note.note (“February IDV Note.”) The note bearsFebruary IDV Note bore interest at a rate of 10%10.0% per year payable either in cash or in kind at the option of the Company on a quarterly basis and matureswas scheduled to mature on August 22, 2020. In addition, IDV iswas entitled to the following: (i)(1) the convertible note iswas senior secured; (ii)(2) convertible at $1.84an adjusted price per share of Company common stock at the option of IDV, (approximately 1,114,130 shares), subject to adjustments if subsequent equity shares havehad a lower conversion price (ii) 1,166,113(original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020), (3) 1.2 million shares of common stock of the CompanyCompany; and (iii)(4) a warrant exercisable for 150% of the number of1.6 million shares of common stock which the note isFebruary IDV Note was convertible into (approximately 1,671,196 shares) at an adjusted exercise price of(original $1.84 , $1.00 after October 30, 2019 and $0.5869 after April 22, 2020) per share and will expireinitially expired in 7 years, which was extended from 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the Warrants to $1.00,
on December 19, 2019.
The Company received aggregate gross proceeds of $2$2.0 million, net of $50,000 for the issuance expenses paid by IDV. Total funds received were allocated to convertible note,the February IDV Note, common stocksshares and warrants based on their relative fair values in accordance with ASC 470-20-30.470, Debt (“ASC 470.”) The fair value of the convertible noteFebruary IDV Note and common stocksshares was based on the closing price of the Company’s common stock on February 22, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 111.83% and an interest rate of 2.48%. The relative fair value of the warrants was recorded as additional paid-in capital and reduceda corresponding discount on the carrying amount of the convertible note.February IDV Note. The Company recognized a beneficial conversion featureBCF of $0.6 million as an increase in additional paid-in capital and corresponding discount on convertible note at its intrinsic value,the carrying amount of the February IDV Note, which was the fair value of the common stockshares at the commitment date for convertible note,the February IDV Note, less the effective conversion price. The Company recognized approximately $600,000 of beneficial conversion feature as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible note in the accompanying consolidated balance sheet.
The discounts on the convertible note for the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $1,424,000. Total interest expense recognized relating to the discount was approximately $175,000 and $626,000 for the three and nine months ended September 30, 2019, respectively.
Interest on the convertible note isFebruary IDV Note was payable quarterly starting from April 1, 2019. The convertible note isFebruary IDV Note was redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the convertible noteFebruary 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 convertible note is collateralized by the Company’s equity interest in Grapevine, which had a carrying amount of $2.4 million as of September 30, 2019. The Company has the right to request for the removal of the guarantee and collateral by issuance of additional 250,000 shares of common stock. On September 27, 2019, the Company issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of the warrants, within 180 days following the closing of the transaction.
The Company iswas also subject to penalty fee at 8%8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion shares upon conversion.
The security purchase agreement contained customary representations, warranties, and covenants. The February IDV Note was collateralized by the Company’s equity interest in Grapevine and the Company had the right to request the removal of the guarantee and collateral by the issuance of additional 250,000 shares of common stock.
Modification/Extinguishment
On September 27, 2019, the Company issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral. The issuance of the common shares in exchange for the removal of collateral was treated as a modification of the February IDV Note pursuant to the guidance of ASC 470. The Company concluded that the February IDV Note qualified for debt extinguishment as the 10.0% cash flow test was met. As a result, the carrying amount of $0.8 million of the February IDV Note was written off and the amended note was recorded at its fair value of $1.7 million. The Company recognized a non-cash loss on extinguishment of debt in the amount of $1.2 million and the intrinsic value of reacquisition of BCF is zero as of September 27, 2019.
Down Round Price Adjustment on October 30, 2019
As a result of the additional financing on October 30, 2019, the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the February IDV Note and the exercise price of the warrants from $1.84 to $1.00. The Company recognized $1.4 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the February IDV Note and $0.2 million of deemed
27
dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 112.0%, and an interest rate of 2.48%.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the February IDV Note and the exercise price of the warrants was reduced from $1.00 to $0.5869. The Company recognized $0.3 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the February IDV Note and $59,372 of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 7 years, expected dividend rate of 0%, volatility of 122.4%, and an interest rate of 1.84%.
Conversion
As of December 31, 2019, $1.2 million of the February IDV Note, plus accrued and unpaid interest, were converted into 1.2 million shares of common stock of the Company.
During the nine months ended September 30, 2020, the remaining $0.85 million of the February IDV note, plus accrued and unpaid interest, were converted into 1.4 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and was $0.9 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.
On September 27, 2019, the Company executed a security purchase agreement with ID Venturas 7, LLCIDV (“IDV”IDV September Agreement”), whereby the Company issued $2,500,000$2.5 million of senior secured convertible note.note in September (“September IDV Note”) and issued an additional $1.1 million of secured convertible notes subsequently based on additional investment rights in the IDV September Agreement. The note bearsSeptember IDV Notes bore interest at a rate of 10%10.0% per year payable either in cash or in kind at the option of the Company on a quarterly basis and matureswas scheduled to mature on March 27, 2021. In addition, IDV iswas entitled to the following: (i)(1) the convertible note iswas senior secured; (ii)(2) convertible at $1.84an adjusted price per share of Company common stock at the option of IDV, (approximately 1,358,696 shares), subject to adjustments if subsequent equity shares havehad a lower conversion price (ii) 1,000,000(original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020), (3) 1.5 million shares of common stock of the Company, and (iii)(4) a warrant exercisable for 150% of the number of4.7 million shares of common stock which the note is convertible into (approximately 2,038,043 shares) at an adjusted exercise price of(original $1.84, $1.00 after October 30, 2019 and $0.5869 after April 22, 2020) per share and will expire in 7 years, which was extended from 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the Warrants to $1.00,
years.
The Company will receive aggregatereceived net proceeds of $3.5 million (aggregate gross proceeds of $2.5$3.6 million, net of $66,195$65,000 for the issuance expenses paid by IDV. The Company received $1.8 million proceed in September and the remaining $633,805 was received in October.to IDV). Total gross proceeds were allocated to convertible note,the September IDV Note, common stocksshares and warrants based on their relative fair values in accordance with ASC 470-20-30.470. The fair value of the convertible noteSeptember IDV Note and common stocksshares was based on the closing price of the common stock on September 27, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 110.36%122.44% and an average interest rate of 1.55%1.66%. The relative fair value of the warrants was recorded as additional paid-in capital and reducedcorresponding discount on the carrying amount of the convertible note.September IDV Note. The Company recognized a beneficial conversion featureBCF as a discount on convertible noteSeptember IDV Note at its intrinsic value, which was the fair value of the common stockshares at the commitment date, for convertible note, less the effective conversion price. The Company recognized approximately $989,000$1.3 million of beneficial conversion featureBCF in total as an increase in additional paid inpaid-in capital and reduced (discount on)corresponding discount on the carrying amount of the convertible note in the accompanying consolidated balance sheet.September IDV Note.
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The discounts on the convertible note for the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $2,488,000. Total interest expense recognized relating to the discountIDV Note was approximately $12,000 and $12,000 for the three and nine months ended September 30, 2019, respectively.
Interest on the convertible note is payable quarterly starting from October 1, 2019. The convertible note is redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the convertible noteSeptember 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 convertible note isSeptember IDV Note was collateralized by the Company’s equity interest in DBOT, which had a carrying amount of $14.3 million as of September 30, 2019.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of the warrants, within 120 days following the closing of the transaction.
DBOT.
The Company iswas also subject to penalty fee at 8%8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion shares upon conversion.
Down Round Price Adjustment on October 30, 2019
On October 29, 2019 the Company entered into a letter agreement with IDV pursuant to which the Company agreed to reduce the conversion price of the debentures and the exercise price of the warrants from $1.84 to $1.00 due to the lower conversion price and exercise price agreed in the additional issuance in October, 2019. The Company recognized $0.2 million of remeasured BCF as an increase in additional paid-in capital and corresponding discount on the carrying amount of the September IDV Note and $0.1 million of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants.
Additional Issuance for No Additional Consideration - Consent of IDV for Subsequent Financing with YA II PN
On December 19, 2019, the Company executed an additional issuance agreement with IDV, pursuant to which the Company obtained a consent from IDV for subsequent financing with YA II PN in exchange for: (1) 2.0 million shares of the Company’s common stock; (2) the warrant to purchase 1.0 million shares of the Company’s common stock at an exercise price of $1.00 with a 7 year term in the form of prior warrants issued to IDV; and (3) a 2 year extension of the exercise period for all outstanding warrants held by IDV.
The additional issuance above and the exercise period extension in exchange for the consent was treated as a modification of the September IDV Note pursuant to the guidance of ASC 470. The Company concluded that the September IDV Note qualified for debt extinguishment as the 10.0% cash flow test was met. As a result, the carrying amount of $0.4 million of the September IDV Note was written off and the amended note was recorded at its fair value of $2.2 million along with a BCF at intrinsic value of $0.5 million. The Company measured and recognized the intrinsic value of the BCF at its reacquisition price $0.5 million on December 19, 2019 and recognized a non-cash loss on extinguishment of debt in the amount of $2.7 million in accordance with ASC 470. In addition, the Company recognized a deemed dividend of $0.5 million for the extension of exercise period for all applicable warrants issued to IDV.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the September IDV Note and the exercise price of the warrants was reduced from $1.00 to $0.5869. The Company recognized $0.3 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the amended Note and $0.1 million of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants. The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 7 years, expected dividend rate of 0%, volatility of 122.4%, and an interest rate of 1.84%.
Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with IDV pursuant to which the Company agreed to reduce the conversion price of $1.0 million principal amount of debenture to the lowest price per share sold in the financing but not less than $0.36. NaN additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
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Conversion
During the nine months ended September 30, 2020, $3.6 million of the amended note, plus accrued and unpaid interest, were converted into 7.3 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $2.1 million for the three and nine months ended September 30, 2020, respectively.
(d) $5.0 Million Senior Secured Convertible Debenture due in December 2020 - YA II PN
On December 19, 2019, the Company completed the initial closing with respect to a securities purchase agreement with YA II PN, Ltd, a company incorporated under the laws of the Cayman Islands (“YA II PN”), where YA II PN agreed to purchase from the Company up to $5.0 million (with 4.0% discount) in units consisting of secured convertible debentures (the “YA II PN Note”), which was convertible into shares of the Company’s common stock at lower of: (1) $1.50 per share, or (2) 90.0% of the lowest 10 day volume weighted average price (“VWAP”) with a floor price at $1.00, subject to adjustments if subsequent equity shares had a lower conversion price, and shares of the Company’s common stock. The purchase and sale of the units occurred in three closings:
First Closing: $2.0 million of YA II PN Note and 1.4 million shares of common stock closed on December 19, 2019; |
2. | Second Closing $1.0 million of YA II PN Note and 0.7 million shares of common stock closed on December 31, 2019 upon filing the registration statement; and |
3. | Third Closing: $2.0 million of YA II PN Note and 1.4 million shares of common stock closed on February 13, 2020 when such registration statement was declared effective by the SEC. |
The YA II PN Note was scheduled to mature in December 2020 and accrued interest at an 4.0% interest rate. YA II PN also received: (1) a warrant (the “Warrant I”) exercisable for 1.7 million shares of common stock at $1.50 with an expiration date 60 months from the date of the agreement, and (2) a warrant (the “Warrant II”) exercisable for 1.0 million shares of common stock at $1.00 with an expiration date of 12 months from the date of the agreement.
The Company received aggregate gross proceeds of $2.9 million (net of $0.1 million discount) as of December 31, 2019 and received $2.0 million in February 2020. Total funds received were allocated to the YA II PN Note, common shares and warrants based on their relative fair values in accordance with ASC 470. The fair value of the YA II PN Note and common shares was based on the closing price of the common stock on December 19, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years (1 year for Warrant II), expected dividend rate of 0%, volatility of 122.44% and an interest rate of 1.66% (1.54% for Warrant II). The fair value of the warrants was recorded as additional paid-in capital and a corresponding discount on the carrying amount of the YA II PN Note. There was no BCF because its intrinsic value is zero since the stock price of the common shares at the commitment date for the YA II PN Note is greater than the effective conversion price.
The YA II PN Note was redeemable at the option of the Company in whole or in part at an initial redemption price of the principal amount of the YA II PN Note plus a redemption premium equal to 15.0% of the amount being redeemed and accrued and unpaid interest to the date of redemption. The security purchase agreement contains customary representations, warranties, and covenants.
Down Round Price Adjustment on April 22, 2020
As a result of the additional financing on April 22, 2020, the conversion price of the YA II PN Note was reduced from $1.00 to $0.5869. The Company recognized $2.7 million of remeasured BCF as an increase in additional paid- in capital and a corresponding discount on the carrying amount of the amended Note.
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Down Round Price Adjustment on May 20, 2020
In order to facilitate the additional financing, the Company entered into an amendment and waiver agreement with YA II PN pursuant to which the Company agreed to reduce the conversion price of $1.0 million principal amount of debenture to the lowest price per share sold in the financing but not less than $0.36. NaN additional BCF is recognized because the discount assigned to the BCF is already equal to the proceeds allocated to the convertible instrument.
Conversion
During the nine months ended September 30, 2020, $5.0 million of the YA II PN Note, plus accrued and unpaid interest, were converted into 9.7 million shares of common stock of the Company.
As a result of the conversions, the Company recognized associated unamortized discount at the date of conversion as interest expense. Total interest expense recognized was $0 and $5.0 million for the three and nine months ended September 30, 2020, respectively.
(e) $3.0 Million Promissory Note due in November 2020 – New Castle County
On November 25, 2015, DBOT, the subsidiary which the Company acquired in 2019, entered into a promissory note with New Castle County, a political subdivision of the State of Delaware in the aggregate principal amount of $3.0 million (the “New Castle County Notes”). The New Castle County Notes bear interest at a rate of 6.0%, and mature on November 25, 2020. Total interest expense recognized was $45,000 and $135,000 for the three and nine months ended September 30, 2020, respectively, and $45,000 for the three and nine months ended September 30, 2019. The agreement also requires the Company to comply with certain covenants, including restrictions on new indebtedness offering and liens.
(f)Vendor Notes Payable
On May 13, 2020, DBOT entered into a settlement agreement with a vendor whereby the existing agreement with the vendor was terminated, the vendor ceased to provide services, and all outstanding amounts were settled. In connection with this agreement, DBOT paid an initial $30,000 and executed an unsecured promissory note in the amount of $60,000, bearing interest at 0.25% per annum, and payable in two installments of $30,000. The first installment is due on December 31, 2020 and the remaining payment is due on August 31, 2021.
In the three months ended March 31, 2020 the Company ceased to use the premises underlying one lease and vacated the real estate. In the three months ended June 30, 2020, the Company completed negotiations with the landlord to settle the remaining operating lease liability of $0.9 million by issuing a promissory note for $0.1 million, bearing an annual interest rate of 4.0%, and which is due and payable on December 31, 2021.
(g) Small Business Association Paycheck Protection Program
On April 10, 2020, the Company borrowed $0.3 million at an annual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan was originally payable in 18 installments of $18,993 commencing on November 10, 2020, with a final payment due on April 10, 2022. With several amendments, the loan is currently payable monthly commencing on September 10, 2021, with a final payment due on April 10, 2025. The Company may apply for forgiveness of this loan in the next twelve months in an amount equal to the sum of the following costs incurred in the eight weeks following the disbursement of the loan: (1) payroll costs, (2) interest on a covered mortgage obligation, (3) payment on a covered rent obligation, and (4) any covered utility payment.
On May 1, 2020 Grapevine borrowed $0.1 million at an annual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan is payable in 18 installments of approximately $7,000 commencing on December 1, 2020, with a final payment due on May 1, 2022. The Company may apply for forgiveness of this loan in an amount equal to the sum of the following costs incurred in the eight weeks following the disbursement of the loan: (1) payroll costs, (2) interest on a covered mortgage obligation, (3) payment on a covered rent obligation, and (4) any covered utility payment.
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Note 13. Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
Our boardThe Board of directorsDirectors has authorized 5050.0 million shares of convertible preferred stock, $0.001 par value, issuable in series.
As of September 30, 2019 and December 31, 2018, 7,000,000 shares of Series A preferred stock were issued and outstanding and is convertible, at any time at the option of the holder, into 933,333 shares of common stock (subject to customary adjustments). The Series A preferred stock shall be entitled to tenone vote per common stock on an as-converted basis and is only entitled to receive dividends when and if declared by the board. On liquidation, both seriesBoard.
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 preferredRMB 200.0 million ($28.0 million), and made the first capital contribution of RMB 50.0 million in the three months ended March 31, 2020. The remaining RMB 150.0 million ($21.0 million) are payable in three installments of RMB 50.0 million ($7.0 million) upon New Energy attaining certain revenue or market value benchmarks.
The investment agreement stipulates that New Energy must pay Qingdao dividends at the rate of 6.0%. After one year, Qingdao may sell its investment to an institutional investor, and after three years may redeem its investment for the face amount plus 6.0% interest less dividends paid. The redemption feature is neither mandatory nor certain. Due to the redemption feature, the Company has classified the investment outside of permanent equity.
The following table summarizes activity for the redeemable non-controlling interest for the nine months ended September 30, 2020 (in thousands):
| | | |
January 1, 2020 |
| $ | 0 |
Initial investment | |
| 7,047 |
Accretion of dividend | |
| 323 |
Loss attributable to non-controlling interest | |
| (79) |
Adjustment to redemption value | |
| 79 |
September 30, 2020 | | $ | 7,370 |
Standby Equity Distribution Agreement (“SEDA”)
The Company entered into a SEDA with YA II PN on April 3, 2020 and amended the SEDA to reduce the aggregate amount of facility from $50.0 million to $45.0 million on June 9, 2020. The SEDA establishes what is sometimes termed an equity line of credit or an equity draw-down facility. The Company has the right to issue and sell to YA II PN up to $45.0 million of the Company’s common stock are entitledover 36 months following the date of the agreement entered on April 3, 2020 in installments, the maximum amount of each of which is limited to $1.0 million. For each share of common stock purchased under the SEDA, YA II PN will pay 90% of the lowest VWAP of the Company’s shares during the five trading days following the Company’s advance notice to YA II PN. In general, the VWAP represents the sum of the value of all the sales of the Company’s common stock for a liquidation preferencegiven day (the total shares sold in each trade times the sales price per share of $0.50 per share. the common stock for that trade), divided by the total number of shares sold on that day.
YA II PN’s obligation under the SEDA is subject to certain conditions, including the Company maintaining the effectiveness of a registration statement for the securities sold under the SEDA. In addition, the Company may not request advances if the common shares to be issued would result in YA II PN owning more than 4.99% of the Company’s outstanding common stock, with any such request being automatically modified to reduce the advance amount.
The shares are not redeemable except on liquidation or if there is a change in controlSEDA contains customary representations, warranties and agreements of the Company or a sale of all or substantially alland YA II PN, indemnification rights and other obligations of the assetsparties. YA II PN has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company. The conversion priceCompany’s shares of common stock.
In connection with the SEDA, the Company issued 1.0 million shares of the Series A may only be adjusted for standard anti-dilution, suchCompany’s common stock as stock splits and similar events. The Series A preferred stocks are considereda commitment fee (the “Commitment Shares”) to be equity instruments and therefore the embedded conversion options have not been separated. Because the preferred stocks have conditions for their redemption that may be outside the controla subsidiary of the YA II PN on April 3, 2020. The Company they have been classified outsiderecognized such
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Commitment Shares as deferred offering costs and additional paid-in capital for a total of $0.9 million and fully charged against the gross proceeds received from SEDA in the mezzanine sectionthree months ended June 30, 2020 because SEDA was terminated.
During the three months ended June 30, 2020 under the SEDA, the Company issued 34.5 million shares of our balance sheet.common stock for a total of $32.5 million.
Common Stock
Our boardThe Board of directorsDirectors has authorized 1,500 million shares of common stock, $0.001 par value.
2020 Equity Transactions
Refer to Note 12 for information related to issuance of common stock resulting from the conversion of convertible notes, Note 14 for information related to the issuance of common stock resulting from the conversion of convertible notes with related parties, Note 15 for information related to the issuance to common stock for warrant exercise, and Note 6(c) for the information related to the issuance of common stock for DBOT contingent consideration.
2019 Equity Transactions
Refer to Note 9 for information related to the issuance of common stock for assets and Note 12 for information related to the issuance of common stock in connection with convertible notes, and Note 6 for information related to the issuance of common stock for acquisitions.
On March 5, 2019, the Company entered into an agreement to acquire a company based in Malaysia, and placed 25.5 million common shares into an escrow account. The agreement was terminated in July 2019 and the common shares removed from escrow.
Note 14. Related Party Transactions
$3.0 Million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, ourthe Company’s Vice Chairman, made a loan to the Company in the amount of $3,000,000.$3.0 million. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3,000,000$3.0 million (the “Note”) at a 4%4.0% interest rate computed on the basis of a 365-day year. WeThe Company had previously entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.5)$1.50), convertible stocks (changed from of Series E Preferred Stock to Common Stock). The last amendment was made on May 9, 2020, and extension ofextended the maturity date to December 31, 2020.2022.
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the Note. On June 5, 2020, the Note was converted into 5.1 million shares of common stock. The Company paid the accumulated interest $0.3 million in cash right before the conversion. For the three and nine months ended September 30, 2020 and 2019, the Company recorded interest expense of approximately$0 and $30,000 and $90,000, respectively, related to the Note. ForNote, and $50,959 and $90,000 for the three and nine months ended September 30, 2018, the Company also recorded interest expense of approximately $30,0002020 and $90,000, respectively, related to the Note. Interest payable was $229,808 and $140,055 as of September 30, 2019, and December 31, 2018, respectively.
$2.5 Million Convertible Promissory Note with SSSIG
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $2,500,000.$2.5 million. The convertible promissory note bearsbore interest at a rate of 4%4.0%, matureswas scheduled to mature on February 8, 2020, and iswas convertible into the shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG.
As of September 30, 2019, the The Company received $1.3 million from SSSIG. The Company has not received
On June 5, 2020, the remaining $1.2 million asAudit Committee and the Board of Directors approved the reduction of the dateconversion price to $0.59, contingent upon the immediate conversion of this report. 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.
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For the three and nine months ended September 30, 2020 and 2019, the Company recorded interest expense of approximately$0 and $13,000, and $36,000, respectively, related to the Note.Note, and $21,546 and $36,000 for the nine months ended September 30, 2020 and 2019, respectively.
$1.0 Million Convertible Promissory Note with SSSIG
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of $1.0 million. The convertible promissory note bore interest at a rate of 4.0%, matures on November 25, 2021, and was convertible into shares of the Company's common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. The Company received $0.25 million from SSSIG. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 0.4 million shares of common stock. For the three months and nine months ended September 30, 2020, the Company recorded interest expense of $0 and $4,301, respectively.
(b)Transactions with GTD
Disposal of Assets in exchange of GTB
GTBDollar Coins (“GTB”)
In March 2019, the Company completed the sale of the following assets (with total carrying amount of approximately $20.4 million) to GTD, a minority shareholder based in Singapore, in exchange for 1,250,0001.3 million GTB. The Company considersconsidered the arrangement as a nonmonetary transaction and the fair values of GTB arewere not reasonably determinable due to the reasons described in Note 3.below. Therefore, GTB received arewere recorded at the carrying amount of the assets exchanged and the Company did not recognize any gain or loss based on ASC 845-10-30.
845, Nonmonetary Transactions ("ASC 845.")
License content (net carrying amount |
Animation copy right (net carrying amount |
Digital asset management services
Please referThe Company recognized revenue for the master plan development services over the contract period based on the progress of the services provided towards completed satisfaction. Based on ASC 606, Revenue from Contracts with Customers, at contract inception, the Company considered the following factors to Note 3.estimate the value of GTB (noncash consideration): 1) it only traded in one exchange, which had been in operation less than one year; 2) its historical volatility was high; and 3) the Company's intention at the time to hold the majority of GTB, as part of its digital asset management services; and 4) associated risks related to holding GTB. Therefore, the value of 7.1 million GTB using Level 2 measurement was $40.7 million with a 76.0% discount to the fixed contract price agreed upon by both parties when signing the contract. The Company considered similar assets exchanges in Singapore and considered the volatility of the quoted prices and determined a discount of 76.0%. The estimated value of GTB was calculated using the Black-Scholes valuation model using the following assumptions: expected terms 3.0 years; volatility 155.0%; dividend yield: 0 and risk-free interest rate 2.25%. As of December 31, 2019, all performance obligations associated with the development of the master plan for GTD's assets had been satisfied. Accordingly, the Company recognized revenue of $40.7 million in the year ended December 31, 2019.
(c) Crude Oil TradingImpairment loss
ForOn October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through December 31, 2019, and on December 31, 2019 the ninequoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the three months ended September 30, 2018, we purchased crude oil in the amountDecember 31, 2019 and recorded an impairment loss of approximately $244.1 million from three suppliers that a minority shareholder$61.1 million.
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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 approximately $837,000$0.8 million in total for salary, severance and expenses. The Company paid $637,000$0.6 million in the first quarter of yearthree months ended March 31, 2019 and recorded $200,000$0.2 million in other“Other current liabilitiesliabilities” on ourits consolidated balance sheet as of September 30,December 31, 2019. The $837,000$0.8 million severance expenses were recorded in the Selling,“Selling, general and administrative expensesexpenses" in the condensed consolidated statements of the income statement.operations.
(e)
DuringIn the third quarter of 2019,nine months ended September 30, 2020, the Company’s net borrowings from Dr. Wu and his affiliates increaseddecreased by $1.0 million. We$3.5 million mainly due to repayments and conversion of certain amounts to common stock. The Company recorded these borrowings in “Amount due to related parties” in its condensed consolidated balance sheet as of September 30, 2020. These borrowings bear no interest.
On June 5, 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings at a conversion price of $0.59 per common share, contingent upon the immediate conversion of these amounts. On June 5, 2020, the borrowings of $1.5 million, including the $0.4 million transferred from Beijing Financial Holding Limited, were converted into 2.6 million shares of common stock.
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co. (“Shenma”) to acquire its 1.72% ownership in Qianxi with the consideration of $4.9 million, which will be paid in six installments. Shenma needs to complete the share transfer registration prior to May 31, 2020, otherwise the Company can request Shenma to return the investment payment. The Company has recorded the first installment $0.5 million on the “Other Non-Current Assets” since the share transfer registration is not completed yet.
The borrowings from Beijing Financial Holding Limited were zero in the condensed consolidated balance sheet as of September 30, 2020, and $0.7 million in “Other current liabilities” in the consolidated balance sheet as of December 31, 2019. Effective January 1, 2020, Beijing Financial Holding limited is considered a related party because MHTL was intended to act as a trustee over 10,000 common shares of MEG to effect a share-based compensation plan and has the same owner as Beijing Financial Holding Limited. The Company has determined not to proceed with the MEG share-based plan. Refer to Note 1 for additional information.
In the three months ended June 30, 2020, the borrowing of $0.4 million from Beijing Financial Holding Limited was transferred to Dr. Wu, and it was subsequently converted to shares at a conversion price of $0.59 per common share on June 5, 2020.
Refer to Note 3 for this note collateralized by equity in a company partially-owned by a related party.
(h) Disposal of the ownership in Amer
Refer to Note 6(e) for the disposal of 10.0% ownership in Amer to a related party.
(i) Service agreement with SSSIG
The Company entered a service agreement with SSSIG for the period from July 1 2020 through June 30 2021 for $1.4 million in exchange for consulting services from SSSIG, the services include but are not limited to human resources, finance and legal advice. The Company recorded the service charges of $0.4 million in "Selling, general and administrative
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expenses" for the three and nine months ended September 30 2020, and $0.3 million in in "Amount due to related parties" as of September 30 2020.
(j) Amounts due from and due to Glory
The Company has made payments on behalf of Glory for some of its operational expenses. The balance of $0.2 million due from Glory as result of these payments is recorded in "Amount due from related parties" as of September 30 2020. Glory has made partial payment of $0.5 million on behalf of the Company to acquire the land use rights and the Company recorded it in "Amount due to related parties."
(k) Research and development contract with a related party
The Company has entered a research and development contract with an entity with the total amount of $2.8 million for EV design and technology development. The Company has paid $1.3 million in the three months ended September 30 2020 and recorded this amount in "Research and development expense." One of the shareholders of this entity holds a senior position in several of Dr. Wu’s affiliated entities.
(l) Borrowing from DBOT
During the three months ended June 30, 2019, the Company obtained several borrowings, $550,000 in total, from DBOT, and recorded these borrowings in amount due to related parties on ourthe condensed consolidated balance sheet as of SeptemberJune 30, 2019. These borrowings bear no0 interest. The Company has repaid $300,000 in July 2019.
(f)(m) Acquisition of Fintalk Assets
Please referRefer to Note 5(b).9 for additional information regarding this 2019 asset acquisition.
(g) Asset for Sale-Red(n) Red Rock Global Capital LTD (“Red Rock”)
Please referRefer to Note 5(g).6(d) for additional information regarding this 2019 divestiture.
(h)(o) Acquisition of Grapevine Logic. (“Grapevine”)
Please referRefer to Note 5(c).6(b) for additional information regarding this 2019 acquisition.
(i) (p) Amer Global Technology Limited (“Amer”)
Please referRefer to Note 5(h).6(e) for additional information regarding this 2019 divestiture.
(j)Taxis commission revenue from Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
Please refer to Note 3.
15. Share-Based Compensation
As of September 30, 2019,2020, the Company had 14,971,43126.3 million options, 55,58629,586 restricted shares and 3,709,2401.7 million warrants outstanding.
The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option awards to employees and directors pursuant to the provisions of ASC 718,Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, ourthe 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. As of September 30, 2019, theThe maximum aggregate number of shares of our common stock that may be issued under the 2010 Plan is 31,500,000increased from 4.0 million shares to 31.5 million shares. On October 22, 2020, the Company’s shareholders approved the amendment and restatement of the 2010 Plan. The maximum aggregate number of shares of common stock that may be issued under the 2010 Plan increased
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from 31.5 million shares to 56.8 million shares. As of September 30, 2019,2020, options and restricted shares available for issuance are 14,160,3260.5 million shares.
The company recorded share-based payments expense of $2,547,107 and $11,530 forFor the three months ended September 30, 2020 and 2019, total share-based compensation expense was $3.3 million and 2018$2.5 million, respectively, and $6,474,227$8.8 million and $3,372,447$6.5 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
(a) | Stock Options |
(a)Stock Options
StockThe following table summarizes stock option activity for the nine months ended September 30, 2019 is summarized as follows:2020:
Weighted | ||||||||||||||||||||||||||
Weighted | Average | |||||||||||||||||||||||||
Average | Remaining | Aggregated | ||||||||||||||||||||||||
Options | Exercise | Contractual | Intrinsic | |||||||||||||||||||||||
Outstanding | Price | Life (Years) | Value | |||||||||||||||||||||||
Outstanding at January 1, 2019 | 1,706,431 | $ | 3.28 | 4.08 | $ | - | ||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||
| | | | | | | Weighted | | | | ||||||||||||||||
| | | | Weighted | | Average | | | | |||||||||||||||||
| | | | Average | | Remaining | | Aggregated | ||||||||||||||||||
| | Options | | Exercise | | Contractual | | Intrinsic | ||||||||||||||||||
|
| Outstanding |
| Price |
| Life (Years) |
| Value | ||||||||||||||||||
Outstanding at January 1, 2020 |
| 14,936,726 | | $ | 2.13 |
| 8.48 | | $ | 0 | ||||||||||||||||
Granted | 14,325,000 | 1.98 | 8.75 | - |
| 13,750,000 | | | 0.53 |
| 9.45 | |
| 5,225,000 | ||||||||||||
Exercised | - | - | - | - |
| (60,000) | |
| 1.83 |
| — | |
| 0 | ||||||||||||
Expired | (83,333 | ) | 1.98 | - | - |
| (1,144,326) | | | 2.59 |
| — | |
| 0 | |||||||||||
Forfeited | (976,667 | ) | 1.98 | - | - |
| (1,153,333) | | | 1.70 |
| — | |
| 0 | |||||||||||
Outstanding at September 30, 2019 | 14,971,431 | $ | 2.13 | 8.72 | $ | - | ||||||||||||||||||||
Vested and expected to be vested as of September 30, 2019 | 14,971,431 | $ | 2.13 | 8.72 | $ | - | ||||||||||||||||||||
Options exercisable at September 30, 2019 (vested) | 5,529,977 | $ | 2.38 | 7.55 | $ | - | ||||||||||||||||||||
Outstanding at September 30, 2020 |
| 26,329,067 | | | 1.29 |
| 8.75 | | | 5,141,400 | ||||||||||||||||
Vested as of September 30, 2020 |
| 13,684,070 | | | 1.74 | | 8.17 | | | 1,258,592 | ||||||||||||||||
Expected to vest at September 30, 2020 |
| 12,644,997 | | | 0.81 | | 9.38 | | | 3,882,808 |
As of September 30, 2019, approximately $14,255,2662020, $7.3 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of approximately 1.41.2 years. The total fair value of shares vested forin the nine months ended September 30, 2020 and 2019 was $8.8 million and 2018$6.0 million, respectively. NaN cash was $6,010,085 and $319,001, respectively. Cash received from options exercised during the nine months ended September 30, 2019 and 2018 was approximately $0 and $2,632, respectively.exercised.
(b)Warrants
(b) | Warrants |
In connection with certain of the Company’s financings the Warner Brother Agreement and the service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The warrants issued to Warner Brother were expired without exercise on January 31, 2019. The Company issued warrants to IDV and YA II PN, Ltd. in connection with senior secured convertible notes (See Note 12) and thenotes. The weighted average exercise price for all warrants was $1.84$1.65 and the weighted average remaining life was approximately 4.734.3 years. Refer to Note 12 for additional information on promissory notes.
September 30, 2019 | December 31, 2018 | |||||||||||||
Number of | Number of | |||||||||||||
Warrants | Warrants | |||||||||||||
Outstanding and | Outstanding and | Exercise | Expiration | |||||||||||
Warrants Outstanding | Exercisable | Exercisable | Price | Date | ||||||||||
2014 Broker Warrants (Series E Financing) | - | 60,000 | $ | 1.75 | 1/31/19 | |||||||||
$2.05 million IDV Senior Secured Convertible Debenture | 1,671,196 | - | $ | 1.84 | 2/22/2024 | |||||||||
$2.5 million IDV Senior Secured Convertible Debenture | 2,038,044 | - | 1.84 | 9/27/2024 | ||||||||||
3,709,240 | 60,000 |
| | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| | |
| |
| | Number of | | Number of | | | | | |
| | Warrants | | Warrants | | | | | |
| | Outstanding and | | Outstanding and | | Exercise | | Expiration | |
Warrants Outstanding |
| Exercisable |
| Exercisable |
| Price |
| Date | |
$2.05 million IDV** |
| 0 |
| 1,671,196 | | $ | 1.00 |
| 2/22/2026 |
$3.58 million IDV** | | 1,000,000 | | 4,658,043 | | | 0.5869 | | 9/27/2026 |
$5.0 million YA II PN* |
| 0 |
| 1,666,667 | | | 1.50 |
| 12/13/2024 |
$5.0 million YA II PN* | | 0 | | 1,000,000 | | | 1.00 | | |
Service providers | | 200,000 | | 0 | | | 5.00 | | 7/1/2022 |
Service providers | | 450,000 | | 0 | | | 2.50 | | 2/28/2022 - 7/1/2022 |
Total | | 1,650,000 |
| 8,995,906 | | | | | |
On September 24, 2018,* YA II PN exercised 1.0 million and 1.7 million warrants on March 31, 2020 and June 22, 2020 and the Company entered into employment agreements with three executives. As partreceived $1.0 million and $2.5 million proceeds, respectively.
** ID Venturas exercised 5.3 million warrants in June 2020. The Company received $3.1 million proceeds.
37
Note 16. Earnings (Loss) Per Common Share
The following table summarizes the Company’s earnings (loss) per share (the “Exercise Price”), which is a 25% premium to the $4.30(USD in thousands, except per share closing market price of the Company’s common stock on September 7, 2018, the date upon which the terms of the employment agreements were mutually agreed. In February 2019, the rights to receive warrants were terminated due to the resignation of three executives.amounts):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net earnings (loss) attributable to common stockholders | | $ | (8,286) | | $ | (13,713) | | $ | (47,212) | | $ | 11,507 |
Interest expense attributable to convertible promissory note | | | 0 | | | 0 | | | 0 | | | 125 |
Net earnings (loss) assuming dilution | | $ | (8,286) | | $ | (13,713) | | $ | (47,212) | | $ | 11,632 |
Basic weighted average common shares outstanding | |
| 237,535,999 | |
| 127,609,748 | |
| 191,976,856 | |
| 113,964,933 |
Effect of dilutive securities | |
| | |
| | |
| | |
| |
Convertible preferred shares- Series A | |
| — | |
| — | |
| — | |
| 933,333 |
Conversion of restricted shares and employee stock options | | | — | | | — | | | — | | | 22,823 |
Convertible promissory notes | |
| — | |
| — | |
| — | |
| 2,777,687 |
Contingently issuable shares | |
| — | |
| — | |
| — | |
| 621,117 |
Diluted potential common shares | |
| 237,535,999 | |
| 127,609,748 | |
| 191,976,856 | |
| 118,319,893 |
Earnings (loss) per share: | | | | | | | | | | | | |
Basic | | $ | (0.03) | | $ | (0.11) | | $ | (0.25) | | $ | 0.10 |
Diluted | | $ | (0.03) | | $ | (0.11) | | $ | (0.25) | | $ | 0.10 |
(c)Restricted Shares
In January 2019, the Company granted 129,840 restricted shares to the two independent directors under the “2010 Plan” which was approved as part of the 2018 independent board compensation plan by the Board of Directors. The restricted shares were all vested immediately since commencement date. The aggregated grant date fair value of all those restricted shares was $161,001.
A summary of the unvested restricted shares is as follows:
Weighted-average | ||||||||
Shares | fair value | |||||||
Non-vested restricted shares outstanding at January 1, 2019 | 87,586 | $ | 2.46 | |||||
Granted | 129,840 | $ | 1.24 | |||||
Forfeited | (3,000 | ) | $ | 2.60 | ||||
Vested | (158,840 | ) | $ | 1.49 | ||||
Non-vested restricted shares outstanding at September 30, 2019 | 55,586 | $ | 2.37 |
As of September 30, 2019, there was $33,800 of unrecognized compensation cost related to unvested restricted shares. This amount is expected to be recognized over a weighted-average period of 0.51 years.
Basic earnings (loss) per common share attributable to ourthe Company’s shareholders is calculated by dividing the net earnings (loss) attributable to ourthe Company’s shareholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share is calculated by taking net earnings (loss), attributable to the Company’s shareholders, divided by the diluted weighted average common shares outstanding. The calculations of basic and diluted earnings (loss) per share for the three months and nine months ended, 2019 and 2018 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings (loss) attributable to common stockholders | $ | (13,711,867 | ) | $ | (7,186,847 | ) | $ | 11,506,861 | $ | (19,228,240 | ) | |||||
Interest expense attributable to convertible promissory note | - | - | 125,485 | - | ||||||||||||
Net earnings (loss) assuming dilution | (13,711,867 | ) | (7,186,847 | ) | 11,632,346 | (19,228,240 | ) | |||||||||
Basic | ||||||||||||||||
Basic weighted average common shares outstanding | 127,609,748 | 74,063,495 | 113,964,933 | 71,574,303 | ||||||||||||
Effect of dilutive securities | - | - | - | - | ||||||||||||
Convertible preferred shares- Series A | - | - | 933,333 | - | ||||||||||||
Conversion of restricted shares and employee stock options | - | - | 22,823 | - | ||||||||||||
Convertible promissory notes | - | - | 2,777,687 | - | ||||||||||||
Contingently issuable shares | - | - | 621,117 | - | ||||||||||||
Diluted potential common shares | 127,609,748 | 74,063,495 | 118,319,893 | 71,574,303 | ||||||||||||
Net earnings (loss) per share: | ||||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) | |||||
Diluted | $ | (0.11 | ) | $ | (0.10 | ) | $ | 0.10 | $ | (0.27 | ) |
In 2018, dilutedDiluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares wasis 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 earnings (losses)the Company’s losses and thus these shares were not included in the computation of diluted earnings (loss)loss per share because the effect was antidilutive. (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
| | | | | | | | | ||||||||||||||||
| | Three Months Ended | | Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||||||||||||||
| | 2020 | | 2019 |
| 2020 | | 2019 | ||||||||||||||||
Warrants | 3,709,240 | 60,000 | 3,709,240 | 60,000 |
| 1,650 |
| 3,709 | | 1,650 | | 3,709 | ||||||||||||
Options | 14,971,431 | 1,797,017 | 14,965,598 | 1,797,017 | ||||||||||||||||||||
Options and RSU |
| 26,359 |
| 14,971 | | 26,359 | | 14,966 | ||||||||||||||||
Series A Preferred Stock | 933,333 | 933,333 | - | 933,333 |
| 933 |
| 933 | | 933 | | — | ||||||||||||
DBOT contingent consideration | | 1,197 | | 2,323 | | 1,197 | | 2,323 | ||||||||||||||||
Convertible promissory note and interest | 12,417,909 | 10,227,507 | 9,324,911 | 10,227,507 |
| 38,650 |
| 12,418 | | 37,315 | | 9,325 | ||||||||||||
Contingently issuable shares | 2,322,808 | - | - | - | ||||||||||||||||||||
Total | 34,354,721 | 13,017,857 | 27,999,749 | 13,017,857 |
| 68,789 |
| 34,354 | | 67,454 | | 30,323 |
Note 17. Income Taxes
During the three and nine months ended September 30, 2020 income tax expense is NaN because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100% valuation allowance against its net deferred tax assets due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
During the nine months ended September 30, 2019, the Company recorded an income tax benefit of $513,935, $152,876$0.5 million, $0.2 million resulting from losses of Grapevine Logic, Inc. offsettingwhich offset deferred tax liabilities that were recognized on theits acquisition and
38
a $361,059$0.4 million reduction of the valuation allowance on Ideanomics, Inc.Ideanomics’ deferred tax assets in excess of those reversed to offset Ideanomics, Inc.’sIdeanomics’ income. The reduction in valuation allowance resulted from Ideanomics, Inc.’sIdeanomics’ acquisition of additional ownership interests in Grapevine Logic, Inc. which caused Grapevine Logic, Inc. to be included in a consolidated tax return with Ideanomics Inc. beginning June 30, 2019. This meant that $361,059$0.4 million of Ideanomics, Inc.’sIdeanomics’ deferred tax assets could be utilized to offset Grapevine Logic Inc.’sGrapevine’s remaining deferred tax liabilities. This resulted in an effective tax rate of (4.43%). The effective tax rate for the nine months ended September 30, 2019 differs from the U.S. statutory tax rate primarily due to the effect of taxes on foreign earnings, non-deductible expenses and the reduction in the beginning of the year deferred tax valuation allowance.
As of September 30, 2019, the Company had approximately $9.9 million of the U.S domestic cumulative tax loss carryforwards and approximately $30.9 million of the foreign cumulative tax loss carryforwards which may be available to reduce future income tax liabilities in certain jurisdictions. The remaining 2018 U.S. tax loss is not subject to expiration under the new Tax Law. The foreign tax loss carryforwards will expire beginning year 2019 through 2023.
There was no0 identified unrecognized tax benefit as of September 30, 2020 and December 31, 2019. We are not aware of any unrecorded tax liabilities which would impact our financial position or our results of operations.
Note 18. Commitments and Contingencies
Lawsuits and Legal Proceedings
From time to time, wethe 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 ourthe business.
Vendor Settlement
In the three months ended September 30, 2020, Ideanomics preliminarily settled a payable of $1.7 million with one vendor for $1.3 million. The settlement is conditioned upon factors which do not expire until three months from the date of the settlement; therefore, should these factors expire without coming to fruition, the Company will recognize the contingent gain in the three months ended December 31, 2020.
Shareholder Class Action
On July 19, 2019, a purported class action, now captioned Jose Pinto Claro Da Fonseca MirandaRudani v. Ideanomics, et al. Inc., was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers and directors. The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018.
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics et al. Inc., was filed in the United State District Court for the Southern District of New York against the Company and certain current officers and directors of the Company. Additionally, on July 7, 2020, a purported securities class action captioned Kim v. Ideanomics, et al, was filed in the Southern District of New York against the Company and certain current officers and directors of the Company. Both cases allege violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division. On November 4, 2020, the Lundy and Kim actions were consolidated.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al., 1:20-cv-05333. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, 20-cv-5333, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, 20-cv-608, alleging violations and allegations similar to the Toorani and Elleisy litigations.
39
On March 20, 2020, the Company received a formal demand letter to the Board of Directors ascertain allegations similar to those alleged in the Rudani Complaint and demanding that the Board pursue causes of action on behalf of the Company against certain of the Company’s former and current directors and officers. In response to this stockholder demand letter, the Board established a demand review committee to review the demand and make a recommendation to the Board of Directors regarding a response to the demand. The demand review committee has not yet completed its review.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al., 1:20-cv-05333. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, 20-cv-5333, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, 20-cv-608, alleging violations and allegations similar to the Toorani and Elleisy litigations.
While the Company believes that the Class Action isabove litigations are without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations.
SEC Investigation
The Company is subject to an investigation by the SEC. The information requests from the SEC are focused primarily in relation to the Company’s overseas operations, including historical transactions and revenues associated with those operations. The Company is fully cooperating with the SEC’s requests, and cannot predict the outcome of this investigation.
Note 19. Concentration, Credit and Other Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and accounts receivable. As of September 30,
40 PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance. Cash consist of cash on hand and demand deposits at banks, which are unrestricted as to withdrawal and which includes $0.2 million which was received in advance of a future investment. Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
Note 20. Fair Value Measurement The following table
Note 1 This represents the liability incurred in connection with the acquisition of DBOT shares during 2 This represents the liability incurred in connection with the acquisition of Tree Technology shares during the three months ended December 31, 2019 and as subsequently remeasured as of September 30, 2020 as disclosed in Note 6(a). The fair value of the DBOT contingent consideration The following table
The fair value of the Tree Technology contingent consideration as of September 30, 2020 and December 31, 2019 was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors. 41 The following table summarizes the significant inputs and assumptions used in the scenario-based method:
Significant increases or decreases in any of The following table summarizes the reconciliation of Level 3 fair value
Acquisition of Solectract, Inc. (“Solectract”) common shares On October Solectrac develops, assembles and distributes 100% battery-powered electric tractors-an alternative to With this investment 42
Cautionary Note Regarding Forward Looking Statements This Form 10-Q contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the 43 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following management’s discussion and analysis
OVERVIEW
Ideanomics, Inc. (“Ideanomics” or the “Company”) (Nasdaq: IDEX) Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company built a network of businesses, operating principally in the trading of petroleum products and electronic components that the Company believed had significant potential to recognize benefits from blockchain and artificial intelligence (“AI”) technologies including, for example, enhancing operations,
Principal Factors Affecting
44
Business Update and Liquidity Improvements In the third quarter the Company recorded revenues of $10.6 million, of which $10.1 million were generated by the Company’s MEG business unit; this represents the largest revenues earned by MEG since the Company commenced business.
Based upon its business projections and its cash and cash equivalents balance as of September 30, 2020, the Company believes it has the ability to continue as a going concern.
In April 2020 management re-evaluated the opportunities in the Over-the-counter (“OTC”) equity market and determined that the Delaware Board of Trade 45 The Company continues to review its cost base and as part of this process has reevaluated its real estate needs. The Company has vacated the office space previously used by DBOT in Wilmington, Delaware, and recorded an impairment charge of $0.9 million in the three months ended March 31, 2020, and a gain on the settlement of the lease liability of $0.8 million in the three months ended June 30, 2020. In the three months ended June 30, 2020, the Company determined that, with its New York workforce under a stay-at-home and work-from-home mandate, the square footage provided in the leases for its New York headquarters was excessive. The Company has vacated its New York office space, and recorded an impairment charge of $5.3 million. The Company had an operating lease liability of $5.8 million with respect to these leases, excluding $0.6 million in accounts payable. In the three months ended September 30, 2020, the Company completed negotiations with the landlord to settle the remaining amounts due of $6.4 million for a cash payment of $1.5 million. The Company recorded a gain of $4.9 million in the three months ended September 30, 2020. In October, 2020 the Company signed leases for the use of office and meeting space in midtown Manhattan. The third quarter the Company sold its loss making EKAR ETF for a de minimis amount, this sale eliminated approximately $0.4 million of annual operating expense. Effects of COVID-19 Novel Coronavirus 2019 (“COVID-19”) is an infectious disease caused by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of October 31, 2020, over 44.7 million cases had been reported across the globe, resulting in 1.2 million deaths. The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies with the exception of government designated essential services. In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020, the U. S. as well as countries in Europe began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The Company’s operations, including certain key personnel and business advisors and partners, are largely based in China, a country which was subject to a wide-ranging government shutdown as a result of the spread of COVID-19 in January 2020. Consequently, the country was effectively shuttered in the first quarter of 2020, resulting in China introducing a series of significant economic stimulus packages upon the easing of shutdown measures. The economic stimulus was designed to rebuild China’s economic infrastructure, which rebounded in the second quarter of 2020, and which is expected to continue in the near- to medium term. The Company had experienced delays in the preparation and execution of certain key documents due to stay-at-home and work-from home measures which limited the Company’s abilities in these areas. As disclosed in Note 1 to the Condensed Consolidated Financial Subsequently, the Company has determined not to proceed with the MEG share-based compensation plan described above, and the parties have declared the transfer of the MEG shares, which was not believed to be substantive, to be null and void and the shares have reverted to the Company. No share-based awards had been granted to employees or consultants pursuant to this arrangement as initially contemplated. 46 As a result of the overall economic condition in China in the first quarter of 2020, minimal sales of EV’s occurred during that time frame. During the second quarter, China relaxed its stay-at-home and work-at-home orders, and the Company was able to open its Qingdao Sales Center on May 1, 2020, which was subsequently rebranded the MEG center. Ideanomics’ recorded total sales in China of $10.6 million in the third quarter. The Company’s expectation is that its sales would increase as China’s economy continues to improve, although the Company is a recent entrant in the EV market in China and can provide no assurances on future sales. The Company expects to continue to raise both equity and debt finance to support the Company’s investment plans and operations, and has been active with investors and is in ongoing discussions with both active and potential investors through the first nine months of 2020, and this activity continues. In the three months ended June 30, 2020, the Company raised $39.1 million through the issuance of common stock and exercise of warrants . The Company does not anticipate that the COVID-19 pandemic will adversely affect its ability to raise funds in the near-term, although no assurances can be provided on this matter. The Company assesses the recoverability of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year, or more frequently if circumstances warrant. The Company assesses the recoverability of other long-lived assets as circumstances warrant, and in the nine months ended September 30, 2020 did not consider any long-lived assets to be impaired, other than certain right of use and fixed assets, including assets comprising a portion of Fintech Village. Many of the Company’s operations are in the development Public health experts have expressed concern that the influenza season in the northern hemisphere will coincide with a spread of COVID-19 cases, adding further stress to the affected populations, businesses, governments, and economies. The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, and the prospects for a vaccine as well as its global implementation. The impact on the Company cannot be predicted at this time, although the impact would be more adverse if any resurgence of COVID-19 were to be concentrated in Asia as compared to other parts of the world.
The segment reporting changes were retrospectively applied to all periods presented.
47 Taxation
United States Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, At the acquisition of Grapevine Logic, Inc. in 2018, deferred tax liabilities were recorded relating to intangible assets recorded for financial reporting purposes but not recognized for income tax purposes. The intangible assets consequently could not provide deductible amortization expense for income tax purposes. The deferred tax liabilities were recorded on the acquisition to the extent that they could not be offset by usable net operating loss carryforwards acquired in the acquisition. These deferred tax liabilities were reduced, providing an income tax benefit, to the extent that the intangible assets were reduced by amortization expense and additional net operating loss carry forwards were created to offset the liabilities. These benefits amounted to $0.1 million for the three months ended June 30, 2019. Ideanomics, Inc. increased its ownership in Grapevine Logic, Inc. such that beginning with the third quarter of 2019, the result of which was that Grapevine Logic, Inc. activities would be included in the consolidated tax return of Ideanomics, Inc. As a result, the valuation allowance provided against Ideanomics, Inc.’s deferred tax assets were reduced by $0.4 million, the amount of Grapevine Logic, Inc.’s remaining deferred tax liabilities as that portion of Ideanomics Inc.’s net operating loss carryovers could now be utilized to offset these liabilities. As a result, there was no income tax or benefit for Grapevine for the three months ended September 30, 2020 and consequently U.S. income tax expense or benefit for the Company as a whole. The Tax Cut and Jobs Act
Based on In addition, the TCJA now entitles Cayman Islands and the British Virgin Islands Under current laws of the Cayman Islands and the British Virgin Islands, the Hong Kong The The People’s Republic of China Under the PRC’s Enterprise Income Tax Law (“EIT”), the company’s Chinese subsidiaries and VIEs are subject to an EIT of 25.0%. 48 The During the nine months ended September 30, 2020, one of the Company’s PRC subsidiaries incurred a taxable income in the amount of $2.6 million by providing the service to another one of the Company’s PRC subsidiaries. The tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance in prior periods. The valuations allowance was reversed as a result of this subsidiary taxable income in the amount of $0.7 million creating a deferred tax benefit offsetting the income tax expense that would otherwise have been incurred. Other PRC entities had losses that created additional operating loss carryovers, where the related deferred tax assets were offset by a valuation allowance. Consolidated Results of Operations Comparison of Three and Nine Months Ended September 30, 2020 and 2019
Revenues (USD in thousands)
n/m = Not Meaningful 49 Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Revenue for the three months ended September 30, In the third quarter of 2020, the Company continued to develop its EV business and recognized $10.6 million revenue from the sales of vehicles, which included revenue of $1.3 million from the sale of traditional combustion engine vehicles. In the third quarter of 2020 the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a Principal capacity revenues were recorded on a Gross basis and for those contracts where it acted in an Agent capacity the revenues were recorded on a Net basis. Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 Revenue for the nine months ended September 30, 2020 was $15.7 million as compared to $44.5 million for the same period in 2019, a decrease of In March 2019, the Company entered into an agreement with GTD, one of the Company’s minority shareholders and strategic investors, whereby the Company provided digital asset management services to In the nine months ended September 30, 2020, the Company continued to develop its EVs business Cost of
Three months ended September 30, 2020 as compared to the Cost of
In the third quarter of 2020, the Company continued to develop its EV business and recognized $9.5 million 50 Nine months ended September 30,
Cost of revenues was
The majority of the cost associated with Gross profit (USD in thousands)
Gross profit ratio
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Gross profit for the three months ended September 30, 2020 was $0.7 million, as compared to gross profit in the amount of $2.9 million during the same period in 2019. The gross profit ratio for the three months ended September 30, 2020 was 7%, while in 2019, it was 92%. The decrease was mainly due to digital asset management service revenue recognized in 2019 having higher gross margins than the gross margin in vehicles.
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019
51 Selling, general and administrative expenses Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Selling, general and administrative expense for the three months ended September 30, 2020 was $7.6 million as compared to $7.8 million for the same period in
Nine months ended September 30, 2020 as compared to the
Selling, general and administrative expenses for the nine months ended September 30, to Professional fees
Professional fees are generally related to public company reporting and
Professional fees for the nine months ended September 30, Research and Research and 52 Impairment loss
In the third quarter of
Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 For the nine months ended September 30, 2020, the Company recorded an impairment loss of $3.2 million related to Fintech Village assets because the Company decided not to continue the development of Fintech Village, an impairment loss of $1.0 million related to the Change in fair value of contingent consideration, net Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 The change in fair value of contingent consideration, net of $4.2 million represents the remeasurement of the contingent consideration payable to Tree Technology shareholders. Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 The change in fair value of contingent consideration, net of $2.9 million represents the remeasurement loss of $1.5 million of the contingent consideration payable to the former DBOT shareholder and remeasurement gain of $4.4 million of the contingent consideration payable to the Tree Technology shareholders. Depreciation and amortization Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Depreciation and amortization for the three months ended September 30, 2020 was $0.7 million as compared to $0.8 million for the same period in 2019, a decrease of $0.1 million. The decrease was due to the decrease of amortization expense $0.3 million from the intangible assets that were impaired at 2019 year end, partially offset by the increase in amortization expense $0.2 million from intangible assets acquired in the fourth quarter of year 2019. Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 Depreciation and amortization for the nine months ended September 30, 53 Interest expense, net
Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Interest expense increased Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 Interest expense increased $12.1 million to $14.0 million for the nine months ended September 30, Equity in Three months ended September 30, 2020 as compared to the three months ended September 30, 2019
54 Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 Equity in income (loss) of equity method investees decreased $0.6 million for the nine months ended September 30, Conversion expense Conversion expense for the Other income (expense) Three months ended September 30, 2020 as compared to the Other income (expense) increased $5.4 million for the three months ended September 30, 2020 in comparison to the same period of 2019 mainly because the Company has reached agreement with landlord to terminate its New York City headquarters lease at 55 Broadway and recorded a gain of $4.9 million, and sublease income $0.2 million
Income tax expense Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 During the three months ended September 30, 2020 income tax expense is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance. The Company had established a 100.0% valuation allowance against its net deferred tax assets due to deferred tax assets will not be realized.
During the nine months ended September 30, 2020 income tax expense is nil because of net operating loss and deferred tax assets related to the
During the nine months ended September 30, 2019, the Company recorded an income tax benefit of Net Three months ended September 30, 2020 as compared to the three months ended September 30, 2019 Net 55 2019 is primarily due to the taxis commission revenue recognized in an entity we have 51% ownership during the third quarter of 2019. Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 Net loss attributable to non-controlling interests was $0.7 million for the nine months ended September 30, Liquidity and Capital Resources As of September 30, A majority of the Company’s operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC.”) Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance. As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.2 million as of September 30, 2020, which was necessary for DBOT to meet its minimum capital requirements. The Company consolidates a 51.0% owned investment in an entity which is based in Singapore. This entity venture had cash of $0.6 million as of September 30, 2020. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures. The following table provides a summary of
Operating Activities Cash used in operating activities 56 (3) total changes in operating assets and liabilities resulted in an (decrease)increase of Investing Activities Cash used in investing activities Financing Activities The Company received $39.1 million from the exercise of warrants and the issuance of common stock, $7.1 million from noncontrolling shareholders contribution, and $2.0 million from the issuance of convertible notes, and made repayment of $3.0 million to related parties for the nine months ended September 30, 2020. While in
Effects of Inflation Inflation and changing prices may have 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
Contractual Obligations and Commitments The tabular presentation of contractual obligations is not required for Smaller Reporting Companies.
The Company’s MEG division operates in the market for fleet sales of commercial EVs and the Company expects that orders and sales will be influenced by the amount and timing of budgeted expenditure by its customers, changes in government subsidy programs promoting the conversion to EV and government regulations relating to vehicle emission standards. Typically, the Company would expect to see higher sales at the start of the
57 OUTLOOK The Company anticipates that its MEG business unit will be the largest contributor to revenues in 2020. The rate at which the MEG business unit grows is The Company will continue to seek ways to deploy its private placements. The
The Company continues to look for
Environmental Matters
New Accounting Pronouncements
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 58 Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, For a description of In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the fiscal quarter ended September 30, Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the fiscal quarter ended September 30, Item 4. Mine Safety Disclosures Not applicable.
*Filed herewith **Furnished herewith 59 In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on IDEANOMICS, INC.
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